BakBone Still Out of Whack

The saga of BakBone Software Inc.s (Toronto: BKB) accounting woes continues, with no end in sight.

CEO Jim Johnson released an open letter to shareholders today admitting the backup software vendor will miss the June 30 deadline it set in January for resolving its accounting issues (see BakBone Slips Again). Back then, BakBone CFO John Fitzgerald told Byte and Switch the June 30 date was a “worst case scenario.”

So now it’s even worse than worst, with new issues surfacing. BakBone might have to defer current revenue from its Europe, Middle East, and Africa (EMEA) region and a major OEM contract to future periods. While BakBone’s total revenue is not expected to change, these issues will delay completion of financial reports.

“This makes them look bad,” says financial analyst Steve Berg of Punk Ziegel & Co. “It should’ve been done by now. A year is plenty of time.”

Other companies have had to restate earnings over the past year -- including BakBone rival Veritas Software Corp. (Nasdaq: VRTS) -- primarily because of Sarbanes-Oxley regulations (see The Envelope, Please ...). But none have dragged on for 13 months.That's how long ago BakBone's accounting problems first came to light, as it announced it would restate earnings because of mistakes made while moving to U.S. GAAP standards from Canadian GAAP (see BakBone Slip Called Temporary and Bakbone Reports Restated). Since then, BakBone changed CEOs and accountants, got dropped from the Toronto Stock Exchange, and then from the Over-the-Counter Bulletin Board (OTCBB) because of blown filing deadlines. BakBone’s stock currently trades on the pink sheets. (See BakBone Gets New Head, BakBone Slapped in Toronto, and BakBone Relegated to Pink .)

Johnson replaced Keith Rickard as CEO November 1, 2004, one week after BakBone picked Deloitte & Touche LLPas its new auditor. KPMG quit as BakBone’s auditor October 12 with no explanation.

In today's letter, Johnson asked, but did not answer, the most obvious question. “I know the most important question in the minds of our stakeholders is ‘What is the new timeline?’ " But, “it would not be prudent for us and not in the best interest of our shareholders to disseminate additional financial information or a specific timeline at this time.” In other words: Who knows?

Johnson did reveal some financial numbers in his letter: BakBone’s worldwide bookings for the fiscal year that ended March 31 were $37.5 million, its accounts receivable balance was $7.9 million, and its cash balance was $18 million at the end of May. But he didn’t give revenue figures. Bookings, or orders in advance of payment, are typically higher than revenue because they stretch over a longer period.

BakBone’s cash balance decreased $1.6 million since March, which Johnson attributed to payment of an insurance renewal, capital equipment purchases, and expenses related to Sarbanes-Oxley compliance review. Johnson’s letter says BakBone spent approximately $1.5 million during the year that ended in March on Sarbanes-Oxley compliance.BakBone’s problems certainly can’t help its competitive position against the likes of giants Computer Associates International Inc. (CA) (NYSE: CA), EMC Corp. (NYSE: EMC), IBM Corp. (NYSE: IBM), and Veritas, as well as startup CommVault Systems Inc.At the least, they are an internal distraction.

Johnson wrote: “We have worked tirelessly to resolve the outstanding issues in our historical financial statements and to complete the preparation of our financial statements for all quarters and the full fiscal year 2005. Parallel to this work, our management team has devoted significant resources to our evaluation of internal controls pursuant to [Sarbanes-Oxley].”

— Dave Raffo, Senior Editor, Byte and Switch