In the process of merging with a Cantor Fitzgerald brokerage unit, eSpeed Inc. has taken a second look at how it accounts for revenues and costs involved in a joint services agreement. As a result, it will restate its financials from 1999 through 2006 and for the first quarter of this year.
The adjustments will spawn a non-cash reduction to its revenue of less than $4 million for the New York City-based company, which is also a Cantor Fitzgerald subsidiary. The company will account for the changes in its delayed filing for the second quarter and amended filing for its 2006 10-Q as well as the first quarter of 2007.
Although eSpeed has received a notice from Nasdaq warning it that it’s at risk for delisting because of the late filing, the company said it plans to update its regulatory reports by next Tuesday.
The restatement will change how eSpeed, which develops electronic-trading technology, recognized revenue for software development as part of a JSA with Cantor Fitzgerald. The company had been recording related parties’ fees as revenue in the period when it received the cash. Instead, it should have deferred the fees and recognized them ratably over future periods, the company acknowledged in a regulatory filing on Tuesday. (Under the agreement, Cantor and eSpeed collaborate in providing electronic brokerage services and developing new electronic marketplaces.)
The filing goes on to say that eSpeed expects the deferred revenue and income of less than $4 million will be recognized before the closing of its proposed merger with BGC Partners, Cantor Fitzgerald’s privately held brokerage firm.
Howard Lutnick, eSpeed’s chairman and CEO, downplayed the effect the restatement could have on the merger, which is expected to create a company worth more than $1.1 billion in revenue next year. “This planned restatement is both highly technical and non-cash and does not involve any reduction in aggregate revenue or income for the combined company,” he said. “Now that this issue is resolved, we can finalize our proxy statement and move toward the completion of our highly accretive proposed merger.”
Earlier this summer, eSpeed announced it would buy BGC Partners for $1.3 billion and issued more than 133 million shares at $9.75 a share to finance the deal.