Litigation Release No. 16354 / November 16 , 1999

Accounting and Auditing Enforcement Release No. 1209 / November 16, 1999

SEC v. Accelr8 Technology Corporation, et. al., U.S. District Court, D. Colorado, No. Civ. 99-D-2203

The Commission today charged a Denver software development company, Accelr8 Technology Corp. ("Accelr8") and three members of its senior management with fraudulently misrepresenting the capabilities of its computer software products developed to solve potential Year 2000 problems in computer software programs and with filing false financial statements with the Commission.

The Commission's complaint alleges that from 1997 through 1999, Accler8 and two senior officers, Thomas V. Geimer, Accler8's chief executive officer, chief financial officer, and chairman, and Harry J. Fleury, Accelr8's president, misrepresented the widespread utility of the company's Year 2000 software tools, called Navig8 2000. Accler8's Navig8 2000 software was allegedly created to analyze computer programs developed for the VAX/VMS computer system manufactured by Digital Equipment Corporation ("DEC"), which represent a small fraction of the programs that need remediation for Year 2000. The Commission alleges that Accler8, Geimer and Fleury failed to disclose that Navig8 2000 was developed to analyze DEC's VAX/VMS computer programs only and misrepresented that Navig8 2000 analyzed computer programs written for International Business Machine Corp.'s UNIX operating system and Microsoft Corporation's NT operating system. The Commission alleges that the misrepresentations appeared in Accler8's Commission filings, press releases, the company's website, and marketing materials distributed to investors.

The Commission also alleges that from April 1998 through April 1999, Accelr8 filed annual and quarterly reports with the Commission containing false financial statements. The Commission alleges that in the quarter ended April 30, 1998, Accelr8 improperly booked revenue on three unfulfilled contracts that together materially overstated the company's quarterly revenue by approximately $1.2 million, $380,000 of which should never have been recognized. The Commission also alleges that Accelr8 improperly recognized maintenance revenue with the initial license fee on numerous sales transactions, materially overstating fiscal year 1998 revenue by $260,000. In the quarter ended January 31, 1999, Accelr8 allegedly improperly accelerated recognition of maintenance revenue on a major contract by $310,000 taking the company from a pre-tax loss of $228,000 to pre-tax income of $82,000. Finally, the Commission alleges that Accelr8 failed to amortize capitalized software development costs, causing Accelr8 to understate amortization expense by $69,000 in fiscal year 1998 and by $160,000 for the nine months ended April 30, 1999. The financial statements were allegedly prepared by James Godkin, Accelr8's controller and reviewed and approved by Geimer as the chief financial officer.

The Commission alleges that Accler8 violated the antifraud and filing provisions of the securities laws, Sections 10(b), 13(a), and 13(b)(2) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder. The Commission alleges that Geimer and Godkin violated Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and aided and abetted Accelr8's violations of Section 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. The Commission alleges that Fleury violated of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and aided and abetted Accelr8's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. The Commission filed its complaint in federal court in Denver, Colorado, and seeks a permanent injunction against Accler8, Geimer, Fleury, and Godkin and civil money penalties against the individual defendants.