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December 2, 1993

KENDALL SQUARE RESEARCH RUEFULLY MOVES TO PICK UP THE PIECES

By CBR Staff Writer

Kendall Square Research Corp, Waltham, Massachusetts has its fans extremely worried after its drastic revision of its 1992 results and revelation that more than half its reported revenues this year weren’t legitimate. Founder Henry Burkhardt remains president and Karl Wassman III, chief financial officer, and Peter Appleton Jones, chief sales executive have, resigned as corporate officers, but contrary to what we said yesterday, remain on the staff. Kendall Square now expects to report revenue for the first nine months of about $10.6m, less than half the $24.7m previously reported for the first six months, and it made substantial losses rather than the six-month net profit of $1.3m it reported. Kendall Square admitted that it had sometimes recorded revenue for computers that were shipped to universities that didn’t pay and had no prospective funding. Burkhardt told the Wall Street Journal that we’re quite confident Kendall can survive, based on having $22m in cash and continued favourable reports from its customers, but it will have to raise additional funds next year, and shareholder litigation will make that a greater challenge. The Securities and Exchange Commission has begun an investigation of the company’s disclosure policies and of a sale by Burkhardt of $1m of shares before the bad news broke, and after he had endorsed positive earnings expectations. The company is also still considering whether it should write down its $16.6m inventory of KSR1 computers now that the KSR2 is announced.In the third quarter figures, not yet announced, it reversed $30m out of its sales journals, including shipments to universities that don’t have funding, shipments to distributors that don’t have customers and shipments where payment is contingent on the customer getting upgraded machines in the future. In other cases, badly worded contracts mean Kendall Square doesn’t have any assurance of payment. The company is currently spending $4m to $5m a month on operations and doesn’t plan to cut its 270 staff.

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