ISoft is given financial lifeline until 2007

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The Independent Online

The beleaguered software provider iSoft will reveal this morning that it has been given a financial lifeline until 2007, a day after it admitted it was under investigation by the FSA.

The company at the epicentre of the £6.2bn overhaul of the NHS's information technology systems breached prior agreements with HSBC, Royal Bank of Scotland, Barclays and Lloyds TSB about a £140m loan facility, but secured further financing from them yesterday to carry it into next year.

Under the terms of the refinancing, it is understood that the banks chose not to waive the debt in exchange for stakes in the company as many industry observers had predicted.

The fresh agreement should allow iSoft finally to post annual results which have been twice delayed pending renegotiation of its banking covenants, and to avoid suspension of trading in its shares today.

Discussions with its bankers continued throughout yesterday, when it also emerged that the City regulator had launched an investigation into whether iSoft had misled investors about how much it earned, after revelations about irregularities came to light.

Earlier this month, the company confirmed that an initial inquiry by its auditor Deloitte had unearthed evidence that revenues in 2004 and 2005 had been recognised in iSoft's accounts earlier than was appropriate. That provisional investigation led to the suspension of Steve Graham, one of the company's founders and its commercial director, and another, unnamed iSoft employee.

ISoft stated that others, who had already left the company, also "appear to be involved".

Results now expected to be published this morning are likely to show a dramatic decline in iSoft's profits. Questionable accounting practices appear to have flattered profitability in the past two years.

Before a change to accounting policy in April, iSoft recognised the lion's share of revenues from any licensing contract as soon as its software was delivered and ahead of actual payments in instalments from customers. The change in accounting policy - revenues are now booked over the lifetime of a contract - forced iSoft to restate its accounts for the last two years and warn yet again that profits this year would fall shy of previous expectations. Some 15 per cent of its staff were sacked.

The scandal has even mired Sir Digby Jones, the former director-general of the CBI, in controversy.

Although he left iSoft's board a year ago, he was senior independent director and member of the audit committee during the period where "irregularities" were found. Sir Digby was unavailable for comment yesterday.

ISoft's fall from grace has been spectacular even by the capricious standards of the software industry.

Founded in 1994 by the management consultancy KMPG, the company was bought by its management in 1999, floated in 2000 and embarked on a string of acquisitions. In 2003, a merger with its arch-rival Torex was geared towards exploiting the multi-billion pound NHS upgrade.

The tie-up forged a clear market leader in pole position to land three of five lucrative NHS contracts. Scooping the 2004 TechMark company of the year award, iSoft looked bound for the FTSE-100 index.

At its peak, iSoft commanded a market value of more than £1bn. However, the shares slumped as the extent of its difficulties emerged. They have fallen by more than 90 per cent this year, closing at 42.5p last night and valuing the company at just £97.6m.

While shareholders have witnessed the value of their investments plunge, earlier share sales ensured iSoft's three founders became multi-millionaires.

The late Roger Dickens, the iSoft chairman until late 2003, sold shares in 2001 and 2003 worth about £10m; the former chief executive Patrick Cryne netted about £41m, while the suspended Steve Graham has sold shares worth £30m.

An annus horribilis for shareholders began in January with an admission that parts of the NHS timetable had been "rescheduled". Annual revenues and profits would be less than half than had been expected. Shares almost halved.

Reassurances from the company in April rang hollow, and profits warnings followed later that month and then again in June.

So too did the resignation of Tim Whiston, the chief executive.