Chantal Lowers Earnings, Cites Audit Glitch

Adding to a recent string of embarrassments, wrinkle-cream maker Chantal Pharmaceutical Corp. said Thursday that it found some wrinkles in its accounting practices that overstated its first-quarter earnings by about 87% and sales by 52%.

The Los Angeles-based company called the problem “technical accounting issues” that were detected by an outside auditor hired by the firm after news reports raised questions about the validity of company sales figures.

Chantal blamed the faulty report on a labeling glitch that forced it to recall more than half the products it shipped in its first quarter ended Sept. 30 so their uniform product code labeling could be redone.

The products were reshipped in the second quarter, ended Dec. 31, and Chantal said auditors Coopers & Lybrand concluded that the sales should have been recorded in that period. The company said it expects that those reshipped products will be treated as second-quarter sales.

On the auditors’ advice, Chantal said it will restate first-quarter net income to $536,097, or 3 cents a share, from the previously reported $4.2 million, or 24 cents. Sales will also be adjusted downward, from $11.3 million to about $5.39 million.

Chantal’s only product is Ethocyn, a line of skin-care products used to treat wrinkles.

The auditor’s report comes as the company faces a possible halt in trading of its stock. The company has failed to meet Securities and Exchange Commission deadlines for filing its second-quarter results, and Nasdaq, where Chantal shares trade, has given the company until Monday to explain the delay or face disciplinary action. The filing was originally due Feb. 14.

“We expect to meet the [Monday] deadline,” Chantal spokesman Ed Oregon said. He said the second-quarter results were delayed because of the problems auditors discovered with the first-quarter figures.

Chantal shares closed down 87.5 cents at $6.06 a share Thursday. The stock has plunged from a recent peak of $28.125. Trading was temporarily halted Thursday on news of the restatement.

The company’s nose dive has been prompted by concerns over finances and the prospect of competition from a rival antiwrinkle product from Johnson & Johnson, whose prescription-only Renova cream went on sale last week. Ethocyn is sold over the counter in drugstores.

Chairwoman Chantal Burnison said in a statement that the “technical accounting issues do not detract from the underlying economic reality that consumer demand” for Chantal products “continues at an extraordinary level.”