Shares in Baltimore Technologies dipped 10 per cent in London yesterday when the company revealed it had overstated software revenues by more than £5 million sterling (€8.14 million).

The Dublin-based internet security firm said it had discovered specific instances where software revenues had been overstated in the India, Middle East and Africa regions.

The company blamed a handful of former employees for the overstated figures which where caused by incorrect contract classifications. None of the employees is still working at the company.

A Baltimore spokeswoman said the errors occurred where sales agents had incorrectly recorded revenue for software supplied to distribution partners which may not have been sold.

The restatement will mean a reduction in revenues for the 12-month period ended December 31st, 2000 of 5.5 per cent to £70.1 million from £74.2 million. In addition, revenues will be reduced 3.8 per cent to £22.8 million from £23.7 million in the three-month period to March 31st, 2001.

The company said the revenue restatements would have no effect on the results for the three-month period ended June 30th, 2001 or on the company's current cash position.

Mr Peter Morgan, chairman of Baltimore, said the board regretted the findings and was confident it could now draw a line under the past.

A Baltimore spokeswoman said Mr Paul Sanders, acting chief executive, had implemented several financial controls along with a complete review by Baltimore's auditors. These include:

A detailed credit check on Baltimore's sales pipeline for the future and retrospectively.

A detailed review of agent debtor listings.

A review of sales incentive schemes and revenue collection.

Mr Sanders joined Baltimore as finance director in November after leaving his post of group finance director at SSL International, the Durex condom group. SSL is under investigation after it was found to have inflated profit and sales by up to £25 million (€31.7 million) in the two years to March 2000.

Baltimore's share price later recovered somewhat to close down 0.25p at 24.5p as technology stocks enjoyed a positive day on European markets.

But yesterday's revenue restatement follows a series of communication blunders by Baltimore over the past few months and did not impress Dublin analysts.

Mr John Coolican of Merrion Stockbrokers said the announcement was obviously not very favourable. "This company does not have a future as an independent entity. It needs either a strong alliance or to be bought by somebody."

But he said this kind of revenue overstatement was not unknown among software firms where sales agents often relied on bonus payments based on commission.

Mr Barry Dixon of Davy Stockbrokers said it was now a question of whether one could trust Baltimore's revenue figures. Included in the statement by Baltimore was more positive news that it had revised its revenue figures for the three months to June 30th, 2001 upwards by £1 million.

The company said that following a review with the company's auditors its revenue figures had been upgraded to £16.5 million from £15.5 million.

However, Baltimore faces a gruelling period over the next year as it seeks to slash its costs base and save itself from running out of cash before it reaches break even point. Analysts estimate that this will occur in 2003.

Demand for Baltimore's public key infrastructure security software has slumped amid the general technology downturn and its share price has plummeted to just 24.5 pence from a high of £15 in April last year.

Earlier this month its chief executive, Mr Fran Rooney, stood down and the company is expected to announce major job losses on August 22nd with its second-quarter results.