Embattled Chinese technology company UTStarcom (UTSI) says it is conducting an independent investigation of historical sales contracts with some of its customers in China.

This investigation is being conducted by the Audit Committee of the company's Board of Directors with the assistance of independent legal counsel and forensic accountants.

The investigative phase of the audit committee's investigation has reportedly now been completed and it has been concluded that one of the company's five regions in China was impacted by revenue recognition issues. Accordingly, UTStarcom has determined that a portion of its revenue previously recorded in this region was recognized earlier than it should have been and that the financial statements for the affected periods should be restated.

The revenue identified in the investigation will be deferred until such time as the company can demonstrate that it has met all of its obligations under the contracts in question. The company is reviewing the results of the completed phase of the investigation and is analyzing the impact on revenue recognition in the western region of its China operations during the seven year period ended December 31, 2006. UTStarcom does not expect this restatement to have any impact on its cash balances. The company expects to complete this review within the next few weeks.

The company's Audit Committee, after consultation with management, concluded that UTStarcom's previously issued financial statements for each of the fiscal years ended December 31 in the period 2000 through 2005, the financial statements for the interim periods contained in the Quarterly Reports on Form 10-Q filed with respect to each of these years, and the quarterly reports on Form 10-Q filed with respect to each of the two quarters in the period ended June 30, 2006 should not be relied upon.

"Although we need to restate our financial statements, the revenue is real; however it needs to be recognized in the applicable period," stated Fran Barton chief financial officer. "In addition, we will continue to take the necessary steps to further augment our internal controls in order to prevent this problem from recurring."