Compliance software provider Ideagen admitted that a US government contract had been cancelled.
The contract with the US Department of Veterans Affairs (VA) was just entering the second year, but has now been terminated for budgetary reasons, Ideagen said.
The Derbyshire-headquartered software supplier insisted that the contract cancellation will have "no effect" on the current financial year to April 30th 2014, although VA will be seeking settlement.
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Ideagen said that due to the pressure on the US federal budgets it had made "ample contingency" for any contract cancellation in its plans.
Around 70% of the anticipated revenue from the second year of the contract of approximately £1.05m had already been recognised in the financial period ending 30 April 2013 and the VA has requested a proposal for settlement from Ideagen, which will be submitted shortly.
David Hornsby, Chief Executive, said: "Whilst we are disappointed that year two of the Prism contract has been terminated, I am pleased to report our budgetary processes were robust.
"The business continues to trade strongly and the company remains confident of delivering further revenue and profit growth in the current financial period."
Shares in Ideagen were down 10% at 20.25p at 13:00 on Friday.
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