KUALA LUMPUR: The opening balances of Nakamichi Corp Bhd may contain material misstatements that affect its financial performance, cash flows, and financial position for the financial year ended Dec 31, 2014 (FY14), according to external auditor PKF.
The timber company on Monday submitted to Bursa Malaysia its annual financial statements for FY14, which showed significant improvement for FY14 to a group loss of RM258,851 from a loss of RM30.41mil in the preceding year.
However, PKF noted that Nakamichi’s directors had not been able to obtain the financial information of 51% owned subsidiaries Tamabina Sdn Bhd (involved in log extraction and timber sale business) and Faktor Juta Sdn Bhd (now dormant).
Tamabina’s sole executive director was Nakamichi’s former CEO Lo Man Heng, who was removed as Nakamichi CEO in July 2013 after he declined the company’s request for a majority or equal representation by the company on Tamabina’s board.
Nakamichi’s directors have also been unable to get the financial information on Tamabina and Faktor Juta from Jan 1 to July 29, 2013 for the purpose of consolidation.
“We were therefore unable to determine the effect of consolidation adjustment(s) if any to the financial performance and cash flows of the group for the financial year ended Dec 31, 2013,” PKF said.
“In view of the above, we were unable to satisfy ourselves that the opening balances do not contain misstatements that may materially affect the financial performance, cash flows, and financial position of the group and the company for the financial year ended Dec 31, 2014.”
The audit firm, which does not seek a reappointment as auditor, said it therefore could not decide whether adjustments were necessary for FY14.
PKF also did not express an audit opinion for Nakamichi’s financial statements for the year ended Dec 31, 2013 (FY13), which were submitted last week, as it could not verify certain transactions and account balances.
Nakamichi had said its current directors did not have all accounting records and financial information of the group prior to May 31, 2013. The records, it said, were not made available to them by the former management.
The trading of Nakamichi’s shares on Bursa Malaysia has been suspended from Sept 9, 2013, due to the failure to provide its quarterly report for the period ended June 30, 2013.
PKF reiterated in the latest financial statements that there was a possibility that Nakamichi would not be able to continue as a going concern.
“We draw attention to Note 1(c) to the financial statements, which discloses that the financial statements are prepared on the going concern basis which contemplates the realisation of assets and settlement of liabilities in the normal course of business. However, as at the reporting date,... the group and the company registered a deficit in shareholders’ funds of RM13.85mil and RM13.47mil and net current liabilities of RM13.85mil and RM13.47mil,” the auditor said.
Together with its net loss for FY14, PKF said, there was material uncertainty that cast significant doubt on the group’s and the company’s ability to continue as going concerns.
The Nakamichi group triggered the criteria of Practice Note No 17 (PN17) on April 29, 2015, after TSB was wound up by the High Court of Sabah and Sarawak via a draft order.
The audit firm said the group and the company currently did not have any significant operations and the directors had not formalised a regularisation plan for the group and the company.
Nakamichi started out as an audio and visual consumer products company but began to diversify into log extraction in December 2007 when it bought a 51% stake in Tamabina from Lo’s sister Shwu Fen and Yap Siaw Lin for RM30mil. TSB held the exclusive rights to extract and sell commercial timber extracted from a 15,900ha concession area in Sabah.
A few years later, Nakamichi discontinued its loss-making consumer product business, leaving timber as its only business.
PKF also noted that Nakamichi had breached the Companies Act 1965 as it did not hold an AGM in the previous calendar year and within 15 months of the preceding AGM held in June 2013.
In addition, PKF said, Nakamichi had not maintained sufficient accounting records to explain the transactions and financial position of the group and company to enable true and fair profit and loss accounts and balance sheets in such manner as to enable them to be conveniently and properly audited.
* Also see Nakamichi makes progress in disclosure despite audit issues
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