By Alan J Robb
Friday 24th March 2000 1 Comment
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I drew attention last October (NBR, Oct 22) to the company's unsatisfactory state of affairs. The auditor had been unable to verify certain transactions involving 85% of the company's revenue and investments totalling nearly $10 million.
He issued a qualified audit report saying, except for those items, the accounts were a true and fair view.
The amounts arose from a transaction with Power Beat's Malaysian licensee, Rial Dirham.
The auditor, Richard Owen, subsequently told me he had arranged a meeting with staff of Rial Dirham who were to visit Hamilton in early November. That visit never took place.
Mr Owen has since tried to fax the Malaysian company on a number given to him by Power Beat "but has had no success in getting through." He told me he was not concerned.
Even if he is not concerned the shareholders of Power Beat should be. Can their company can continue in operations beyond next Friday?
Last year's annual report showed Rial Dirham is due to pay Power Beat $4,488,507 on March 31, 2000.
It is a licence fee that arose from the technology agreement signed during the 1997 financial year. The amount was due for payment on March 31, 1998, on an interest-free basis.
Rial Dirham sought and was granted a two-year extension. The licence will terminate if payment is not made.
What is the likelihood payment will be received? In my view there must be grave doubts. The auditor has been unable to contact the company and I have been unable to trace it through the Malaysian telephone directory or the Malaysian trade directory. Does it still exist? Has it got the money to pay $4.4 million next week? Why has it not responded to the auditor's legitimate inquiries?
If payment is not received it is inevitable Power Beat will receive an adverse audit report. It will be likely to report a loss of several million dollars as it writes off the Rial Dirham "asset." It will undoubtedly report yet another negative operating cash flow, probably at least $500,000. Its shares, which sold at 58c last September and 31c on March 17, seem likely to fall further.
This is a most unsatisfactory situation for the shareholders of Power Beat. They may rightly feel their interests have been ignored by almost everyone.
The company has not issued an interim report for the six months to September 30, 1999. Indeed its web page shows the last interim report to have been for the six months to September 30, 1997.
The auditor does not seem worried that last year's profit of $800,000 could really have been a loss of $1.7 million and no regulatory body has acted on the qualified audit report issued last year.
The Stock Exchange has no jurisdiction in the matter because Power Beat has not been a listed company since December 1995.
The Accounting Standards Review Board disclaimed any interest because the company had not breached any accounting standard.
Although Power Beat is an issuer in terms of the Financial Reporting Act and is thus the responsibility of the Securities Commission, the board referred my inquiries to the Companies Office in Auckland. It in turn said it would be unlikely to release any correspondence between the auditor and the registrar.
This is most unsatisfactory. Power Beat shareholders in particular, and New Zealand investors in general, deserve a better deal.
Alan Robb is a senior lecturer in accountancy at the University of Canterbury. He holds no shares in Power Beat
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