Tuesday, May 06, 2008

MEMS- serious doubts persist

MEMS was re-quoted this morning after its Annual Report for FYE31/7/2007 was filed in on May 2nd. The delay in submission of the Annual Report was due to accounting irregularities. A few transactions were reversed, which resulted in the group's turnover & pre-tax profit for FYE31/7/2007 dropping by RM19.716 million & RM8.018 million respectively when compared to the unaudited accounts. Thus, MEMS' turnover increased by 6.9% to RM53.70 million from RM50.24 million achieved in FYE31/7/2006, while pre-tax profit declined by 6.0% to RM13.12 million from RM13.95 million achieved in FYE31/7/2006. Is the worst over for MEMS? After reading the auditors' comments, I don't think so.

I would recommend that you read the announcement dated April 24th to Bursa, which contains the auditors' reservations about the accounts for FYE31/7/2007(go here). The same reservation can be found in the Auditors' Report in the Annual Report for FYE31/7/2007 (go here). I will re-produced items (4) & (5) of the Bursa announcement below:

4. By reason of the matters discussed above, these have raised significant concerns over the control environment within the Group including the veracity of management representations throughout our audit

5. The Company and its subsidiary, Senzpak are currently under investigation by the Securities Commission and the investigations have yet to be concluded. Accordingly, at present, we are unable to determine whether adjustments, if any, to the financial statements might be necessary arising from the eventual findings of the Securities Commission.
The auditors has raised serious doubts about the genuineness of sale, equipment acquisition & business arrangement between MEMS & its Chinese subsidiary. The phrase "the veracity of the management representations throughout the audit" in item (4) is a very serious condemnation of MEMS' management. With these matters still unresolved & SC's investigation still outstanding, the problems in MEMS remain. I believe it is best to avoid MEMS.

I have appended below the 8-quarter spreadsheet & the daily chart for your information.





Chart: MEMS' daily chart as at May 5, 2008 (courtesy of Quickcharts)

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