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Saturday, April 29, 2006

Auditor denied

Interesting situation at Genex Pharmaceutical. Their auditor, GC Alliance Ltd, resigned because it can't demonstrate to the Office of the Chief Accountant (in time) that it has the requisite knowledge and experience in applying US GAAP, PCAOB Standards, SEC financial reporting rules, and SEC independence requirements. The auditor agrees with Genex's financial statements (as shown in the attached exhibit), but they can't be the auditor because they can't prove themselves worthy to the standards people.

This same thing could affect a lot of the small Chinese reverse-merger companies (Genex is in China). Now the obvious question is (despite what we're being told by Heron) does ETLT have the same issue as Genex? Genex had to get a new auditor, Schwartz Levitsky Feldman, who will be starting all over with the audit process.

ETLT previously appointed Ham Langston and Brezina LLP as the new auditors (replacing Thomas Leger).
Ham, Langston & Brezina (HL&B) is a Houston, Texas certified public accounting firm specializing in audits of public and private companies, corporate and individual income tax compliance, as well as a host of other accounting and financial planning services.
and also this from the firm profile page:
Ham, Langston & Brezina, L.L.P. ("HL&B") is approximately nine years old and was formed when Stan Langston and Rob Brezina acquired Ham & Company, P.C. The focus of the firm is to work closely with management and to strive to continually provide superior service in a timely manner.

Prior to forming HL&B, both Stan and Rob had spent their careers at Coopers & Lybrand, L.L.P. ("C&L") and left as senior managers in C&L's Emerging Business Services Group ("EBS"). The goal of EBS was to provide small, but high growth companies with the resources available from a large international accounting firm. However, upon viewing increasing fee pressures and a related less effective hands-off approach the larger accounting firms were beginning to take toward small to middle market clients, and understanding the inability of these firms to effectively serve such clients, HL&B was formed in order to provide the quality services entities in this market segment deserve. At that point, on a combined basis, Stan and Rob had more than twenty years of public accounting experience [that's not what I'd consider to be a large number].

HL&B is a member of the American Institute of Certified Public Accountants ("AICPA") and the Texas Society of Certified Public Accountants and its Houston Chapter. The firm is also a member of the AICPA's SEC Practice Section, which subjects the firm to very stringent Quality Control Reviews that are monitored by the AICPA. We are continually striving to build a solid reputation for the firm and create a base of reputable public and non-public middle market clients. In the last nine years the firm has experienced a growth in revenues of almost 700% and we expect to continue that trend by providing sound accounting and tax advice and superior service.

HL&B continues to maintain a close relationship with C&L (now known as PricewaterhouseCoopers), as well as other major international accounting firms. Because of the relationships we have developed with these firms, they represent a major referral source for HL&B. We believe in the value of client partnerships, and truly believe that our success is a result of their success.

I'd have to say that it seems extremely unlikely that these auditors will have the same problem given that auditing public and private companies is their specialty. I'd also have to say that since the 10-K is this late, that there are probably issues being resolved (slightly good, net) rather than just rubber stamping the filing.

your name must be mickey cause you're so fine...

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