The Central Pharmaceuticals has misled regulators and investors in various ways, including providing inaccurate information about its financial status, according to an inspection by the Dhaka Stock Exchange (DSE).
The loss-making company's manipulated financial statements concealed significant discrepancies in operations, asset valuation, liabilities, and transactions, the inspection report revealed.
It also appeared to the DSE that the company intends to transfer the business to other parties.
The company has incurred losses for the past four fiscal years and was downgraded to 'Z' category last month.
In their qualified opinion on the company's financial statements for FY22 and FY23, the auditors said they were unable to verify the balances in the accounts opened with various banks due to a lack of responses from those institutions.
Besides, the auditors failed to obtain sufficient audit evidence regarding various expenses and receivables.
Following an order from the securities regulator, the DSE conducted an inspection to assess the company's ability to continue as a going concern and its future corporate sustainability.
In its report submitted to the securities regulator in November last year, the DSE said that its inspection team faced non-cooperation from the company in obtaining various information and documents.
The company's managing director informed the DSE team that they produce around 10 to 15 medicines, although they have permission from the drug administration to manufacture 72 medicines.
A DSE official, however, expressed doubts about the actual number of products manufactured by Central Pharmaceuticals.
Daily attendance records indicate that the company is operating on a very limited scale. According to the attendance register, there were 16 officers and workers in the factory, while eight officers and seven support staff were present at the office on August 21, 2023.
The revaluation of the company's land was made on 31 March, 2014. The factory building, plant and machinery, and other equipment, except for land & land development, were valued at Tk 238.90 million, although they were beyond repair, the auditors said.
Discrepancies were also identified in the figures for raw material utilisation and product sales.
The auditors observed that the company consumed raw materials worth Tk 20.81 million against sales of Tk 29.32 million.
However, the company could not provide proper evidence of the consumption of excess raw materials, they said.
Central Pharmaceuticals had negative retained earnings of Tk 1.04 billion as on June 30, 2023.
The auditors mentioned that the company failed to pay its loan installments on time, and a loan of Tk 268.47 million was classified as bad by the bank.
The company also could not arrange any funds to repay the loan, and its operating cash flow is negative.
"These events or conditions, along with other matters indicate that a material uncertainty exist that may cast significant doubt on the company's ability to continue as a going concern," the auditors said in its qualified opinion.
Presently, there are only two shareholder directors in the company, and they are seeking a new board by transferring their shares.
The company's managing director informed the DSE inspection team that they are seeking a new board or strategic investors for share transfers.
"It seems that the board of directors and the top management of the company are not interested in running the business," reads the inspection report.
When asked, a member of the DSE inspection team said the company somehow continues to exist in the pharmaceutical industry.
"The company can be termed neither as closed nor as a going concern," he said, speaking on condition of anonymity.
The company's advance tax of Tk 286.26 million and provision for tax liabilities of Tk 280.19 million were not adjusted in the accounts as on June 30, 2023.
As a result, assets and liabilities have been overstated.
The tax authority froze the company's three bank accounts with Janata Bank, claiming tax liabilities amounting to Tk 93.08 million in 2015. Since then, the company has been operating through cash transactions.
However, the company maintains one bank account with Islami Bank Bangladesh. Apart from transactions through Islami Bank, the company conducts maximum cash transactions, which creates the scope for over- and underpayments of expenses, as well as over- and under-receipts of sales or income, the auditors said.
The company's managing director verbally informed the DSE that they have bank loans totalling Tk 410 million, which includes Tk 150 million in interest.
The sponsors-directors of Central Pharmaceuticals jointly hold 25.89 per cent shares of the paid-up capital of the company, despite being required to hold at least 30 per cent.
The company last recommended 1.0 per cent stock dividend for FY19.
When contacted, chief financial officer of Central Pharmaceuticals Md Mizanur Rahman declined to comment, while the managing director and company secretary could not be reached despite repeated attempts.
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