On April 15, 2011, Baker Tilly Hong Kong (BTHK) directed its resignation letter as the Company's auditors and ceased its services as the Company's accountants to the Company's Board of Directors. In such letter, BTHK stated a number of accounting matters, which principally related to: accounting for revenue, goodwill and financial instruments, completeness and consistency of accounting documentation, effectiveness of internal control system, possibility of materials errors or fraud, which would have prevented BTHK from rendering an unqualified opinion if these issues were not resolved. In addition, BTHK stated that they were no longer able to place reliance on management representations in relation to prior period financial reports.
On April 28, 2011, BTHK submitted a letter to the Company and stated in such letter that "in the course of conducting our audit of the Company's financial statements, we have become aware of information indicating that an inappropriate act may have occurred. We therefore concluded: the inappropriate act has a material effect on the financial statements of the issuer; senior management of the Company has not taken, and the Board of Directors of the Company has not caused senior management of the Company to take, timely and appropriate remedial actions with respect to this act; and the failure to take remedial action warranted our resignation from the audit engagement."
The Company has started an investigation into the matters raised by BTHK's letter. The Company is unable to determine the full effect of these matters, including whether any restatement of its historical financial statements will be required, until the investigation is completed.
"We are pleased to announce record financial results and robust growth in both our revenue and net income. This strong performance and growth has led us to raise our full-year net income guidance for 2010. We are also very excited about the construction of our new 500 ton Diosmin plant, which we expect will be completed in 2011 and the final stages of the European COS audit and certification process. We believe that with European COS certification and our new 500 ton COS Standard Diosmin, the Company is positioned to be the leading producer of Diosmin for years to come."
The Company reaffirms its expectation that it will earn approximately $25 million in revenues for the year ended December 31, 2010, however, the Company now expects to earn net income for the year ended December 31, 2010 of approximately $5.5-$6 million, an increase of $1 million from its previous guidance of approximately $4.5-$5 million. The Company expects continued revenue growth in the last quarter of 2010 as it enters its most profitable selling period.