Strike 3 for Megan

This is as bad as it can get!

• Further to Megan Media Holdings Berhad's ("the Company") announcements on 4th May 2007 and 9th May 2007 pursuant to Practice Note 1/2001 and Amended Practice Note 1/2001 and following the Company's meeting with its Creditor Banks on 11th May 2007, the Company, at the behest of its Creditor Banks, had appointed Ferrier Hodgson MH Sdn Bhd as its Investigative Accountant ("IA") for its wholly owned subsidiary, Memory Tech Sdn Bhd ("MTSB") on 17th May 2007.
  
  The Company has now received a preliminary report from its IA dated 6th June 2007. The following are critical findings presented in the report:-
  
  · There are substantial irregularities in the MTSB's financial statements, leading to its financial position having been materially misstated
  · MTSB appears to have created fictitious trading creditors and debtors to overstate purchases and sales
  
  · MTSB appears to have financed the payment of fictitious trading creditors through bank debt and recycled the cash through other entities to appear that repayments were being made by fictitious trading debtors
  
  · MTSB has grown its "trading" business over time but particularly in the 2007 financial year and at an increasing rate during the year
  
  · The IA's site visits to the supposed trading locations of the trading debtors and creditors shows that they are fictitious
  
  · Ultimately, all trading creditors were paid (payments were actually made to other parties than that shown in the accounts), allowing cash to be paid out of MTSB and the trading debtors remain outstanding and are unlikely to be collectible at all
  
  · MTSB's payment of a deposit of RM211 million for 13 production lines also appears to be fictitious
  
  
  The report implies that there are related party transactions which have not been disclosed
  
  The report also set out a Net Realizable Value which indicates that MTSB has potential shortfall in assets of RM456 million. Further, value of MTSB's fixed assets of RM585 million requires further investigation and the realizable value is unknown.
  The report refers to the current situation with regard to license fees due to Koninklijke Philips Electronics N.V. ("Philips") and the threat to the manufacturing of CD-R and DVD-R. The Company is in the midst of its endeavours to resolve the outstanding amounts due to Philips.
  
  The IA has set the next steps which include further investigations to determine what has occurred. The final report from the IA is expected within 6-8 weeks.
  
  The Company and Creditor Banks are meeting this week to discuss on the course of the investigation and the appropriate steps in terms of restructuring the Company.
  
  The report indicates that MTSB has sufficient short term cash flow based on its current modus operandi. Further, the Board believes that with the cessation of its trading business, the Company can now focus on its legitimate manufacturing business. All business with respect to manufacturing is being carried out as normal and the Company is continuing to fulfill purchase orders from the manufacturing customers.
  
  The Board will continue to update the shareholders on the progress of the investigation, its discussions with Creditor Banks and other critical matters relating to the business.

All I can say is that you guys have been warned far too many times!