This article first appeared in The Edge Financial Daily, on February 18, 2016.

KUALA LUMPUR: While the extended audit of Maxwell International Holdings Bhd’s extraordinary large advertising expenditure is ongoing, the China-based sportswear manufacturer announced that its auditor had expressed concern about the authenticity of its cash deposits.

In an announcement to Bursa Malaysia yesterday, Maxwell revealed that its auditor Baker Tilly Monteiro Heng (BTMH) did not obtain any documentary evidence for the placement of RM103.7 million, which is 40% of the company’s cash pile, in asset management company Jinjiang Jin Chuang Private Capital Management Co Ltd.

The auditor was concerned about the authenticity and recoverability of the deposits, which were placed in the third and fourth quarters of 2015.

As stated in the third quarterly results ended Sept 30, 2015, Maxwell’s cash balance was at RM257 million.

Maxwell’s cash coffers contracted substantially in the financial year ended Dec 31, 2015 (FY15) against RM371.28 million in FY14.

Besides that, Maxwell also disclosed a possible legal dispute its subsidiary is facing in China.

“On its preliminary assessment, BTMH noted that, based on the announcement of court cases on the website of Fujian Quanzhou Intermediate People’s Court, a company named ‘Zhenxing’ (a subsidiary of Maxwell) is being sued by Fujian Quanzhou Li Cheng Qu Chuang Xing Micro Credit Co Ltd due to a dispute on the loan agreement.

“The defendants in the case involve Zhenxing as the borrower, Madam Li Kwai Chun (executive director of Maxwell) and two others as the guarantors,” the announcement said.

However, the management of Zhenxing said no documents relating to the litigation were received.

Li said the loan dispute involved herself as a personal guarantor and should not involve the company.

Also, Maxwell said it had obtained one quotation for the appointment of an investigative auditor, but said it will source for other quotations before appointing an auditor.

Maxwell’s statement was made in response to a query by Bursa, on the details of ongoing issues faced by the company.

During an audit of the company’s financials, BTMH highlighted these issues, along with the irregularity surrounding its advertisement expenditure for the third quarter ended Sept 30, 2015.

To recap, Maxwell reported a significant net loss of RM46.25 million, which was attributed to advertising expenditure, compared to a net profit of RM12.18 million in the previous corresponding quarter.

It incurred selling and distribution expenses of RM42.59 million during the quarter, a sharp jump from RM1.09 million a year earlier.

The company had then appointed Ferrier Hodgson MH Sdn Bhd to undertake an extended audit of its advertising expenses.

Maxwell’s share price was unchanged at its all-time low of six sen yesterday, bringing its market capitalisation to RM23.93 million.