Youngevity’s accounting auditor quits over misrepresentations
Youngevity’s long-term financial auditor has quit following concerns over provided financial data.
Citing “information that has come to its attention”, the firm Mayer Hoffman McCann has resigned as Youngevity’s accounting.
Mayer Hoffman McCann had been signing off on Youngevity’s filed financial reports since 2011.
What information Mayer Hoffman McCann have uncovered is not disclosed in Youngevity’s October 12th 8-K filing.
What we do know is Mayer Hoff McCann have no confidence in Youngevity management.
The internal controls necessary for Youngevity to develop reliable consolidated financial statements do not exist and that information has come to its attention that has led Mayer Hoffman McCann to no longer be able to rely on management’s representations.
Information provided by Youngevity in their 8-K filing suggests there’s a problem with revenue reporting tied to green coffee cost of sales.
Specifically, Youngevity representing that it owned coffee sold to H&H Export Y CIA. LTDA in Nicaragua in 2019.
During the 2019 audit procedures, the Company determined that the Company did not own the unprocessed green coffee prior to transferring the coffee to H&H and is therefore an agent and processor of green coffee on behalf of H&H.
This determination meant that revenues on green coffee transferred to H&H should have been recorded at net (the added value of the processing of the green coffee beans) rather than at gross, as previously reported.
The Audit Committee, following discussions with management, has determined that rather than recognizing revenues and cost of sales of green coffee to H&H on a gross basis, the revenues and cost of sales to H&H should be recognized on a net basis reflecting the deduction of cost of revenue related to such revenue.
The change in accounting for the revenues and cost of sales of green coffee to H&H from gross to net is not expected to have any impact on the Company’s net income/loss.
Consequently, Youngevity’s Audit Committee advises
unaudited condensed consolidated financial statements for the quarters ended March 31, 2019, June 30, 2019 and September 30, 2019 contained in the Company’s Quarterly Reports on Form 10-Q previously filed with the SEC on May 20, 2019, August 14, 2019 and November 18, 2019 should no longer be relied upon.
Similarly, related press releases, earnings releases, and investor communications describing the Company’s unaudited condensed consolidated financial statements for those periods should no longer be relied upon.
If I’m reading the filing collectively, Youngevity has also lost $5.3 million to H&H.
The Company also has recently determined that the value of the collateral underlying a promissory note, due November 2020, in the principal and interest amount of $5.3 million, from H&H has been impaired, resulting in an impairment allowance for $5.3 million.
As a result, management believes it is more than likely that the Company will not collect the outstanding balance and interest due on the note receivable.
Based on Youngevity’s representations in their filing, this is remedied by filing “restated condensed consolidated financial statements”.
First and foremost I’m not accountant. If Youngevity’s error was unintentional however, and all that’s needed to be done is refiling of financial reports – why would Mayer Hoff McCann terminate a nine-year contract?
Anyone with accounting experience able to weigh in and explain what I might be missing?