Model Portfolio mkoza:TGF

UTA's announcement Tuesday night that its recently (Sept 1) appointed auditor, GKM, has resigned, is disappointing, but not totally unexpected given the negative publicity surrounding controversial reverse merger stocks such as UTA, and the pressure on UTA in particular. Interestingly, GKM did not even wait for the company's conference call, on which many accusations were answered, to resign - hence I believe the resignation was a "fait accompli" dictated by sentiment. UTA was forced (IMO) to seek out a virtually unknown auditor, who they disclosed Tuesday night. Like many other small Chinese companies, UTA has internal control deficiencies, and thus the move to a high-profile auditor such as those in the Big 4 (GKM is affiliated with a Top 10 auditor) may take some time. However, unlike another Chinese company that recently had its attempt to upgrade auditors result in failure, internal control deficiencies were not cited as a reason for GKM's resignation - in fact, no reason was given by GKM, which, given SEC disclosure requirements, leads me to believe that GKM had no material issues with UTA.

UTA may see more weakness here as various short sellers and third-tier commentators such as Henry Blodget make ridiculous challenges to the company. It is also possible that delays in financial filings may occur, or that restatements will be required by the new auditor, but the new auditor's current client list indicates that the new auditor may be somewhat flexible with UTA's accounting procedures, which involve booking a full quarter of revenues and income for acquisitions that close just before the end of the quarter. In any event, I believe that UTA's financial statements give the proper picture of UTA's pro forma cash flows, and that UTA has a sound balance sheet. I will continue to hold UTA, and may seek to buy on weakness.