After identification of the cash transfer transactions by the auditor, the Company's management and finance team began to gather information and documentation related to the cash transfer transactions. The auditor subsequently brought this matter to the attention of the Audit Committee of the Board of Directors of the Company, which was requested to expedite the investigation. The Audit Committee determined that Company counsel, with assistance from the Company's finance team, should investigate the cash transfer transactions further and report regularly to the Audit Committee. On January 20, 2011, the Company retained a People's Republic of China ("PRC") law firm to determine whether any violations of PRC law occurred as a result of the cash transactions.
On February 11, 2011, the Audit Committee received a letter from Marcum pursuant to Section 10A(b)(1) requesting that the Audit Committee conclude its investigation into the cash transfer transactions to determine whether the cash transfer transactions violated applicable laws in the U.S. or the PRC. Following receipt of the letter, the Audit Committee engaged special investigative counsel at the Company's outside law firm to undertake the investigation requested by the auditor. The law firm retained a forensic accountant to assist it in the investigation.
The Audit Committee shared with Marcum preliminary findings of the investigation. On March 16, 2011, the Audit Committee received an additional letter from Marcum requesting that the investigation be continued and expanded. On March 22, 2011, the Board of the Company received a letter from Marcum sent pursuant to Section 10A(b)(2) of the Exchange Act further requesting that the Audit Committee's investigation into the cash transfer transactions be expanded to resolve issues noted in the letter. On March 22, 2011, the Audit Committee held a special meeting at which it approved the continuation of the investigation into the cash transactions, and on March 23, 2011, the Board also held a meeting and approved the continuation of the investigation.
The Company currently believes that the cash transfer transactions will not have an impact on the balance sheets and statements of income for the affected periods; however, the transactions are expected to be reflected in the Company's statements of cash flows and disclosed in the notes to the financial statements for the affected periods. Although these transactions began during the last month of the third quarter of 2009, the Company's publicly filed Quarterly Report for that period did not include disclosure regarding the cash transfers because they were not identified until 2010. The restated report for that period will include such disclosures.
The Company has disclosed the cash transfer transactions to the U.S. Securities and Exchange Commission ("SEC"). At this point, the Company is unable to predict what actions any government authority may take in response to such disclosure, and there can be no assurance as to how any resulting consequences may affect the Company's business. Any determination that the cash transfer transactions violated existing laws or regulations in the US or China could result in fines, civil and criminal penalties, interruptions of business, modifications of business practices and compliance programs, equitable remedies, including injunctive relief and other sanctions that may be taken against the Company, Mr. Chong, or other personnel.
The Company appeared before the NASDAQ Hearings Panel on November 11, 2010, subsequent to which the Panel determined to continue the listing of the Company's common stock on The NASDAQ Stock Market subject to an extension through March 28, 2011, by which date the Company must file all delinquent reports with the SEC. Under NASDAQ's rules, the extension through March 28, 2011 represents the maximum length of time that the Panel may grant the Company to come back into compliance with its rules. Since the Company is not able to make all such filings by March 28, 2011 and no further extensions are available, the Company expects to receive a delisting determination from the Panel in the very near term indicating that the Company’s common stock will be delisted from The NASDAQ Stock Market.