ShengdaTech announced today that it has filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the District of Nevada. The Chapter 11 process will facilitate the Company's financial and operational restructuring, with the objective of restoring the Company to financial health.
On April 29, 2011, we were also informed by KPMG, our former independent accounting firm, that disclosures should be made and action should be taken to prevent future reliance on their previously issued audit reports related to the consolidated balance sheets of ShengdaTech, Inc. and its subsidiaries as of December 31, 2008 and 2009, and the related consolidated statements of income, shareholders' equity and comprehensive income, and cash flows for the years then ended and the effectiveness of internal control over financial reporting as of December 31, 2008 and 2009.
KPMG stated that the manner of management's conduct during the investigation by a special committee of the Company's Board of Directors raised doubts about management's representations provided to KPMG in connection with KPMG's 2008 and 2009 audits of the consolidated financial statements and the effectiveness of our internal control over financial reporting of the Company. The Chairman of our Audit Committee discussed the foregoing issues with KPMG, and the Company will authorize KPMG to respond fully to inquiries of the successor accountant, when hired, concerning the foregoing.
ShengdaTech appointed a special committee of the Board of Directors to investigate potentially serious discrepancies and unexplained issues relating to the Company and its subsidiaries' financial records identified by the Company's auditors in the course of their audit of the consolidated financial statements for the fiscal year ended December 31, 2010. The special committee is composed of the independent directors comprising the Company's audit committee. As a result, the audit committee retained O'Melveny & Myers LLP as independent outside counsel, which has initiated an internal investigation. The outside counsel to the committee has notified the Staff of the Securities and Exchange Commission of the commencement of the internal investigation.
Given that the investigation only recently commenced, the Company cannot predict at this time whether that investigation will require any adjustments to its financial statements, and if so whether such adjustments will be material. Due to the pendency of the internal investigation, the Company will not be able to file its Annual Report on Form 10-K in a timely manner. The Company cannot at this time estimate when the internal investigation of the relevant issues will conclude. The Company intends to file the Form 10-K as soon as reasonably practicable.