Audio-speaker maker Plastoform says impairment on receivables will not hurt it as going concern

PLASTOFORM - a loss-making manufacturer of speakers used in mobile phones and computers - said in response to regulatory queries that impairment on accounts receivables of HK$23.3 million (S$4.09 million) made in 2018 will not hurt the company's ability to operate as a going concern.

This comes after the group said in September it would close its production facility in Shenzhen, following problems in collecting debt owed from its major customers. It has also recorded insufficient sales orders to sustain its operations. Once production is closed, the group plans to apply to the court in China to liquidate its wholly owned Shenzhen subsidiary.

"The company believes that it can continue to be a going concern. The management had taken actions to recover the outstanding account receivables and appropriate actions taken to minimise the impact arising from non-collected account receivables, including, but not limited to reduction of costs and shutdown of the PRC (People's Republic of China) plant," the group said on Monday evening, in reference to the impairment of accounts receivables flagged by the regulator.

Plastoform has been put on the Singapore Exchange's (SGX) watch list.

Part of the accounts receivables is due from a major customer, Monster LLC, with whom Plastoform had in November signed a brand licensing agreement with its related unit, Monster Inc, for the Asia-Pacific market, said the Hong Kong-based manufacturer.

Monster is a manufacturer of cables that connect audio as well as video components. The US$0.65 million due by Monster Inc to Plastoform has been used to offset what would have been prepayment to Monster Inc for the licensing royalty fee, Plastoform said. The balance due from Monster will be repaid by instalments. The debt has been due for around six to 12 months.

Plastoform listed two other companies from which it is owed accounts receivables, one of which has since been settled in November. The second is appealing a court judgement over the debt settlement.

The group recorded a net loss of HK$17.7 million for its third quarter ended Sept 30, 2018, doubling its losses from the HK$8.58 million posted the same period a year ago amid a slump in revenue. With the SGX querying why the 74 per cent fall in revenue outpaced the 56 per cent decline in cost of sales, the group said that while most production capacities had become idle, the company remained obliged to pay factory costs and employees' salaries due to contractual obligations and legal requirements in China.

The group also recorded a net cash outflow from its operating activities as at the end of the third quarter, though to be clear, this outflow has significantly narrowed from the end of the third quarter a year ago.

Plastoform is also obliged to compensate two directors for ending their service agreements earlier than contractually due. But the two directors, who started Plastoform, have agreed to defer the payments until the cash flow of the company has improved.

It said in November that US customers contribute more than 80 per cent of its business. "Under (the) trade war, we foresee that the US government is likely to apply further tariff to more products from China commencing from 2019. With that in mind, we are exploring with manufacturing subcontractors in Malaysia - it may help us to pitch to US customers."

The stock last traded at S$0.028.