English
RussianWe invested and had lots of problems. Negotiations did not work. We considered selling our shares to Nurgazy. That did not work. We tried to buy his shares. We needed financial information. Nurgazy told us that he will provide financial information after we make an offer! That makes no sense. We pleaded and begged for financial information. We should not have to do this. We own 45% of the business. Kyrgyz law and our agreement requires him to provide financial information. But that is not how it works!. We finally got the information. However the numbers looked falsified. See Did Someone Change the Financials? Part 1 for more information.
We analysed the financial information to understand whether the information was falsified.
Declining Sales
Nurgazy gave us financials from January to June 2009. Sales declined each month. Before Nurgazy started Trilight, him and his partner owned Namali. It is the same kind of business and I have Namali’s financial information. The chart shows sales figures from December to June, for Namali and Trilight. Trilight’s figures are in red and the rest are for Namali.
Sales for Namali and Trilight declined every January. That is understandable. After the December feast, people and their wallets needed a break. After January sales increased until summer when half of Bishkek went to Issyk Kul for vacation! You can see these sales trends in all of Namali’s numbers. But Trilight is an exception. Trilight’s sales declined each month. Of course sales can decline, if there was a valid reason.
Net Profit Margin
Trilight net profit margin (net profit/sales) is on a downward trend. On the other hand, Namali’s margin’s fluctuate.
Net profit margin can decline. For example, Namali’s margins declined when equipment was purchased. This is because Namali (and Trilight) do not depreciate assets, so the purchase price of the equipment was deducted.
Trilight’s financials show that very little equipment was purchased. When comparing the equipment list for December 2008 and June 2009, there is an increase of about US$2,000 only. So purchase of equipment does not explain the declining profit margin. What is the explanation?
Rising Salary
Trilight provided salary figures in three categories: factory, sales (selling) and administration. Salary for factory and sales (selling) as a percentage of sales is consistent. However, salary for administrative staff increased significantly even though sales and profits were declining. When comparing Trilight’s figures with Namali’s, the difference is very noticeable.
Why did administration salary keep increasing? I know that Nurgazy started paying himself a salary of 40,000 soms initially. I don’t know how much salary he was paying himself in the financials he provided. He told me that he will not take salary until he got married.
Imprecise Numbers
Here are the salary figures for Trilight from December 2008 to June 2009.
The salary for factory and sales staff is precise. For example salary for factory staff was 235,616 in March. However the salary for administration staff is rounded. The last 3 digits are zero. Are these numbers real or falsified?
For comparison, I looked at Namali’s administration salary from August 2006 to May 2008. The numbers were very precise. Mrs.C, who is also Nurgazy’s sister, was (is) Trilight’s accountant. She was also the accountant for Namali. If she prepared Trilight’s and Namali’s financials, then why are Trilight’s administrative salary numbers not precise?
Taxes
This one is tricky. In Kyrgyzstan, not all companies disclose correct financial information to tax authorities. Hence the amount of taxes paid is most likely not based on actual sales or profits. According to the Cabinet Head Akylbek Japarov, the size of the shadow economy in Kyrgyzstan ranges from 20% to 50% of GDP. Some studies using different calculations say the shadow economy is up to 72% (source: AKIpress).
I calculated taxes paid as a percentage of sales and profits for Namali and Trilight. Perhaps the results are meaningless, but it is interesting to look at!
Did Nurgazy decide to pay more taxes? Or did he reduce the profit numbers?
Changing Financial Information
It is not easy to change financial information. Sales, cost of sales, expenses, taxes and other financial information are all connected. Someone who prepares financial information will know how to change it. Nurgazy does not prepare financial information. Using simple analysis can indicate whether there are discrepancies in the financial information.
The possibility of falsified financial information given to us is an issue. Another issue is incorrect information being provided to other organisations with the goal of raising funding. More on this in the next article. The article after that will look at the first legal action we took.
Note: A criminal case is currently open. These are two most recent letters I received from the prosecutor.
Opening of Criminal Case March 2018
Next article: “I Want to Follow All Laws and Pay All Taxes.”
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