Documents released Wednesday by a federal bankruptcy court show that Express Grain Terminals was in severe financial trouble almost two years ago but the company allegedly tried to cover it up by doctoring an independent auditor’s report on the company’s condition.
The U.S. Bankruptcy Court of the Northern District of Mississippi unsealed two versions of a financial audit of Express Grain for the year ending June 30, 2020. One, according to the Mississippi Department of Agriculture and Commerce, is what the company submitted as part of its application for grain warehouse licenses in 2021. The other, the state agency says, is what was actually prepared by the Ridgeland-based accounting firm Horne LLP.
The differences are numerous and glaring.
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The supposedly true audit showed Express Grain had an operating loss of nearly $21 million in 2020, compared to a nearly $10 million profit the year before. The owners’ equity in the company, or its net worth, had plummeted from almost $23.6 million to $2.3 million. But it showed it still had some $846,000 in cash on hand. The allegedly “doctored” audit showed the company was still making money, even though its profit had fallen from almost $5.9 million in 2019 to about $162,000 in 2020. It showed the owners’ equity a still healthy $25 million, but almost no cash on hand — just $3,865
The most troubling difference was the disappearance of the auditing firm’s warning that the Greenwood-based company appeared to be on the brink of failure and that its expansion into processing biodiesel was underperforming.
Under the heading “Emphasis of Matter Regarding Growing Concern,” the auditors wrote that “the Companies have accumulated losses of approximately $21,600,000 since its inception and their total current liabilities exceed total current assets at June 30, 2020. The biodiesel facility was placed into service during fiscal 2019 but has not operated at full capacity. The Companies have a line-of-credit with a balance at June 30, 2020 of approximately $24.6 million that matures within the next twelve months. These conditions raise substantial doubt about the Companies’ ability to continue as a growing concern.”
The report later states that Express Grain is not in compliance with the terms of its loan from its largest creditor, UMB Bank, which the company owes at least $70 million. This statement is also removed from the allegedly falsified audit document.
That document, submitted on May 27, 2021, by Express Grain to the Department of Agriculture, shows Horne issued its audit report to the company on Feb. 3, 2021. The supposedly true audit report has an issue date of May 20, 2021.
Express Grain filed for Chapter 11 bankruptcy protection in late September and has been working on restructuring with CR3 Partners LLC. Amended bankruptcy filings show Express Grain owes at least $156 million, including tens of millions of dollars to farmers who delivered grain to the company for which they were not paid. Express Grain sent a letter to employees last week warning it could start massive and permanent layoffs on Jan. 28 if it is unable to secure financing to keep its operations going. In addition to its soybean processing facility, Express Grain operates storage facilities in Greenwood, Sidon and Minter City.
It has roughly 150 employees.
Among the other telling differences in the two audit reports are the letterheads appearing on the first page. In the document submitted by Express Grain to the Department of Agriculture, the letterhead is one that Horne LLP no longer uses, according to the state agency.
The Department of Agriculture alleged in a filing last month with the bankruptcy court that the changes to the audit report “were made with intent to deceive the Department concerning Express Grain’s true financial condition and were willful, intentional, malicious, deliberate and were not the result of an honest mistake, inadvertence or oversight.”
The department has scheduled a hearing for Monday to determine whether to suspend or revoke Express Grain’s warehouse licenses. Should the company lose those licenses, it would in effect be shut down.
The Agriculture Department is also planning to argue Tuesday to U.S. Bankruptcy Judge Selene Maddox, who is handling Express Grain’s case, that she should relax Express Grain’s bankruptcy protection so that the state agency could investigate the company further.
- Contact Kevin Edwards at 662-581-7233 or kedwards@gwcommonwealth.com. Contact Tim Kalich at 662-581-7243 or tkalich@gwcommonwealth.com.
