Kitchen Culture's independent auditor, Nexia TS Public Accounting Corporation, has issued a disclaimer of opinion on the group's financial statements for financial year 2021.
Nexia has not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the group's financial statements as at June 30 last year, the embattled household furniture and accessories distributor noted in a bourse filing on Thursday night.
The audit disclaimer of opinion flagged going concern matters; two Singapore Exchange (SGX) compliance notices; the group's investment in associate company Ooway Technology; and the lack of confirmation on the group's bank balances.
Regarding going concern matters, Nexia noted that Kitchen Culture has suffered recurring losses and negative operating cash flows. The group posted a net loss of $11.5 million and negative operating cash flows of $6.6 million for the financial year ended June 30. Its current assets also exceeded its current liabilities by $4.9 million.
Moreover, certain company events that occurred after the financial year-end may have a significant financial and operational impact, Nexia added.
These include the group's former chief executive's legal actions against the company, its interim CEO and independent directors; and its troubled subsidiary KHL Marketing Asia-Pacific, which has applied to place itself under judicial management.
KHL Marketing received a statutory demand over alleged rental arrears and a certain creditor also filed a winding-up application against the subsidiary.
"The above events and conditions indicate the existence of material uncertainties that may cast significant doubt on the group's and the company's ability to continue as going concerns," Nexia said.
On these points, Kitchen Culture's board has concluded that the use of the going concern assumption in preparing the financial statements is still appropriate, as the net losses incurred were one-time charges and KHL Marketing is undergoing restructuring. The company is also evaluating various options to raise additional working capital.
When it comes to the two notices of compliance (NOC) SGX had slapped on Kitchen Culture, which involves an internal auditor and special auditor performing audit work, Nexia said that it is unable to ascertain whether the outcomes of both audits would have an impact on the group's business operations.
Nexia is also not able to ascertain if there will be any significant adjustments to Kitchen Culture's financial statements, as the internal auditor's review and special audit have not been completed yet.
In the first NOC, the bourse operator required Kitchen Culture to commission its internal auditor to expand the scope of its work to look into breaches or potential breaches of Catalist rules, as well as internal control weaknesses as stated in the internal auditor's draft interim report.
In the second, SGX asked Kitchen Culture to appoint a special auditor to not only review the matters raised in the first NOC but also review the circumstances surrounding unauthorised transactions and suspected payroll irregularities, among other duties.
Another matter of concern by Nexia was the absence of a purchase price allocation exercise on Kitchen Culture's acquisition of a 30 per cent stake in associated company Ooway Technology. The exercise involves the determination of the fair value of the investment acquired and the recognition of goodwill or bargain purchase.
The independent auditor also did not receive bank confirmation on Kitchen Culture's bank balances amounting to $11,005. This meant it could not quantify possible adjustments and related information required for disclosure, which could have a significant impact on fiscal 2021's financial statements.
Shares of Kitchen Culture have been suspended from trading since July 12 last year.
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