Kitchen Culture: Auditors cite material uncertainty on going concern

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Kitchen Culture Holdings‘ auditors have cited material uncertainties which cast “significant doubt” on the company’s ability to continue as a going concern, according to a filing to SGX late Thursday. 

The auditors’ remarks, which were in the filing, noted it was making a disclaimer of opinion on the results due to an inability to obtain sufficient audit evidence on significant matters. 

That included investigations by a special auditor in relation to a notice of compliance from Singapore Exchange Regulation (SGX RegCo), including payroll issues, unauthorised transactions and potential internal control weaknesses, the filing said.

The auditor said that without knowing the outcome of the investigations, the impact on the business operations couldn’t be determined.

Among the concerns, was the lack of a valuation and purchase price allocation (PPA) of the 2020 acquisition of a 30 percent interest in associated company OOWAY Technology, the auditors said. Without the PPA, the auditor said it was unable to determine a carrying value for the investment, the filing said.

According to the filing, the board has prepared its financial statements on a going concern basis, noting net losses included one-time charges, the net current assets position of S$4.9 million and efforts to raise additional working capital as well as the ongoing corporate restructuring of subsidiary KHL Marketing Asia-Pacific, which contributed the bulk of the group’s operating losses. 

In response, the auditors stated: “We are unable to obtain sufficient audit evidence regarding the likely outcome of these measures and assumptions. Therefore, we are not able to form an opinion as to whether the going concern basis of presentation of the accompanying financial statements of the company is appropriate.”

The auditor also cited recurring losses and negative operating cash flows, with the net loss for the 12 months ended 30 June 2021 of S$11.51 million, wider than in 2020. 

Other items the auditor cited concerns over included the company’s former CEO Lim Wee Li initiating legal actions against the interim CEO Lincoln Teo Choong Han and certain directors — William Teo Choon Kow and Ang Lian Kiat — as well as the company, with Kitchen Culture providing indemnity letters to the individuals.

Subsidiary KHL Marketing Asia-Pacific has received a statutory demand for alleged outstanding rental arrears, followed by a winding up application from a creditor, with the subsidiary also seeking to place itself under judicial management, the auditor noted.   

Read more details of the auditors’ statement.