YUUZOO was down 2.4 Singapore cents or 12 per cent to S$0.176 on Thursday at 12.42 pm, after its auditors, Moore Stephens LLP, in its finalised auditors' report included a disclaimer of opinion over the firm's audited FY15 consolidated financial statements.
It said that it "(has) not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion". It cited as issues the lack of comparable business models, the lack of an operating track record, and the sensitivity of the valuation models to underlying parameters.
In a response, YuuZoo, a social media, e-commerce and entertainment company, sought to explain its business model, saying that it works through an international network of franchisees. Franchisees buy a licence to operate the YuuZoo business in a particular market, and pay for the licence in cash, in shares, or both.
This franchise model has been structured for YuuZoo by a Big Four accounting firm which had said that the value of the shares received by YuuZoo as payment for licences are to be recognised as revenue.
The auditors do not disagree with this.
YuuZoo has obtained two independent valuations of the value of the shares in cases where the payment has been made in shares. Both arrived at approximately the same range.
The company has also signed term sheets with third-party investors to sell some of the shares that it has received as payment at the same value as the two valuations.
"The management and the board believe the expert opinions expressed by the 1st Valuation, the Validation and the 2nd Valuation, as well as the term sheets signed, all of which confirm a value within the same range, represent the 'fair value' required under IFRS (International Financial Reporting Standards) to be included in the financial statements," it said.
YuuZoo said: "The company finds it surprising that as the auditors do not express an adverse opinion, they have not been able to form the basis for an audit opinion, despite the company providing the auditors with two separate valuation reports and one validation report."
The auditors said that they do not intend to stand for re-election at the annual general meeting to be held soon. They have suggested that YuuZoo should look for an auditor equipped with the industry knowledge required to address the audit needs of YuuZoo.
YuuZoo said that it has started the search for a new auditor that has full knowledge and understanding of the modern digital business space. It has begun discussions and expects to make an announcement of its new auditor shortly.
Once appointed, the new auditors will immediately be tasked to re-audit the 2015 financial statements to address the only outstanding issue: the valuation of the shares received as payment for franchise licences.