KITCHEN Culture's independent auditor, Nexia TS Public Accounting Corporation, has issued a disclaimer of opinion on the group's FY2021 financial statements.

Nexia said it 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 Jun 30, 2021. Thus, it did not express an opinion, the embattled household furniture and accessories distributor said in a bourse filing on Thursday night (Mar 3).

The audit disclaimer of opinion flagged going concern matters; 2 Singapore Exchange (SGX) compliance notices; the group's investment in associate company OOWAY Technology; as well as 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 S$11.5 million and negative operating cash flows of S$6.6 million for the financial year ended Jun 30. That being said, the group is in a net current assets position, with current assets exceeding its current liabilities by S$4.9 million as at end-June 2021. 

Moreover, certain company events which 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; as well as the group's 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.

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"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 2 notices of compliance (NOC) SGX slapped on Kitchen Culture, which involves an internal auditor and special auditor performing audit works, Nexia said 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 auditors review and special audit has yet to be completed.

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 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, which involves the determination of the fair value of the investment acquired and the recognition of goodwill or bargain purchase.

Nexia said it was unable to obtain sufficient appropriate audit evidence over matters like valuation and purchase price allocation, the share in net loss of OOWAY, the carrying value of the investment and quantifying any impairment adjustments on the FY2021 financial statements.

The independent auditor also did not receive bank confirmations on Kitchen Culture's bank balances amounting to S$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 Jul 12, 2021.

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• Kitchen Culture lodges report with CAD on payroll irregularities; board responds to SGX

• Kitchen Culture's ex-CEO claims defamation by directors

• SGX RegCo orders Kitchen Culture to appoint special auditor

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