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Lorenzo suspends trading after auditor disclaims opinion, questions going concern assumptions

LORENZO International suspended trading in its shares on Friday after its auditor withheld its opinion and raised doubts about the company's status as a going concern.

Lorenzo, a furniture seller, announced after the market closed on Thursday that auditor Foo Kon Tan had issued a disclaimer of opinion on the company's finances for the year ended March 31, 2018.

In its annual report filed on Friday morning, Lorenzo posted an audited pre-tax loss of S$10.4 million, deeper than the unaudited S$9.2 million loss it had earlier announced.

Auditor Foo Kon Tan LLP said it did not obtain enough appropriate audit evidence to provide a basis for an audit opinion and said there are material uncertainties on the group's ability to continue as a going concern, citing the group's net current liabilities of S$14.6 million and sustained net operating cash outflow of over S$594,000 as at the end of its financial year.

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The company had projected profitability for the next year based on sales and related forecasts, and its ability to source for refinancing of borrowing. But the auditor said that the cash flow projection for the next 12 months resulted in a net cash outflow and the group might not be able to discharge its liabilities.

While some directors and shareholders provided a letter of financial undertaking to provide financial support so the group can meet its liabilities and continue operations in the next 12 months, Foo Kon Tan did not get enough evidence to attest to their financial capability.

It was also unable to establish the completeness and accuracy over inventories of two units.

There was also an over-recognition of revenue and related trade receivables in the period ended Mar 31 regarding the amount due from a customer who had bought goods for S$2 million, the auditor reported.

The auditor also said management did not perform an impairment test, which prevented the auditor from determining if it had to adjust the carrying value of amounts due from its unit as of Mar 31.

Lorenzo has posted three straight years of pre-tax losses, and its latest six-month daily average market capitalisation was S$6.4 million as at Thursday. That put the Mainboard-listed company at risk of being placed on the Singapore Exchange's watch list for possible delisting under the financial entry criteria. Lorenzo has already been on the watch list since 2017 under the minimum trading price criteria for failing to maintain a trading price above 20 Singapore cents and a market capitalisation above S$40 million.

Lorenzo shares did not trade on Friday before the suspension took effect at 11.09am. The counter last changed hands at 1.6 Singapore cents on Nov 29.