THE independent auditor of fruits and seafood distributor SunMoon Food Co has noted a material uncertainty regarding the group' s ability to continue as a going concern.

 

The opinion from Nexia TS Public Accounting Corporation highlighted that as a group, SunMoon Food Co and its subsidiaries' cash flows in operating activities amounted to about S$890,000 for the financial year ended March 31, 2021. As at that date, the company' s liabilities exceeded its assets by S$472,000.

 

These indicate a material uncertainty which may " cast significant doubt" on the ability of both the group and company to continue as going concerns, said the independent auditor' s report released on Thursday.

 

Other key audit matters it identified include impairment assessment of the company' s investments in subsidiaries and expected credit losses of trade receivables.

 

As at March 31, 2021, SunMoon Food Co' s investments in subsidiaries included quasi capital loans amounting to S$9.4 million.

 

The group' s total trade receivables then was S$11.3 million, which accounted for around 67 per cent of its total assets.

 

Another independent auditor had expressed a qualified opinion on the group' s financial statements for FY2020 due to its inability to obtain sufficient appropriate audit evidence regarding recoverability of trade receivables from related parties, as well as the nature and appropriateness of the carrying amount of advances to these parties.

 

In a separate statement, SunMoon Food Co said that according to its management' s 18-month cash flow forecast from April 2021 to September 2022, the group will have sufficient net positive cash flow to satisfy its working capital requirements and meet its obligations as and when they fall due.

FRUITS and seafood distributor SunMoon Food Co, which recently announced the bankruptcy reorganisation of three entities including its parent, has decided to take out an interest-free loan and may conduct a share placement.

 

Its board had been unable to assess its financial position as a going concern as there were factors substantially relating to the collectability of account receivables from the Yiguo group, including the three entities.

 

" It is therefore imperative for the board to seek and obtain alternative fundraising options," the board said on Wednesday.

 

Four of SunMoon' s directors became aware earlier this month that three entities - Shanghai Yiguo E-Commerce, Shanghai Winchain Supply Chain Management and Shanghai Exfresh Logistic - were placed under bankruptcy reorganisation under Chinese law on July 30.

 

Shanghai Yiguo E-Commerce is the ultimate holding company of Yiguo General Food Pte Ltd, which in turn holds a 59.9 per cent stake in SunMoon.

 

The 34.9 million yuan (S$6.9 million) interest-free loan will come from Jiangzhong Shiliao (Hubei) Technology (JSHT), said mainboard-listed SunMoon on Wednesday.

 

This amount represents the total that the Yiguo group owes to SunMoon' s wholly-owned subsidiary, Shanghai SunMoon Supply Chain Management (SMF Shanmai) as at July 30, 2020.

 

The lender' s shareholder, Jiangxi Jiangzhong Shiliao Technology, produces " dietary therapy food" with " stomach-nourishing" characteristics, at its manufacturing base in China, said SunMoon.

 

JSHT is also the investor in one of the proposed reorganisation plans for the three entities, up for approval by the Chinese court.

 

SunMoon said that with the loan, it will be in a net positive equity position and its cash flow will also improve. The loan will be disbursed in seven tranches starting on Sept 30, 2020 and ending by March 31, 2021.

 

The company may opt to issue new ordinary shares to repay the loan amounts already disbursed, if JSHT is not the investor in the reorganisation plan approved by the court or if the three entities' reorganisation fails and they must proceed with bankruptcy liquidation.

 

SunMoon has thus inked a placement agreement with the lender, in the event either of these scenarios takes place.

 

For the proposed placement, the issue price is 3.2 Singapore cents per subscription share. This is at a 20 per cent discount to the volume-weighted average price of four cents per share based on trades done in the stock on Oct 9.

 

The potential placement is subject to SunMoon shareholders' approval at an extraordinary general meeting to be convened.

 

On Wednesday, SunMoon' s board said that its newly formed executive committee (exco) is looking to appoint an accounting firm to " support the current management" of the company.

 

The exco - made up of the four directors who first learnt of the reorganisation - earlier appointed a Chinese legal council in China who will work with and assist SunMoon' s legal counsel in Singapore, in relation to the bankruptcy reorganisation.

 

The exco was formed to take over the group' s day-to-day management and operations from the management team after SunMoon found out about the reorganisation.

 

Separately, the exco was also made aware of an enforcement order that has since been resolved and was district from the reorganisation.

 

A Chinese court had issued the order on Oct 9 for an unfulfilled court-certified settlement agreement in the amount of about 7.3 million yuan against SMF Shanmai, relating to certain owings by the SunMoon unit to one of its suppliers, Fu Rui.

 

SunMoon' s board later obtained a letter dated Oct 17 by Fu Rui indicating that the supplier had agreed to withdraw the enforcement order.

FRUIT and seafood distributor SunMoon Food on Saturday updated that its board has various potential fundraising options available, and is currently in talks with a potential investor on a specific funding option.

 

This came amid news that its parent had filed for bankruptcy in China more than two months ago, and that SunMoon' s board is reviewing its ability to continue operating as a going concern.

 

In view of this, and because the company is unable to reasonably assess its financial position and inform the market accordingly, it has resolved that the trading of its shares will continue to be suspended on a voluntary basis.

 

In addition, since its setting up of the executive committee (exco) to take over the group' s day-to-day management and operations, the exco has started formal inquiry proceedings to question and to understand more from the management team about the recent developments.

 

The exco has also appointed Chinese counsel on Oct 16, 2020 and has been advised by its Chinese counsel that the three entities - Shanghai Yiguo E-Commerce, Shanghai Winchain Supply Chain Management and Shanghai Exfresh Logistic - were placed under involuntary (rather than voluntary) bankruptcy reorganisation by creditors under Chinese law.

 

The exco has also created and implemented a framework to work with the current management team to ensure that the company' s business operations can continue to operate. It seeks to reduce the impact of the recent events on SunMoon' s business operations.

 

SunMoon will submit a resumption proposal to the Singapore Exchange (SGX) with a view to resume trading in its securities within 12 months of the date of suspension.

 

If the resumption proposals have not been implemented within six months from the date when SGX indicates that it has no objection to the resumption proposal, the Exchange may remove the company from the official list.