United Food Holdings Limited (the “Company”) has been placed on the Watch-List since 6 June 2019, after recording pre-tax losses for 3 consecutive financial years and average daily market capitalization of less than S40 million. On 6 September 2021, the Company announced that its independent auditor had issued a disclaimer of opinion on the financial statements of the Company and its subsidiaries (the “Group”), citing concerns among others on the veracity of transactions by a subsidiary, Hebei Xingrun Shengwu Keji Gufen Co., Ltd (河北兴润生物科技股份有限公司， “HBXR”). The auditors noted that HBXR’s minimal production activities did not support its production output and highlighted its doubts about the veracity, existence and completeness of three bank accounts of two other subsidiaries, Shenzhen Yi Kei Logistics Supply-Chain Ltd. (深圳壹凯物流供应链有限公司, “SZYK”) and Shenzhen Bao Yao Agricultural Products Ltd. (深圳宝耀农产品有限公司, “SZBY”). Following the disclaimer of opinion, the Company requested for a trading suspension on 8 September 2021 as it was unable to reasonably assess its financial position. Pursuant to SGX RegCo’s directive, KPMG Services Pte. Ltd. (“KPMG”) was then appointed by the Company as its special auditor on 17 December 2021 to investigate the issues highlighted by the auditors. KPMG reported its findings directly to SGX RegCo and the Company’s Audit Committee, and issued its final report on 5 August 2024.
KPMG’s review was limited by the lack of supporting documentation for most of the transactions under review. Based on incomplete supporting documents and verbal representations from the personnel interviewed, KPMG reported, among others, the following:
- The Company acquired HBXR, Chengde Purun Shengwu Zhiyao Co., Ltd (承德普润生物制药有限公司, “CDPR”) and Benchmark Trade Limited (“Benchmark”) in September 2018 for the purpose of acquiring a patent held by HBXR to produce an antioxidant product, L-Ascorbyl Palmitate (“L-AP”). The forecast of production activities of L-AP, sales quantities and estimated sales revenues used in the valuation of the acquired entities post-acquisition were based on “best case scenarios” and not what was most probable based on historical performance of the these companies;
- Production activities were stalled in February 2019 as natural gas was not supplied to the production site. The production activities resumed briefly between September 2019 and December 2019 using steam boilers and natural gas cylinders, of which the existence and use of such energy source could not be verified due to the absence of supporting documentation. From January 2020 onwards, production activities ceased due to the high costs of natural gas cylinders. The Company then outsourced the production of L-AP to a third party, Huizhou Kangweijian Biotechnology Co., Ltd (惠州市康维健生物科技有限公司, “Kangweijian”) and thereafter, purchased the L-AP from Kangweijian to on-sell to its customers;
- During interviews with KPMG, the Company’s personnel informed that Kangweijian had used HBXR’s patent to produce L-AP. There was, however no formal patent licensing or royal agreement between them;
- The Company had other transactions with Kangweijian, which included the sale of L-AP equipment to Kangweijian through another entity named Huizhou Defu Industrial Co., Ltd (惠州市德福实业有限公司, “Defu”) and an extension of a non-interest-bearing loan to Kangweijian to expand its L-AP production capabilities. The L-AP equipment sold by the Company to Kangweijian through Defu were purchased from entities connected to Kangweijian through common directorships, shareholdings and legal representatives;
- The legal representative of Kangweijian and Defu during the material time was Mr. Zeng Qiwen, who is also a friend of Ms. Song. Two key management from the Group held concurrent management roles in Kangweijian as Ms. Song explained that the appointments were meant to protect the Company’s interest and obtain oversight on Kangweijian’s finances;
- For the three bank accounts under review, KPMG was unable to independently obtain bank statements and bank balance confirmations for two of those accounts as the Company claimed that the corporate seals were lost during the office relocation of SZYK and SZBY in November 2021. Bank confirmation obtained for the third bank account showed that the account was closed on 30 March 2020 with a nil balance; and
- As an alternative procedure, KPMG reviewed the available accounting records provided by the Group. Notwithstanding the dormant status of SZYK and SZBY, there were unusual cash receipt and payment transactions via, inter alia, the three bank accounts from January 2018 to December 2021 which lack adequate supporting documents to explain for the nature and purposes of these transactions. These payments included RMB 174 million made to parties connected to Mr. Zeng Qiwen. The Company had recovered these payments, except for a sum of RMB 85 million in respect of the Company’s agreements with Shenzhen Shareihome Technology Co., Ltd. (深圳台丰科技有限公司, “SST”), in which Ms. Song holds an effective interest of 14.7%.
Arising from the above findings, KPMG highlighted potential non-compliances with the Listing Rules in relation to directors’ failure to, among others, (i) make all reasonable enquiries of the acquisition of HBXR, CDPR and Benchmark, (ii) ensure complete and accurate disclosure of the acquisition in the circular, (iii) disclose the alternative arrangements made to secure the supply of L-AP for sale and (iv) maintain an adequate, effective and sound system of risk management and internal controls. KPMG also raised concerns on potential related party transactions having considered the relationships surrounding the entities that were connected to Company’s transactions with Kangweijian. SGX RegCo will refer KPMG’s findings to the relevant authorities.
Following the issuance of the KPMG’s report on 5 August 2024, the Company had requested for additional time to provide SGX RegCo with supplemental information to address concerns raised in KPMG’s report. SGX RegCo had reviewed the supplemental information, but noted that it did not address the concerns raised by the independent auditor and KPMG.
SGX RegCo’s Directive
Trading in the Company’s shares has been suspended since September 2021 due to its unclear state of affairs and the disclaimer of opinion by the independent auditor with regards to its financial statements for the financial year ended 31 March 2020 (“FY2020”) and 31 March 2021 (“FY2021”). The Group’s financial statements for FY2022 and FY2023 continued to be the subject of a disclaimer by the independent auditor. As the Company is unable to address the concerns highlighted by the independent auditor and has not been to-date able to fulfil the criteria to exit the Watch-List, SGX RegCo will be directing the delisting of the Company.
