This article first appeared in The Edge Financial Daily on August 1, 2017 - August 7, 2017

KUALA LUMPUR: Karambunai Corp Bhd’s external auditor has highlighted a material uncertainty in the group’s financial statements that may cast significant doubts on its ability to continue as a going concern.

Messrs UHY referred to Karambunai’s accounts for the financial year ended March 31, 2017 (FY17) which stated that the group incurred negative cash flows from operating activities of RM53.42 million, and saw current liabilities exceed current assets by RM98.3 million despite having a net profit of RM18.89 million.

“These conditions indicate the existence of material uncertainties which may cast significant doubt on the ability of the group to continue as [a] going concern and, therefore, it may be unable to realise its assets and discharge its liabilities in the normal course of business,” UHY said in its report on Karambunai filed with Bursa Malaysia yesterday.

The auditor said the validity of the going concern assumption was dependent upon the ability of Karambunai to generate sufficient cash flow from its operations as well as the continuing financing support from its major shareholder.

Consequently, the major shareholder has given Karambunai RM29 million in borrowings to enable the group to continue as a going concern.

“Subsequent to the financial year end, the group has obtained advances from the major shareholder of approximately RM29 million for working capital purposes,” noted UHY.

Nevertheless, the auditor has expressed its unqualified opinion on Karambunai’s FY17 financial statements.

Karambunai said in the Bursa filing that it has started the process of addressing the material uncertainty, whereby the financial performance of Nexus Resort & Spa Karambunai, the group’s principal operating unit, has started showing positive results and generating positive operating cash flow.