COFFEESHOP chain Kimly's executive directors will carry on with their duties while they are out on bail, and their arrest on securities law-related allegations will not affect operations at the coffeeshop chain, the Catalist-listed company said on Wednesday.
Executive chairman Lim Hee Liat told The Business Times on Wednesday - a day after he and executive director Chia Cher Khiang were arrested - that both men will carry on with their duties to ensure the smooth operation of Kimly in the meantime.
"We want to assure everyone that Kimly's day-to-day operations remain unaffected, and our team remains focused on delivering Kimly's growth and expansion plans," Mr Lim said.
Mr Lim and Mr Chia were arrested by the Commercial Affairs Department (CAD) on Tuesday for having been concerned or reasonably suspected of being involved in an offence under Section 199 of the Securities and Futures Act, which pertains to false or misleading statements. A criminal breach under this section carries a prescribed punishment of a fine not exceeding S$250,000 or imprisonment not exceeding seven years, or both.
The Monetary Authority of Singapore and CAD had on Nov 22 requested certain documents and IT equipment from Kimly and from drinks company Asian Story Corporation (ASC), which Kimly had acquired earlier this year before rescinding the deal in recent days.
The documents requested include those relating to Kimly's initial public offering (IPO) and its purchase of ASC in July. Kimly's former non-executive director Ong Eng Sing had to surrender his IT equipment for investigation too.
Mr Lim and Mr Chia are the only executives on Kimly's board, and are seen as key figures for the business.
RHB Research Institute analyst Jarick Seet told BT that Kimly's business of managing and operating 67 food outlets and 129 food stalls is still "very stable", although Mr Lim and Mr Chia are "very crucial" to Kimly, especially Mr Chia.
But he thinks that Kimly is likely to be getting some staff members to share the duties of Mr Lim and Mr Chia to mitigate any key man risk.
Indeed, Kimly in its Nov 29 filing with the Singapore Exchange following the authorities' investigation, announced the immediate appointment of chief financial officer Wong Kok Yoong to the board as finance director.
RHB Research on Dec 3 downgraded Kimly from "buy" to "neutral" because of Kimly's abortion of the ASC acquisition, and because the firm sees little prospect of Kimly making another purchase in the near future.
Kimly posted a 14.4 per cent hike in its net profit to S$5.7 million for the fourth quarter ended Sept 30, while full-year earnings were up 2.1 per cent to S$21.9 million.
RHB Research said in the Dec 3 report that the ongoing investigations are likely to be an "overhang on the stock and generate some negative sentiment", with any potential upside likely to be limited despite reasonable valuations.
David Gerald, who heads the investors' rights watchdog Securities Investors' Association (Singapore), suggested that shareholders await the result of the investigation. He said: "It only relates to the acquisition and does not affect the current business."
Kimly had purchased ASC in July for S$16 million from a Wang Chia Ye with an earn-out payment for Mr Wang depending on the amount of pre-tax profit of ASC but the deal was called off on Nov 29.
It was reported to be due to Pokka Corp's notice to Kimly, on Nov 22, to terminate its manufacturing agreement with ASC.
Mr Wang was an employee of Pokka but became an external marketing consultant this year. His contract has since expired.
Former Pokka International chief executive Ong Eng Sing, also known as Alain Ong , was Kimly's non-executive director from Feb 15, 2017 to January this year. He was alloted 5.14 million shares in Kimly's IPO.
Mr Ong is a nephew of Kimly's lead independent director, Ter Kim Cheu.
Kimly shares were down 0.5 Singapore cents on Wednesday at 24.5 Singapore cents.
What's brewing at Kimly
March 20, 2017: Kimly launches initial public offering (IPO) at 25 Singapore cents per share. Then non-executive director Alain Ong Eng Sing is allotted 5.14 million shares in Kimly in the IPO.
July 2, 2018: Kimly purchases Asian Story Corp (ASC) for S$16 million with an earn-out payment for seller Wang Chia Ye, depending on ASC's pre-tax profit.
Nov 22, 2018: Kimly requests trading halt. Pokka gives Kimly written notification of intention to terminate its manufacturing agreement with ASC.
Nov 27, 2018: Kimly requests trading suspension.
Nov 29, 2018: Kimly ordered by authorities to provide documents pertaining to IPO and ASC acquisition, as well as IT equipment used by its executive directors. Kimly says the company and Mr Wang have agreed to unwind the ASC deal.
Dec 4, 2018: Kimly executive chairman Lim Hee Liat and executive director Chia Cher Khiang are arrested but released on bail.