KPMG LLP, the auditors of Centillion Environment & Recycling, has included an emphasis of matter in their report on the company’s consolidated financial statements for the financial year ended 30 June 2010.

During the year ended 30 June 2010, Centillion’s subsidiary, Metech Recycling, Inc., breached a covenant of a mortgage note by failing to comply with the debt service coverage ratio at all times.

As a result of the covenant breach, borrowings of $4.8 million (of which the non-current portion of $4.4 million has been reclassified to current liabilities) could be called for repayment at any time by the bank. At the date of this report, the bank has not demanded for immediate repayment of the loan.

To enable the group and the company to meet their obligations as and when they fall due over the next 12 months, the group and the company have been in negotiation with a potential buyer for its China operations, classified as held for sale. Discussions are also ongoing to obtain a bridging bank loan.

KPMG LLP says Centillion’s ability to continue to operate as a going concern depends on the successful completion of the intended sale of the China operations and the management’s ability to raise financing as and when required.

The group and company made a loss of $19.1 million and $14.0 million respectively for the year ended 30 June 2010. Its net current liabilities (excluding assets and liabilities classified as held for sale) at 30 June 2010 was $7.0 million for the group and $0.8 million for the company.