In its report, PwC said: "Without qualifying our opinion, we draw attention to Note 17 and Note 24 in the financial statements which indicates the going concern assumption is dependent on the ability of the group to continue meeting its obligations under its bank facility agreement.
"If the group is unable to comply with its bank covenants, renegotiate its facility or obtain alternative sources of funding, then this indicates the existence of a material uncertainty that may cast significant doubt about the company's and group's ability to continue as a going concern," PwC said.
Note 17 said a revised facility agreement had been structured "to align against key strategic review priorities initiated by the group". Total facilities available under the revised facility agreement amounted to $75 million, down from $100 million a year earlier.
In Note 24, the directors said they had considered the group's ability to remain in compliance with its bank covenants, which are agreements to keep financial ratios within pre-set limits.
Pumpkin Patch said there were a number of external bank covenants in place and that there had been no breaches.
The main covenants applied to the group's banking facilities through to August 3 next year involved a requirement of the group to remain within 20 per cent of the forecasted earnings before interest, taxation, depreciation and amortisation on a rolling 12-month basis.
Pumpkin Patch turned in a loss of $10.2 million for the year to July 31 from a profit of $5.1 million a year earlier, and has suffered several years of declining turnover. The company's net bank debt rose to $64.9 million in the year to July 31, up 34.4 per cent from the previous year.
When the company reported its annual result in September, chief executive Di Humphries - who was appointed in August last year - said a comprehensive two-year transformation process was under way to improve its position.
"We expect that the full impact of the strategic transformation process will start to be seen in the early part of the 2016 financial year," she said in the annual report. "However we are expecting lower inventory levels and a continued disciplined approach to capital expenditure and other major spend items to be reflected in lower bank debt in the latter part of 2015."
Sweeping changes were made to the board during the year. Jane Freeman, Maurice Prendergast and Sally Synnott stepped down and Luke Bunt, Bruce Cotterill and Josette Prince were appointed.
Pumpkin Patch started off in 1991 with just one shop and a mail order catalogue. From there the company quickly grew its retail network in New Zealand, Australia and Britain.
The company's shares, which were issued at $1.25 each, listed on the NZX in 2004 and quickly found favour with investors, hitting a record high of $4.95 in 2007.
The stock closed down 2.6 per cent yesterday at 38c.
Pumpkin Patch
What does it do?
Sells upmarket, fashionable clothes for young children.
Where is its biggest market?
Australia - representing 62 per cent of sales.
What are the problems?
A high NZ dollar affects overseas earnings. Online sales are down 16 per cent on previous year, mostly due to Australia. Challenging retail conditions generally and supply chain issues
What is a covenant?
Agreements that companies have with banks to retain key financial ratios.
