CMON trading suspended after audit issues

icv2.com/articles/news/view/45581/annual...FetZ93-IG4TgyafmFpxE

Trading in the stock of game publisher CMON Limited on the Hong Kong Stock Exchange was suspended on April 1, after the company warned of audit issues and said it would delay release of its annual report for 2019.

Three audit issues were identified. First was “a distributor agreement with transaction value of approximately US$1.5 million.” The only CMON distribution deal we reported in 2019 was the new exclusive distribution deal with Asmodee NA (see “CMON Enters Exclusive North American Distribution Deal with Asmodee NA”), although there could certainly be others of which we’re not aware. What the amount represented and why there was an audit concern was not disclosed.

The second audit issue was “the rationale and substance of the significant increase in the prepayment balances as at 31 December 2019.” Again, no detail was provided.

The third audit issue was the most concerning for investors and other stakeholders: “other information as required by the auditors for their audit procedures on certain audit issues including ‘going concern.’” A “going concern” opinion is given by the auditors when it’s believed that the company might have a change in valuation of its assets because there’s a risk it would no longer be a going concern. Whether a going concern opinion is included in an audit report is obviously a major step, and a company would typically try to provide as much information to the auditors as possible to persuade them not to include it.

It’s not clear where the going concern issue comes from. Although CMON reported a down year in 2018, it was profitable (see “CMON Reports Down Year in 2018”), and had what seemed like a manageable loss of $455K in the first nine months of 2019.

The only eye-popping number in those two reports (2018 annual report and interim report through September 30, 2019) was the $2+ million the company spent on professional advisors for its move from the GEM to the Main Board of the Hong Kong Stock Exchange over those 21 months. That move took place in November 2019. And while the amount may be a big number, it didn’t put the company that far negative through the first nine months of the year.

Two outside directors, including the chairman of the Audit Committee, resigned in early April, after the stock stopped trading. Both said there were no disagreements with the board, but the timing creates less-than-favorable optics.

Questioning the veracity of a distribution deal is a thing, but it's not crippling. Concern over the "balance of prepayments" seems like a direct question to CMON's business model if they, like Mammoth, have been using KS not just as a marketing platform, but as a way to kite checks from project to project. But, as the article notes, the killer is the third item, which means they're questioning whether the company can even stay in operation. That sounds like they may not be able to keep those checks floating in the near future; again, if that's what they're doing. Otherwise, it's more like "Hey, you have way too much debt to be sustainable and you're reaching a point where you can't even keep up with it; to say nothing of growing."

I'd laugh so hard if CMON shits the bed. It would certainly be a wake up call not just for gamers, but for KS as a whole - CMON has created some of the larger KS projects across the whole platform. Ideally KS would disallow projects from being created until the prior one is completed, but we know that will never happen.

How the fuck do you blow $2M on advisers when your prior year revenue was only $28M ? Thats insane.

As the article mentions, when auditors question the forward viability - "going concern" that isn't exactly comforting.

If they implode it would make the UP FRONT Kickstarter fiasco look like chump change.

Msample wrote: I'd laugh so hard if CMON shits the bed.

The "I toldja so!" chorus would be deafening.

Garbage company making garbage games does garbage business stuff. *shrug*.

fightcitymayor wrote:

Msample wrote: I'd laugh so hard if CMON shits the bed.

The "I toldja so!" chorus would be deafening.

I am rehearsing a soprano solo for that event.

Michael Barnes wrote:

fightcitymayor wrote:

Msample wrote: I'd laugh so hard if CMON shits the bed.

The "I toldja so!" chorus would be deafening.

I am rehearsing a soprano solo for that event.

I'm picturing Barnes in a choirboy getup, solemnly grasping an oversized hymn book, standing tall in the balcony of St. Paul's Cathedral, and to the tune of The Hallelujah Chorus belting out a high yet hefty refrain of...

fuuuuuuck these shitbags!
fuuuuuuck these shitbags!

fucktheseshitbags,
fucktheseshitbags,

fuck theeeeese shiitbaaaaaaags!

Michael Barnes wrote: Garbage company making garbage games does garbage business stuff. *shrug*.

And a nice reprint of Modern Art.

but but but...

Blood Rage!

CMON defaulting outstanding KS orders would be absolutely wild.

I'm curious to know who owns the stock.

Hopefully Eric Lang wasn't compensated mostly in stock options.

drewcula wrote: but but but...

Blood Rage!

I donated that game along with Rising Sun, and have felt zero regret. They were both the Kickstarter FOMO editions or whatever but a local game club was thankful to have some hot titles in their library and I didn't have to deal with haggling or shipping. Win-win. I think the only CMON game I own now is Ethnos, which is a fucking great game.

themothman421 wrote: I think the only CMON game I own now is Ethnos, which is a fucking great game.

Yup!

Glad I got in in the ground floor with Ethnos...

Anyway, would there be a gnashing if teeth of CMON imploded? Besides the as-of-yet unfulfilled Trudvang: Taupe Adventures in Bag Building, and the Yearly Eric Lang Area Control Product, is there real fan investment in CMON per se? Their brand seems pretty decoupled from the designs that hitch themselves to them. Aside from Zombicide, I guess.