The board game publisher, CMON Limited (formally known as Cool Mini Or Not), has recently been in a spot of bother, and perhaps faces the possibility of closure after a number of issues were highlighted during a recent audit which have delayed its financial statements for 2019 and caused trading in the company’s stock on the Hong Kong stock exchange to be suspended.
CMON is a prominent board game publisher, boasing numerous smash hit games such as Blood Rage, Rising Sun, Arcadia Quest, the Zombicide franchise and A Song of Fire and Ice miniatures game, to name but a few.
There is confusion as to what is actually going on and it stems from three issues highlighted in the audit.
- Issue 1: "A distributor agreement with transaction value of approximately US$1.5 million."
CMON’s well-known exclusive distributor agreement with Asmodee has made people speculate as to why this has been flagged as an issue.
- Issue 2: The rationale and substance of the significant increase in the prepayment balances as at 31 December 2019."
Again, there is no substance available on this but it could mean a large sum of money was paid by the company to someone.
- Issue 3: "Other information as required by the auditors for their audit procedures on certain audit issues including ‘going concern’."
This "going concern" issue is perhaps the most alarming of the three, because it means that in the opinion of the auditors the company may be close to bankruptcy.
Where CMON sought to address these issues and in its April update it stated:
“Some of you may have read about our public announcement where we have a legal requirement to report on any issues we face as a public company. We are aware that there are articles incorrectly attributing meaning to “going concern” that may not be wholly accurate.
"Going concern" is a highly technical accounting term referring to a situation where net current liabilities are greater than net current assets. This happens for CMON from time to time since we record funds received from Kickstarter as both a liability and an asset - the money is an asset we received from our backers, but it is also a liability we owe to them that is not fulfilled until we ship our products.
Since we use the funds to pay for molds, production and development of those products, and some of these are considered "Non-Current assets”, the asset column goes down as we use the money to fulfill the development of the game. Once we ship the game, the project goes back into the black because we can take the liability for the Kickstarter funds off the books.
The tricky part is when this crosses a financial reporting year, which happens often for Kickstarter projects, and if that happens it automatically triggers this technical nomenclature, and if you review our prospectus you will see we have reported this in the past.
This accounting treatment has nothing to do with the underlying strength of the company or our ability to make games and deliver them to you. Please rest assured that despite the current state of the world, CMON is and will be in the business of making great games for many years to come.”
CMON’s statement looks to reassure its thousands of Kickstarter backers and customers, and to a layperson the explanation given makes some sort of sense, especially if you really want to believe that the company will pull through and will continue to prosper.
However the statement did not tackle issue 1 or 2, nor the reason why the company’s financial statements have been delayed. The going concern issue is a worry, because you have to credit the professional auditors with the skills and credibility to do a thorough job, and surely they looked into the nature of CMON’s business and have taken that into account. They do not issue going concern opinions lightly.
CMON was profitable in 2018 (despite it not being as good as previous years) in in the first nine months of 2019 they suffered a loss of $455,000, which isn’t terminal by their standards. All-in-all, the situation is very unclear, but love them or hate them, if CMON ceased to be, it would be a dark day for the board game industry.
Perhaps a note of positivity is that their latest Kickstarter – Ankh – is currently funding at almost $1.7 million with 12 days of the campaign still to run! (And Kicktraq currently predicts it will raise a total of almost $4 million.) Almost 17,000 backers are confident that CMON can continue to deliver.