C2W Music auditor unsure of revenue source, loans unpaid
THE NEW auditors for lossmaking C2W Music Limited are unclear about the completeness of the royalty income stream of the listed music publisher and have qualified their opinion in that regard.
C2W made a net loss of US$18,510 ($2.2 million) at year end December 2015. The company also owes money on its loans.
The music publisher booked yearly revenue of $7,048 from fees and royalties, plus US$14,476 of other income, which comprises sponsorship and copyright sales. In 2014, fees and royalties brought in $8,154 and other income US$160,998. That year, C2W reported a profit of US$746.
For the 2015 financials released this week, auditors Baker Tilly Strachan Lafayette, chartered accountants, said they were unable to obtain "sufficient appropriate audit evidence" of the completeness of C2W's royalty income, which they ascribed to the inability of external monitoring agencies to properly document C2W's repertoire of works with their current technological systems.
Additionally, due to difficulties with the systems of performing rights societies in the region and the reporting by them to the company, the auditors were unable to determine the completeness of C2W's sub-publishing revenues.
"Accordingly, we were unable to determine whether any adjustments to the amounts recorded were necessary," said the auditors in explaining the basis for the qualified opinion.
Further, the auditors stated that the company "derives a portion of its income from sponsorship which cannot be controlled until they are recorded in the accounting records and are, therefore, not susceptible to independent audit verification".
"Accordingly, we were unable to satisfy ourselves as to the completeness of the contributions recorded," Baker Tilly added.
C2W's net loss at US$18,510 far underperforms the initial projections of the company when it went public three to four years ago. In its prospectus leading up to its initial public offering, the company forecast just under US$2 million in net profit at December 2015. Instead, it has accumulated losses of US$1.26 million since its start-up.
"The company has not, to date, been able to realise the projected revenues as it has sought to develop its catalogue of songs. The above factors indicate a material uncertainty that may cast doubt on the company's ability to continue as a going concern and that the company may be unable to realise its assets and discharge its liabilities in the normal course of business," the audited financials say.
Directors still optimistic
C2W, in recent years, announced plans to shift its business model from solely publishing to one which embraces all aspects of music management, which it dubbed its 360 model. However, the company remains one of the worst performers on the junior market of the Jamaica Stock Exchange.
Still, its directors are telegraphing optimism.
"Based on the current plans and strategies being pursued and implemented, the directors and management believe that the company will generate adequate cash flows and profitability which would allow it to continue in operational existence for the foreseeable future," stated the audited financials.
"On this basis, the directors have maintained the going concern assumption in the preparation of these financial statements. This basis of preparation presumes that the company will be able to realise its assets and discharge its liabilities in the ordinary course of business".
C2W Music has two key outside loans - US$47,952 owed to Alydar Investments; and US$35,760 to Gerald Hadeed - both of which are past due.
Neither creditor has exercised the option to convert the loans to equity. C2W says it is negotiating an extension of the loan to Alydar to June 2016. Hadeed has already agreed to entend the loan to June, the company disclosed in notes to its financials.
The company completed 2015 with $21,417 of cash at the bank, which was sixfold the US$3,336 it held in 2014. However, its working capital was in deficit by US$150,000.
C2W launched as a start-up on the junior stock market in 2012. Ownership of the company is held primarily by Ivan Berry, 45 per cent; chairman Derek Wilke, 20 per cent; and two accounts controlled by Stocks and Securities Limited, 27.9 per cent.