Letter to Shareholders
August 22, 2018
Re: Audit Update
Ahh the audit. I feel everyone’s frustrations. I truly do. As shareholders and as myself, I urge everyone to keep in mind that we are invested in a piece of the business and not the audit. The business is doing great! Hands down. However, the relaying of timelines that were provided to the company, and then on to the shareholders which were then not met has created the cloud hanging over our heads that has been, in my opinion, hindering the correlation between the company’s progress and the progress in terms of the market. The company today is in the best shape it’s ever been in however the market is not reflecting that. Frustrating, I get it. I have been avoiding discussing the topic recently as we are still closer then ever before but not yet completed and so any update which is not “The process is complete”, is not a positive one or what anyone wants to hear. Each week that has passed since the last timeline we relayed on to the shareholders, I truly believed was going to be it. However due to the amount of time that has passed, I do believe an update is necessary in all fairness, so the rumor mill doesn’t begin to churn in full force.
The unfortunate part about the whole ordeal is that I’m sure every shareholder, including myself wants a specific reason to be pointed at to say, this is the cause of the delay - but it is just not the case. It is ‘the process’ in general. When a footnote or a line item is modified there is a ripple effect that causes additional changes which just takes time. The fundamentals of the audit have not changed at all throughout this entire process. Just as I mentioned previously, the audited statements to this day stand and read with the same adjustments. As mentioned before, we will be filing revenues for the Fiscal Year Ended 2017 of $8,329,767, which is up $1,698,794 from the $6,630,973 we posted unaudited. This is due to the recording of some transactions only on the net side in error during consolidation. As mentioned before there will now be a ‘couple hundred thousand dollar’ operating loss due to some transactions being pushed out of the year end and into the following quarter. We could have argued this, but determined it to be meaningless in the grand scheme of things and the last thing we want to do is make the process take any longer than it already has. There unfortunately isn’t any single item or aspect that can be pointed to in order to say, “this is why it took longer then expected”. It is just the process in its entirety. Also, when things drag out as long as they have, and with the company continuing to forge ahead, the subsequent events list just keeps growing and that too must be constantly revisited. I feel like most of our 2018 audit will already be completed as it’s being checked for the multi year 2017 audit.
What I can say is that we had some down time for a few weeks due to people involved with the audit not being able to 100% dedicate their time to it, but this week and last they have been going full force to get it wrapped up and out the door. For the first time, CFO Squad and RBSM met this week face to face regarding our file to try and hash everything out and get it wrapped up. So, it would appear that we are close and we are pushing daily for completion. I believe it will happen very soon and we can finally get the elephant out of the room and move on. I want to also clarify that every date that I have ever relayed on to the shareholders regarding completion was given to me in writing and not just a guesstimate on my behalf. After so many times of relaying on what I am being told and seeing the dates missed, I decided to stop providing dates because the frustration I relay on to our auditors is relayed ten-fold onto me by our shareholders which does nobody any good. In hindsight, no dates should ever have been mentioned from the get-go, but I only did it because I kept truly believing the next date had to be it. I am just as anxious as everyone else to have this off our plate. It will come to an end. We are closer today then ever before, with one last open item to complete now. Once the item is satisfied, I believe within one day we can get the signatures. The final process will be to provide an updated shareholder list and legal confirmations to ensure no changes for subsequent matters, of which there are neither so this should take all but a couple hours to do. Then it is just signing of management rep letters and getting the sign off.
I also want to reiterate that the first audit is always the worst. Moving forward, things are much easier for everyone as the auditors are familiar with the file, are going off their own closing and opening numbers, not deriving them from scratch and are more up to speed in general with the file. For an auditor to provide audited statements on let’s say a one-year period, 2017, they have to essentially audit 2016 in order to be comfortable in their opening numbers for 2017. So, on a multi year audit, tack on an additional year even though its not part of the audit.
Let me give a specific example of a single item that takes months the first time around on a first-time audit but a mere couple of days on subsequent audits moving forward:
Auditors have to physically view inventory at year end. We hadn’t even begun our audit on June 30th of last year which was our year end. So, the auditor could not physically view the inventory. When you have to basically do a rollback from the day the inventory was actually viewed, in our case I believe it was around October of last year, you have to tie out every in and out transaction from June 30th to the date of viewing to provide the support to prove inventory was X as of year end. You know how many SKU’s the company has and how many transactions take place in three to four months? A LOT. That literally took months. For 2018, the auditors came and viewed the inventory right at year end. That one item of time savings alone saves months on the process, and there are many similar examples…
At the end of the day, I am just trying to provide some indication of why the process in its entirety takes so long as there is no one singular item that can be pointed at and say, “This is the cause of the delay” which would be so much more satisfying. But the truth is it is the entirety of the process which is extremely time consuming.
A word on the company: This time last year, there were two locations. We are now approaching four and the amount of work being done and success to date by the expansion team indicates we could and should be into double digit locations next year. At this time last year, we didn’t have our own publishing division which resulted from the all cash acquisition of Morning. We now have many very cool and trending titles coming to market before the holiday season. Distribution and fulfillment is gaining significant traction. Orders are increasing, profitability is increasing, exposure and the brand is ever increasing, location numbers are up, revenue is up, coast to coast locations are now in the works…. yet the audit took longer then expected and seems to be casting shade on the outstanding achievements during the process. We are fighting to get this initial monkey off our back, and we will succeed. It is just a matter of time. We are all part of this company because there is one major thing we do right, EXECUTE. And we will continue to do so. I apologize for this initial nightmare of an audit, but we will get past it. In the meantime we keep plugging away to get to signature stage while the company keeps growing by leaps and bounds. We expect everyone’s patience will pay off once audit/uplist is completed, then we proceed to complete the spinoff of I.K. and special dividend back to existing shareholders.
Thank you for owning and being a part of this great company and let’s continue to forge ahead like we do best! #worlddomination
CEO | Amfil Technologies Inc.