The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas’ first-ever crowd-funding platform was branded “no longer solvent at February 2023” by external auditors who warned that $656,500 in “pipeline” revenue could not be used to restore a “net equity” position.

Lambert Longley, LDL & Associates managing partner, told the Securities Commission in a July 3, 2023, e-mail that ArawakX had sought to use this income - derived from projected listing and ‘roadshow’ fees that had yet to be earned - to eliminate its solvency deficiency as at February this year.

He, however, advised the crowd-funding platform that such sums could not be included in its management accounts yet. “The company’s net equity improved to $488,344 at February 28, 2023, but included ‘active user pipeline’ revenues from roadshow fees of $596,500 reported as generated in January and February 2023, and $60,000 from listing fees reported as generated between September and December 2022,” Mr Longley told the capital markets regulator.

“This revenue of $656,500 related to persons who have agreed to list on ArawakX (subject to verification of the details) but for whom services have not yet been delivered because of restrictions imposed by the Securities Commission. As such, we have advised that it would not be appropriate to recognise receivables or revenues for those transactions in the company’s accounts.

“We advised further that these future revenues represent an important source of capital that is expected to be injected in the future, but it cannot be recognised in the management accounts yet. They do not directly impact the company’s solvency at February 2023, but do provide evidence that the company has a source of revenue that will allow it to return to solvency when the restrictions are lifted.”

Mr Longley’s e-mail, which was included among the documents filed with the Supreme Court to support the Securities Commission’s petition to wind-up ArawakX, also revealed that the crowd-fund platform had raised $423,780 in additional capital that the Securities Commission had yet to approve.

But, with ArawakX suffering from $181,734 in negative net equity at end-December 2022, Mr Longley added: “After reversing the active user pipeline revenue from the company’s accounts at February 28, 2023, the company had negative net equity of $168156 based on its unaudited financial information.

“We have not reviewed any financial information after February 28, 2023, but it appears that the company was no longer solvent at February 2023 and continued to have negative working capital, after adjusting for receivables related to the ‘pipeline’ revenues, of approximately $1.076m subject to any additional adjustments that might result from an audit of the numbers.

“The company’s lack of solvency is further illustrated by the fact that a significant portion of our audit fees billed to-date have not yet been paid. Management is of the view that its negative equity and lack of solvency are temporary positions that have resulted from its inability to generate revenues following its dispute with [Jimmy] Campbell and Bank of The Bahamas, which precipitated the imposition of restrictions by the Securities Commission.”

Meanwhile Christina Rolle, the Securities Commission’s executive director, revealed that ArawakX’s compliance officer had provided information to the capital markets regulator “which demonstrated that approximately 30 percent of the KYC (Know Your Customer due diligence) was missing” for the potential new investors in the crowd-fund platform that have yet to be approved.

D’Arcy Rahming, ArawakX’s chairman and chief executive, in a June 8, 2023, e-mail said many of those without documents had “received shares in lieu of payment for services, such as the expertise required in the application process. This is common in Fintech (financial technology) start-ups”. Ms Rolle, though, branded this as “wholly unacceptable” and said the arrangement had never been disclosed to the Securities Commission.

The Securities Commission, which previously received ArawakX’s draft financial statements for the year to end-July 2022 on July 11 this year, said Mr Longley and his associate, Charlene Fox-Deveaux, had noted how $1.9m in equity capital had been raised from investors not approved by the regulator.

“The auditor, as a result, is proposing on the draft to classify these persons as creditors rather than equity investors,” the Securities Commission’s winding-up petition said. It also noted that ArawakX had incurred a “major net loss” for 2022, with the amount of ‘red ink’ growing “two times’ for the same 12-month period - from $908,637 to $1.75m.

Revenues of $211,135 were dwarfed by $1.909m in operating expenses, and the Securities Commission noted that its “negative equity” had “grown substantially” - increasing more than four-fold year-over-year - from -$551,000 in 2021 to -$2.3m.

“Income of $200,000 is only enough to pay the annual rent and cannot cover other operations expenses,” the regulator added. “Note indicated that accounts payable grew by 1,032 percent and additional debts of approximately $500,000 were indicated in notes 11 and 12. That this company does not have sufficient total assets to discharge itself of its debts, hence the equity is negative.