The Case Against DMTA, Part 1-The Setup
The non-recourse note receivable for the issuance of 72 million shares was unusual. The amount was large compared to the previous 174 million outstanding. More intriguing was the lack of a maturity date or a payment schedule as well as any interest accrual. The shares were issued at the bargain rate of a penny on a day when the stock closed at four cents. The business purpose of the share issue was not disclosed nor was the identity of the note issuer. The Company partially disclosed the share issue in the third quarter financial statements that were released on November 14, 2007 with the following footnote explanation, “On September 6, 2007, the Company issued 72,000,000 in exchange for notes receivable in the aggregate amount of $720,000. The note is non interest bearing.”
A press release campaign announcing the intent of an undisclosed Russian buyer to purchase the company for $120 million began on September 21, 2007 and was well underway before the investors had the opportunity to review the footnote disclosure on November 14th. On the day of the share note disclosure, the stock closed at 9.5 cents.
Part 2- Accounting Questions (to be continued)
