Spongetech Delivery Systems Inc (fka SPNGQ)

[no_BS_plz]

Thank you Sykes, I mean HH, for giving me another amateurish post to laugh at and ridicule. Pass a little time waiting for the 10K.

I promise you this...I could teach everyone on this board (who doesn't already know how to do it themselves) how to interpret a cash flow statement, along with balance sheet and income statement much faster than you seem to be able to comprehend.

I am going to make it short and sweet so that you can follow along.

- The cash flow statement begins with the net income (from the Income Statement) for the period. In the case of the Q3 10Q, that is nine months ending Feb 28, 2009.

- Working Capital changes from one period to the next consists of increase or decrease of A/P, A/R, and inventory.

- If an asset rises, it is subtracted from cash flow since it has been recorded as revenue (or future revenue in the case of inventory) on the income statement, but the cash has not yet been received. This would include inventory and A/R.

- A/P has the reverse effect. If it rises, it has been accounted for as usually COGS (costs of goods sold) on the income statement, but not yet paid. Therefore, it is added into cash flows for operating activities.

- Because SPNG was a distributor and not the manufacturer at the time, there was very little depreciation. Depreciation & Amortization accounted for only $99K, but will be much larger at the Q1 10Q for 2010 to account for assets purchased from Dicon. Depreciation & Amortization is added back to cash flow, as depreciation is simply an accounting entry lowering the value of an asset which has already been purchased.

- Now here is the part you don't seem to understand HH, so pay real close attention...
Due to $31M in revenues for nine months ending Feb 28, there was an increase in A/R of $10M, not at all unusual for a startup company, who had very little sales prior to the year-ending May 31, 2008.

- This caused a negative cash flow because it was cash accounted for on the Income Statement, but not yet received.

- In order to compensate for this, RME loaned (interest-free) SPNG enough money to account for these future receivables. Once collected, SPNG re-paid RME and is now cash flow positive (per Mr. Metter) and A/R is self-funding, thus the purchase of Dicon IN CASH!!!

- Ask Warren Buffet what he would think of a distributor purchasing its manufacturer IN CASH. I bet I know the answer. He would love to own a part of a cash flow positive company like that. He loves "free cash flow," which by the way, DOES include CAPEX in any accounting world you care to live in.

- You will also notice two more negative entries on the cash flow statement under operating activities. They are "Deposits on Inventory Production" and "Prepaid Advertising" totaling nearly $6M!!

This means they knew operations would continue to soar as they have, so pre-paid a big chunk of the upcoming expenses. Not many companies have the wherewithal to do this, and damn sure not on the OTCBB.

At some point, they decided rather than pre-paying for inventory deposits, they'd just buy the manufacturer...IN CASH!!!

Total for operating activities, AFTER the pre-pays was -170K. The fact that there was $6M in pre-pays AND RME has now been repaid, AND A/R is now self-funding, AND $20M has been earmarked for fiscal year 2010, AND...EACH ENSUING MONTH SINCE FEBRUARY HAS BEEN A NEW RECORD MONTH IN SALES...once again refutes anything you have to say about a precarious cash flow position.

Now, I told you I get paid fairly well for schooling students on an individual basis ($100 - $150 an hour, depending on if I know or like the person, so for you $200), but I am going to do this for free as I am quite sure your money is soon-to-be tied up elsewhere.

Once again, Schooled!!!

BTW - It sure did take you a long time to respond. How many accounting books did that cost you? You should really receive a refund for them as they did not seem to help!!