Yes the SPNG "Cash Flow" statement was misrepresented, no big deal (just a reclass adjust). But there are no grants and the "40% stock" was properly acounted for on the Balance Sheet and Income statement IMO, but I didn't do an audit.
christy,
Are we reading the same set of financial statements here or not?
The financial statements I'm reading are those of Spongetech (SPNG). Here's the bottom line of the operating section of the cash flow statement as of Feb 28, 2009.
Cash provided (used) by operating activities (170,017)
That figure is overstated by a whopping $9,722,405 -- that's what I'd call a material amount, and bigtime material at that.
But here's the good stuff, from page F-13 under the Related Party Transactions heading.
In July 2008, RM Enterprises International, Inc., a company that is our majority stockholder and which is controlled by our officers and directors, agreed to grant the Company the right, exercisable by the Company at any time on or prior to February 28, 2010, to repurchase all or any portion of the 267,154,132 shares issued that RM Enterprises International, Inc. had purchased from the Company since January 1, 2008 at the original price paid by RM Enterprises International, Inc. to the Company for such shares, or an aggregate of $4,918,432.46 for all of such shares. Such shares were issued in tranches at the time of each of the advances of funds to the Company at a 40% discount from the market price on the date of each such advance. The average per share issuance price for the shares was $0.0184.
Okay, so a 40% discount to the purchase price paid by RME would work out to [4,918,432.46 / (1 - 0.40)] or $8,197,387
and [$8,197,387 - 4,918,432] = $3,278,955
That discount in the amount of $3.28 million isn't reflected anywhere in the income statement, and should have been, under SFAS 123.
And that's before taking into account the following transactions, from page F-14 of the 10-Q linked above:
During the three months period ended November 30, 2008, the Company issued an aggregate of 409,953,442 shares of common stock to RM Enterprises International, Inc., a related party, in consideration for the conversion of an aggregate of $6,319,569 in debt or an average of $0.015per share.
During the three months period ended February 28, 2009, the Company issued an aggregate of 306,412,290 shares of common stock to RM Enterprises International, Inc., a related party, in consideration for the conversion of an aggregate of $1,188,970 in debt or an average of $0.0039 per share.
Let's take the second of those two transactions, just for instance.
SPNG doesn't address the question directly, but a quick review of the chart for the quarter from Dec 1, 2008 - Feb 28, 2009 (linked below) suggests the 306,412,290 shares issued to RME in exchange for the conversion of the $1,188,970 in debt or an average of $0.0039 per share was also done on preferential terms as well, and was also not expensed in the income statement as it should have been.
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