Pluvia, this is pretty interesting.
From the 424B2 (prospectus) filed by COII on Jan. 8, 1999, it documents that proceeds from some private stock placements were not deposited directly to the company, but were deposited into an account over which Johnston had sole control. And the accountants could not verify that all the money was turned over to COII.
PROCEEDS FROM THE SALE OF SECURITIES. In certain instances in years
prior to 1997, primary contributors accepted cash raised through the issuance of
short term promissory notes and private placements of securities, including
shares of the Common Stock and debentures, on behalf of the Company. Such
amounts were deposited into the separate bank accounts of certain primary
contributors and either transferred directly to the account of the Company or
transferred to third parties in payment of debts of the Company. In a majority
of these instances, Thermal Imaging, Inc. ("TII"), an affiliate of Mr. Johnston,
the Chief Executive Officer of the Company, received funds raised from investors
and deposited the amounts in an account over which Mr. Johnston had sole
control. The funds received in the TII account were commingled with other assets
of TII.
In an effort to account for such proceeds, the auditors have assumed
that all funds raised during the past three fiscal years which were not paid by
investors directly to the Company were initially transferred to TII. In those
cases where reliable evidence is not available to accurately verify the
subsequent transfer of funds from TII to the Company or to creditors of the
Company, or to distinguish contributions made by TII to the Company in return
for shares of the Common Stock from transfers of funds collected on behalf of
the Company for which shares of the Common Stock had been issued to subscribers,
the discrepancies have been treated as compensation to Mr. Johnston and charged
as a compensation expense to the Company and reflected as operating, general and
administrative expenses in the Consolidated Financial Statements included
elsewhere in this Prospectus. For example, this amount for the fiscal year
ending June 30, 1997, was $152,498, as reflected in the Summary Compensation
Table. This resulting amount constitutes the total of all compensation paid
during such period to Mr. Johnston. |
