IMPORTANT 10k Accounting Changes
Novices who are reading this 10k need to understand that the NET LOSS includes DERIVATIVE LIABILITY. This is also included in CORPORATE EXPENSES. Derivative liability is a false asset that truly does not exist, at least not until every single warrant is exercised. And that would be if 100% of all outstanding warrants; vested or not, were exercised simultaneously. This amount is recorded in order to deduct the amount from revenue to avoid/defer taxes. It is included in their deferred taxes line.
Below is a direct quote from the 10k explaining what I've just stated. If you look at the balance sheets, you see that derivative liability accounts for over 17 million in corporate expenses and therefore net losses.
We issue debt that may have separate warrants, conversion features, or no equity-linked attributes.
Debt with warrants – When we issue debt with warrants, we treat the warrants as a debt discount, record as a contra-liability against the debt, and amortize the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated statements of operations. When the warrants do not have complex terms, the offset to the contra-liability is recorded as additional paid in capital in our consolidated balance sheet. When we issue debt with warrants that have complex terms, such as a clause requiring repricing, the warrants are considered to be a derivative that is recorded as a liability at fair value. If the initial value of the warrant derivative liability is higher than the fair value of the associated debt, the excess is recognized immediately as interest expense. The warrant derivative liability is adjusted to its fair value at the end of each reporting period, with the change being recorded as expense or gain. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statement of operations. The debt is treated as conventional debt.
