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I think Sello's logic doesn't have a problem. They would not be retroactively adjusting the balance sheet and P&L. What would happen if they can avoid the penalties is that they would include a credit in the new quarter, totally or partially offseting the provision left in the previous quarter P&L. As a result, the balance sheet for the new quarter would reflect the difference. It is a normal practice to make accruals with estimated costs when you close a quarter and then, when the actual costs get accounted, the difference is reflected in the following period. I hope I make myself clear, since English is not my native language. This is the reason why I haven't posted before, this my second post ever.
One problem with your logic
They can't retroactively adjust the balance sheet and P&L for an event (the 14c) occurring this year. The 10-K was as of Oct 31, 2018. The balance sheet is for a point in time.
I agree with you. That makes sense taking into account what was stated in Q3 Fiscal 2018 Results PR
Q3 2018 results were significantly impacted by the inclusion of one-time line items associated with the reorganization and a large, conservative reserve for certain default provisions of the convertible notes payable. We expect that much of this reserve will be reversed in a future quarter.