deaf,
If I wasn't clear, this is how I see it, and maybe I can explain my thoughts on this matter.
MSLP sells warrants (options) for a certain price.
Let's say (as an example) they want to sell "the right to buy" 100M shares of MSLP at 0.015 from their treasury of shares to make a few bucks now. This is similar to writing a covered call in options trading.
Now if they sold the shares directly to the public (dilution) when the PPS was at .01, they could of made 1M from selling to the general public (Assuming there is enough buying interest at .01), OR they could chose to sell a warrant for something like 250K . If the PPS is not above the exercise price of the contract at time of expiration, those 100M shares would expire worthless and MSLP could pocket the 250K and not lose the shares from its' treasury.
MSLP sells warrants to try to make money without further diluting the PPS. It's smart IMO, to try to sell warrants on spikes of the PPS, basically as a hedge against the PPS crashing down.
Since the PPS at the end of Q1 was .035, they showed a HUGE derivative liability since they had so many outstanding warrants that were "in the money". Since the PPS had a pump, MSLP actually took a paper loss since they could have made more money by selling them to the general public.
Now at the end of Q2, those same warrants or any other warrants that have not yet vested, are now "out of the money", and in fact will show a profit for MSLP in that same category that was an expense in the last 10Q.
The biggest problem with the Q1 was the fact that the derivative liability column really made the balance sheet look awful, and they showed a slight loss (700k) in the operating income when we were expecting a profit based on the PR. The public really didn't like that since it showed the "same old three little piggies." Most longs here are predicting the first real profitable quarter, explained by stellar international growth, and decreased G&A expenses.
I would not be a seller right now, and I would continue to build to your core position, as your investment budget allows. All IMO, and please correct me if I am wrong on any assumption made here.
