Replies to post #25953 on SunWorks Inc (SUNWQ)

[Sprech]

The derivative liability will disappear once the notes or whatever it's attached to mature or when the options/convertible promissory notes are all converted into shares. This could happen as early as January, 2015 since I believe most of it matures Dec. 31, 2014. The reason it was so big this last 10q and caused that wonderful $12 mil loss I think was because there was so little dilution so all those unconverted options were just hanging out there. Once we just get this dilution over with I think the derivative liability disappears. IMO. Anyone in finance, please correct me if I'm wrong.

[Sprech]

SCJCPA has great explanation of the derivative liability in the sticky above:

"The derivative is nothing new for SLTD and was on their books last quarter. The derivative liability is basically a stock option with a cashless exercise feature. The cashless exercise feature means the holder of the derivative liability does not have to pay any cash first to exercise it like you would with an option. Derivative liabilities can be recorded as assets, liabilities, or even equity. Because of the way SLTDs’ are structured they are recorded as liabilities which requires them to be adjusted to fair value every quarter. To value them, certain inputs are put into the Black-Scholes model which then spits out a value. To adjust the prior quarter’s derivative to the current fair value, SLTD had to book a $12M loss on the statement of operations. This was a primarily a function of the stock price increasing which made the derivative more valuable to the holders.

When looking over the statement of operations I would look at the “income before other income/expenses” instead of net income. “Income before other income/expense” gives a better feel of SLTD’s operations and excludes the non-operating expenses like the non-cash loss on liability derivatives.

The statement of cash flows also shows that this quarter SLTD has added to the cash flow generated from operations. This is healthy and shows SLTD is actually generating cash flow from legitimate operations."