Here's the answers to your questions Christy.
Before you begin reading, I think I may have spotted the reason for your incorrect projections. I think you believe that the anti-dilutive clause of certain of their debentures should automatically cause increase in derivative losses Q over Q. I don't believe that is correct. I believe that only happens when a triggering conversion occurs, and those (from my look) only occurred in Q1. Also, you're ignoring the revaluation of derivates at close of each quarter would base on the mark-to-market stock price which did reduce substantially in value between Q2 and Q3. The published table of derivates for each quarter report appears to track accurately from the 2010 10-K, the amended Q1, Q2, and Q3.
I copy-pasted your questions in italics into sections with responses. While my answers are based on a more careful walk-through with an attempt to understand you viewpoint of issues, I'm not a CPA or specialist on GAAP standards.....just for the record.
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Your comment about "stock options" is completely invalid, and that being "Hopefully, a good sign on what insiders see in out years for the business." This move by Management is a pure PUMP, meant to drive the PPS up. There is absolutely no foundation, or business reason, for stock options to be granted at that time. ABSOLUTELY NONE!!!!!!!!
This type of "PUMP" is a common technique employed by PINKS. Team Roth has lost close to $20 million since Sept 2009, with no real end in sight. Gross profit on sales is decreasing at an alarming rate. This management team doesn't deserve "stock options".
My comment on stock options is neither invalid nor is the assertion of pure PUMP by them, as a full and legitimate evaluation of the possible reasons for issuance of new options in June could refute those assertions.
I state valid in context to discussion of your absolutely incorrect projection of $6M loss for Q3 on the probable basis of using one-time numbers for projection. Since you have not provided your detailed model on how you achieve such an enormous miss, I had to look at the obvious elements that could have contributed.
I say reasonable for two very important points:
1. Launch of a new product that may justify reward for the team. Note, the options were for not just for "management" (officers/directors) and the words employees (plural) and consultants got my attention, as a full package to everyone involved in a very small company. Good Management shows appreciation for effort by sharing in any success the company achieves. The past effort I'm obviously pointing to is the work preceeding the launch of a new product that, by any reasonable standard, appears to now show justification from the largest single quarter of revenues in the company's history. In fact, the $439,644 is higher by 20% than the prior largest quarter in Q3 of 2009 of $365,407 from my careful revenue of prior reports.
2. Prior options/awards given for good service can get wipped in a reverse split (always a consideration).
If the award had been purely to management and not employees (there are five with only one an officer) and consultants, I would have considered the jesture less meaningful and at least give your tirad more consideration. However, I don't think those non-management folks would appreciate the jesture without it having good intentions. A meaningless jesture would not be appreciated and might even cause a problem with those non-management folks. I also feel your comment is demeaning of those others in not thinking first before making such condemnation of team efforts. Obviously, the issuance at 40 cents for exercise sets a high mark for expectation tied to team success, yet to be fully demonstrated by future quarters/years. Note, the options are five years and fully vested, which tiggered the full book impact in that Q for expense. They come fully vested, as it is for "past services". I can appreciate those things having both perspectives in prior roles and similar rewards and decisions for staff/team efforts.
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My specfic question was in regards to the $2.3 Million GAIN in the third quarter. This gain reduced the 3rd qtr LOSS from over $3 Million down to the reported $760,000 Loss. And per your comment regarding the 2nd Qtr loss of $4,009,697, two major reasons for this were,
"(ii) the charge resulting from triggered anti-dilution provisions within certain convertible debt agreements, (iii) fair value changes within derivative instruments,".
And please note, ASFX is using the accrual basis of accounting and the PPS as fallen about 90% since the mid-September uplisting. The explanation/disclosure made by Management in Derivative Footnote is so WEAK, it borders on FRAUD (IMHO). Please keep in mind the 1st Qtr 10Q was AMENDED due to the Accounting error made in the derivatives calculation, and that error was close to $1 Million in additional losses.
Now please explain the current $2.3 Million GAIN, in light of what happen in the 1st & 2nd Qtr regarding the "anti-dilution provisions" and the "derivative instruments????
Change in derivative valuation is normal (done quarterly), and the change in stock price is at least part if not all of that change per statement details and my intro. It's why I couldn't figure-out your fixation, i.e. was there a problem I didn't see? As PPS rises or falls, the valuation of derivates changes. Retirement and reissuance of notes with derivative impact could also account for some of that total, as a change for quarter in total derivatives and assessed value. In general, adding would be net negative and cancelling net positive. I did note on the prior post that they did extinguish some debt. If there were derivatives involved in retire and/or issue of new, that would also impact the numbers. I usually look more closely at abnormal, which that number, although high, isn't with the conditions noted.
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My estimate didn't include a $2.3 Million Gain but just the opposite. The "anti-dilution" provisions alone is a HUGE Loss. Maybe I miss something in the "TWO CENT" Deal agreement, but either way, common shareholders are screwed.
Anti-dilution provisions/adjustments are often tied to R/S actions or other period events (like maturity/conversion date) on some convertable notes/debentures and would generaly book in the quarter applied. It really depends on triggers and conditions on a debenture. I see none stated for Q2 or Q3, only those booked in Q1 with the associated discussion in the original and restatement section of the amended report. They appear specific to three investors and conversions in that period. Did they goof on Q1? Yes, but they caught it and fixed it in the very next report and filed an amendment for Q1. If every company that goofed on "unaudited" reports and had to restate was taken off the exchanges, there wouldn't be any companies left to trade. The fact it was recognized and fixed at Q2 is enough to give me more confidence they have a good auditor/financial advisor that probably spotted the error during review at mid-year and put them on a good path for the remainder of the year. I'm at a loss as to why you think that should have an impact every quarter or how investors are somehow "screwed". It looks like you assess one-time events as a method to calculate numbers without regard to how true investors or debtholders might operate. I can't predict their actions and unless you have that inside knowledge you'd like to disclose, I would assume you can't either. Tip: Don't count your lost chicks before the eggs are layed.
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Once you have a COMPLETE understanding the Balance Sheet, only then will you have an understanding of whats really going on in ASFX Land. Management isn't really being direct and forthright with the shareholders, but its all there in "black and white". You just have to take about 20 Hours to read and understand it.
As previosly stated in prior post, the "baggage" isn't something I've overlooked. The $9.2M in liabilities is legacy that R/S doesn't outright fix. However, that remarkable topline with new product isn't something I'm going to ignore either. Can they gradually restructure debt, improve on that quarter rev number, and work themselves to cashflow positive and eventually profitable? Well, they are one of the few that had good sales revenue in an otherwise fair to dismal quarter for most small caps (especially the OTC crowd). It's why I moved it from watch to long interest on my board. I had arguments from friends about Apple being dead and of zip interest a decade ago, and, then, along came the iPod.
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Or you can take a "short-cut", and just listen to the "Facebook Gang".
Frankly, it would appear those shoes are more likely on your feet. I'm thinking you are listening to some very poor advise from that or other sources.
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Do you really understand the "anti-dilution" and "derivative" calcutions, from Qtr to Qtr Dan?????????????? But more importantly, does the following explanation/disclosure make sense when comparing it to the 1st (as amended) and 2nd Qtrs???
"During the three months ended September 30, 2011, the Company’s trading price of its common stock fell significantly. As the Company’s trading price is the primarily component in determining the fair value of the Company’s derivative instruments, the Company recorded a mark-to-market gain of $2,257,627 for the quarter ended September 30, 2011."
Am I an expert on "anti-dilution" and "derivative" calcutions [sic]?
No, but I'm no novice at looking at reports. And, unlike most, I do read the filings. Further, I can appreciate that the complexity of the problem and potential for error is always present and not that uncommon in those type of transactions. BTW, were the errors due to something as simple as a financial package that didn't treat the transactions correctly and the auditor's system finally got it right or discovered the problem? I do recognize that they are new to full SEC reporting requirements and are a very small company with limited means and resources. I'd be more upset if they didn't catch it that quickly, as I've seen too many restatements for prior years from others. It's the fully-audited, 10-K, annual reports that I give less slack for errors or omissions.
Do I understand that conversions or warrants with anti-dilutive provisions require assessment and proper treatment (albeit complex and a true auditor specialty/nightmare) in reports for triggering events, like a conversion with those provisions?
Yes, however, your own statements and discussion suggests you don't. If that finally surfaces as what triggered those bad projections you made, I get it. My crystal ball isn't perfect either. Even the pro analysts get it wrong (some too often IMO). Totally ignored the report on Monday evening, thinking it wasn't going to be anything that special. Wrong!
That falling value of share price has the noted effect on derivative value, i.e. they needed to add-back to valuation from prior calculated (book) loss on the derivative value at that mark-to-market point, as previously discussed.
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