auditors headache

The 2 page commentary by FAS auditors on the 30/6/12 accounts was extraordinary, but the audit review of the 31/12/2012 accounts looks even more challenging for the auditors.

So here is my best guess as to where FAS is at as it seems clear that its secured creditors have started to move.
Of course at 30 June 2012, FAS nominally held 23.297m shares in GWR. However 23m of these were held as security for 3 loans, however 8m were sold in October for circa $1.8m and it now appears that the second secured creditor has taken charge of its security and has flipped 13.5m GWR shares for $1.35m. It appears that both lenders have significant shortfalls that are still outstanding. So in six months 21.5m GWR shares have vapourised. Mind you do not hold your breath to hear anything from FAS about what is going on.

So what's the debt position and who holds the cards?

No 1 security is held by the punter who loaned $1m dollars
on 12/9/12 at 360% per annum payable monthly. This was in default when the auditors signed off at 31/10 and would not appear that it has been cleared so probably snowballed to at least $2.2m by 31/12 and even worse if the unpaid interest is compounding. This lender (unnamed) holds a fixed charge, so they are in the box seat.

Lender who held security over 8m shares and sold for $1.8m had a shortfall of $957k at 31/10 and is presumably still clocking up the 38%pa interest on this loan

It appears the second secured lender just sold 13.5m shares in GWR for $1.35m has a loan for $1m plus interest of $745k as at 30/6/12 and at an interest rate of 60%pa was clocking up interest at a rate of $50k per month.So looks like there is a shortfall of the security of circa $650k

Lender who still holds security over 3m GWR shares originally advanced $500k and at the date of the audit report had unpaid interest of $490k with interest accruing at 93.6% per annum. Based on the other secured lender's sale of GWR at 10c this is looking like a shortfall of circa
$700k.

Of course there are the three series of convertible notes with face values of $1.95m with interest rates of 12.5% and 20% of which $550k face value are overdue, $1m falls due on 31/1/13 and the balance on April Fools Day 2013.

A rough stab at what might be due to all the above at 31/12 is circa $7.5m and that's before even looking at unsecured trade creditors which at 30/6/12 was $1.4m.

Looks like the auditors will again be busy but this perhaps makes the bold assumption that the creditors sit on their hands in the meantime.

One can only sit back and shake ones head at why the highly remunerated management team chose to borrow so much at such outrageous interest rates when it had $16m of GWR shares at 30/6/10 which it could have sold down to fund its operations to see them now vapourise and realise nothing for the company.