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Wednesday, March 10, 2021 9:06:43 PM
At the end od December COUV had $475.00 in cash and a net loss of
62 MILLION DOLLARS.
That's not a real loss but an accounting adjustment due to the increase in stock price from when convertible preferred shares were issued versus when they were converted into common shares.
Let's say you sell 1 preferred share to an accredited private investor for $100. Each preferred share is convertible to 100 common shares at a cost of $1/share. You have a liability for 1 preferred share on day one at $100 offset by a gain in cash of $100. Let's also say that 1 year later your stock is trading at $10/share and your investor converts his preferred share to common stock. You now have a liability for 100 shares x $10/share or $1,000. Consequently, you have to record a loss of $900. However, you really didn't lose $900 (the investor will get that on the open market when he sells his shares which could be years later). Consequently, you record additional paid in capital (which is normally the amount the owners pay in to start off a company) of $900 to offset the new liability.
According to the COUV Annual Report...
The fair value of the compound embedded derivative is significantly influenced by the Company’s trading market price, the price volatility in trading and the interest components of the Monte Carlo Simulation technique. Our trading market price went from $0.0004 on December 31, 2019 to $0.3291 on December 31, 2020.
I'm not an accountant but I know quite a bit more accounting than the average person. I believe this, in a nutshell simplified summary, explains the $62 million paper loss. If there are any CPA's out there I'll gladly stand corrected if I got this wrong.
Les
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