In the OTC derivative losses are attributable to convertible debt sales which require the booking of the derivative loss associated with the discount available at conversion in the future. When the conversion (usual circumstance) occurs or the note paid off (rare), the derivative loss can be written back. Neither affect the cash flow, good or bad, and are only paper losses/gains. This is also the case for warrants.
“In connection with convertible notes payable, the Company records derivative liabilities for the conversion feature. In addition, the Company has warrants for which the exercise prices reset upon future events. These warrants are also considered to be derivative liabilities. The derivative liabilities are valued on the date the convertible note payable become convertible and revalued at each reporting period. The warrants are valued on the date of issuance and revalued at each reporting period.“
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