Replies to post #32223 on Houmu Holdings Ltd (HOMU)

[Hug Life]

Illegal shares, tax losses, and warrants.

Lazar did a neat, and legal, accounting trick. The illegal shares were converted in an 8.1 billion net loss that can be carried over the next few years for tax purposes. And note, we don't know if these shares are actually in the float or not. I think we will be finding out shortly, and expect most of them will be either voided or converted to legal shares (after being bought back, which may have already happened .000s ago) and sent to the treasury. Info on the treasury bit will be shared at the end of this post.

In a filing on September 15, Lazar stated this. Pay special attention to the May 2020 date, this alerted the SEC to the fact that this problem existed before he took over.

Prior to September 9, 2020, our Articles of Incorporation authorized the issuance of 75,000,000 shares of common stock, par value $0.001. As of our year end on May 31, 2020, we had 8,272,627,462 shares issued and outstanding. This amount exceeded our authorized shares by 8,197,627,462 shares. In Nevada, the jurisdiction in which we are domiciled, the case law is clear on damages for overissued stock. The laws provide that the shareholder is entitled to force the issuer to swap the invalid shares for valid shares, if they are reasonably available. If valid shares are not reasonably available, which they were not, then the shareholder may recover from the issuer, the price the person or the last purchaser for value paid for it with interest from the date of his or her demand. As a result, based on information available, we recorded a liability on our balance sheet as of May 31, 2020 of $8,197,627 which equal the unauthorized times the par value of $0.001.



On September 9, 2020, we amended our Articles of Incorporation and increased the number of shares authorized to 9,000,000,000. The case law in Nevada is unclear on whether excess shares are “void” or “voidable”, therefore we may liable for our over issuance despite the fact that currently, the amount of authorized shares does not exceed the number of shares authorized.

Later that month, Lazar did the neat legal accounting trick and converted that liability for the shares into a net income loss. Check out the end of note three of the 10q that was published in late September. https://sec.report/Document/0001213900-20-028792/#a_018

On September 9, 2020, the Company filed a certificate of amendment with the State of Nevada to increase its authorized share count to 9,000,000,000 shares. Based on an analysis of Nevada law, the Company believes the increase in authorized shares, retroactively, relieves the Company of any liability for over-issuance of shares. As of August 31, 2020, the Company has reduced this liability of $8,197,627 to zero with an offset to Common Stock and Retained Earnings, resulting in no impact on its Consolidated Statement of Operations

As a reminder, we still do not know the final outcome of whether those illegal shares issued to Pino's friends were ever put into the float upon conversion after Lazar took over, or if Pino's friends just washed their hands of the whole mess. I think we find out that answer very soon. The tax loss is locked in now regardless as to whether or not any shares were converted to legal shares.



Speculation

And here is an idea, what if those illegal shares were repurchased, sent to the treasury, and then converted to warrants rather than being completely removed.

Check out the following link for info on the treasury bit. https://www.accountingtools.com/articles/2017/5/17/treasury-stock-accounting-cost-method-and-constructive-retirement-method