Yes, having $400,000 in toxic debt while only having a $100,000 market cap is what makes the debt a big deal. When you only have a $100,000 market cap you will have to increase the outstanding share count by 8 fold to pay off the $400,000 in debt with a market cap this low.
So the real issue is his refusal to address the share price/market cap. If the company had a more normal market cap, like say $2 million, the $400,000 in toxic debt wouldn't be nearly as big a deal.
$400,000 in toxic debt isn't anything abnormal on the otcbb. Most companies have at least that much toxic debt on their books and most of them are trading at least 10x higher than this one in terms of valuation. So that is no excuse. What is abnormal is having a market cap so low combined with the toxic debt. That is on the company for ignoring the share price and refusing to do anything to increase shareholder value.
The bottom line is having some toxic debt is no excuse for the market cap being so low. They haven't done enough to market the stock and bring any investment into the stock. That is the real problem here. Whether that is by design to help the financiers I don't know