Its not the initial interest rate that is toxic.
It is the consequences for default.
From the most recent note issued Feb 10 and filed on Feb 14.
Quote:(2) EVENTS OF DEFAULT.
(a) An “Event of Default”, wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):
….
(viii) The Company shall become late or delinquent in its filing requirements as a fully-reporting issuer registered with the Securities & Exchange Commission.
….
(b) Upon the occurrence of any Event of Default (without the need for any party to give any notice or take any other action), the Outstanding Balance shall immediately and automatically increase to 120% of the Outstanding Balance immediately prior to the occurrence of the Event of Default (the “Default Sum”). Upon the occurrence of any Event of Default, the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Outstanding Balance, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity, and the Conversion Price shall be redefined to equal the Market Price, as defined herein.
….
The Market Price shall be defined as 50% of the lowest closing price occurring during the twenty (20) consecutive Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert all or part of this Note, subject to adjustment as provided in this Note.
So the note was in default by the time they filed it on SEC.gov. The original balance went up by 20% immediately, the 4% one time interest was due plus any fees and such. So they owe approximately $500k-$600K back in cash immediately or the equivalent of that in shares at a conversion price around .0075 as ~.015 was the low in the last 20 trading days. Half a million dollars at .0075 is another 66M shares added to the float. But hey the floats well over a billion so 66M shares is nothing, bring it on.
The September note did not have as bad of toxic terms in it, the January note had more, the Feb note even more. But it doesn't matter to the company, shareholders will buys these dilutive shares and they don't have to pay anything back. The company wins and keeps growing at the expense of early OTC investors.
What happens when they need more money next month and the month after and the month after that. The 7.5B A/S may not be enough to hold all these converting shares.
Also the Jan note had the clause to take on at their choice better terms from future notes. I think that the "market price conversion" is better than the .015 per share so with penalties if that note hadn't converted yet we are looking at another 90M+ shares diluting the float.
But all this doesn't matter because they are going to make $50-$100M in revenues this year. LOL
