The toxic loans conversion price is not $10 anymore but $3.36.
And it will go lower.
Explanations below
This is a tricky piece of financial engineering by Nader and his toxic lender, Fife. It is not designed to be easily understood (because, really, it's a bad loan for the company, the only one he could get). So I will explain it. But every piece of information comes strictly from their SEC filings. You can (you should) read them yourself. They don't hide this information (they are careful because you guys will attack them some day with a class action lawsuit). They just make it very difficult to piece together. But for finance professionals this is a piece of cake.
$10 is the initial conversion price, that's true. Note the "initial" adjective. It's key.
But there is a trick. A term called the "full ratchet" term (search for these keyword in the filings, it's all explained there, in all 10-Q filings and all and loan-related filings). It states the following, deep in the middle all of a loooong boring paragraph: should in the future the company sell ANY share to ANY investor below the default $10 conversion price, AUTOMATICALLY the conversion price is adjusted down to this new price. And the number of shares granted to Fife (the toxic lender behind Iliad and Streeterville Capital) is multiplied by as much, so that Fife makes $21 million in all scenarios.
This is an outstanding risk-free deal for Fife. Risk-free because he is guaranteed to be given $21 million in value whatever the stock price. And outstanding because he can freely short the shares in parallel, having a guaranteed cover price.
This is the reason these loans are called toxic loans. On top of having the toxic lender short the stock, the company incurs an infinite risk of dilution. Should the stock go to $1, $0.5, $0.25 etc... shareholders are funding a crazy dilution against their interests. Sound overly pessimistic? Well that's what happened to ALL companies who got toxic loans from Fife before. More than 20 of them. In each case, their shareholders thought it would be ridiculous for the stock price to go that low. Well it went to zero. Fife took the best from these companies.
That is another reason many short-sellers (including myself) came here. Not only is this is company a fraud that will never succeed in obtaining any regulatory agreement. It is trapped in a toxic loan and we are only following the master seller, Fife, until the end of the road.
As of today, the adjusted conversion rate is already $3.36 a share, -40% below today's stock price and -66% below the initial $10 price. Because this is the price at which the company sold $1 million in shares at 3.36 a share to a private investor in november/december. This comes from the company SEC filings from this time frame. Just read them.
All this information is in the SEC filings submitted by the company. No need to believe me, go there and READ. No wonder the CEO and CFO sold 87% of their shares after they signed these toxic loans.
