EP Global Communications Inc fka EPGL

[Gatsby]

Reading the FS:
1) Main debt is 7.67M due 13 November 2011, with 6% interest = 0.5M$ year in interest. This looks ok but this low interest rate comes at a price ->
2) callable secured convertible notes
Let's try to understand what kind of paper was issued (http://www.accountingscholar.com/types-of-bonds.html):
i) secured = "certain assets of the issuing company pledged as collateral or a guarantee. This protects bondholders and their investments, such that if the issuing company fails to pay the interest payment & principal amount upon maturity, bondholders can demand the sale of secured or collateralized assets in order to pay the bond obligations"
First reason why the debt must be addressed.

ii) Convertible: "Convertible bonds are when bondholders can exchange their bonds for a fixed number of the issuing company’s common shares"
page F13 of the FS: the Company entered into a Recapitaliazation Agrement: conversion price = 0.12 or average of the 3 lowest intra-day trading price during 20 trading days. (=0.0001).
Important: "the timing of the conversion is at the option of the holder" +
"the maximum number of shares that could be required ot be issued upon conversion is defined in the agreement"
So the holder can convert when it want, at current price the number of shares to be issued is out of mind but there is an unknown maximum applying to this conversion.
this is the price to pay for the low interest rate of the debt (6%)
Second reason why the debt must be addressed.

--> So i) + ii) = why IBLONG speaks about "toxic debt":

Note that the last debt restructuration was done without direct dilution (but maybe indirect depending of the prior rate of conversion). Again this is the price to pay.
- callable : Bonds that can be called back prematurely at the discretion of the issuing company.
I do not think this could be done with current financial situation.

My conclusion is clear: the Company must deal in advance with this debt maturing in less than one year (i.e. Ireland had to deal in advance with a debt maturing in June 2011). Obviously this will be different if the Company was making money now (cash flow) but seems to be that they will be making millions$ revenue only later, not now....
Obviously, the debt issue will not be an issue anymore if they sign a huge contract with payment in advance.... Last PR's were far away of such agreement being signed in the short term imho