Yup it's insane and right in the faces of investors and many claim, "so what that's how this sector has to raise funds." To that I say, "what, the company can't dilute directly and receive millions versus maybe a 6 figure total for all 6 notes. Look up historical prices during that time period of them selling their shares.
Here are quotes from the "quarterly report" disclosure ending Sept. 30, 2013.
Both of the "amazing deals" for noteholders are listed there.
Here are the quotes: The first one is obviously long, but it's a complicated "deal" and worth the truthful DD that is in it.
In June 2013, the Company entered into a settlement agreement with Crystal Falls Investments, LLC, and Lotus Capital Investments, LLC to resolve claims for cash advances and investments to the Company allegedly made by Crystal Falls Investments, LLC between October, 2010 and April 2013, inclusive, a portion of which claims apparently had been previously assigned by Crystal Falls to Lotus. Crystal Falls had paid outstanding invoices of two vendors of SK3 in the amounts of $2,324 and $1,680 in December 2010 and 2011, respectively, but those amounts were then incorporated into two promissory notes in the principal amounts of $2,324 and $1,680, due December 31, 2013 and convertible by their terms into common stock based on a conversion price of 75 percent of the average closing price for the stock for the 30 days prior to the date of the conversion, but not less than $0.001 per share. Under the terms of the settlement, Crystal Falls and Lotus Capital agreed not to pursue threatened litigation against the Company, and to cancel the two promissory notes and accrued interest in the name of Crystal Falls, in exchange for 53,000,000 shares of common stock issued in July, 2013, and an additional 117,000,000 common shares to be issued commencing October 1, 2013 in quarterly installments of the lesser of (a) 9.9 percent of the then issued and outstanding common shares or (b) that number of shares equal to the difference between 117,000,000 and the number of shares issued already in any prior 5 quarterly installments. The shares to be issued pursuant to the settlement agreement are subject to court approval at a fairness hearing and are to be issued pursuant to the exemption from registration afforded by Section 3(a)(10) of the Securities Act. The parties and their respective affiliates also agreed to exchange mutual releases of all known and unknown claims between them. In addition, the Company agreed to issue 8,500,000 shares pursuant to the settlement agreement to cover the parties’ legal fees, expenses, and costs. A total of 53,000,000 shares were issued on July 3, 2013 to Crystal Falls and Lotus Capital Investments under the settlement agreement, which has been accounted for as follows: Item Shares Value Conversion of two prior notes plus accrued interest, a total of $4,897.83, at the agreed conversion rate of $0.01504 (75% of 30 day average closing price) 325,654 $ 4,897.83 Settlement compensation, based on July 2, 2013 closing market price of $0.0188 52,674,346 $ 990,277.70 Totals $ 995,175.53 The additional shares to be issued on a quarterly basis will be treated as additional compensation to Crystal Falls Investments and Lotus Capital Investments as and when each quarterly installment is issued. Management has considered the application of FASB Statement No. 123 on accounting for stock based employee compensation, which requires fair value accounting treatment for either the fair value of the consideration received or the fair value of the equity issued, whichever is more reliably measured, and has concluded that FASB 123 does not apply to this transaction. Crystal Falls and Lotus Investments are not employees or consultants of the Company, have not provided and will not provide any services to the Company, and have not provided anything of reliably measurable value for the issuance of the shares on a quarterly basis in the future, other than the settlement of threatened litigation over their alleged claims. However, FASB 123 does indicate that in the case of issuance of restricted stock as compensation to an employee, the value of that restricted stock is to be measured by the market price of a share of unrestricted stock on the grant date. Since the future market price of each quarterly grant of shares to Crystal Falls and Lotus Capital is speculative, and the number of shares to be issued at each quarterly date is dependent on the then total outstanding shares of the Company’s common stock, which is also unknown, any restricted stock to be issued to them in the future will be valued at the closing market price of the common stock at the time of each quarterly installment due date and based on the total number of shares of the Company’s common stock then issued and outstanding.
On May 15, 2013, the holders of 6 convertible promissory notes issued by the Company each elected to convert a portion of the principal due on each note into common shares. Each holder converted $6,897 in principal into stock at a conversion price of $0.0003, on the terms provided in the notes, and each received 22,990,000 common shares, resulting in an increase in the number of shares issued to 499,990,303 shares.
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