"OVERVALUED" was an apt description a few hours ago, but it got better as the day rolled along! An 8-K was filed, laying out the terms of a financing deal, which is all to common amongst the pennys, particularly the "Pinkies"! Check it out! The deal is a convertible note arrangement, whereby the note can convert to the company's common shares at any time after the initial 90 days. The initial note's repayment value is $250,000, but XLIT will only receive a net of $215,000, with the difference of nearly 15% or $35,000 being used for the lender's "loan service fee" and attorneys. When converted, the applicable "discount" will be 40%, meaning the shares will convert at the rate of 60% of the lowest share price over the prior 20 trading days. Then the second step of the deal is a Registration Rights Agreement to be filed by XLIT. The resulting Registration Statement will then relieve the lender from holding the XLIT shares for the typical minimum for "restricted shares" of 6 months. The issued shares will be immediately available to trade. In other words the shares can be "dumped" the moment they are received. Not a bad proposition when the financier can convert the shares at 60% of lowest share price over the previous 20 trading days and then turn around and sell the shares, raking in a very handsome profit. In this scenario who gets whacked? Hmmm...that would be the other shareholders! For good reason the phenomena is called toxic financing and results in major shareholder dilution! And BTW...producing a Registration Statement is also an expensive proposition, which is ultimately borne by the investors!
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