Yes, that is exactly how it works. Many, if not most of these pinks have that problem. Obviously, they have to keep the doors open, so they borrow. They can't always pay it back on time. Virtually every loan is backed by shares. Equity investors give money FOR shares up front, so they get their shares at some small discount to market. The money lenders salivate about unpaid loans, because they make MANY TIMES OVER the loan when they are forced to take shares. Very lucrative.
It is also why it is called toxic. First, because they get huge blocks of shares, we all get diluted - we own less of the company. But those millions to billions of shares have to pass from money lenders to traders/investors, and that holds the price down, and is virtually all sells, until they are all gone. It can take months, because it takes place at the same time as we are trading.
That is why, when you are invested in a 'dilutive' company, you should understand both sides of the equation - the share dilution when loans convert, and the price 'dilution' as they are doled out to traders/investors. If you find a company, like BVTK, that holds a promising future, you may commit to endure the process. I've over 40M shares of BVTK, and expect to do well at some point. I can wait. I believe it will eventually succeed.
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