You obviously don't understand how this is going to work. The 504 shares will not be restricted at all. Under the 504 exemption he's allowed to raise $1 million/year without any further registration of shares. Those doing the funding will short sell the shares, driving the price down. Let's say they start at .03. What will it be by the time they've sold $300k worth? Let's be generous and say .003. Say the average price they were able to sell at was .01. That means they sold 300,000/.01= 30,000,000 shares. They now cover the 30 million shares that they've shorted by converting at a 50% discount to the last closing price of .003, in other words, .0015. 30million X .0015= $45,000 of the $300,000 debt has been paid off with the 30 million shares, so there is still $255,000 remaining. The vc now has a choice. He can convert a little more debt for more shares and go long, and do a pump and dump, or he can continue to short this into oblivion until the note is paid off. Usually they go long a little, and then rinse lather and repeat. If Tom hits it big, then there will be enough buying interest to just pay off the debt without killing the sp. Roll the dice.
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