That's the process. Debt, notes, convertible notes, other liabilities turn into common stock and get sold out in the market. Many of the shares in the German market where the oversight is even worse than it is here (the main reason it's listed over there).
That is how the pinky financing (or "funding") game gets played. With debt and more financing/funding, there will come more common stock sold into the market at some point. That's not opinion, that's just the way it is. As been stated, just Penny Stock 101 (whether or not one believes it is a Scam or not).
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