You said they don't have a death spiral. Clearly they do, or they're lying in their filing. You'll have to explain which it is.
The 200 million shares don't need to be converted. The 200 million shares were sold already. They may (or may not) still be restricted, but there is no conversion needed. The bigger question is whether the $200k was ever paid to the company. Bad enough to sell 70% of the O/S at $.001 while retail buyers have to pay pennies per share, but to give them away for nothing, well, that's gonna really sting. The 10K should let us know at least how things looks on 12/31/12. The delay in filing it though, doesn't bode well.
Investors don't buy death spirals to hold on to them. If they believe in the company, they buy shares at a fixed price, usually a slight discount to the market. The ONLY reason to buy a death spiral is to convert it and guarantee a profit. The ONLY risk in a death spiral is not finding enough buyers. If you can convert your entire note, you'll make money.
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