It cost shareholders way more than $1.4m. The initial (NetCapital) deal was $2.6M. Most of the debentures were issued at a 45% discount, which means that only half of the value of shares issued would go towards the debt, the other 45% going to the CD holders.
Furthermore, since Pervasip was running a high operating loss all that time, it had to borrow other money, to pay its bills, again at a 45% discount. All that is causing dilution of 300% and more per year.
During all that time, revenues kept going down instead of up. The Ojo phones didn't pan out. The Android app brings an unknown, but meager revenue. The video plug-in is a joke.
The remaining debt is not negligible, it's $9M of various liabilities, including $2.7M of "long term" debt, and another $2M of convertible long-tem debt. Plus another $259K of "derivative" CD.
If the $2M gets all converted at the current share price, that will add another 800 million shares to the OS (if the SP doesn't goes down meanwhile).
Then you bring up the same fallacy than Kars did: just declare a RS, and all the dilution goes away!
Let's try with an example.
Someone holds 1 million PVSP shares, at a mean cost of $0.01
The current SP is $0.0025, that PVSP shareholder will break even (avoid losing money) if the share price goes back to $0.01.
Now comes a 100-to-1 RS.
So our shareholder now holds 10,000 PVSPQ shares, at $0.25. So far so good.
But, he still has to break even, and it will only happen if the PVSPQ share price hits $1.00.
Is he any better off ? He has one hundred times less shares now. The company's outlook is unaffected by the RS.
If we look at other penny stocks that have declared Reverse Split, history tells us that RS never "erases" dilution. Usually the companies continue both losing money and issuing more shares after the split, and their share price tanks again, hurting their shareholders.
In fact, for subpenny stocks, a RS gives the SP more room to go down.
Another example, take the company Pervasip Inc, (PVS).
In September 2010, its share price was around 8 cents a share, and it declared a 10-to-1 Reverse Split. The market after the Split opened around $0.70, the company had about 3.5M shares outstanding then.
Soon after the Split, the share price tanked to $0.15, then $0.06. About 6 months after the RS, its share price reached $0.01 a share. At that point the news of a bogus investor raised the SP to $0.10.
But the company kept on diluting. In a few years it went from 3.5M shares to 600M shares.
Soon it will reach its 800M shares AS limit.
What will it do ? Increase the AS to 1.6 billion shares ? To 2 billion ?
Or declare a RS ?
In any case, a RS will not "erase" the dilution. It will merely confirm and worsen the loss.
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