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Death Spiral and Ghost Busters RSS Feed

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A leading killer of OTC stock prices is  "floorless convertible debt", also known as "Death Spiral Financing"


This Board is now accepting nominations of OTC public companies to be verified of having no floorless convertible debt. Please send your request for nominations as a message post.  As of August 8,2016 thirty eight requests for nominations for  verification as the first step in the process have been approved. More nomination are expected shortly.


Congratulations to the following companies
 nominated for verification review of having no floorless toxic  convertibles  are;

Mass Megawatts Wind Power, Inc (MMMW)
Iteknik Holding Corporation (ITKH)
United American Petroleum (UAPC)
Valmie Resources, Inc. (VMRI)
Cardica, Inc. (CRDC)
Sunset Capital Assets, Inc. (SNST)
Players Network (the)(PNTV)
Boreal Water Collection, Inc. (BRWC)
Gazprom Oao (OGZPY)
Kiwa-Bio-Tech Products Group (KWBT)
Pharmacyte Biotech, Inc. (PMCB)
Jns Holdings Corporation (JNSH)
Mmrglobal,Inc. (MMRF)
Fitbit, Inc. (FIT)
One World Holdings,Inc. (OWOO)
International Spirit and Beverage Group, Inc.(ISBG)
Stratasys, LTD (SSYS)
CMG Holdings Group, Inc. (CMGO)
Royale Energy,Inc. (ROYL)
On4 Communications, Inc. (ONCI)
Polaris International Holdings, Inc. (PIHN)
Discovery Minerals, LTD (DSCR)
Well Power,Inc. (WPWR)
Tungsten Corp. (TUNG)
Zalemark Holdings Co., Inc. (ZMRK)
Daniels Corporate Advisory Co, Inc. (DCAC)
Idglobal Corp. (IDGC)
National Energy Services, Inc. (NESV)
Ism International, Inc. (ISML)
Praxsyn Corporation (PXYN)
Cannabis Science. Inc. (CBIS)
India Ecommerce Corp. (IEEC)
Q Lotus Holdings Inc. (QLTS)
New Wave Holdings, Inc. (NWAV)
Global Equity International (GEQU)

New America Energy Corp. (NECA)

Medical Marijuana, Inc. (MJNA)
Mike the Pike Productions, Inc. (MIKP)












                                                                                                                                                                                                                                                                               
The following information is from the United States Securities  and Exchange Commission website articulating the risk related to Convertible Debt

 
 

Convertible Securities

A "convertible security" is a security—usually a bond or a preferred stock—that can be converted into a different security—typically shares of the company's common stock. In most cases, the holder of the convertible determines whether and when to convert. In other cases, the company has the right to determine when the conversion occurs.

Companies generally issue convertible securities to raise money. Companies that have access to conventional means of raising capital (such as public offerings and bank financings) might offer convertible securities for particular business reasons. Companies that may be unable to tap conventional sources of funding sometimes offer convertible securities as a way to raise money more quickly. In a conventional convertible security financing, the conversion formula is generally fixed - meaning that the convertible security converts into common stock based on a fixed price. The convertible security financing arrangements might also include caps or other provisions to limit dilution (the reduction in earnings per share and proportional ownership that occurs when, for example, holders of convertible securities convert those securities into common stock).

By contrast, in less conventional convertible security financings, the conversion ratio may be based on fluctuating market prices to determine the number of shares of common stock to be issued on conversion. A market price based conversion formula protects the holders of the convertibles against price declines, while subjecting both the company and the holders of its common stock to certain risks. Because a market price based conversion formula can lead to dramatic stock price reductions and corresponding negative effects on both the company and its shareholders, convertible security financings with market price based conversion ratios have colloquially been called "floorless", "toxic," "death spiral," and "ratchet" convertibles.

Both investors and companies should understand that market price based convertible security deals can affect the company and possibly lower the value of its securities. Here's how these deals tend to work and the risks they pose:

 

* The company issues convertible securities that allow the holders to convert their securities to common stock at a discount to the market price at the time of conversion. That means that the lower the stock price, the more shares the company must issue on conversion.
* The more shares the company issues on conversion, the greater the dilution to the company's shareholders will be. The company will have more shares outstanding after the conversion, revenues per share will be lower, and individual investors will own proportionally less of the company. While dilution can occur with either fixed or market price based conversion formulas, the risk of potential adverse effects increases with a market price based conversion formula.
* The greater the dilution, the greater the potential that the stock price per share will fall. The more the stock price falls, the greater the number of shares the company may have to issue in future conversions and the harder it might be for the company to obtain other financing.

Before you decide to invest in a company, you should find out what types of financings the company has engaged in - including convertible security deals - and make sure that you understand the effects those financings might have on the company and the value of its securities. You can do this by researching the company in the SEC's EDGAR database and looking at the company's registration statements and other filings. Even if the company sells convertible securities in a private, unregistered transaction (or "private placement"), the company and the purchaser normally agree that the company will register the underlying common stock for the purchaser's resale prior to conversion. You'll also find disclosures about these and other financings in the company's annual and quarterly reports on Forms 10-K and 10-Q, respectively, and in any interim reports on Form 8-K that announce the financing transaction.

If the company has engaged in convertible security financings, be sure to ascertain the nature of the convertible financing arrangement - fixed versus market price based conversion ratios. Be sure you fully understand the terms of the convertible security financing arrangement, including the circumstances of its issuance and how the conversion formula works. You should also understand the risks and the possible effects on the company and its outstanding securities arising from the below market price conversions and potentially significant additional share issuances and sales, including dilution to shareholders. You should be aware of the risks arising from the effects of the purchasers and other parties trading strategies, such as short selling activities, on the market price for the company's securities, which may affect the amount of shares issued on future conversions.

Companies should also understand the terms and risks of convertible security arrangements so that they can appropriately evaluate the issues that arise. Companies entering into these types of convertible securities transactions should understand fully the effects that the market price based conversion ratio may have on the company and the market for its securities. Companies should also consider the effect that significant share issuances and below market conversions have on a company's ability to obtain other financing.

Companies or investors seeking to learn more about the SEC's registration requirements for common stock issuable upon conversion of unregistered convertible securities, including the timing of the filing of the resale registration statement and the appropriate form that the company may use to register the resale, should consult the Division of Corporation Finance's Compliance and Disclosure Interpretations.

 

We have provided this information as a service to investors.  It is neither a legal interpretation nor a statement of SEC policy.  If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.


Bloomberg follow up on DEATH SPIRAL FINANCING- incredible article.

Remember, Bloomberg did a first article about "Magna" and Josh Sason who runs it- how they provide financing to cash desperate penny stocks (such as Bioheart, BHRT which has a forum here on I-HUB and did qty-2 Magna financing deals end of 2014).

This was Bloombergs first excellent piece of financial journalism- where a highly reputable main stream financial news and investigative journalism group looked into the sorted world of what's known as "death spiral" or "floorless convertible debt" as is discussed here.

Here's that first article:

http://www.bloomberg.com/news/articles/2015-03-12/josh-sason-made-millions-from-penny-stock-financing

Here is the latest article- written by a Bloomberg writer (and this guy is no duffer, look at his resume on the upper right-hand column: Investment banker, mergers and acquisitions lawyer among other attributes on a very flush, "expert" quality resume)

Here's his follow up on the first Bloomberg piece- it's an incredible glimpse, with explanations, into the sorted world of penny stock "death spiral" financing and how it all works. A stunning read IMO. Amazing stuff that some news source as credible as Bloomberg is finally peeling back the layers and revealing this sorted, dark world of penny stock financing IMO- real amazing read:

http://www.bloombergview.com/articles/2015-03-12/death-spiral-convertible-financier-has-a-lot-of-fun

An amazing read IMO- another "best of" in explaining some of the inner workings of the "convertible debt" dark recesses of the penny stock finance world.

Posts contain only my amateur opinions, personal views and thoughts. I discuss stocks as a hobby only. Always do one's own due diligence before investing.

 

 


 
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