Spiral Toys Inc. (fka STOY)

[236T568]

Oh my...the details of scam company STOY's Deep Discount Toxic Death Spiral Convertible Notes. From the latest 10Q filed with the SEC:


https://www.sec.gov/Archives/edgar/data/1520108/000149315216012422/form10-q.htm


NOTE 6 - FINANCING ACTIVITIES

8% Convertible Notes and Warrants

On January 22, 2016, the “Company entered into a Securities Purchase Agreement (“Purchase Agreement”) with two accredited investors pursuant to which the Company issued and sold for an aggregate purchase price of $200,000 securities consisting of (a) original issue discount convertible promissory notes for an aggregate principal amount of $216,000 (collectively, the “Notes”) and (b) warrants (collectively, the “Warrants”) to purchase up to 470,000 shares (the “Warrant Shares”) of the Company’s common stock at an exercise price of $0.50 per share. The Notes were subject to a one-time interest charge of 8%, and the principal amount underlying each Note and the interest accrued thereon is due and payable on September 22, 2016. On August 1, 2016, the Company and each investor signed Addendum #1 to the Notes, providing each investor the right to convert the outstanding balance of the Note into shares of the Company’s Common Stock (“Conversion Shares”) at a conversion price equal to 65% of the lowest sale price occurring during the fifteen (15) trading days immediately preceding the applicable conversion date subject to a minimum conversion price of $0.01 per share. The Addenda also provide that as long as no event of default has occurred, each Note Holder’s sale of Conversion Shares shall be limited to the greater of (a) 20% of the aggregate trading volume in the week of the sale or (b) $2,500 per day.

14


SPIRAL TOYS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Notes provide that upon the occurrence of any event of default that has not been cured within ten business days following receipt of notice of the event of default from the Holder, the unpaid principal amount together with all unpaid interest shall immediately increase to 130% of the outstanding balance immediately prior to the occurrence of the event of default and a daily penalty of $1,000 shall accrue from the date of the occurrence of such event of default until the event of default is remedied. The default effect shall automatically apply upon the occurrence of an event of default without the need for any party to give any notice or take any other action.

As of the date of this filing, we have not received notice from any Note holders declaring a default which has not been cured.

The exercise price of the Warrants is subject to adjustment in the case of stock splits, stock dividends, anti-dilution, combinations of shares and similar recapitalization transactions. Under the terms of the warrants, if the Company, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to re-price, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than the then Exercise Price in any financing greater than $25,000, except certain specified financings, then the Exercise Price shall be reduced and the number of Warrant Shares issuable shall be increased such that the Aggregate Exercise Price Payable, after taking into account the decrease in the Exercise Price, shall be equal to the Aggregate Exercise Price Prior to such adjustment. The Company issued 400,000 common shares during the quarter ended June 30, 2016 at a price of $0.25 per share. As such, due to the anti-dilution clause, the number of warrants increased from 470,000 to 940,000 and the exercise price was adjusted to $0.25 per share.

Sale of Common Stock

During the six months ended June 30, 2016, the Company sold 400,000 shares of common stock to an accredited investor for $100,000 in cash.


10% Convertible Debentures

On April 11, 2016 the Company entered into a Securities Purchase Agreement and a Registration Rights Agreement with two accredited institutional investors. The Securities Purchase Agreement provides for the sale by the Company of 10% Original Issue Discount Senior Convertible Debentures Due April 12, 2017 (the “Debentures”) at two closings. The initial closing occurred on April 12, 2016, at which time the Company sold Debentures in the aggregate principal amount of $756,250 for an aggregate purchase price of $625,000. The aggregate principal amount of the Debentures sold on April 12, 2016 was reduced to $675,800 when the Company’s registration statement for resale of the shares underlying the Debentures (the “Registration Statement”) was declared effective by the Securities and Exchange Commission (“SEC”) on June 29, 2016.

The Securities Purchase Agreement provides that the second closing would occur within five trading days after the SEC declared the Registration Statement effective, at which closing the Company was to sell to the investors Debentures in the aggregate principal amount of $594,000 for a purchase price of $550,000. However, the investors notified the Company that they would not complete the second closing due to the existence of an event of default under Section 8(a)(xiv) of the Debentures, which defines the occurrence of stock prices below certain stated minimums as an event of default. Negotiations ensued; however on August 1, 2016 the Company’s Board of Directors determined that the provisions of the Securities Purchase Agreement relating to a second closing had been terminated.

Each Debenture matures one year from its date of issuance. The Debentures bear interest at 10% per annum, which is payable in common stock or in cash, subject to a make-whole provision if a Debenture is converted or redeemed prior to maturity. The holder may convert the principal amount of a Debenture into shares of the Company’s common stock at a price equal to 70% of the lowest volume weighted average price (“VWAP”) during the 15 trading days prior to conversion.

Once each month, commencing on September 11, 2016, the Company is required to pay one-eighth of the principal amount of the Debenture plus the interest and make-whole with respect to that one-eighth in cash.

Subject to customary equity conditions, the Company may redeem all or part of the principal amount of the Debentures by paying 110% of the principal amount redeemed plus the accrued interest and the make-whole with respect to the redeemed principal amount.

15


SPIRAL TOYS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

If any event of default occurs and is declared, the mandatory default amount is due. Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, plus all accrued and unpaid interest hereon, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 145% of the outstanding principal amount of this Debenture, plus 100% of accrued and unpaid interest thereon, (b) all other amounts, costs, expenses and liquidated damages due in respect of the Debenture and (c) the applicable Make-Whole

In the event the Company receives a notice of default, the principal amount of the Debenture and accrued interest would be increase by 145%.

As of the date of this filing, we have not received notice from any Debenture holders declaring a default.

In connection with the offer and sale of debentures to the purchasers in the offering, our exclusive placement agent received aggregate cash sales commissions of $50,000 for services in connection with the initial closing. In addition, in the initial closing we issued 46,296 of common shares to our exclusive placement agent.

The Company incurred debt issuance costs of $94,219 and debt discounts and original issue discounts of $152,923 in association with the initial closing. Debt issuance costs, debt discount and original issue discounts are included in debt discount in the condensed consolidated balance sheet at June 30, 2016. Debt issuance costs, original issue discounts and debt discount are being amortized over the life of the debt using the effective interest method.