Correct - use the example I posted earlier about the last financing deal for evaluating this newest deal - I am expecting the next quarterly statement will list out the debentures as it has done in the past. Simply look at the "old" notes (ones with a date prior to yesterday's announcement of the new $800k) and see if they were reduced and/or eliminated. It is not an exact science as the elimination of the older notes could be due to actual conversion of the notes per the original terms - but in the best case scenario, any reduction one might infer that the new $800k note extinguished that debt.
By definition, an "equity lender" means they are loaning the company money in exchange for "equity" (re.: shares of the company to be redeemed at a later date if the note is not paid off in cash). The usual method for these financings would be to take the money, pay off more expensive (higher interest rate/steeper conversion rate) notes with the new money - in essence buy more time to delay when you need to pay off loans so that you can use those funds to either A) grow your business so that you can have more sales, thus use incoming revenue to pay off loans, or B) use the funds to refinance (similar to how you would refinance your home to get a lower interest rate or consolidate credit card debt) - or a combination of both of these items.
Regarding your comment on interpreting the financing as "non-toxic" - that is clearly subjective, however, one would have to agree that anything that "increases" debt and/or "increases the number of shares due to debt conversion" and/or is on discounted conversion terms less favorable than existing notes cannot be considered "non-toxic" - do you agree? Once we have the specifics of the new note, we can label it as such keeping these criteria in mind.
The red flag as I see it is that the last $500k was promised to do just that - the company explicitly stated in their press release that they would "eliminate and reduce existing debt". The evidence from the financials show that they did very little of that (only $4k was reduced on existing debt). This latest press release is more of the same - promising "By the end of the third quarter we will have consolidated and eliminated several of our most expensive institutional and private convertible notes totaling over $415,000. The purpose of this initiative is to phase out at least 50% of the total company debt by the end of 2014” - the difference this time around is that they are giving explicit numbers by which we can measure their actual execution. As you say, time will tell all too soon.
Regarding Robert Toner, Toy Fair, Toys R Us, Walmart, Wayfair, HEB and the other outlets - all of these might be something to be excited about - but when put in perspective of the stated inventory backlog they plan to sell at all of these outlets multiplied by any number you wish to use on a gross margin - latest financials show a 30% margin - but use something more optimistic like 50% just for grins. At $25 each, a 50% gross margin for the dolls will gross $12.50 per doll. The current operating loss per quarter is stated to be $3.9 million (or $15.6 million annually). Just to get out of the red, the company would then need to sell over 1.2 million dolls annually. The company has stated their ambitions to create inventory well short of this sales target.
The above figures are just the balance of sales vs. operating costs. The important part for investors is that what affects the share price is not so much the sales figures - but rather how many shares do they need to issue to fund ongoing operations. For me, the best measure of cash needs to issue more stock is shown by the Working Capital Deficit - this is the Company's stated immediate cash needs to fund ongoing operations. From the latest financials we find this statement: "The Company has incurred operating losses since inception, only recently emerged from the development stage, and has limited financial resources and a working capital deficit of $4,523,070 at June 30, 2014" - what this indicates to me is that the latest $800k will in fact not be used for paying down and eliminating debt, but in fact will be used to fund ongoing operations, putting the company further behind on the mountain of debt, which will in turn result in more notes being converted to shares.
