10K is worse even worse than most triple "0" stocks I have seen. They just can't seem to pay anything, ever, even after Court judgments. World is about to collapse in on them. Never seen anything this bad that was not in bankruptcy.
The Company faces a number of significant risks associated with its
current plan of operations. These include the following:
We have a significant amount of past due debts.
As of December 31, 2012, we have a working capital deficit of $4,456,477. Furthermore, given our poor financial position and lack of liquidity, we have not fulfilled the terms of numerous debt settlement agreements that we have previously made and we have not repaid amounts we have borrowed under past note agreements. In addition, the Company is delinquent in the filing and payment of Federal and state payroll taxes. Significant management time and effort is required to manage past due debts and prioritizing cash payments made by the Company. Such obligations make it difficult for the Company to raise equity or debt funds, finance any capital expenditures, obtain terms for normal business operating expenses and, generally, to transact business.
We have been the subject of a going concern opinion from our independent registered public accounting firm, raising a substantial doubt about our ability to continue as a going concern.
Our independent registered public accounting firm included an explanatory paragraph in its audit report in connection with our 2012 financial statements stating that because we have incurred a net loss of $3,006,767 and a negative cash flow from operations of $3,022,426 for the year ended December 31, 2012 and had a working capital deficiency of $4,456,477 and a stockholders' deficiency of $4,571,339 at December 31, 2012, there is substantial doubt about our ability to continue as a going concern.
Our continuing as a going concern is dependent on our ability to raise additional funds through private placements of our common stock or the issuance of debt securities sufficient to pursue our business plan to meet our current obligations and to cover operating expenses during 2013 and into 2014. Without immediate capital infusion in the near future, and without a significantly substantial infusion of capital within a short time thereafter, we may be forced to limit our operations severely, and may not be able to survive. There is no assurance that we will be able to secure additional funding in the future, and in the event we are unable to raise additional capital in the near future, it is probable that any investment in the Company will be lost.
We need significant additional funds to maintain and develop our business.
We have a significant working capital deficit. Our current capital resources are insufficient to fund operations at the present time, and we will require substantial additional capital in order to sustain our operations, fund sales and marketing activities, pay for the manufacture of our products, and implement our business plan. Our ability to continue as a going concern is dependent on our ability to raise capital.
Although management is in discussions to arrange for one or more such financings, we cannot assure you that we will successfully negotiate or obtain such additional financing, or that we will obtain financing on acceptable or favorable terms, if at all. There are no commitments in place for such financings at this time. If we cannot obtain needed capital, when and as we need it, our sales and marketing plans, ability to manufacture products for sale, business, prospects, results of operations and financial condition and our ability to reduce losses and generate profits are likely to be materially and adversely affected.
We expect that any commitments for additional financings will be in the form of “best efforts” financings. Our ability to obtain additional capital depends on market conditions, the economy and other factors, many of which are outside our control. If we cannot obtain needed capital, our research and development, and marketing plans, business and financial condition and our sales and marketing plans, ability to manufacture products for sale, and ability to reduce losses and generate profits are likely to be materially and adversely affected. Our failure to secure necessary financing would likely have a material adverse effect on our business, prospects, financial condition and results of operations.
Exposure to possible litigation and legal liability may adversely affect our business, financial condition and results of operations.
In the past, we have been exposed to a variety of litigation claims and there can be no assurance that we will not be subject to other litigation in the future that may adversely affect our business, financial condition or results of operations.
Our stockholders face further potential dilution in any new financing.
During 2012, the Company issued a significant number of shares of its common stock. Any additional equity that we raise would dilute the interest of the current stockholders and any persons who may become stockholders before such financing. Given the low price of our common stock, such dilution in any financing of a significant amount could be substantial.
Our stockholders face further potential adverse effects from the terms of preferred stock which may be issued in the future.
In order to raise capital to meet expenses, or to engage in extraordinary transactions such as the acquisition of a business, our Board of Directors may seek to issue additional stock, including preferred stock. Any preferred stock which we may issue may have voting rights, liquidation preferences, redemption rights and other rights, preferences and privileges. The rights of the holders of our common stock will be subject to, and in many respect subordinate to, the rights of the holders of any such preferred stock. Furthermore, such preferred stock may have other rights, including economic rights, senior to our common stock that could have a material adverse effect on the value of our common stock. Preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, can also have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock, thereby delaying, deferring or preventing a change in control of the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various litigation involving vendors, former employees, and a promissory noteholder.
Vendors
As of December 31, 2011, one vendor had a settlement agreement for $20,000. During 2012, six vendors made claims or were awarded judgments against the Company for a total of $364,473, and related payments of $2,000 were made. The balance outstanding to these vendors at December 31, 2012, was $382,473 and such amount has been accrued for in the Company’s December 31, 2012 consolidated balance sheet.
On July 23, 2012, a vendor filed an action against the Company and certain officers as individuals for an original $150,000 judgment previously awarded in arbitration, 4.75% interest, legal fees of $49,950, and other fees of $4,981. The action has not been heard by a court. The Company has recognized $221,463 in its December 31, 2012 consolidated balance sheet relating to this matter.
Former Employees
As of December 31, 2011, six former employees made claims or were awarded judgments against the Company for a total of $211,961. During 2012, one former employee entered into a settlement agreement for $50,000, and there were no payments. The balance outstanding at December 31, 2012 was $268,245, and includes accrued interest. Such amount has been accrued for in the Company’s December 31, 2012 consolidated balance sheet.
On April 6, 2010, the Company settled litigation with one of the six former employees. Terms of the settlement required the former employee to place 400,000 shares of Company stock valued at $52,000 in an escrow account in exchange for an initial payment of $8,000 and 27 monthly payments of $1,571. The Company will receive the shares of Common stock after all of the payments have been made. The Company made no payments in 2012 and $3,342 in 2011. The outstanding balance at December 31, 2012 and 2011 was $31,432.
On February 3, 2011, through mediation, the Company settled litigation with one of the former six former employees. Terms of the settlement required the former employee to place 750,000 shares of Company stock valued at $90,000 in an escrow account in exchange for 14 monthly payments of $6,576. The Company will receive the shares of Common stock after all of the payments have been made. The Company made no payments in 2012 and $2,069 in 2011. The outstanding balance at December 31, 2012 and 2011 was $90,000.
On January 18, 2013, All American Pet Company, Inc. (the “Company”) filed an action entitled All American Pet Company, Inc. vs. Eric Grushkin et al, in the Superior Court of the State of California, County of Los Angeles, West District against defendant Eric Grushkin (Case Number: SC119776). As previously announced, on January 11, 2013, the Company was made aware that a former employee sent communications that contained intentionally misleading and harmful disclosures as well as confidential information regarding the Company to a selected group of shareholders. These communications included allegations that the Company’s chief executive officer and president engaged in acts of malfeasance, misfeasance and negligence in the management and conduct of the Company business. The Company believes that this employee made multiple unauthorized disclosures of confidential information and misinformation to these shareholders on January 10, 2013 and thereafter. The complaint seeks damages and injunctive relief for:
1. breach of contract
2. misappropriation of trade secrets
3. intentional interference with prospective economic advantage
4. breach of fiduciary duty
5. violation of computer fraud and abuse act, and
6. conversion
Motions made by the defendant to remove to U.S. District Court and then to Dismiss have been denied. Other motions by the defendant have also been denied. This matter is currently pending in California State Court.
I didn't even list HALF the negative stuck in the 10K. The majority of the pages are BAD news. Never seen anything like this that was not in bankruptcy.
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