All American Pet Company Inc (AAPT)

[Conrade Lake]

I will grant you that the AAPT recent filing is lackluster at best, but no worse than early stages of Vitamin Water, Tesla Motors or Apple. http://1.usa.gov/No2OnS Bashing aside, after reading Section 7, page 12 of the filing, one would have to believe that there are big dogs barking somewhere for the President and CEO to convert a $624K Grid Note to 290M common shares.

7. RELATED PARTY TRANSACTIONS

On March 6, 2012, the Board of Directors, consisting of Mr. Schwartz and Ms. Bershan, authorized the Company to execute a Convertible Revolving Grid Note (the “Grid Note”) for a principal sum of up to $1,000,000 with CEO Barry Schwartz and President, Lisa Bershan. The Grid Note bears interest at 10% per year and may be converted into common stock of the Company at a conversion price of $0.0022 any time before March 6, 2013. Neither Mr. Schwartz nor Ms. Bershan has advanced capital under the terms of the grid note as of December 31, 2012. In March 2013, the Grid Note was amended. On February 26, 2013, the Board of Directors authorized the Company to amend the Convertible Revolving Grid Note for a principal sum of up to $1,000,000 with Chief Executive Officer Barry Schwartz and President Lisa Bershan dated March 6, 2012. The amendment reduced interest to 6.5% per year, extended the maturity date to 4 years, and extended the conversion date to October 31, 2013. As of September 30, 2013, Mr. Schwartz and Ms. Bershan have loaned $624,064 with $15,106 accrued interest. Under the terms of the Grid Note and such amount is convertible into 290,531,696 shares of the Company’s common stock.

The terms of the Grid Note provide that the conversion price be lowered upon the occurrence of certain defined events. Notwithstanding this fact, the embedded conversion right is not required to be bifurcated from the host debt instrument, as the underlying common stock is not deemed to be readily convertible to cash (Accounting Standards Codification 815-15-25-51) based on management’s evaluation of the trading volume of the Company’s common stock and the lock up provisions of the Grid Note.

The conversion price of the Grid Note was below the closing market price of the Company’s common stock at the tie of related borrowings. As a result, the Company recognized beneficial conversion features, which were limited to the amount of the Grid Note borrowings of $624,064. The beneficial conversion features are being amortized to interest expense over the term of the Grid Note (March 2016). During the nine months ended September 30, 2013, interest expense related to the amortization of beneficial conversion features totaled $76,980.


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