10QSB 1 advanced10q33101.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB (Mark One) /X/ QUARTERLY REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission File Number 000-28459 Advanced Plant Pharmaceuticals, Inc. -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 59-2762023 ------------------------------------ ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 43 West 33rd Street, New York, New York 10001 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 212-635-3334 -------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO ___. Indicate the number of shares outstanding in each of the issuer's classes of common stock, as of the latest practicable date. Class -------------------------------- ------------------------ Common shares, $.0007 par value 148,203,710 ------------------------ Table of Contents ----------------- Page ---- Consolidated Balance Sheet (unaudited) . . . . . . . . . . . . . F-1 Consolidated Statements of Operations (unaudited) . . . . . . . . F-2 Consolidated Statements of Cash Flows (unaudited) . . . . . . . . F-3 Notes to the Financial Statements . . . . . . . . . . . . . . . . F-4 - F-9 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ BALANCE SHEET ------------- AS OF MARCH 31, 2001 -------------------- (Unaudited) ----------- ASSETS Current assets: Cash and cash equivalents $ -- ------------ Total current assets -- Other assets 9,059 ------------ $ 9,059 ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 182,157 Accrued expenses payable 2,632,433 Loans payable 623,395 Due to distributor 103,500 ------------ Total current liabilities 3,541,485 ------------ Shareholders' Equity: Common stock, $.0007 par value, 250,000,000 shares authorized and 135,592,198 shares issued 94,915 Capital in excess of par value 6,508,623 Accumulated deficit (10,135,964) ------------ Total shareholders' equity (3,532,426) ------------ $ 9,059 ============ See accompanying notes to financial statements. F-1 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ STATEMENTS OF OPERATIONS ------------------------ FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 -------------------------------------------------- (Unaudited) ----------- 2001 2000 ----------- ----------- Net Sales $ 6,110 $ 2,478 Cost of goods sold 2,896 32,397 ----------- ----------- Gross profit 3,214 (29,919) ----------- ----------- Operating expenses: Research and development 750 750 General and administrative 175,596 1,008,244 ----------- ----------- Total operating expenses 176,346 1,008,994 ----------- ----------- Operating loss (173,132) (1,038,913) Other expense (income) 655 -- ----------- ----------- Loss before provision for income taxes (173,787) (1,038,913) Provision for income taxes -- -- ----------- ----------- Net loss $ (173,787) $(1,038,913) =========== =========== Loss per common share $ -- $ (0.0100) =========== =========== See accompanying notes to financial statements. F-2 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ STATEMENTS OF CASH FLOWS ------------------------ FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 -------------------------------------------------- (Unaudited) ----------- 2001 2000 ----------- ----------- Cash Flows from Operating Activities: Net Loss from operations $ (173,787) $(1,038,913) Adjustments to reconcile net loss from operations to net cash used by operating activities: Depreciation and amortization expense 242 201 Increase in prepaid expenses -- (2,056) Increase in accounts payable 11,769 1,796 Increase in accrued expenses 119,876 735,425 ----------- ----------- Net cash used by operations (41,900) (303,547) ----------- ----------- Cash Flows from Investing Activities: Purchase of computer equipment -- (1,000) ----------- ----------- Net cash used by investing activities -- (1,000) ----------- ----------- Cash Flows from Financing Activities: Proceeds from short-term loans payable 41,900 392,000 Payments on short-term loans payable -- (25,009) ----------- ----------- Net cash provided by financing activities 41,900 366,991 ----------- ----------- Net increase in Cash and cash equivalents -- 62,444 Cash and cash equivalents at beginning of period -- 12,726 ----------- ----------- Cash and cash equivalents at end of period $ -- $ 75,170 =========== =========== Supplemental Cash Flow Information: Cash Paid During the Period for: Interest -- -- =========== =========== Income Taxes -- -- =========== =========== See accompanying notes to financial statements. F-3 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- MARCH 31, 2001 -------------- (UNAUDITED) ----------- NOTE 1 Basis of Presentation --------------------- The accompanying unaudited financial statements of Advanced Plant Pharmaceuticals, Inc. ("APPI" or the "Company") as of March 31, 2001 have been prepared in accordance with generally accepted accounting principles for interim information. Accordingly, certain information and footnote disclosures required under generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments of a recurring nature considered necessary for a fair presentation of the results for the interim periods presented have been included. Operating results for the three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for the entire year or any other period. These financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2000. NOTE 2 Nature of Operations -------------------- APPI focuses on the research and development of plant based dietary supplements. The Company owns the rights to a process, which utilizes whole plants to manufacture all natural dietary supplements. The Company intends to use this process to manufacture products that it hopes to distribute worldwide through various sales distribution contracts. The Company expects, in the near term, to finance these efforts through the sale of its common stock until such time, if ever, that the operations achieve a positive cash flow. There is no guarantee that the Company will accomplish this goal. See Note 8, "Financial Results and Liquidity." NOTE 3 GOING CONCERN ------------- Management believes that it can continue to obtain additional capital. However, if additional financing is not obtained, the Company might be forced to cease operations. Since its inception, the Company has had significant operating losses and working capital deficits. The Company's continued existence has been dependant on cash proceeds received from the sale of its common stock and the willingness of vendors to accept stock in lieu of cash payments for their services. Employees have also accepted deferrals of wage payments. The Company hopes to reverse this trend by generating cash inflows through the sale of new products. To accomplish this objective, the Company will require working capital to satisfy current operating expenses and to produce inventory until such time, if ever, that the revenue cycle begins generating cash. The Company's past attempts to establish a market for their products has so far been unsuccessful and resulted in minimal sales. There is no assurance that future efforts will result in a more favorable outcome. F-4 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- MARCH 31, 2001 -------------- (UNAUDITED) ----------- NOTE 4 Summary of Significant Accounting Policies ------------------------------------------ Cash Equivalents ---------------- For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Other Assets ------------ Other assets consist of patents ($4,290), security deposits ($4,144) and computer equipment ($625). Patents are amortized on a straight-line method over their economic lives and are reviewed for impairment whenever the facts and circumstances indicate that the carrying amount may not be recoverable. Computer equipment is depreciated on a straight-line method using an estimated useful life of three years. Research & Development Costs ---------------------------- Research and development costs are expensed as incurred. Income Taxes ------------ APPI has incurred significant losses from operations. The Company has elected not to record any tax benefits relating to potential net operating loss carryforwards due to the uncertainty of realizing those benefits. The Company intends to follow Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes" when either operations achieve profitability or the realization of net operating loss benefits can more readily be measured, whichever comes first. Earnings per Share ------------------ Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" discusses the computation and presentation of earnings per share ("EPS"). Basic EPS, as defined by SFAS No. 128, is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the reporting period, ignoring any potential effects of dilution. Diluted EPS reflects the potential dilution that would occur if securities, or other contracts to issue common stock, were exercised or converted into common stock that then shared in the earnings of the entity. F-5 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- MARCH 31, 2001 -------------- (UNAUDITED) ----------- NOTE 4 Summary of Significant Accounting Policies ------------------------------------------ (Continued) There were 17,500,000 common stock options outstanding as of March 31, 2001. As a result of the losses reported in the periods presented these options, if exercised, would be antidilutive. Accordingly, only Basic EPS is presented in these financial statements. The weighted-average number of shares used in the computation of per share data was 135,592,198 and 108,499,506 for the three months ended March 31, 2001 and 2000, respectively. Stock-Based Compensation ------------------------ APPI has satisfied various loans, trade payables, employee back-wages and other liabilities through the issue of its common stock. The Company accounts for such stock-based compensation using the fair-value method as prescribed by SFAS No. 123, "Accounting for-Stock-Based Compensation." The Company has also issued stock options to key employees. As permissible under SFAS No. 123, the Company accounts for stock options using the intrinsic value method as prescribed under Accounting Principles Board Opinion No. 25. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenues and expenses. Actual results could differ from these estimates. NOTE 5 Capital Stock ------------- The Company is authorized to issue 250 million shares of it common stock, par value $.0007 per share. The holders of common stock are entitled to one vote for each share held on all matters to be voted on by stockholders. The Company is also authorized to issue 5 million shares of preferred stock, par value $.0007 per share. There is currently no preferred stock outstanding and the company has no current plans to issue preferred stock. NOTE 6 Loans Payable ------------- Loans Payable consists of unsecured, non-interest bearing short-term loans typically of less than three months duration. The loan agreements provide the Company with the option of repaying the loans with either cash or restricted shares of the Company's common stock. F-6 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- MARCH 31, 2001 -------------- (UNAUDITED) ----------- NOTE 7 Related-Parties Transactions ---------------------------- On March 15, 2000 the company entered into a two-year employment agreement with Dr. Leonard Bielory whereby Dr. Bielory will serve as the Company's Scientific Director and its Chairman of the Board of Directors. Under the terms of the agreement, the Company is required to pay Dr. Bielory wages of $500 per month for the first twelve months and up to $2,500 per month thereafter, contingent on the Company achieving specified net profit levels. Upon commencement of this agreement, and each January 1 thereafter, the Company is to issue Dr. Bielory options to purchase 750,000 shares of the Company's common stock as additional compensation under this agreement. The Company intends to issue the initial options to Dr. Bielory during the second quarter of 2000. These options are expected to expire on March 15, 2005 and have an exercise price equal to the fair market value of the Company's stock on March 15, 2000. The agreement also required the Company to issue Dr. Bielory 225,000 restricted shares of the Company's common stock as a signing bonus. The fair market value of the Company's stock on March 15, 2000 (the date of this agreement) was $.43 per share. The Company accrued the shares' aggregate fair market value of $96,750 as additional compensation expense during the first quarter of 2000. On January 22, 2001, the Company entered into a consulting agreement with Summa Capital, Inc., which is owned by the son of a current employee and shareholder of the Company. In accordance with the agreement, Summa Capital will provide consulting services in the area of investor relations, public relations, marketing and capital markets. The agreement is renewable every three months but may be cancelled by either party on a monthly basis. Compensation payable to Summa Capital under this agreement includes $3,000 per month payable in advance, 300,000 shares of Company stock at the end of each three-month period and a percentage of the net proceeds of any money raised by the Company from sources introduced by Summa Capital. Additionally, at the beginning of every three-month renewal period Summa Capital is to receive two-year warrants convertible into 300,000 shares of the Company's common stock and five-year warrants to purchase an additional 300,000 shares of the Company's stock. General and administrative expenses for the three months ended March 31, 2001, includes $17,303 of accrued expenses relating to this agreement. On February 28, 2001, the Company entered into a loan agreement with Sam Berkowitz, an employee and shareholder of the Company. The agreement is for a maximum loan amount of $100,000 and is due on June 30, 2001. As of May 15, 2001 the company has borrowed $56,400 on this loan. The loan is interest free and includes the option to be paid in Company stock. If the loan is paid in Company stock, the stock conversion price is $.0165 per share. F-7 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- MARCH 31, 2001 -------------- (UNAUDITED) ----------- NOTE 8 Financial Results and Liquidity ------------------------------- As of March 31, 2001, the Company had no cash balances. Since its inception, the Company has had significant operating losses and working capital deficits. The Company's continued existence has been dependant on cash proceeds received from the sale of its common stock and the willingness of vendors to accept stock in lieu of cash payments for their services. Employees have also accepted deferrals of wage payments. The Company hopes to reverse this trend by generating cash inflows through the sale of new products. To accomplish this objective, the Company will require working capital to satisfy current operating expenses, and to produce inventory, during the interim period preceding such time, if ever, that the revenue cycle begins generating cash. To market and generate sales of its products, the Company has entered into various distribution agreements over the years. As of March 31 2001, none of the distribution agreements has resulted in significant sales for the Company. The impact of any current or future distribution agreements on the Company's cash flow is uncertain. There is no guarantee that cash generated from new product sales will occur, or be sufficient to fund operating costs which can be expected to increase as the Company "ramps up" for manufacturing and distribution activities. There also is no assurance that the Company will continue to be able to finance operations through the sale of its common stock, the exchange of stock for services or from the proceeds of unsecured loans with private lenders. NOTE 9 Financial Advisor and Investment Banking Agreement -------------------------------------------------- On February 17, 2000 the Company entered into an agreement with First Madison Securities, Inc. ("FMS") whereby FMS was to act as consultant and non-exclusive financial advisor and investment banker to the Company in connection with strategic planning, securities transactions, valuations, mergers & acquisitions, alternative financing structures and capital formation. FMS would also act as placement agent for the Company. As compensation for these services, the Company is required to issue FMS 6,000,000 restricted shares of its common stock as follows; 1,700,000 shares upon execution of the agreement, 1,700,000 shares within three months of signing the agreement and 2,600,000 shares within six months of signing the agreement. The restricted shares were to be registered with the Securities and Exchange Commission to become free trading shares as soon as possible with FMS bearing all registration costs. General and Administrative expenses for the three-months ended March 31, 2000 includes consulting expense of $663,000, which was the aggregate fair market value of the initial 1,700,000 shares due to FMS on February 17, 2000. The Company distributed the initial 1,700,000 shares during May 2000. F-8 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- MARCH 31, 2001 -------------- (UNAUDITED) ----------- The Company is also required to pay FMS a placement fee for any transactions consummated, directly or indirectly, through FMS during the term of the agreement or within two years thereafter. The placement fee will consist of a payment equal to 10% of the gross proceeds raised from the sale of applicable securities, reimbursement of non-accountable expenses equal to 3% of the gross proceeds from the sale of any applicable securities plus warrants to purchase common stock equal to 10% of the applicable shares sold. Additionally, the Company will reimburse FMS for all reasonable out-of-pocket expenses incurred in the performance of this agreement, up to a maximum of $25,000. Service under this agreement shall continue until terminated by either party by giving thirty days written notice. Through March 31, 2001, this contract has not been exercised or terminated. NOTE 10 Sales Management Agreement -------------------------- On March 16, 2001, the Company entered into an agreement whereby the Company appointed National Brokers Associates (NBA) as their exclusive sales management organization. The agreement is for a one-year term. Compensation under the agreement involves percentage of sales volume and includes minimum payments of $5,000 per month of which 80% can be paid with Company stock at a discounted conversion rate. The agreement calls for the issuance of additional shares of the Company's stock if certain sales levels are achieved. NOTE 11 Subsequent Events ----------------- In addition to the shares that may potentially be issued for the agreements previously discussed, the Company is currently considering issuing approximately 9,385,000 shares of common stock to pay off various payables existing at March 31, 2001 and incurred in the subsequent 2001 period. The fair market value of these shares at March 31, 2001 is approximately $440,000. None of the shares relating to these subsequent events has been used to calculate earnings per share data since they would be antidilutive. F-9 ITEM 1 - Legal Proceedings None ITEM 2 - Changes in Securities None ITEM 3 - Defaults upon Senior Securities None ITEM 4 - Submission of Matters to a Vote of Security Holders None ITEM 5 - Other Information None ITEM 6 --EXHIBITS AND REPORTS OF FORM 8-K None Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Advanced Plant Pharmaceuticals, Inc. /s/ David Lieberman ------------------- David Lieberman, President May 30, 2001