10QSB 1 doc1.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 SEPTEMBER 30, 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 204,005,002 ------------------------- 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-11 ADVANCED PLANT PHARMACEUTICALS, INC ----------------------------------- BALANCE SHEET AS OF SEPTEMBER 30, 2001 (UNAUDITED)

ASSETS CURRENT ASSETS: CASH AND CASH EQUIVALENTS $ 691 ACCOUNTS RECEIVABLE 998 INVENTORY 70,372 ------------ TOTAL CURRENT ASSETS 72,061 ------------ INTANGIBLE ASSETS (NET OF ACCUMULATED AMORTIZATION OF $170,373) 2,355,861 OTHER ASSETS 4,602 ------------ 2,360,463 ------------ TOTAL OTHER ASSETS $ 2,432,524 ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: ACCOUNTS PAYABLE $ 227,395 ACCRUED EXPENSES PAYABLE 2,419,007 LOANS PAYABLE 700,094 DUE TO DISTRIBUTOR 103,500 ------------ TOTAL CURRENT LIABILITIES 3,449,996 ------------ SHAREHOLDERS' EQUITY: COMMON STOCK, $.0007 PAR VALUE, 250,000,000 SHARES AUTHORIZED AND 165,372,198 SHARES ISSUED 115,761 CAPITAL IN EXCESS OF PAR VALUE 7,032,977 ACCUMULATED DEFICIT (8,166,210) ------------ TOTAL SHAREHOLDERS' EQUITY (1,017,472) ------------ $ 2,432,524 ============ SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. F-1

ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ STATEMENTS OF OPERATIONS ------------------------ (UNAUDITED) -----------

Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 ---------- ------------ ---------- ------------ Net Sales $ 15,585 $ 2,202 $ 32,825 $ 11,263 Cost of goods sold 6,983 7,270 20,530 52,964 ---------- ------------ ---------- ------------ Gross profit 8,602 (5,068) 12,295 (41,701) ---------- ------------ ---------- ------------ Operating expenses: Research and development 400 2,880,951 1,900 2,930,201 General and administrative 280,114 382,598 691,655 1,734,671 ---------- ------------ ---------- ------------ Total operating expenses 280,514 3,263,549 693,555 4,664,872 ---------- ------------ ---------- ------------ Operating loss (271,912) (3,268,617) (681,260) (4,706,573) Other expense (income) - - 655 - ---------- ------------ ---------- ------------ Loss before provision for income taxes (271,912) (3,268,617) (681,915) (4,706,573) Provision for income taxes - - - - ---------- ------------ ---------- ------------ Net loss $(271,912) $(3,268,617) $(681,915) $(4,706,573) ========== ============ ========== ============ Loss per common share $ (0.00) $ (0.03) $ (0.00) $ (0.04) ========== ============ ========== ============ See accompanying notes to financial statements. F-2

ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (UNAUDITED)

2001 2000 ---------- ------------- Cash Flows from Operating Activities: Net Loss from operations $(681,915) $ (4,706,573) Adjustments to reconcile net loss from operations to net cash used by operating activities: Depreciation and amortization expense 128,375 685 Services paid with common stock 545,200 978,874 Increase in accounts receivable and Other Assets (2,653) - Increase in Inventory (70,372) - Increase in accounts payable 85,007 49,634 (Decrease) increase in accrued expenses (121,550) 3,036,317 ---------- ------------- Net cash used by operations (117,908) (641,063) ---------- ------------- 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 118,599 667,200 Payments on short-term loans payable 0 (25,009) ---------- ------------- Net cash provided by financing activities 118,599 642,191 ---------- ------------- Net (decrease) in Cash and cash equivalents 691 128 Cash and cash equivalents at beginning of period - 12,726 ---------- ------------- Cash and cash equivalents at end of period $ 691 $ 12,854 ========== ============= Supplemental Cash Flow Information: Cash Paid During the Period for: Interest - - ========== ============= Income Taxes - - ========== ============= Information about Noncash Activities: Common stock issued to satisfy loans $ 100,000 $ - ========== ============= Common stock issued for services $ 435,200 $ 978,874 ========== ============= See accompanying notes to financial statements. F-3

ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- SEPTEMBER 30, 2001 ------------------ (UNAUDITED) ----------- NOTE 1 BASIS OF PRESENTATION ----------------------- THE ACCOMPANYING UNAUDITED FINANCIAL STATEMENTS OF ADVANCED PLANT PHARMACEUTICALS, INC. ("APPI" OR THE "COMPANY") AS OF SEPTEMBER 30, 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 NINE MONTHS ENDED SEPTEMBER 30, 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 ----------------------------- SEPTEMBER 30, 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 SECURITY DEPOSITS ($4,144) AND COMPUTER EQUIPMENT ($458). PATENTS AND TECHNOLOGY PURCHASED 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. INVENTORY --------- INVENTORIES ARE STATED AT THE LOWER OF COST OR MARKET. ACTUAL COST IS USED TO VALUE RAW MATERIALS AND SUPPLIES. INVENTORIES ALSO INCLUDE COSTS OF PROCESSING AND SHIPPING. INTANGIBLE ASSETS ------------------ INTANGIBLE ASSETS PRINCIPALLY REPRESENT THE EXCLUSIVE RIGHTS AND INTEREST TO THE ALLERGY AND SINUS FORMULATIONS AND A THIRTEEN- STEP PROCESS FOR THE MANUFACTURING OF THE COMPANY'S PRODUCTS. SUCH AMOUNTS ARE BEING AMORTIZED ON A STRAIGHT-LINE BASIS OVER 15 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. F-5 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- SEPTEMBER 30, 2001 ------------------ (UNAUDITED) ----------- NOTE 4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ---------------------------------------------- (CONTINUED) 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. THERE WERE 5,500,000 COMMON STOCK OPTIONS OUTSTANDING AS OF SEPTEMBER 30, 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 163,263,502 AND 111,862,074 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000, RESPECTIVELY. FOR THE NINE-MONTH PERIODS THEN ENDED, THE WEIGHTED-AVERAGE NUMBER OF SHARES WAS 148,916,332 IN 2001 AND 110,057,560 IN 2000. 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. F-6 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- SEPTEMBER 30, 2001 ------------------ (UNAUDITED) ----------- 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. 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. AS OF AUGUST 15, 2001, THE COMPANY HAS NOT ISSUED ANY OF THE OPTIONS REQUIRED PER THE AGREEMENT. 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. THE SHARES WERE ISSUED TO DR. BIELORY DURING APRIL 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. F-7 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- SEPTEMBER 30, 2001 ------------------ (UNAUDITED) ----------- NOTE 7 RELATED-PARTIES TRANSACTIONS ----------------------------- (CONTINUED) 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-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2001, INCLUDES $34,000 AND $51,300, RESPECTIVELY, OF EXPENSES RELATING TO THIS AGREEMENT OF WHICH $5,700 HAS BEEN PAID AS OF SEPTEMBER 30, 2001. 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 WAS INITIALLY DUE ON SEPTEMBER 30, 2001. THE COMPANY HAS BORROWED $56,600 ON THIS LOAN WHICH IS STILL OUTSTANDING AT SEPTEMBER 30, 2001. 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. THE COMPANY'S PRESIDENT, AND HIS BROTHER, HAS ALSO LENT THE COMPANY MONEY AT VARIOUS TIMES IN THE PAST. OUTSTANDING BALANCES UNDER THESE LOANS TOTALS APPROXIMATELY $80,000 AT SEPTEMBER 30, 2001. NOTE 8 FINANCIAL RESULTS AND LIQUIDITY ---------------------------------- AS OF SEPTEMBER 30, 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 SEPTEMBER 30 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. F-8 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- SEPTEMBER 30, 2001 ------------------ (UNAUDITED) ----------- NOTE 8 FINANCIAL RESULTS AND LIQUIDITY ---------------------------------- (CONTINUED) 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. 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. THIS CONTRACT WAS TERMINATED EFFECTIVE DECEMBER 3, 2001. F-9 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- SEPTEMBER 30, 2001 ------------------ (UNAUDITED) ----------- 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 FINANCIAL CONSULTING AND PUBLIC RELATIONS AGREEMENT -------------------------------------------------------- ON JUNE 26, 2001, THE COMPANY ENTERED INTO AN AGREEMENT WITH CONTINENTAL MANAGEMENT GROUP, INC. (CMGI) WHEREBY CMGI WILL PROVIDE FINANCIAL CONSULTING AND PUBLIC RELATIONS SERVICES TO APPI. THE AGREEMENT IS FOR A PERIOD OF ONE YEAR COMMENCING ON JULY 1, 2001 BUT IS CANCELABLE BY EITHER PARTY ON THIRTY DAYS WRITTEN NOTICE. COMPENSATION UNDER THIS AGREEMENT INCLUDES THE ISSUANCE OF 3,000,000 SHARES OF COMMON STOCK OVER THE DURATION OF THE AGREEMENT IN EQUAL MONTHLY INSTALLMENTS. ADDITIONALLY, UPON COMMENCEMENT OF SERVICES, 500,000 SHARES OF COMMON STOCK, AND OPTIONS TO PURCHASE 500,000 ADDITIONAL SHARES AT $.025 PER SHARE, ARE TO BE ISSUED TO CMGI. THIS CONTRACT WAS TERMINATED EFFECTIVE DECEMBER 3, 2001. NOTE 12 PRIOR PERIOD ADJUSTMENTS -------------------------- RECLASSIFICATION OF PURCHASE OF FORMULATION AND MANUFACTURING PROCESS ---------------------------------------------------------------------------- ON JULY 16, 1999, THE COMPANY ENTERED INTO A TECHNOLOGY PURCHASE AGREEMENT WITH C.J. LIEBERMAN (BROTHER OF THE CURRENT PRESIDENT) WHEREBY THE COMPANY ACQUIRED EXCLUSIVE RIGHTS AND INTEREST TO A THIRTEEN-STEP PROCESS, WHICH UTILIZES VIRTUALLY THE WHOLE OF THE NUTRIENTS FOUND IN PLANTS TO MANUFACTURE HERBAL DIETARY SUPPLEMENTS. THE PURCHASE PRICE FOR THE PROCESS INCLUDES 18,000,000 SHARES OF THE COMPANY'S COMMON STOCK ISSUABLE IN TWO PHASES. AS OF DECEMBER 2000, NONE OF THE STOCK RELATED TO THIS AGREEMENT HAS BEEN ISSUED. THE COMPANY ACCRUED $1,440,000, IN ANTICIPATION OF ISSUING 12 MILLION SHARES THAT BECAME DUE IN 2000 PER THE AGREEMENT. THIS AMOUNT, WHICH REPRESENTS THE FAIR MARKET VALUE OF THE STOCK WHEN IT BECAME DUE UNDER THE AGREEMENT WAS INCLUDED IN "RESEARCH AND DEVELOPMENT" COSTS IN 2000 AND "ACCRUED EXPENSES PAYABLE" AT DECEMBER 31, 2000. ON FEBRUARY 28, 2000 THE COMPANY ENTERED INTO AN ASSET PURCHASE AGREEMENT WITH DR. LEONARD BIELORY (CHAIRMAN OF THE BOARD OF DIRECTORS OF APPI) WHEREBY THE COMPANY ACQUIRED THE EXCLUSIVE RIGHTS AND INTEREST TO ALLERGY AND SINUS FORMULATIONS ("ASSETS"). THE PURCHASE PRICE INCLUDES OPTIONS TO PURCHASE 18,000,000 SHARES OF THE COMPANY'S COMMON STOCK AT AN AGGREGATE EXERCISE PRICE OF $180. THE OPTIONS ARE TO BE ISSUED IN TWO PHASES. THE FIRST PHASE WAS COMPLETED IN 2000 AND THE REQUIRED OPTIONS TO PURCHASE 12 MILLION SHARES WERE ISSUED DURING THE FOURTH QUARTER OF 2000. THE FAIR VALUE OF THE 12 MILLION SHARE OPTIONS WAS $1,079,880 AND WAS INCLUDED IN "RESEARCH AND DEVELOPMENT" EXPENSE IN THE 2000 INCOME STATEMENT. F-10 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- SEPTEMBER 30, 2001 ------------------ (UNAUDITED) ----------- NOTE 12 PRIOR PERIOD ADJUSTMENTS -------------------------- (CONTINUED) DURING THE FOURTH QUARTER ENDING DECEMBER 31, 2000, THE COMPANY EXPENSED AS RESEARCH AND DEVELOPMENT, THE COMBINED COST OF $2,519,880 FOR THE ASSET PURCHASE AGREEMENTS WITH DR. LEONARD BIELORY AND C.J. LIEBERMAN. THE COMPANY CORRECTED THE ERROR AND CAPITALIZED SUCH COSTS AS INTANGIBLE ASSETS, SUBJECT TO AMORTIZATION. THE EFFECT OF THE RESTATEMENT WAS TO REDUCE COSTS OF RESEARCH AND DEVELOPMENT AS REPORTED ON DECEMBER 31, 2000 FROM $2,615,630 TO $95,750. ADDITIONALLY, THE COMPANY RECORDED APPROXIMATELY $42,000 OF AMORTIZATION FOR THE SAME PERIOD. THE EFFECT OF THE CORRECTION WAS TO REDUCE THE NET LOSS REPORTED FOR THE YEAR ENDED DECEMBER 31, 2000 FROM $4,778,734 ($.04 LOSS PER SHARE) TO $2,300,854 ($.02 LOSS PER SHARE). ADDITIONALLY, THE COMPANY RECORDED APPROXIMATELY $42,000 OF AMORTIZATION DURING THE FIRST QUARTER ENDING MARCH 31, 2001. THE EFFECT ON THE CORRECTION IS TO INCREASE THE LOSS AS ORIGINALLY REPORTED FROM $173,787 TO $215,787. NOTE 13 SUBSEQUENT EVENTS ------------------ IN ADDITION TO THE SHARES THAT MAY POTENTIALLY BE ISSUED FOR THE AGREEMENTS PREVIOUSLY DISCUSSED, THE COMPANY IS CURRENTLY CONSIDERING ISSUING APPROXIMATELY 8,705,000 SHARES OF COMMON STOCK TO PAY OFF VARIOUS PAYABLES EXISTING AT DECEMBER 30, 2001. THE FAIR MARKET VALUE OF THESE SHARES AT SEPTEMBER 30, 2001 IS APPROXIMATELY $348,000. IN OCTOBER 2001, THE COMPANY ISSUED APPROXIMATELY 38,676,372 COMMON SHARES TO SATISFY VARIOUS DEBTS AND CONSULTING AGREEMENTS. NONE OF THE SHARES RELATING TO THESE SUBSEQUENT EVENTS HAS BEEN USED TO CALCULATE EARNINGS PER SHARE DATA SINCE THEY WOULD BE ANTIDILUTIVE. F-11 ITEM 1 - LEGAL PROCEEDINGS THE REGISTRANT HAS RECEIVED NOTICE OF OPPOSITION TO ITS TRADEMARK APPLICATION FOR THE SINUSOL PRODUCT FROM THE OWNER OF A TRADEMARK FOR ANUSOL, MANUFACTURED BY WARNER-LAMBERT COMPANY. THE REGISTRANT BELIEVES THAT ITS PRODUCT AND TRADEMARK APPLICATION IS DISTINGUISHABLE FROM THE OPPOSER'S AND THAT ANY OPPOSITION WILL EVENTUALLY BE DENIED AND ITS TRADEMARK GRANTED FOR THE REGISTRANT'S PRODUCT. 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. DAVID LIEBERMAN, PRESIDENT DECEMBER 4, 2001