10KSB 1 doc1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. FORM 10-KSB [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [ ] Transitional Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 000-29462 ADVANCED PLANT PHARMACEUTICALS, INC. ----------------------------- (Exact name of Registrant as specified in its charter) Delaware 59-2762023 ------------------- ------------------- (State of other jurisdiction (I.R.S. Employer Identification Number) of incorporation or organization) 43 West 33rd Street, New York, New York 10001 ----------------------------------------- Address of principal executive offices Registrant's telephone number, including area code: 212-695-3334 Securities registered pursuant to Section 12(b) of the Act: NONE Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that registrant was required to filed such reports), and (2) has been subject to such filing requirement for the past 90 days. [X] Yes [ ] No Check if no disclosure of delinquent filers in response to Item 405 of Regulation S-B is contained in this Form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy of information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form-KSB. [X] State issuer's revenues for its most recent reporting period (Fiscal year)$37,121 Aggregate market value of the voting stock held by non-affiliates of the registrant at April 30, 2001, was $ 847,265.33. As at December 31, 2001, the number of shares issued and outstanding was 205,691,013. The closing price of the common stock at that date was $0.13. ADVANCED PLANT PHARMACEUTICALS, INC. Form 10-KSB - Index For the Fiscal Year Ended December 31, 2001 PART I Page Item 1. Business 3 Item 2. Properties 3 Item 3. Legal Proceedings 4 Item 4. Submission of Matter to a Vote of Security Holders 4 PART II Item 5. Market of Registrant's Securities and Related Stockholder Matters 4 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 7. Consolidated Financial Statements and Supplementary Data 8 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 8 PART III Item 9. Directors and Executive Officers of the Registrant 8 Item 10. Executive Compensation 9 Item 11. Security Ownership of Certain Beneficial Owners 10 and Management Item 12 Certain Relationships and Related Transactions 11 Part IV Item 13. Exhibits, Consolidated Financial Statements, 11 Schedules and Reports on Form 8-K Signatures 12 2 This Form 10-KSB contains forward looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, regarding future events and the future performance of the Company involve risks and uncertainties which may cause our actual results in future periods to be materially different from any future performance suggested herein. We believe that its business strategy that includes focus on future acquisitions is not unique. There can be no assurance that our strategy will be successful. There can be no assurance that sufficient capital can be obtained to market ourselves and increase our market share and our performance and actual results could differ materially from those projected in the forward looking statements contained herein. PART I Item 1. Business APPI continues to focus on the research and development of plant based dietary supplements. During July 1999, the Company acquired exclusive rights and interests to a thirteen-step process which utilizes virtually the whole of the nutrients found in plants to manufacture all natural herbal dietary supplements. The purchase price for the process was 12,000,000 shares of Common Stock. The shares were issued February 13, 2001. A further 6,000,000 shares will become due when marketing of the product commences. The Company intends to use this process to manufacture products that it hopes to distribute worldwide through various sales distribution contracts. On February 28, 2000, the Company entered into an Asset Purchase Agreement with Dr. Bielory to purchase his various allergy and nasal formulations. This Agreement was approved by the Board of Directors on September 6, 2000. Dr. Bielory was granted a five year option to purchase an aggregate of 18,000,000 shares of the Company's Common Stock, par value $0.0007 per share, at an exercise price of $180.00. Dr. Bielroy exercised an option for 12,000,000 shares in the first quarter of 2001. Sinusol(YM), being one of the formulations purchased from Dr. Bielory, is a generalized base solution for the development of an extensive line of specialty products related to allergy and sinus conditions. The ingredients include a mixture of gently pH-balanced essential mineral oils that combat the various symptoms related to allergies and sinus disorders, including congestions, irritated nasal mucosa and bacterial and fungal infections. Specialized advanced formulations are being reviewed for patent submission. 3 Item 2. Description of Property The Company continues to lease space at 43 West 33rd Street, New York, New York 10001. The current amount of space is sufficient for the Company for the foreseeable future. Due to the cash problems of the Company, it is possible that the Company would be forced to vacate the leasehold at some point in the future, although no such action is imminent or contemplated. Item 3. Legal Proceedings The Company received a letter from the counsel for Warner-Lambert objecting to the trademark application the Company had flied with respect to its Sinusol product. Warner-Lambert felt that the Sinusol product would be too similar to the Warner-Lambert product they had trademarked, called ANUSOL. The parties have agreed to a settlement agreement whereby the opposition to the trademark application filed by the Company will be withdrawn and the Company shall be permitted to continue to market the Sinusol product. The Company agreed not to use or seek to register trademarks or service marks in the United States containing the suffix "-NUSOL", except for its pending application for SINUSOL and any other related application for SINUSOL or various permutations of SINUSOL, including without limitation SINUSOL-ES, SINUSOL PLUS or similar marks. Nothing in the settlement agreement shall prevent APPI from using the suffix "-USOL" in any trademark or service mark. The Company is a party to an action in the Civil Court of the City of New York, County of New York, entitled, Bowne of New York City, LLC v. Advanced Plant Pharmaceuticals. This is an action for unpaid fees for filing the reports of the Company on EDGAR. The suit seeks $15,805.42 in unpaid fees. The Company disputes the total amount due. If the Company is unable to work out a resolution of this action, it could have a material affect upon the Company. Counsel for the Company has been in contact with the attorney's for Bowne, and it is likely that a resolution will be able to be reached. Item 4. Submission of Matter to a Vote of Security Holders There were no matters submitted to a vote of shareholders during the fourth quarter of 2001. 4 PART II Item 5. Market of Registrant's Securities and Related Stockholder Matters a. The Company's Common Stock is traded under the symbol "APPI" on the NASDAQ Over the Counter Bulletin Board. The Company, at December 31, 2001, had 205,691,013 shares issued and outstanding. During the fiscal years of 2000 and 2001, the price of the shares of Common Stock of the Company reached the following high and low for each quarter. Calendar Quarter Ended Bid Prices ----------------- ------------------ Low High --- ---- FISCAL YEAR 2000 ------------------ March 31, 2000 $0.081 $0.85 June 30, 2000 $0.08 $0.34 September 30, 2000 $0.09 $0.155 December 31, 2000 $0.03 $0.13 FISCAL YEAR 2001 ------------------ March 31, 2001 $0.35 $0.08 June 30, 2001 $0.03 $0.06 September 30, 2001 $0.02 $0.06 December 31, 2001 $0.01 $0.02 FISCAL YEAR 2002 ------------------ March 31, 2002 $.005 $0.20 b. Holders As of April 30, 2002, there were approximately 350 record holders of our common stock. To the best of our knowledge, such figure does not take into account those stockholders whose certificates are held in the name of broker-dealers or other nominees. We believe that there are more beneficial owners of our common stock, most of whose shares are held in street name. 5 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations APPI focuses on the research and development of plant based dietary supplements. During July 1999, the Company acquired exclusive rights and interests to a thirteen-step process, which utilizes virtually the whole of the nutrients found in plants to manufacture all natural herbal dietary supplements. The Company intends to use this process to manufacture products that it hopes to distribute worldwide through various sales distribution contracts. 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 aggregating $8,491,736. 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 that they have developed. 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 as the revenue cycle begins generating cash. However, to date, sales have not been material and the Company has run out of capital. As of December 31, 2001, the Company has $7,316 in cash and total current liabilities exceeded current assets by $3,061,253. As of the beginning of August 2000 we did not have any cash on hand or accounts receivable. The Company's two employees have deferred payment of their salaries for the past eight weeks. While we are negotiating with potential investors to secure cash infusions into the Company, if we do not find any cash investors we will be unable to operate our business for any significant length of time. If we secure funds we intend to use our Process to expand our product line to include herbal dietary supplements such as St. John's Wort, Kava Kava, Ginko Biloba and Echinacea. We estimate that the initial production and preliminary marketing of these four herbal products to potential domestic and international distributors and wholesalers will cost approximately $60,000. We do not expect to purchase or sell any manufacturing facilities or significant equipment over the next twelve months. We do not foresee any significant changes in the number of employees we will employ over the next twelve months. Other products we are currently marketing are: 6 LO-CHOL ------- Born out of the latest scientific research, Lo-Chol's patented formula is derived from the "whole plant" parts ofsix selected plants that work in concert to help tip your lipid balance (good and bad cholesterol) towards a more normal level. These six plants (with exotic names like Cinnamomumzeylancium and Allium sativum) are synergistically combined using a proprietary "whole plant technology" (a special pharmaceutical-grade process) that delivers virtually all the natural phyto-chemicals and active ingredients in the plants. Unlike almost all other herbal supplements on the market, Lo-Chol does not contain any extracts. Instead, it utilizes the entire part of a specific plant that is processed and standardized to deliver optimum potency and nutritional benefits. This is a significant advantage that puts Lo-Chol and other APPI products in a class by themselves. ACA --- ACACaplets contain a carefully selected group of 11 natural plant substances, which work in harmony to help chronic fatigue and boost normal metabolicprocesses that support immune system function. These 11 plants (including Boswelliacaterii, Impatiens balaminia and Curcuma zedoria) have long and storied histories in ancient herbal medicine and folklore. Many are referred to in the Bible as well as Ayurveda, "India's natural science of life and well-being". Now, incorporated together in ACA, they offer the best of traditional herbal wisdom and modern science. SINUSOL(TM) ------- Developed in concert with a leading board certified Allergy and Sinus specialist, is a unique nasal and sinus solution that pleasantly cleanses and moisturizes the nasal and sinusmucosa. Sinusol thins nasal solutions to clear stuffy and blocked allergic nasal passages as well as relieves sneezing and sinus pressure. Sinusol , is the safe and natural alternative to over the counter nasal sprays and saline products that contain irritating preservatives and additives. Subsequent Events On April 12, 2002, the Board of Directors executed a written consent of the Board of Directors whereby the Company will spin off its product LHM123, an "Alzheimer's " product (the "Product"). The Product is to be spun off into it's own separate company. The Board of Directors has approved a stock dividend of shares of the new company at the rate of six hundred (600) shares of APPI for each share in the new company. The record dividend date has been set as July 31, 2002, payable as soon thereafter as possible. In addition, the Company will receive an additional two million shares of common stock, which will be retained by the Company, as consideration for the Product being transferred to the new company. It is intended that the new company will file the necessary documents to become a separately traded entity on the OTC BB. It is also intended that the new company will file a registration statement on Form SB-2 to register shares to raise additional capital for the new company. Item 7. Consolidated Financial Statements and Supplementary Data The information required by Item 7 appears at Page F-1, which appears after this page. 7 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ FINANCIAL STATEMENTS -------------------- FOR THE YEARS ENDED ------------------- DECEMBER 31, 2001 AND 2000 -------------------------- Table of Contents ----------------- Page ---- Independent Auditor's Report 2 Balance Sheet 3 Statements of Operations 4 Statements of Cash Flows 5 Statements of Shareholders' Deficit 6 Notes to the Financial Statements 7 - 17 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Advanced Plant Pharmaceuticals, Inc. We have audited the accompanying balance sheet of Advanced Plant Pharmaceuticals, Inc. (the "Company") as of December 31, 2001, and the related statements of operations, shareholders' deficit and cash flows for the two years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all respects, the financial position of Advanced Plant Pharmaceuticals, Inc. as of December 31, 2001, and the results of their operations and their cash flows for each of the two years then ended, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has negative working capital that raises substantial doubt about the ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Michael C. Finkelstein & Co., CPA Morganville, New Jersey April 17, 2002 2 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ BALANCE SHEET AS OF DECEMBER 31, 2001 ASSETS

Current assets: Cash and cash equivalents $ 7,316 Accounts Receivable 1,454 Inventory 66,076 Total current assets 74,846 ---------------- Fixed Assets (Net of Accumulated Depreciation of $625) 375 ---------------- Other Assets Intagible Assets (Net of Accumlated Amortization of $212,371) 2,313,863 Other Assets 4,144 --------------- Total Other Assets 2,318,007 --------------- Total Assets $ 2,393,228 =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 213,578 Accrued expenses payable 2,284,196 Loans payable 534,825 Due to distributor 103,500 -------------- Total current liabilities 3,136,099 -------------- Shareholders' Equity: Common stock, $.0007 par value, 250,000,000 shares authorized and 205,691,013 shares issued 143,984 Capital in excess of par value 7,604,881 Accumulated deficit (8,491,736) --------------- Total shareholders' equity (742,871) --------------- $ 2,393,228 =============== See accompanying notes to financial statements. 3

ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

2001 2000 ------------ ------------ Net Sales $ 37,121 $ 13,250 Cost of goods sold 39,520 69,688 ------------ ------------ Gross loss (2,399) (56,438) ------------ ------------ Operating expenses: Research and development - 95,750 General and administrative 1,004,387 2,148,038 ------------ ------------ Total operating expenses 1,004,387 2,243,788 ------------ ------------ Operating loss (1,006,786) (2,300,226) Other expenses 655 628 ------------ ------------ Loss before provision for income taxes (1,007,441) (2,300,854) Provision for income taxes - - ------------ ------------ Net loss $(1,007,441) $(2,300,854) ============ ============ Basic Loss per common share $ (0.01) $ (0.02) ============ ============ See accompanying notes to financial statements. 4

ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ STATEMENTS OF CASH FLOWS -------------------------- FOR THE YEARS ENDED 31, 2001 AND 2000 --------------------------------------

2001 2000 ------------------ --------------------- Cash Flows from Operating Activites: Net Loss from operations $ (1,007,441) $ (2,300,854) Adjustments to reconcile net loss from operations to net cash used by operating activities: Increase in accounts receivable (1,454) Depreciation and amortization expense 164,352 42,927 Inventory Adjustment (66,076) - Compensation expense attributed to stock options - 1,079,880 Services paid with common stock 945,327 1,241,999 Decrease in prepaid expenses - - Increase (decrease) in accounts payable 43,190 80,303 Increase in accrued expenses (228,361) 1,666,460 Change in certain other assets and liabilities 4,449 (1,000) ------------------ --------------------- Net cash used by operations (146,014) 1,809,715 ------------------ --------------------- Cash Flows from Investing Activities: Purchase intangible assets - (2,519,880) ------------------ --------------------- Cash Flows from Financing Activities: Proceeds from short-term loans payable 153,330 722,439 Payments on short-term loans payable (200,000) (25,000) Net proceeds from issuance of common stock 200,000 - ------------------ --------------------- Net cash provided(used) by financing activities 153,330 (697,439) ------------------ --------------------- Net increase in Cash and cash equivalents 7,316 (12,726) Cash and cash equivalents at beginning of period - 12,726 ------------------ --------------------- Cash and cash equivalents at end of period $ 7,316 $ - ================== ===================== Supplemental Cash Flow Information: Cash Paid During the Period for: Interest - - ================== ===================== Income Taxes - - ================== ===================== Information about Noncash Activities: Common stock issued to satisfy loans payable $ 275,000 $ 275,000 ================== ===================== Common stock issued for services $ 945,327 $ 1,241,999 ================== =====================

See accompanying notes to financial statements. 5

ADVANCED PLANT PHARMACEUTICALS ------------------------------ STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) ------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 ---------------------------------------------- Common Stock Capital Stock Number of in excess of Accumulated Treasury Subscriptions Shares Par Value Par Value Deficit Stock Receivable Total ------------ ----------- ---------- ----------- ---------- ----------- ---------- Balance at December 31, 1999 $108,499,506 $ 75,950 $3,975,889 $(5,183,443) $ (180) $ (45,000) $(1,176,784) Issuance of common stock 27,070,417 18,949 1,498,050 1,516,999 Stock options granted below market 1,079,880 1,079,880 Stock subscriptions receivable written-off (45,000) 45,000 - Cancellation of treasury stock (500) (180) 180 - Conversion of old class shares to new 22,775 16 (16) - Net loss for period (4,778,734) (4,778,734) ------------ ----------- ---------- ----------- ---------- ----------- ---------- Balance at December 31, 2000 135,592,198 94,915 6,508,623 (9,962,177) - (3,358,639) ============ =========== ========== =========== ========== =========== ========== Issuance of common stock 70,098,815 49,069 1,096,258 1,145,327 Prior Period Adjustment 2,477,882 2,477,882 Net loss for period (1,007,441) (1,007,441) ------------ ----------- ---------- ----------- ---------- ----------- ---------- Balance at December 31, 2001 205,691,013 $ 143,984 $7,604,881 $(8,491,736) $ - $ - $(742,871) ============ =========== ========== =========== ========= =========== ========== See accompanying notes to financial statements. 6

ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- DECEMBER 31, 2001 AND 2000 -------------------------- NOTE 1 NATURE OF OPERATIONS ---------------------- Advanced Plant Pharmaceuticals, Inc. ("the Company" or "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 2 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. NOTE 3 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). Computer equipment is depreciated on a straight-line method using an estimated useful life of three years. Computer Equipment $1,000 Accumulated Depreciation (625) -------- $ 375 ======== Depreciation Expense for the years ended December 31, 2001 and 2000 was $333 and $292, respectively. 7 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- DECEMBER 31, 2001 AND 2000 -------------------------- NOTE 3 (Continued) ----------- 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. Intangible Assets - Asset Purchase Agreement $2,526,236 Accumulated Amortization (212,371) ------------ $2,313,865 ============ Amortization for the years ended December 31, 2001 and 2000 was $168,468 and $42,632, respectively. 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. 8 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- DECEMBER 31, 2001 AND 2000 -------------------------- NOTE 3 (Continued) There were 5,500,000 and 17,500,000 common stock options outstanding as of December 31, 2001 and 2000. 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 161,800,185 in 2001 and 111,939,686 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 ("APB No. 25"). All disclosures required by SFAS No. 123 are presented in Note 4 "Stock Options." 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 4 RELATED-PARTIES TRANSACTIONS ----------------------------- 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 interests 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 2001, 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, is included in "Research and development" costs in 2000 and "Accrued expenses payable" at December 31, 2001 and 2000. 9 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- DECEMBER 31, 2001 AND 2000 -------------------------- NOTE 4 (Continued) In addition, the Company agrees to pay to C.J. Lieberman a royalty payment of $.01 per bottle with respect to each product manufactured with the process, 1% (one percent) of the Company's suggested retail price of each product manufactured with the process and 10% (ten percent) of the Company's net profits from the sale of products manufactured with the process. In the event that the Company enters into an agreement with a third party for the sale of products manufactured with the process, which agreement unconditionally provides for payment to the Company of not less than $20,000,000 upon receipt by the Company of such $20,000,000 from such third party, the Company shall issue to C.J. Lieberman five million shares for each $20,000,000 paid to the Company, not to exceed twenty five million shares. During 2000, the Company issued 5,000,000 shares of its common stock to C.J. Lieberman as payment of accrued salary payable of approximately $250,000 that was still outstanding since his resignation as President in 1996. Upon his resignation as President in 1996, the Company retained C.J. Lieberman as a consultant. His current consultant's agreement, dated June 10, 1999, provides for monthly consulting fees of $9,000 ($108,000 annually), reimbursement of all direct expenses incurred while providing services to the Company and a five-year option to purchase 750,000 shares of the Company's common stock at an exercise price of $.02 per share. The employment contract period is through June 10, 2002. At December 31, 2001, the Company had an outstanding balance of unpaid consulting fees due C.J. Lieberman of $26,750 relating to this consulting contract. This balance is included in "Accrued expenses payable" at December 31, 2001. Due to the absence of revenues, cash flow has been unpredictable and often non-existent. As a result, C.J Lieberman frequently lent the Company funds or directly paid expenses on behalf of the Company. These transactions were accounted for in a loan account. When funds were available, Mr. Lieberman would take advances against this loan account. As of December 31, 2001 the loan account had a balance payable to Mr. Lieberman of $27,855, which is included in "Loans Payable" at December 31, 2001. The President, David Lieberman, has also lent the Company funds, or paid expenses on behalf of the Company. The balance owed to David Lieberman relating to these transactions was $66,283 at December 31, 2001 and is included in "Loans payable" on the balance sheet. The Company also owed the President unpaid salary of $424,500 at December 31, 2001, which is included in "Accrued expenses payable". 10 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- DECEMBER 31, 2001 AND 2000 -------------------------- NOTE 4 (Continued) 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 is included in "Intangible Assets" on the 2000 balance sheet. Additionally, the Company agrees to pay Dr. Bielory a royalty payment of $.01 per bottle with respect to each product manufactured with these Assets, 1% (one percent) of the suggested retail price of each product sold that was manufactured with the Assets and 10% (ten percent) of the company's net profits before taxes from such sales (net profits to be determined by the Company's regularly retained independent public accountants using generally accepted accounting principles). In the event that the Company enters into an agreement with a third party for the sale of products manufactured with these Assets, which agreement unconditionally provides for payments to the Company of not less than $20,000,000, whether in lump sum or over a period of four years, from such third party, the Company shall issue to Dr. Bielory 5 million shares for each $20,000,000 required to be paid to the Company, not to exceed twenty five million shares. 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. Commencing on March 15, 2000 and each January 1 thereafter, Dr. Bielory is to receive options to purchase 750,000 shares of the Company's common stock as additional compensation under this agreement. As of December 31, 2001, none of the stock options required under this agreement have been issued. On April 10, 2000, Dr. Bielory received 225,000 restricted shares of the Company's common stock as a signing bonus. The stock had an aggregate fair market value of $96,749 on the day of issue. 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. 11 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- DECEMBER 31, 2001 AND 2000 -------------------------- NOTE 5 (Continued) During 2001, the Company issued 70,098,815 shares of its common stock to satisfy various liabilities of the Company as follows:

NUMBER OF SHARES FAIR VALUE DESCRIPTION ---------------- ---------- ----------- Payment of accrued salary payable to CJ Lieberman from prior years for his past service as President 10,000,000 $ 350,000 past service as President. 8,000,000 $ 130,000 Dr. Leonard Bielory - Bonus and accrued salaries. 8,000,000 $ 130,000 David Lieberman - Bonus and accrued salaries. 11,060,606 $ 139,606 Payment of employee bonus and accrued salary to Sam Berkowitz. Payment of various consulting fees and other 11,038,209 $ 195,720 Operating expenses. 10,000,000 $ 200,000 Payment for various loans and accrued expenses. 12,000,000 $1,079,880 Exercise of Stock Options by Dr. Leonard Bielory

NOTE 6 STOCK OPTIONS -------------- In accordance with various employment and consulting contracts the Company has issued stock options to its President, employees and a key consultant. On June 10, 1999 the Company entered into new employment agreements with the President and two employees and a new consulting contract with a key consultant. Pursuant to these agreements, the Company granted each of these individuals options to purchase 750,000 shares of the Company's common stock. These options, which expire on June 10, 2004, have a weighted average exercise price of approximately $.02, which was below the then current market price for the stock. The Company recorded compensation expense of $97,500 in 1999 to recognize the intrinsic value of these options as defined in APB No. 25. During June 1999, the Company agreed to cancel a prior stock option agreement, that granted 400,000 options to an employee in 1997, and replace it with a new option agreement. Pursuant to the new option agreement, the Company replaced the 400,000 cancelled options with 1,000,000 options to purchase common stock at $.05 per share. The new options expire on June 30, 2002. There was no compensation costs attributed to these options since the exercise price equaled the market price as of the grant date. 12 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- DECEMBER 31, 2001 AND 2000 -------------------------- NOTE 6 (Continued) The weighted average fair value of all options granted in 1999 was $.05 per option share. The fair value of options granted in 1999 was estimated using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 5.61%, expected option life of 4.4 years, expected dividend yield of zero and expected volatility of 160.86%. During October 2000, the Company granted options to purchase 12 million shares of the Company's common stock to Dr. Leonard Bielory as required by the Asset Purchase agreement. These options, which expire in October 2005, have an exercise price of $.00001 per share, which was below the then current fair market value of $.09 per share. The Company recorded compensation expense of $1,079,880 in 2000 to recognize the intrinsic value of these options as defined in APB No. 25. The fair value of the options granted in 2000 was estimated using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 6%, expected option life of 4 months, expected dividend yield of zero and expected volatility of 146.89%. Had compensation expense been recognized using the fair value method prescribed in SFAS No. 123, the Company's net loss in 2001 would not have been affected. The effect on net loss per share would have been negligible in both years. The following table summarizes stock option activity for 2001 and 2000:

Weighted Weighted average average exercise Options exercise Options price exercisable price --------- ----- ------------- ----- Balance at December 31, 1998 1,900,000 $.09 1,800,000 $.09 Granted 4,000,000 .03 - - Exercised - - - - Cancelled (400,000) .25 - - --------- ----- --------------- ------ Balance at December 31, 1999 5,500,000 $ .03 5,500,000 $.03 Granted 12,000,000 .00001 - - Exercised - - - - Cancelled - .25 - - --------- ----- --------------- ------ Balance at December 31, 2000 17,500,000 $ .01 17,500,000 $ .01 =========== ====== =============== ======

As of December 31, 2000, there were 17,500,000 common stock options outstanding with a weighted-average remaining life of 4.5 years and a weighted average exercise price of $.01 per share. During the first quarter of fiscal 2001, Dr. Bielory exercised the 12 million options granted to him in 2000. Accordingly, the outstanding balance as of December 31, 2001 is $5,500,000. 13 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- DECEMBER 31, 2001 AND 2000 -------------------------- NOTE 7 ACCRUED EXPENSES PAYABLE -------------------------- Accrued expenses payable at December 31, 2000 consist of the following: Asset Purchase Agreement (Note 4) $1,440,000 Miscellaneous Expenses and Consulting Agreements 254,130 Salaries and payroll taxes payable 314,316 Accrued bonuses payable 240,000 Legal and accounting fees 35,750 ------------- Total Accrued Expenses payable $2,284,196 ============= NOTE 8 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. 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. As of December 31, 2001 the company has borrowed $56,500 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. NOTE 9 COMMITMENTS AND CONTINGENCIES ------------------------------- The Company has employment agreements with four employees and a consulting contract with a key consultant to the Company. At December 31, 2001, the Company was committed under these agreements to wages and fees of approximately $175,916 for 2002. On February 17, 2000 the Company retained the services of First Madison Securities, Inc. ("FMS"). FMS will 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 will also act as placement agent for the Company. As compensation for these services, the Company will issue FMS 6,000,000 restricted shares of its common stock as follows; 1,700,000 shares upon signing 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 shall be registered with the Securities and Exchange Commission to become free trading shares as soon as possible with FMS bearing all registration costs. The Company will also 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. Through December 31, 2001 this contract has not been exercised or terminated. 14 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- DECEMBER 31, 2001 AND 2000 -------------------------- NOTE 9 COMMITMENTS AND CONTINGENCIES ------------------------------- (Continued) 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. 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 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. In addition to the shares that may potentially be issued for the agreements previously discussed, the Company is currently considering issuing approximately 8,730,000 shares of common stock to pay off various payables existing at December 31, 2001 and incurred in the subsequent 2001 period. The fair market value of these shares at December 31, 2001 is approximately $87,300. NOTE 10 DUE TO DISTRIBUTOR -------------------- In 1995, the Company entered into a distribution agreement with a foreign distributor in anticipation of bringing a product to market. The agreement required an advance payment for product by the distributor. The Company was unable to produce the anticipated product and in 1997 entered into a settlement agreement with the distributor calling for eighteen monthly installment payments of $5,750 and 60,000 shares of the Company's common stock to be issued to the distributor. As of December 31, 2000, the Company has neither issued the common stock nor made any of the installment payments as required by the settlement agreement. The Company has elected not to accrue any liability for the 60,000 shares of common stock, which had a fair market value of approximately $2,815 at December 31, 2001. 15 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- DECEMBER 31, 2001AND 2000 ------------------------- NOTE 11 FINANCIAL RESULTS AND LIQUIDITY ---------------------------------- As of December 31, 2001, the Company had a cash balance of $7,316 which is $3,128,783 less than it's current liabilities of $3,136,099. Since its inception, the Company has had significant operating losses and working capital deficits aggregating $8,491,736. 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 December 31 2001, none of the distribution agreements has resulted in any 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 12 FINANCIAL CONSULTING AND PUBLIC RELATIONS AGREEMEMT -------------------------------------------------------- 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. 16 ADVANCED PLANT PHARMACEUTICALS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- DECEMBER 31, 2001AND 2000 ------------------------- NOTE 13 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. 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). 17 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None PART III Item 9. Directors and Executive Officers of the Registrant Directors and Executive Officers of Advanced Plant Pharmaceuticals, Inc. Name Age Position ------------- ----- -------- David Lieberman 39 President and Director Dr. Leonard Bielory 47 Chairman and Scientific Director David Lieberman has served as President of the Company since July 1, 1996, and as a member of its Board of Directors since June 1996. Since 1991, he has worked in the offices of the Chief Rabbi of Bnai Brak, Israel. He also serves as a consultant for Osem Industries, Inc., an international food conglomerate located in Israel. Leonard Bielory, M.D. serves as Chairman and Scientific Director of the Company. Dr. Bielory is presently the Director of the Division of Allergy, Immunology and Rheumatology and is the Director of the Division of Asthma and Allergy at the New Jersey Medical School where he is also an Associate Professor of Medicine, Pediatrics and Ophthalmology. Dr. Bielory serves as the Chairman of the Board and President of the University Physician Associates -- the New Jersey Medical School Faculty Practice. Dr. Bielory currently serves as a consultant on allergy and immunology to Newark Beth Israel Hospital, Newark, NJ, and to Saint Barnabas Medical Center, Livingston, NJ. All directors hold office until the next annual meeting of stockholders and the election and qualification of their successors. Directors receive no cash compensation for serving on the Board of Directors other than reimbursement of reasonable expenses incurred in attending meetings. EXECUTIVE OFFICERS Officers are elected annually by the Board of Directors and serve at the direction of the Board of Directors. The Company's two executive officers, David Lieberman and Dr. Leonard Bielory are also directors of the Company. Information with regard to such persons is set forth above under the heading "Nominees." On April 7, 2000, Mr. Barry Clare resigned as the Company's Chief Operating Officer. He remains an employee of the Company. THE COMMITTEES The Board of Directors does not have a Compensation, Audit or Nominating Committee, and the usual functions of such committees are performed by the entire Board of Directors. 8 Item 10. Executive Compensation The Employment Agreement with Mr. David Lieberman as the Company's president expires in June 2002. The employment agreement provides for employment on a full-time basis and contains a provision that Mr. David Lieberman will not compete or engage in a business competitive with our current or anticipated business until the expiration of his agreement. Pursuant to the agreement, we will pay Mr. David Lieberman a base salary of $135,000 per annum, a portion of which is deferred, and have granted him a five-year option to purchase 750,000 shares of our common stock at an exercise price of $.01 per share. In 1999, we had issued Mr. Lieberman 17 million shares of our common stock as partial payment against accrued salary payable to him. Dr. Leonard Bielory is employed to serve as our Chairman and Scientific Director. Pursuant to the terms of this agreement, we pay to Dr. Bielory, on a monthly basis, the $126,000 that we owe to him for accrued consulting fees. This agreement is for a period of two years and we will pay Dr. Bielory monthly compensation consisting of $500 per month, with an extra payment dependant upon our net profits. In addition, the 1999 agreement granted Dr. Bielory an option to purchase 12,000,000 shares for his products that he sold to the Company, which he has exercised, plus another option to purchase 6,000,000 shares once the product is marketed, for a total of 18,000,000. Dr. Bielory exercised his option to purchase the 12,000,000 shares in or about November 2000, which were delivered in April 2001. We have also granted Dr. Bielory a five-year option to purchase 750,000 shares of our common stock at an exercise price of $.4375 and upon signing of his employment agreement we agreed to issue 225,000 restricted shares of our common stock to him in the year 2000. TABLE OTHER ANNUAL NAME AND PRINCIPAL POSITION YEAR SALARY ($) COMPENSATION($) OPTIONS(#) ------------------------------------------------------------------------------- David Lieberman 2001 $135,000 (4) $30,000 Chief Executive Officer 2000 $135,000 (1) 1999 $135,000 (2) $30,000(3) 750,000(3) --------------- (1) Of the $135,000 owed to Mr. Lieberman as salary for this period, $14,000 was paid to him and the remaining $121,000 has accrued to him, leaving a total of $299,000 due but not yet paid. (2) Of the $135,000 owed to Mr. Lieberman as salary for 1999, $19,000 was paid to him and the remaining $116,000 has accrued to him, but has not yet been paid. (3) The market value of the Company's Common Stock at the time the option was granted to Mr. Lieberman was $.05 per share, resulting in Other Annual Compensation to Mr. Lieberman of $30,000. (4) Of the $135,000 owed to Mr. Lieberman as salary for the period, $100,000 was paid through the issuance of 8,000,000 shares of common stock, which also included a $30,000 bonus. The total balance outstanding for accrued salry owed to Mr. Lieberman as of December 31, 2001, $424,500. 9 The Company has a consulting Agreement with C.J. Lieberman. Pursuant to said Agreement, he is to receive options to purchase 750,000 shares. His duties are to consult with the Company on the acquisition of new pharmaceutical products, marketing and general business advice for expansion of marketing and other various needs of the Company in connection with the pharmaceutical industry. Item 11. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information as of the filing date concerning the beneficial ownership of the Common Stock, (i) by each stockholder who is known by the Company to own beneficially in excess of 5% of the outstanding Common Stock; (ii) by each director; (iii) by each executive officer; and (iv) by all executive officers and directors as a group. Except as otherwise indicated, all persons listed below have (i) sole voting power and investment power with respect to their shares of Common Stock, except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to their shares of Common Stock. Name of Beneficial Amount and Nature Percent of Class Owner (3) of Beneficial Ownership Common (1) Common (5) -------------------- ---------------------------------- --------------- David Lieberman 29,870,000(2) 14.5% 37 Harotem Street Ashdod, Israel 77572 Dr. Leonard Bielory 20,260,000(3) 9.8% 400 Mountain Avenue Springfield, NJ 07081 Ezriel Silberberg 20,316,667 9.8% c/o Justman 4614 Tenth Avenue Brooklyn, New York 11219 Officers and Directors and other 5% owners as a group (3 persons) 70,446,667(2)(3) 34.1% --------------- (1) The number of shares of Common Stock beneficially owned by each person or entity is determined under the rules promulgated by the Securities and Exchange Commission (the "Commission"). Under such rules, beneficial ownership includes any shares as to which the person or entity has sole or shared voting power or investment power. The percentage of the Company's outstanding shares is calculated by including among the shares owned by such person any shares which such person or entity has the right to acquire within 60 days after April 18, 2001. The inclusion herein of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of such shares. (2) Does not include (i) 1,950,000 shares which Mr. Lieberman has the right to acquire upon exercise of stock options; (ii) 12,000,000 shares to which Mr. Lieberman's brother, C.J. Lieberman, was to be issued pursuant to an Asset Purchase Agreement, dated June 10, 1999, and authorized by the Board of Directors on September 6, 2000, but to this date has not been issued; and (iii) 1,050,000 shares which C.J. Lieberman has the right to acquire upon the exercise of stock options issued to him as partial consideration for his acting as President of, and as a consultant to, the Company. (3) Does not include the options to purchase 6,000,000 shares which Dr. Bielory has the right to acquire upon the exercise of options granted. 10 Item 12 Certain Relationships and Related Transactions During 2001, the Company issued 70,098,815 shares of its common stock to certain inside individuals and other related parties, to satisfy various liabilities of the Company as follows: NUMBER OF SHARES FAIR VALUE DESCRIPTION ---------------- ---------- ----------- 10,000,000 $ 350,000 Payment of accrued salary payable to CJ Lieberman from prior years for his past service as President 8,000,000 $ 130,000 Dr. Leonard Bielory - Bonus and accrued salaries. David Lieberman - Bonus and accrued 8,000,000 $ 130,000 salaries. 11,060,606 $ 139,606 Payment of employee bonus and accrued salary to Sam Berkowitz. 11,038,209 $ 195,720 Payment of various consulting fees and other Operating expenses. 10,000,000 $ 200,000 Payment for various loans and accrued expenses. 12,000,000 $1,079,880 Exercise of Stock Options by Dr. Leonard Bielory Part IV Item 13. Exhibits, Consolidated Financial Statements, Schedules and Reports on Form 8-K (a) The following documents are filed as part of this report: (1)(2) CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES. 11 A list of the Consolidated Financial Statements filed as part of this Report is set forth in Item 8 and appears at Page F-1 of this Report; which list is incorporated herein by reference. The Financial Statement Schedules and the Report of Independent Auditors as to Schedules follow the Exhibits. (a)(3) EXHIBITS. All of the items below are incorporated by reference to the Registrant's General Form 10SB and amendments for Registration of Securities as previously filed. EXHIBITS AND SEC REFERENCE NUMBERS Number Title of Document ------ ----------------------- 2(a) Certificate of Incorporation (2) 2(b) Agreement and Plan of Merger (2) 2(c) By-Laws (2) (1) Filed Herewith. (2) Filed as exhibits to Form 10-SB, dated, July 23, 1999 (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Date: May 6, 2002 By: /s/ David Lieberman ---------------------------- David Lieberman President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. DATE SIGNATURE / TITLE Date: May 6, 2002 By: /s/ Dr. Leonard Bielory ---------------------------- Dr. Leonard Bielory, Chairman of the Board of Directors Date: May 6, 2002 By: /s/ David Lieberman ---------------------------- David Lieberman Director 12