10QSB 1 app_main.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. FORM 10-QSB [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, For the Quarter Ended March 31, 2003 [ ] Transitional Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 000-28459 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 APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: May 19, 2003; shares of common stock Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X] ADVANCED PLANT PHARMACEUTICALS, INC. Form 10-QSB- Index For the Quarter Ended March 31, 2003 PART I Page Item 1. Consolidated Financial Statements F-1 Item 2. Management Discussion and Analysis 1 Item 3. Controls and Procedures 4 PART II Item 1. Legal Proceedings 4 Item 2. Change in Securities 5 Item 3. Defaults Upon Senior Securities 5 Item 4. Submission of Matters to a Vote of Security Holders Disclosures 5 Item 5. Other Information 5 Item 6. Exhibits and Reports on Form 8-K 5 Signatures 7 Certifications 8 This Form 10-QSB 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. CONSOLIDATED FINANCIAL STATEMENTS ADVANCED PLANT PHARMACEUTICALS, INC. CONDENSED BALANCE SHEET MARCH 31, 2003 (UNAUDITED)

Assets Current assets Cash and cash equivalents $ 12,182 Inventory 56,271 Total current assets 68,453 Other assets Intangible assets - net 719,920 Other assets 8,544 Total other assets 728,464 Total assets $ 796,917 Liabilities and Stockholders' Deficiency Current liabilities Accounts payable and accrued liabilities $ 242,423 Due to stockholder - asset acquisition 1,440,000 Loans payable - stockholders 1,784,675 Due to distributor 103,500 Total liabilities 3,570,598 Stockholders' deficiency Preferred - $.0007 par value, 10,000,000 shares authorized, 2,500,000 shares issued and outstanding 1,750 Common - $.0007 par value, 600,000,000 shares authorized; 246,939,950 shares issued and outstanding 173,278 Paid-in-capital 8,005,172 Deficit (10,953,881) Total stockholders' deficiency (2,773,681) Total liabilities and stockholders' deficiency $ 796,917

The accompanying notes are an integral part of the condensed financial statements. 1 ADVANCED PLANT PHARMACEUTICALS, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended March 31: -------------------------- 2003 2002 --------- --------- Revenues $ 4,529 $ 1,788 Expenses 207,548 438,606 --------- --------- Operating loss (203,019) (436,818) Other expense 442 -- --------- --------- Net loss $(203,461) $(436,818) ========= ========= Loss per share of common stock Basic and diluted $ (.00) $ (.00) ========= ========= The accompanying notes are an integral part of the condensed financial statements. 2 ADVANCED PLANT PHARMACEUTICALS, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended March 31, 2003 2002 --------- --------- Cash flows from operating activities Net cash provided by (used in) operations $(292,700) $ 204,871 --------- --------- Cash flows from financing activities Loans payable - stockholders - net 304,663 -- Payments on short-term loans payable - net -- (212,000) --------- --------- Net cash provided by (used in) financing activities 304,663 (212,000) --------- --------- Net increase (decrease) in cash and cash equivalents 11,963 (7,129) Cash and cash equivalents - beginning of period 219 7,316 --------- --------- Cash and cash equivalents - end of period $ 12,182 $ 187 ========= ========= Supplemental cash flow information: Cash paid during the year for: Interest $ -- $ -- ========= ========= Income taxes $ -- $ -- ========= ========= Non-cash transaction: Preferred stock issued for services $ 1,750 $ -- ========= =========

The accompanying notes are an integral part of the condensed financial statements. 3 ADVANCED PLANT PHARMACEUTICALS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Item 310 of Regulation SB. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. For further information, refer to the financial statements and footnotes thereto included in the Form 10-KSB for the year ended December 31, 2002. 1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Advanced Plant Pharmaceuticals, Inc. ("The Company" or "APPI") focuses on the sale of plant based dietary health supplements. The Company owns the rights to a thirteen step manufacturing 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. APPI was incorporated in November 1994 and had devoted most of its efforts since inception to 1999 conducting research and development and acquiring agreements to the rights of this process and one major sinus product. The Company's operations are located in Long Island, New York and its corporate offices are located in New York City. These financial statements have been prepared assuming that the Company will continue as a going concern. The Company presently has operating risks and liquidity concerns and has incurred an accumulated deficit of $10,953,881 at March 31, 2003 and current liabilities exceeded current assets by $3,502,145. There can be no assurance that the Company will be able to successfully acquire the necessary capital to mitigate their operating risks and continue their on-going development efforts and bring their products to the commercial market. These factors, among others, create a substantial uncertainty about the Company's ability to continue as a going concern. CONTROL BY PRINCIPAL STOCKHOLDERS The director, executive officers and other related parties own beneficially and in the aggregate, the majority of the voting power of the outstanding shares of the preferred stock and common stock of the Company. Accordingly, the director, executive officers and related parties, if they voted their shares uniformly, would have the ability to control the approval of most corporate actions, including increasing the authorized capital stock of APPI and the dissolution, merger or sale of all of the Company's assets. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt securities purchased with original or remaining maturities of three months or less to be cash equivalents. 4 ADVANCED PLANT PHARMACEUTICALS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair market value because of the short maturity of those instruments. It is not practicable to estimate the fair value of the loans payable to stockholders due to the fact that they are related party transactions. INVENTORIES Inventories are stated at the lower of cost or market. The Company intends to determine cost on a first-in, first-out basis. At March 31, 2003, inventories consisted of $47,670 of raw materials and $ 8,601 of finished goods and are stated at estimated cost. REVENUE RECOGNITION Product revenue is recognized upon shipment to customers. The Company has adopted Securities and Exchange Commission's Staff Accounting Bulletin (SAB) No. 101, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. PROPERTY AND EQUIPMENT Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded principally using the straight-line method, based on the estimated useful lives of the assets (machinery and computer equipment, 3-10 years). LONG LIVED ASSETS TO BE DISPOSED OF AND IMPAIRMENT OF LONG LIVED ASSETS The Company adopted SFAS No.144 in 2002. SFAS 144 retains the fundamental provisions of SFAS 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while also resolving significant implementation issues associated with SFAS 121. The adoption of SFAS 144 did have a material effect on the Company's financial position as of March 31, 2003. INTANGIBLE ASSETS The Company accounts for intangible assets in accordance with SFAS 142. Such assets with useful lives are amortized on a straight-line basis over the estimated useful life of the asset. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the fair value is less than the carrying amount of the asset, an impairment loss is then recognized. 5 ADVANCED PLANT PHARMACEUTICALS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) STOCK ISSUED FOR SERVICES The value of stock issued for services are based on management's estimate of the fair value of the Company's stock at the date of issue or the fair value of the services received, whichever is more reliably measurable. RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred. INCOME TAXES The Company uses the asset and liability method of accounting for income taxes as required by Statement of Financial Accounting Standards No. 109 ("SFAS 109"), Accounting For Income Taxes. SFAS 109 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of certain assets and liabilities. Since its inception, the Company has incurred net operating losses. The Company has a carryforward federal net operating tax loss carry forwards expiring in the years 2010 to 2023. The potential tax benefit of this net operating loss has been offset by a full valuation allowance. The utilization of the net operating loss may be subject to a substantial limitation due to the "Change of ownership provisions" under Section 382 of the Internal Revenue Code and similar state provisions. Such limitation may result in the expiration of the net operating loss before its full utilization. LOSS PER SHARE The Company computed basic and diluted loss per share amounts for March 31, 2003 and 2002 pursuant to the Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings Per Share." No dilution resulted from the 9,000,000 and 5,500,000 employee stock options outstanding at March 31, 2003 and 2002, respectively, because of the net loss. Basic loss per common share ("LPS") is calculated by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted earnings per common share are calculated by adjusting the weighted average outstanding shares, assuming conversion of all potentially dilutive stock options. 6 ADVANCED PLANT PHARMACEUTICALS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) LOSS PER SHARE (Continued) The numerator and denominator used in the basic and diluted LPS of common stock computations are presented in the following table:

Three Months Ended March 31, NUMERATOR FOR BASIC AND DILUTED LPS 2003 2002 ------------- ------------- Net loss to common shareholders $ (203,461) $ (436,818) ============= ============= DENOMINATOR FOR BASIC AND DILUTED LPS Weighted average shares of common stock Outstanding 246,939,950 235,358,486 ============= ============= LPS - basic and diluted $ (.00) $ (.00) ============= =============

USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. SIGNIFICANT ESTIMATES Several areas require significant management estimates relating to uncertainties for which it is reasonably possible that there will be a material change in the near term. The more significant areas requiring the use of management estimates related to the valuation of inventory, intangible assets, all accrued liabilities and the valuation of the stock options and stock issued for debt and services provided by related parties. EQUITY BASED COMPENSATION The Company accounts for employee stock options in accordance with Accounting Principles Board Option No. 25 (APB), "Accounting for Stock Issued to Employees." Under APB No.25 the Company recognizes compensation expense related to employee stock options, when options are granted at a price below the market price, on the day of grant. SFAS No. 123, "Accounting for Stock-Based Compensation," prescribes the recognition of compensation expense based on the fair value of options on the grant date and allows companies to continue applying APB No. 25 if certain pro forma disclosures are made assuming the hypothetical fair value method application. 7 ADVANCED PLANT PHARMACEUTICALS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) RECLASSIFICATION Certain prior year's amounts have been reclassified to conform to the 2003 presentation. 2. RELATED-PARTIES STOCK AND ASSET TRANSACTIONS On July 16, 1999, the Company entered into a Technology Purchase Agreement ("agreement") with Mr. C.J. Lieberman (brother of the current President and Director of the Company) whereby the Company acquired exclusive rights and interests to a thirteen-step manufacturing process, which utilizes virtually all of the nutrients found in certain plants needed to manufacture herbal dietary health supplements. The purchase price for the thirteen-step process was the issuance to Mr. C.J. Lieberman of 18 million shares of the Company's common stock, which was to be issued to him in two phases. In 2001, the agreement called for 12 million shares of the Company's stock to be issued at the first phase. As of March 31, 2003, none of the stock related to this agreement had been issued. The Company, therefore, accrued and included in the caption "due to stockholder - asset acquisition" in 2000, $1,440,000, which was managements' determination of the common stock value of the 12 million shares at the time of the agreement, in anticipation of issuing the common stock shares to Mr. C.J. Lieberman. Due to the asset impairment, discussed below, no further liability was recorded on the remaining value of the 6,000,000 shares not issued and therefore not recorded in "due to stockholder - asset acquisition". This agreement, entered into in 1999 was initially recorded in 2000 as a transfer between entities under common control and was therefore recorded on the Company's records as research and development expenses and a liability in accrued expenses. In 2001 management concluded that this transaction was recorded in error and made a correction to the 2000 financial statements, in 2001, by recording a prior period adjustment. The prior period adjustment (correction) made to the Company's records was to record an intangible asset, totaling $ 1,440,000, on the balance sheet and a credit to retained earnings. Due to the lack of sales for the approximate three year period ending December 31, 2002, and based on management's current projection of the future present value of cash flows from its products sales, an impairment loss in the amount of $909,600 was recorded in 2002. The accumulated impairment loss which includes prior years' amortization totaled $1,029,600 at March 31, 2003. The estimated fair value of the intangible asset estimated by management to be $410,400 and is included under the caption "Intangible assets-net", at March 31, 2003 Unless future sales are generated, this intangible asset is subject to future impairment loss provisions. 8 ADVANCED PLANT PHARMACEUTICALS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 2. RELATED-PARTIES STOCK AND ASSET TRANSACTIONS (Continued) In addition, the Company agrees to pay to C.J. Lieberman a royalty payment of $.01 per bottle plus, 1% of the Company's suggested retail price plus 10% 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, the agreement must unconditionally provide for payment to the Company of not less than $20 million. Upon receipt of the sale proceeds by the Company, the Company shall issue to Mr. C.J. Lieberman 5 million shares for each $20 million paid to the Company, not to exceed 25 million shares. Upon his resignation as President in 1996, the Company retained Mr. 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. There were 9 million shares of common stock issued in 2002 to Mr. C.J. Lieberman in payment for his services rendered. Included on the balance sheet in "Loans payable - stockholders" are accrued salaries, consulting and other expenses paid on behalf of the Company by Mr. C.J. Lieberman. The balance due was $21,172 at March 31, 2003. The President and sole director of the Company, Mr. David Lieberman, lent the Company his personal funds to pay expenses on behalf of the Company. As of March 31, 2003, included on the balance sheet in "Loans payable - stockholders" are accrued salaries, consulting and other expenses paid on behalf of the Company by Mr. David Lieberman. The balance due was $613,533 at March 31, 2003. On February 28, 2000 the Company entered into an Asset Purchase Agreement with Dr. Leonard Bielory (Chairman of the Board of Directors of APPI who resigned in January 2003) whereby the Company acquired the exclusive rights and interest to allergy and sinus formulations he developed ("Assets"). The purchase price includes options to purchase 18 million 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 options required to purchase the Assets, 12 million shares, were issued during the fourth quarter of 2000. The fair value of the 12 million shares, as determined by management, was $1,079,880 and is included in "Intangible assets - net" on the balance sheet. Due to the lack of sales for the approximate three year period ending December 31, 2002, and based on management's current projection of the future anticipated present value of cash flows from this product's sales, an impairment loss in the amount of $684,344 was recorded in 2002. The accumulated impairment loss, which includes prior years' amortization, totaled $770,360 at March 31, 2003. The net intangible asset, as shown on the balance sheet under the caption "Intangible assets-net", at March 31, 2003 was $309,520. Unless future sales are generated, this intangible asset is subject to future impairment provision losses. 9 ADVANCED PLANT PHARMACEUTICALS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 2. RELATED-PARTIES STOCK AND ASSET TRANSACTIONS (Continued) Additionally, the Company agrees to pay Dr. Bielory a royalty payment of $.01 per bottle, plus 1% of the suggested retail price of each product sold, plus 10% of the Company's net profits before taxes from such sales of products manufactured with these assets. 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 million 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 million required to be paid to the Company, not to exceed twenty-five million shares. On March 15, 2000 the Company entered into an employment agreement with Dr. Leonard Bielory whereby under the terms of the agreement, the Company is required to pay Dr. Bielory certain monthly amounts, some contingent on the Company achieving specified net profit levels. In March 2003, the Company issued 1,250,000 shares of Series A Preferred Stock to David Lieberman, sole director and stockholder and 1,250,000 shares of Series A Preferred Stock to C.J. Lieberman, a shareholder of the Company for services rendered. The stock was issued at par value, $.0007 per share. These two stockholders own 100% of the outstanding Series A Preferred Stock. 3. INTANGIBLE ASSETS Intangible assets consist of the above mentioned agreement with Mr. C.J. Lieberman to purchase the thirteen-step manufacturing process, to manufacture herbal dietary supplements and the agreement with Dr. Bielory for the exclusive rights and interest to his allergy and sinus formulations. Such intangible assets, which have indefinite lives, are not subject to amortization, in accordance with SFAS 142. These assets are recorded on the balance sheet, net of the accumulated impairment provisions and were $ 719,920 at March 31, 2003. 4. CAPITAL STOCK In 2003, The Board of Directors of the Company elected and the stockholders voted to amend the Certificate of Incorporation of the Company to change authorized number of shares from 250,000,000 million shares of common stock and 5,000,000 shares of preferred stock to 600,000,000 million shares of common stock and 10,000,000 shares of preferred stock by means of an amendment to the Company's Certificate of Incorporation. The preferred shares voting rights are equivalent to 150 shares of common stock for each share of preferred stock. The Board of Directors determined that it was in the best interests of the Company to make this change at this time, due to the fact that the Company has issued almost the entire authorized amount permitted under the Certificate of Incorporation. This would limit the ability of the Company to issue shares to raise capital, pay for various services and other related activities. 10 ADVANCED PLANT PHARMACEUTICALS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 5. STOCK OPTIONS The Company has adopted an employee, directors, consultants, and advisors compensatory stock compensation and performance based stock option plans which allows for the issuance of shares of common stock of the Company. The exercise price of each option is generally less than or equal to the market price of the Company's stock on the date of grant. The exercise price for options granted is determined by the board of directors. The maximum term of the options and the vesting period will be determined by the Board and are set forth in each option agreement. In accordance with various employment and consulting contracts the Company has issued stock options to its officers, employees and key consultants. 6. LOANS PAYABLE - STOCKHOLDERS Loans payable - stockholders consists of unsecured, non-interest bearing short-term loans. 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 January 11, 2002, 20 million shares of the stock were issued to Mr. Silberberg, an existing stockholder, in partial settlement of a loan. The total loan amount converted to capital was $336,000. On January 11, 2002, 2 million shares of the stock were issued to Mr. Ginsberg, an existing stockholder for cash and in partial settlement of a loan to the Company. The total loan amount converted to capital was $18,000. On February 28, 2001, the Company entered into a loan agreement with Mr. Berkowitz, an employee and shareholder of the Company. The agreement is for a maximum loan amount of $100,000. As of March 31, 2003 the Company has borrowed $56,449 on this loan. The loan is interest free and includes the option to be paid back in Company stock. If the loan is paid in Company stock, the stock conversion price is $.0165 per share. During 2002, 2 million shares of the common stock were issued to Mr. Berkowitz as partial repayment of the loan. 7. COMMITMENTS AND CONTINGENCIES The Company has employment agreements with four employees and consulting contracts with individuals who are also stockholders of the Company. At March 31, 2003, the Company has a total liability for accrued salaries to stockholders of $858,162. There are certain accrued payroll tax liabilities owed to the IRS on some of the salaries to stockholders that were paid in prior years, pursuant to these agreements. 11 ADVANCED PLANT PHARMACEUTICALS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 7. COMMITMENTS AND CONTINGENCIES (Continued) 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. As of March 31, 2003, this contract has not been exercised or terminated. 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. During 2002, 5 million shares of common stock were issued to Summa Capital, Inc. 12 ADVANCED PLANT PHARMACEUTICALS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 7. COMMITMENTS AND CONTINGENCIES (Continued) On March 6, 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. During 2002, 560,000 shares of common stock were returned to the Company for work not completed by NBA. LITIGATION A judgment has been issued against against the Company based on a summons dated March 24, 2003 in the amount of $7,350 plus interest from May 2000 in a suit brought by a vendor. It is probable that the Company will also be liable for legal fees. The Company is in negotiations to settle this case. 8. SUBSEQUENT EVENTS On April 7, 2003 the Board of Directors authorized the issuance of a total 219,350,000 common shares, of which 136,000,000 are restricted shares, for services from outside consultants, stockholders and repayment of stockholder's loans. The shares were issued at $.005 per share, determined by management to be the fair market value of the shares at the time of issuance. These shares were issued on May 12, 2003. 13 Item 2. MANAGEMENT'S DISCUSSION AND ANAYSIS Background Our company was incorporated in the State of Delaware in1986, under the name Ventra Management, Inc. ("Ventra"). On July 20, 1994, we amended Ventra's Certificate of Incorporation to change our name to Advanced Plant Pharmaceuticals, Inc. Description of 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(TM), 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. 14 Item 3 - Controls And Procedures Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely altering them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC filings. PART II ITEM 1 - 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(TM) product. Warner-Lambert felt that the Sinusol(TM) 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(TM) 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 for filings on the EDGAR system. 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. The Company was sued by Airgate International Corp. ("Airgate") that provided services to the Company. These services involved importing certain items and supplies for the Company. The suit seeks the sum of$7,350.00 in unpaid invoices. 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 Airgate, and intends to file and answer to the complaint. However, it is likely that a resolution will be able to be reached, although the terms and conditions cannot be predicted. It is possible that the Company will have to pay the entire amount sought under less than the most favorable terms. 15 ITEM 2 - Changes in Securities On February 13, 2003, the Board of Directors of the Registrant a Designated a Series A Preferred Stock, with the designation and rights as set forth on the Current Report filed on March 18, 2003. Each share of Series A Preferred Stock has voting rights equal to 150 shares of common stock of the Registrant. On April 30, 2003, the Registrant filed with the Secretary of State of the State of Delaware, to increase the authorized capital of the Registrant from 250,000,000 million shares of Common Stock and 5,000,000 shares of preferred stock to 600,000,000 million shares of Common Stock and 10,000,000 million shares of preferred stock, by means of an amendment to the Company's Certificate of Incorporation. ITEM 3 - Defaults upon Senior Securities None ITEM 4 - Submission of Matters to a Vote of Security Holders On March 24, 2003, the Registrant filed with the Secretary of State of the State of Delaware, to increase the authorized capital of the Registrant from 250,000,000 million shares of Common Stock and 5,000,000 shares of preferred stock to 600,000,000 million shares of Common Stock and 10,000,000 million shares of preferred stock, by means of an amendment to the Company's Certificate of Incorporation. ITEM 5 - Other Information None ITEM 6 --EXHIBITS AND REPORTS OF FORM 8-K (a) The following documents are filed as part of this report: (1)(2) CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES. 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. 16 (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) 99.1 Certification of the Chief Executive Officer of Advanced Plant Pharmaceuticals, Inc., pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1) (1) Filed Herewith. (2) Filed as exhibits to Form 10-SB, dated, July 23, 1999 (b) Reports on Form 8-K On March 18, 2003, we filed a Current Report on Form 8-K, with respect to Items 4 and 7, related to the change of the Independent Auditor of the Company, along with the designation of Series A Preferred Stock of the Company, that was already authorized by the Certificate of Incorporation, but not issued prior, and the resignation of Dr. Bileory Chairman of the Board of Directors. On April 7, 2003, we filed a Current Report on Form 8-K, amending the disclosure contained in Item 4 of the Current Report on Form 8-K previously filed on March 18, 2003. On May 8, 2003, we filed a Current Report on Form 8-K, amending the disclosure contained in Item 4 of the Current Report on Form 8-K previously filed on March 18, 2003 and amended thereafter on April 7, 2003. 17 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 19, 2003 By: /s/ David Lieberman ---------------------------- David Lieberman, President and Sole Officer 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 19, 2003 By: /s/ David Lieberman ---------------------------- David Lieberman Sole Director 18 I, David Lieberman, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Advanced Plant Pharmaceuticals, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. May 19, 2003 /s/ David Lieberman -------------------------------- David Lieberman Sole Officer and Chief Financial Officer 19