10QSB 1 v03668_10qsb.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, 2004 |_| 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 Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- ---------- As of May 21, 2004, there were issued and outstanding 652,966,060, shares of Common Stock, $.0007 par value per share. Transitional Small Business Disclosure Format Yes No X --------- ---------- ADVANCED PLANT PHARMACEUTICALS, INC. INDEX ----- PAGE NUMBER -------- PART I. FINANCIAL INFORMATION Item 1. Condensed financial statements (unaudited) Condensed Balance sheet as of March 31, 2004 2 Condensed Statements of operations for the three months ended March 31, 2004 and 2003 3 Condensed Statements of cash flows 4 Notes to financial statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Controls and Procedures 12 PART II. OTHER INFORMATION 13 SIGNATURES 14 1 PART I ITEM 1. CONDENSED FINANCIAL STATEMENTS ADVANCED PLANT PHARMACEUTICALS, INC. CONDENSED BALANCE SHEET MARCH 31, 2004 (UNAUDITED) Assets

Current assets Cash and cash equivalents $ 167,262 Inventory 76,240 ---------- Total current assets 243,502 ---------- Fixed assets - net 1,224 ---------- Other assets Intangible assets - net of impairment losses 428,360 Due from related companies 6,232 Prepaid and other assets 199,151 ---------- Total other assets 633,743 ---------- Total assets $ 878,469 ========== Liabilities and Stockholders' Deficiency Current liabilities Accounts payable $ 122,279 Due to stockholder - asset acquisition 1,315,000 Loans payable - stockholders 1,305,625 Accrued expenses 2,324,268 Due to distributor 103,500 ---------- Total current liabilities 5,170,672 ---------- Commitments and Contingencies - note 7 Stockholders' deficiency Preferred stock - $.0007 par value, - 10,000,000 shares authorized; 2,500,000 shares issued and outstanding 1,750 Common - $.0007 par value, 880,000,000 shares authorized; 568,865,632 shares issued and outstanding 398,206 Paid-in-capital 12,608,414 Deficit (17,300,573) ----------- Total stockholders' deficiency (4,292,203) ---------- Total liabilities and stockholders' deficiency $ 878,469 ----------

The accompanying notes are an integral part of the condensed financial statements. 2 ADVANCED PLANT PHARMACEUTICALS, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

Three Months Ended March 31, ---------------------------- 2004 2003 ------------ ------------ Revenues $ 17,158 $ 4,529 Cost of sales 19,705 -- ------------ ------------ Gross profit (loss) (2,547) 4,529 Consulting expenses related parties 1,288,400 -- Other operating expenses 1,397,223 207,548 ------------ ------------ Loss from operations (2,688,170) (203,019) Other income (expense) -- (442) Net loss $ (2,688,170) $ (203,461) ============ ============ Basic and diluted net loss per share $ (.00) $ (.00) Weighted average number of common shares outstanding 559,127,170 246,939,950 ============ ============

The accompanying notes are an integral part of the condensed financial statements. 3 ADVANCED PLANT PHARMACEUTICALS, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended March 31, ----------------------------- 2004 2003 ------------ ------------ Cash flows from operating activities Net cash used in operations $ (198,973) $ (292,700) ------------ ------------ Cash flows from financing activities Loans payable - stockholders - net 26,160 304,663 Due from affiliates 5,606 -- Common stock issued for cash 70,000 -- ------------ ------------ Net cash provided by financing activities 101,666 304,663 ------------ ------------ Cash flows from investing activities Fixed assets acquisition (1,289) -- ------------ ------------ Net cash used in investing activities (1,289) -- ------------ ------------ Net increase (decrease) in cash and cash (98,596) 11,963 equivalents Cash and cash equivalents - beginning of period 265,858 219 ------------ ------------ Cash and cash equivalents - end of period $ 167,262 $ 12,182 ------------ ------------ Supplemental cash flow information: Cash paid during the year for: Interest $ -- $ -- ============ ============ Income taxes $ -- $ -- ============ ============ Information about noncash activities: Common stock issued to satisfy $ -- $ -- stockholders' loans ============ ============ Preferred stock issued for services $ -- $ 1,750 ============ ============

The accompanying notes are an integral part of the condensed financial statements. 4 ADVANCED PLANT PHARMACEUTICALS, INC. NOTES TO THE 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, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. For further information, refer to the financial statements and footnotes thereto included in the Form 10-KSB for the year ended December 31, 2003. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS 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 (refer to note 2) 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, acquiring agreements to the rights of the thirteen step process, and one major sinus product. The Company's products are available for sale to retail stores. The Company's 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 $17,300,573 current liabilities exceeded current assets by $4,927,170. There can be no assurance that the Company will be able to successfully develop an established source of revenue or acquire the necessary capital to mitigate their operating risks and continue their on-going development efforts and bring successful products to the commercial market. These factors, among others, create a substantial uncertainty about the Company's ability to continue as a going concern. Operations to date have been primarily financed by stockholder debt and equity transactions. As a result, the Company's future operations are dependent upon the identification and successful completion of additional permanent equity financing, the continued support of shareholders and other related parties and ultimately, the achievement of profitable operations. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts nor to amounts and classification of liabilities that may be necessary should it be unable to continue as a going concern. 5 ADVANCED PLANT PHARMACEUTICALS, INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) NATURE OF BUSINESS (Continued) Factors that could effect the Company's future operating results and cause future results to vary materially from expectations include, but are not limited to, lower than anticipated business derived from existing products, an inability to attract new clients and grow on its own, loss, an inability to control expenses, changes in the natural health products industry, changes in regulatory requirements for the Company's products, a decline in the use of plant based dietary health supplements, a decline in the financial stability of the Company's clients and general uncertain economic conditions. Negative developments in these or other risk factors will have a material adverse effect on the Company's future financial position, results of operations and cash flows. CONTROL BY PRINCIPAL STOCKHOLDERS The one 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 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. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of prepaid expenses and other assets, accounts payable and accrued liabilities approximate fair market value because of the short maturity of these instruments. It is not practicable to estimate the fair value of loans payable to stockholders due to the fact that they are related party transactions. STOCK ISSUED FOR SERVICES The value of stock issued for services are based on 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. Generally, all stock issued for services is valued at the fair market value on the date the board of directors authorize the issuance of the stock to consultants (refer to note 2). 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. 6 ADVANCED PLANT PHARMACEUTICALS, INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) INCOME TAXES (Continued) The Company has federal net operating tax loss carry forwards of approximately $17,300,000 expiring in the years 2010 to 2023. The deferred tax asset totaled $5,190,000 and has been offset by a full valuation allowance. The change in the valuation allowance was $806,451 and $161,038, estimating a 30% effective tax rate for the periods ended March 31, 2004 and 2003, respectively. 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 and 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 December 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 employee stock options outstanding at March 31, 2004 and 2003, 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.

Three Months Ended March 31, ---------------------------- 2004 2003 ------------ ------------ NUMERATOR FOR BASIC AND DILUTED LPS Net loss to common shareholders $ (2,688,170) $ (203,461) ============ ============ DENOMINATOR FOR BASIC AND DILUTED LPS Weighted average shares of common stock Outstanding $559,127,170 $246,939,950 ============ ============ 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. 7 ADVANCED PLANT PHARMACEUTICALS, INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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, impairment loss on intangible assets, all accrued liabilities including contingent liabilities for payroll taxes, valuation of the stock options and stock issued for debt and services provided by related parties. 2. RELATED-PARTIES STOCK TRANSACTIONS On January 22, 2004, Management and the Director issued under the 2004 Incentive Stock Plan ("ISP") 27,700,000 shares of common stock as compensation due under its agreement with various individuals for marketing consulting services rendered to the Company, valued at $747,900. In addition, on January 22, 2004, 1,500,000 shares of common stock were issued under the ISP to a related party, also related to the Director, Mr. C.J Lieberman ("Related Consultant"). The total consulting expense was $40,500 and is included in "Consulting Expenses--Related Parties". The value of the consulting services was determined by management to be the market quoted value of the stock as traded on the NASDAQ, Over the Counter Bulletin Board, at the time of each board resolution to issue the stock. The Director, advanced to the Company his personal funds, or paid expenses on behalf of the Company. As of March 31, 2004, included on the balance sheet in "Loans payable - Stockholders" are accrued salaries, consulting and other expenses paid on behalf of the Company by the Director is a balance due him of $443,283. This loan payable is non-interest bearing. On January 2, 2004, the Company and Amazing Nutritionals, Inc., a company of which the Related Consultant is a shareholder, entered into an asset purchase agreement whereby the Company sold Amazing Nutritionals all rights, title, patents, trademarks, processes and related items for a product used for the treatment of senile dementias (LHM123) in consideration for 3,300,000 shares of common stock of Amazing Nutritionals. In 2003, the Company entered in an asset purchase agreement with Amazon Biotech, Inc.,("Amazon"), a company that trades on the Nasdaq, Over The Counter Bulletin Board, symbol AMZB.OB. The Company sold all rights, title, patents, trademarks, processes and related items for a product used for the treatment of AIDS disease ("ABAVCA") for 3 million shares of Amazon and certain future royalty payments, based on future sales of the product. Amazon also agreed to fund a minimum of $250,000 towards Phase I/II clinical studies of ABAVCA. The Company is in the process of doing an appraisal of the stock received from Amazon, in order to determine the book value of its investment in Amazon. At March 31, 2004, this investment was recorded at its par value, which is $300. 8 ADVANCED PLANT PHARMACEUTICALS, INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 3. INTANGIBLE ASSETS Intangible assets consist of the agreement, with The Related Consultant 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 intangible assets totaled $2,519,880, are recorded on the balance sheet net of the accumulated impairment provisions of $2,091,520, or $428,360 at March 31, 2004. 4. CAPITAL STOCK The Company is authorized to issue 880 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. In March 2003, the Company issued 2,500,000 shares of Series A Preferred Stock to the Director and to the Related Consultant for $1,750. The stock was issued at par value, $.0007 per share. The Company issued 3,000,000 shares in a private placement to a several investors at approxmately $.02 per share, for aggregate proceeds of $70,000. 5. 2004 INCENTIVE STOCK PLAN In January 2004, the Company had adopted the ISP. This plan allows the Company to make a long-term incentive awards to directors, executives and selected employees and consultants in order to reward them for making major contributions to the success of the Company, thus providing participants with a proprietary interest in the growth and performance of the Company. Under the ISP, the Company may reward the eligible individuals with 30,000,000 shares of its common stock. As of March 31, 2004, there were 29,200,000 shares (refer to note 2) shares issued to various eligible individuals. 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. 7. COMMITMENTS AND CONTINGENCIES The Company has employment agreements with four employees, and a consulting contract with a key consultant, who is also stockholders of the Company. At March 31, 2004, the Company has a total liability for accrued salaries to stockholders of $382,400. There could be certain payroll tax liabilities owed to the IRS on some of the payments for services to certain consultants that were paid in prior years, pursuant to these employment agreements. 9 7. COMMITMENTS AND CONTINGENCIES (Continued) On May 28, 2003, the Company entered into an additional agreement (the "Agreement") with Tele. According to the terms of the Agreement, Tele. had the exclusive right to purchase a minimum of 100,000 bottles, through May 2004 of the Company's patented cholesterol reducing dietary supplement, Lo-Chol, for resale. In exchange for awarding Tele. the exclusive right for the marketing and distribution of Lo-Chol, Tele. has agreed to bear all costs associated with the marketing, designs and distribution of Lo-Chol, including a significant commitment of media buys. Tele. was also required to produce and air a Lo-Chol radio commercial within 90 days of this agreement, followed by the production and airing of an infomercial on Lo-Chol within 120 days. Pursuant to the agreement, Tele was required to purchase a minimum of $2,000,000 worth of purchase orders per year after the date of the first purchase order. On July 9, 2003, Tele, pursuant to an Assignment and Assumption Agreement, assigned all of its rights, title and interest to purchase market and resell Lo-Chol to Nutralife Pharmaceuticals, Corp. ("Nutralife") which was consented to by the Company. On October 1, 2003, the Company and Nutralife entered into an amendment of the Agreement, whereby in addition to amending the purchase price structure of units of Lo-Chol, they amended the following: the agreement is no longer exclusive; Nutralife is required to purchase a minimum of $200,000 worth of purchase orders per year; in the event that Nutralife purchases in excess of $2,000,000 units of Lo-Chol, then Nutralife will have the exclusive right to purchase and resell Lo-Chol; the requirement to purchase 100,000 units of Lo-Chol was terminated; and the down payment originally required for the Company to commence production was increased from 30% to 50%. 8. SUBSEQUENT EVENT On April 20, 2004, the Company had issued 88,300,000 shares of its common stock to various consultants for services rendered. The total amount accrued for these services was $1,766,000, or $.02 per share, and was based on the market price on the date of issuance. Of this amount, $500,000 was for consulting services provided by the Related Consultant. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS BACKGROUND Advanced Plant Pharmaceuticals, Inc. (the "Company") was incorporated in the State of Delaware in 1986, under the name Ventra Management, Inc. On July 20, 1994, we amended our Certificate of Incorporation to change our name to Advanced Plant Pharmaceuticals, Inc. DESCRIPTION OF BUSINESS The Company continues to focus on the research and development of plant based dietary supplements. In July 1999, the Company acquired exclusive rights and interests to a thirteen-step process, which utilizes virtually all of the nutrients found in plants to manufacture natural herbal dietary supplements. The purchase price for the thirteen step process was 12,000,000 shares of common stock of the Company. The shares were issued on February 13, 2001. Further, the Company is required to issue an additional 6,000,000 shares of common stock 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 at an exercise price of $180.00. Dr. Bielroy exercised an option for 12,000,000 shares in the first quarter of 2001. Sinusol , 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. On May 28, 2003, the Company entered into an agreement (the "Agreement") with Tele-V, LLC ("Tele"). According to the terms of the Agreement, Tele had the exclusive right to purchase a minimum of 100,000 bottles, through May 2004 of the Company's patented cholesterol reducing dietary supplement, Lo-Chol, for resale. In exchange for awarding Tele the exclusive right for the marketing and distribution of Lo-Chol, Tele has agreed to bear all costs associated with the marketing, designs and distribution of Lo-Chol, including a significant commitment of media buys. Tele was also required to produce and air a Lo-Chol radio commercial within 90 days of this agreement, followed by the production and airing of an infomercial on Lo-Chol within 120 days. Pursuant to the agreement, Tele was required to purchase a minimum of $2,000,000 worth of purchase orders per year after the date of the first purchase order. On July 9, 2003, Tele, pursuant to an Assignment and Assumption Agreement, assigned all of its rights, title and interest to purchase market and resell Lo-Chol to Nutralife Pharmaceuticals, Corp. ("Nutralife") which was consented to by the Company. On October 1, 2003, the Company and Nutralife entered into an amendment of the Agreement, whereby in addition to amending the purchase price structure of units of Lo-Chol, they amended the following: o the agreement is no longer exclusive; o Nutralife is required to purchase a minimum of $200,000 worth of purchase orders per year; o in the event that Nutralife purchases in excess of $2,000,000 units of Lo-Chol, then Nutralife will have the exclusive right to purchase and resell Lo-Chol; o the requirement to purchase 100,000 units of Lo-Chol was terminated; and o the down payment originally required for the Company to commence production was increased from 30% to 50%. RESULTS OF OPERATIONS RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2003. REVENUES Revenues generated during the three months ended March 31, 2004, aggregated $17,158, as compared to $4,529 for the three months ended Mach 31, 2003. The increase of $12,629 in revenues from the comparable period in the prior year is primarily due to the increased sales of our Lo-Chol product. We believe the trend in increased revenues to continue for the foreseeable future as a result of the increased marketing and advertising efforts. 11 COSTS OF GOODS SOLD Cost of Goods Sold for the three months ended March 31, 2004, aggregated $19,705 as compared to none for the three months ended March 31, 2004. The increase for the three months ended March 31, 2004, was primarily due to increased sales. OPERATING EXPENSES Operating Expenses incurred for the three months ended March 31, 2004, aggregated $2,685,623 as compared to $207,548 for three months ended March 31, 2003, which is an increase of $2,478,075. This increase was the result of the issuance of shares of common stock to consultants during the three months ended March 31, 2004. We expect the operating expenses to continue to increase if the level of sales continue to increase. NET LOSS AND LOSS PER COMMON SHARE The net loss and the loss per common share was $2,688,170 and $.00 for the three months ended March 31, 2004, as compared to net loss of $203,461 and $.00 for the three months ended March 31, 2003. The reason for the increased net loss is a result of the reasons described above. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2004, we had working capital deficit of $4,927,170 as compared with $3,081,675 at December 31, 2003. The increase in the working capital deficit is primarily the result of an increase in accrued expenses. We have historically sustained our operations and funded our capital requirements with the funds received from the sale of our products, loans received from related parties and the sale of our securities. We will still need additional investments in order to continue operations. Additional investments are being sought, but we cannot guarantee that we will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and the downturn in the U.S. stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations again. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management of the Company to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. The Company considers its critical accounting policies to be those that require the more significant judgments and estimates in the preparation of the Company's financial statements, including the following: valuation of inventories and intangible assets, valuation of stock options and warrants, and valuation of all accrued liabilities including payroll taxes and other contingent liabilities. Management relies on historical experience and on other assumptions believed to be reasonable under the circumstances in making its judgment and estimates. Actual results could differ materially from those estimates. ITEM 3 - CONTROLS AND PROCEDURES As of March 31, 2004, an evaluation was performed under the supervision and with the participation of the Company's management, including the Principal Executive Officer and the Principal Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the Principal Executive Officer and the Principal Financial Officer, concluded that the Company's disclosure controls and procedures were effective as of March 31, 2004. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to March 31, 2004. 12 PART II ITEM 1 - LEGAL PROCEEDINGS 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. This matter was settled in early 2004. ITEM 2 - CHANGES IN SECURITIES The Company issued 3,000,000 shares in a private placement to a several investors at approximately $.02 per share, for aggregate proceeds of $70,000. This sale is deemed to be exempt under rule 506 of Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons all of whom were accredited investors and transfer was restricted by the Company in accordance with the requirements of the Securities Act of 1933. In addition to representations by the above-referenced persons, we have made independent determinations that all of the above-referenced persons were accredited or sophisticated investors, and that they were capable of analyzing the merits and risks of their investment, and that they understood the speculative nature of their investment. Furthermore, all of the above-referenced persons were provided with access to our Securities and Exchange Commission filings. ITEM 3 - DEFAULTS UPON SENIOR SECURITIES None ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5 - OTHER INFORMATION None ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 31.1 Certification of the Chief Executive Officer and Principal Financial Officer of Advanced Plant Pharmaceuticals, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the Chief Executive Officer and Principal Financial Officer of Advanced Plant Pharmaceuticals, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports None. 13 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Advanced Plant Pharmaceuticals, Inc. By: /s/ David Lieberman ------------------------------------------------ David Lieberman, Chief Executive Officer and Principal Financial Officer Dated: May 24, 2004 14