10QSB 1 v06156_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 June 30, 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 August 20, 2004, there were issued and outstanding 669,382,298, 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 June 30, 2004 3 Condensed Statements of operations for the three and six months ended June 30, 2004 and 2003 4 Condensed Statements of cash flows for the six months ended June 30, 2004 and 2003 5 Notes to the condensed financial statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Controls and Procedures 15 PART II. OTHER INFORMATION 16 SIGNATURES 17 PART I ITEM 1. CONDENSED FINANCIAL STATEMENTS ADVANCED PLANT PHARMACEUTICALS, INC. CONDENSED BALANCE SHEET JUNE 30, 2004 (UNAUDITED) The accompanying notes are an integral part of the condensed financial statements. Assets

Current assets Cash and cash equivalents $ 3,768 Accounts receivable 1,152 Inventory 74,740 ------------ Total current assets 79,660 ------------ Property and equipment - net 3,288 ------------ Other assets Intangible assets - net of impairment losses 428,360 Due from related companies 3,932 Prepaid and other assets 7,190 ------------ Total other assets 439,482 ------------ Total assets $ 522,430 ------------ Liabilities and Stockholders' Deficiency Current liabilities Accounts payable $ 149,839 Due to stockholder - asset acquisition 1,315,000 Loans payable - stockholders 836,875 Accrued expenses 816,769 Due to distributor 103,500 Deposits 10,000 ------------ Total liabilities 3,231,983 ------------ Stockholders' deficiency Preferred - $.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; 660,632,298 shares issued and outstanding 462,443 Paid-in-capital 14,242,844 Deficit (17,416,590) ------------ Total stockholders' deficiency (2,709,553) ------------ Total liabilities and stockholders' deficiency $ 522,430 ============

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

Three Months Ended Six Months Ended June 30, June 30, ------- ------- 2004 2003 2004 2003 ---- ---- ---- ---- Revenues $ 31,817 $ 61,981 $ 48,975 $ 64,726 Cost of sales 10,554 27,340 30,259 29,466 ------------- ------------- ------------- ------------- Gross profit 21,263 34,641 18,716 35,260 Operating expenses: General and administrative 266,377 611,225 2,952,000 815,372 ------------- ------------- ------------- ------------- Operating loss (245,114) (576,584) (2,933,284) (780,112) Other income Miscellaneous income 129,097 -- 129,097 -- ------------- ------------- ------------- ------------- Loss before provision for income taxes (116,017) (576,584) (2,804,187) (780,112) Provision for income taxes -- 245 -- 687 ------------- ------------- ------------- ------------- Net loss $ (116,017) $ (576,829) $ (2,804,187) $ (780,799) ============= ============= ============= ============= Basic and diluted loss per share $ (0.00) $ (0.00) (0.00) $ (0.00) ============= ============= ============= ============= Weighted average numbers of common shares outstanding 634,951,712 378,773,394 597,039,441 434,587,999 ============= ============= ============= =============

The accompanying notes are an integral part of the condensed financial statements. 4 ADVANCED PLANT PHARMACEUTICALS, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended June 30, 2004 2003 ---- ---- Cash flows from operating activities Net cash provided by (used in) operations $(413,953) $ 143,402 --------- --------- Cash flows from financing activities Loans payable to stockholders - net 77,410 (103,506) Due from affiliates 7,806 -- Proceeds from the sale of common stock 70,000 -- --------- --------- Net cash provided by (used in) financing activities 155,216 (103,506) --------- --------- Cash flows from investing activities Equipment acquisition (3,353) -- --------- --------- Net cash used in investing activities (3,353) -- --------- --------- Net increase (decrease) in cash and cash equivalents (262,090) 39,896 Cash and cash equivalents - beginning of period 265,858 219 --------- --------- Cash and cash equivalents - end of period $ 3,768 $ 40,115 ========= ========= Supplemental cash flow information: Cash paid during the period for: Income taxes $ -- $ 687 ========= ========= Non-cash transaction: Stockholder loans converted to common stock $ 520,000 $ -- ========= =========

The accompanying notes are an integral part of the condensed financial statements. 5 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 six months ended June 30, 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 AND GOING CONCERN 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 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 $17,416,590 and stockholder's deficiency of $2,709,553 as of June 30, 2004 and current liabilities exceeded current assets by $3,152,323. 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. 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. 6 ADVANCED PLANT PHARMACEUTICALS, INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) NATURE OF BUSINESS AND GOING CONCERN (Continued) Factors that could affect 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. 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. For the six months ended June 30, 2004 and 2003, research and development costs included in operating expenses were $289,419 and $9,251, respectively. INCOME TAXES The Company has federal net operating tax loss carry forwards expiring in the years 2010 to 2024. The potential tax benefit of the 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. 7 ADVANCED PLANT PHARMACEUTICALS, INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) LOSS PER SHARE The Company computed basic and diluted loss per share amounts for June 30, 2004 and 2003 pursuant to the Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings Per Share." No dilution resulted from the 6,000,000 and 9,000,000 employee stock options outstanding at June 30, 2004 and 2003, respectively, because of the net loss. LOSS PER SHARE 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 percommon share are calculated by adjusting the weighted average outstanding shares, assuming conversion of all potentially dilutive stock options. REVENUE RECOGNITION The Company recognizes revenue from the sale of its products in accordance with the U.S. 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 relate 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. 2004 INCENTIVE STOCK PLAN In January 2004, the Company had adopted the 2004 Incentive Stock Plan (ISP). This plan allows the Company to make 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 is authorized to reward eligible individuals with up to 45,000,000 shares of its common stock. As of June 30, 2004, 36,866,666 shares (refer to note 2) were issued to various eligible individuals. 8 ADVANCED PLANT PHARMACEUTICALS, INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 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. 9 ADVANCED PLANT PHARMACEUTICALS, INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) STOCK WARRANTS At June 30, 2004, the Company had outstanding warrants to purchase 33,000,000 shares of the Company's common stock at prices ranging from $.03 to $.10 per share. The warrants become exercisable in 2005 and expire at various dates through 2007. A waiver of reservation for 30,000,000 shares was received. Thus, the remaining 3,000,000 shares of common stock were reserved for that purpose. COMMITMENTS AND CONTINGENCIES The Company has employment agreements with four employees, and a consulting contract with a key consultant, who are also stockholders of the Company. At June 30, 2004, the Company has a total liability for accrued salaries to stockholders of $443,891. 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. RECLASSIFICATION Certain prior year's amounts have been reclassified to conform to the 2003 presentation. 2. RELATED-PARTIES STOCK AND ASSET 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 $787,900. As part of the total shares issued, 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 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. On June 4, 2004, the Company had also issued, under the ISP, 5,666,666 shares of common stock for the performance of various services valued at $56,667, and paid down $20,000 of loan payable to a stockholder with 2,000,000 shares of common stock for prior services rendered. Both of these transactions were recorded at $0.01 per share, the fair market on the date of issuance. 10 ADVANCED PLANT PHARMACEUTICALS, INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 2. RELATED-PARTIES STOCK AND ASSET TRANSACTIONS (Continued) The Director, advanced to the Company his personal funds, or paid expenses on behalf of the Company. As of June 30, 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 $477,033. 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 June 30, 2004, this investment was recorded at its par value, which is $300. On April 20, 2004, the Company had issued 800,000 shares of its common stock to a consultant for services rendered. The amount recorded for these services was $16,000, or $.02 per share, and was based on the market price on the date of issuance. On April 22, 2004, the Company had issued 38,300,000 shares of its common stock to various consultants for services rendered, valued at $766,000. Also, the Company converted a loan payable to stockholder into the common stock by issuance of 25 million shares, resulting in debt reduction of $500,000. In addition, the Company had issued 25 million shares for consulting services rendered by a Related Consultant, valued at $500,000. These transactions were recorded at $0.02 per share based on the market price on the date of issuance. On April 23, 2004, the Company has cancelled 5,000,000 shares of common stock which were issued by the Company and held by the transfer agent pending the completion of contractual services. The shares were cancelled due to nonperformance of the contract. During the period ended March 31, 2004, the Company issued 3,000,000 shares in a private placement to several investors at approximately $.02 per share, for aggregate cash proceeds of $60,000. 11 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 June 30, 2004. 4. MISCELLANEOUS INCOME During the period ended June 30, 2004, the Company has a write off of prior period's accounts payable in the amount of $129,097, shown as a miscellaneous income on the condensed statements of operations. 5. SUBSEQUENT EVENT On July 23, 2004, the Company had issued 1,000,000 shares of its common stock to Philip Drachman, a consultant, for services rendered. The amount accrued for these services was $10,000 or $.01 per share, and was based on the market price on the date of issuance for work concluded prior to June 30, 2004. 12 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 the formulation 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. In addition to Sinusol, the Company is also currently marketing its Lo-Chol product. Lo-Chol's formula is derived from the "whole plant" parts of six selected plants that work in concert to help tip your lipid balance (good and bad cholesterol) towards a more normal level. These six plants 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. RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2003. REVENUES Revenues generated during the six months ended June 30, 2004, aggregated $48,975, as compared to $64,726 for the six months ended June 30, 2003. The decrease of $15,751 in revenues from the comparable period in the prior year is primarily due to less purchases by our exclusive distributors. COSTS OF GOODS SOLD Cost of Goods Sold for the six months ended June 30, 2004, aggregated $30,259 as compared to $29,466 for the six months ended June 30, 2004. The increase of $1,063 for the six months ended June 30, 2004 as compared to the six months ended June 30, 2003, was primarily due to the use of product in connection with clinical trials. 13 OPERATING EXPENSES Operating Expenses incurred for the six months ended June 30, 2004 aggregated $2,952,000 as compared to $815,372 for the six months ended June 30, 2003, which is an increase of $2,136,628. This increase was the result of payment of finders fees in connection with the sales of our products NET LOSS The net loss was $2,804,187 for the six months ended June 30, 2004, as compared to net loss of $780,799 for the six months ended June 30, 2003, which represents an increased net loss of $2,023,388. The reason for the increased net loss is a result of the reasons described above. THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2003. REVENUES Revenues generated during the three months ended June 30, 2004, aggregated $31,817, as compared to $61,981 for the three months ended June 30, 2003. The decrease of $30,164 in revenues from the comparable period in the prior year is primarily due to less purchases by our exclusive distributors. COSTS OF GOODS SOLD Cost of Goods Sold for the three months ended June 30, 2004, aggregated $10,554 as compared to $27,340 for the three months ended June 30, 2004. The $16,786 decrease for the three months ended June 30, 2004, was primarily due to decreased sales. OPERATING EXPENSES Operating Expenses incurred for the three months ended June 30, 2004, aggregated $266,377 as compared to $611,225 for three months ended June 30, 2003, which is an decrease of $344,848. This decrease was the result of a decrease in the payment of finders fees payable in connection with the sales of our products. NET LOSS The net loss was $116,017 for the three months ended June 30, 2004, as compared to net loss of $576,829 for the three months ended June 30, 2003. The reason for the decreased net loss is a result of the reasons described above. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2004, we had working capital deficit of $3,152,323 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. 14 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 EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES As of June 30, 2004, we carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. This evaluation was done under the supervision and with the participation of our Chief Executive Officer and Principal Financial Officer. Based upon that evaluation, they concluded that there were material weaknesses associated with our disclosure controls and procedures in so far as they were not effective in gathering, analyzing and disclosing information needed to satisfy our disclosure obligations under the Exchange Act. Our independent auditors issued a letter at the completion of their review of our financial statements for they six months ended June 30, 2004, detailing the following material weaknesses: o Lack of supervision and review regarding the recording of stock transactions; o Lack of discipline around the financial reporting; o Lack of financial accounting and reporting knowledge; and o Policies and procedures used to develop accruals and estimates. As a result of the above, the Company terminated its current accounting personnel and engaged new accounting personnel to address the issues raised by our independent auditors. The new accounting personnel have assisted management in developing procedures, forms, checklists and reporting packages to address these deficiencies, and management believes progress had been made to improve our system of internal controls. Additional progress in these areas will continue through the end of 2004. CHANGES IN INTERNAL CONTROLS During the quarter to which this report relates, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, with the exception of the new policies and procedures instituted in August 2004 to address the material weaknesses set forth above. 15 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. ITEM 2 - CHANGES IN SECURITIES On April 20, 2004, the Company had issued 800,000 shares of its common stock to a consultant for services rendered. The amount recorded for these services was $16,000, or $.02 per share, and was based on the market price on the date of issuance. On April 22, 2004, the Company had issued 38,300,000 shares of its common stock to various consultants for services rendered, valued at $766,000. Also, the Company converted a loan payable to stockholder into the common stock by issuance of 25 million shares, resulting in debt reduction of $500,000. In addition, the Company had issued 25 million shares for consulting services rendered by CJ, Lieberman, the brother of our sole executive officer and director, valued at $500,000. These transactions were recorded at $0.02 per share based on the market price on the date of issuance. On April 23, 2004, the Company has cancelled 5,000,000 shares of common stock which were issued by the Company and held by the transfer agent pending the completion of contractual services. The shares were cancelled due to nonperformance of the contract. * All of the above offerings and sales were deemed to be exempt under Rule 506 of Regulation D and 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, business associates of the Company or executive officers of the Company, 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. 16 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. 17 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: August 20, 2004 18