10QSB 1 v09189_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 September 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 November 19, 2004, there were issued and outstanding 705,382,359, 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 September 30, 2004 3 Condensed Statements of operations for the three and three months ended September 30, 2004 and 2003 4 Condensed Statements of cash flows for the nine months ended September 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. Unaudited Consolidated Balance Sheets September 30, 2004 ------------ Assets Current: Accounts receivable, net $ 1,008 Inventory 74,021 Prepaid Expenses 1,520 ------------ 76,549 Property and equipment, net 3,158 Intangible assets, net of impairment losses 428,360 Due from related companies 3,080 Other assets 4,150 ------------ Total Assets $ 515,297 Liabilities and Stockholders' Equity Current: Bank overdraft $ 7,071 Accounts payable 185,580 Due to stockholder - asset acquisition 1,315,000 Loans payable - stockholders 936,025 Accrued expenses 811,419 Due to distributor 103,500 Deposits 10,000 ------------ Total Liabilities 3,368,595 ------------ Stockholders' Deficiency Preferred - $.0007 par value, 10,000,000 shares Authorized, 2,500,000 issued and outstanding 1,750 Common - $.0007 par value, 880,000,000 shares Authorized, 705,248,965 issued and outstanding 496,474 Paid-in-capital 14,514,313 Deficit (17,865,835) ------------ (2,853,298) Total Liabilities and stockholders' deficiency $ 515,297 ============ The accompanying notes are an integral part of these financial statements. Advanced Plant Pharmaceuticals, Inc. Unaudited Consolidated Statements of Operations

Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Revenue $ 3,557 $ 4,151 $ 52,532 $ 70,660 Cost of Sales 719 1,163 30,978 30,629 ------------ ------------ ------------ ------------ Gross Profit 2,838 2,988 21,554 40,031 ------------ ------------ ------------ ------------ Operating expenses: General and administrative 451,769 742,969 3,403,769 1,559,616 ------------ ------------ ------------ ------------ Operating loss (448,931) (739,981) (3,382,215) (1,519,585) Other Income (Expense): Miscellaneous income 129,097 -- ------------ ------------ ------------ ------------ Loss before income tax (448,931) (739,981) (3,253,118) (1,519,585) Provision for income tax 314 314 687 ------------ ------------ ------------ ------------ Net Loss $ (449,245) $ (739,981) $ (3,253,432) $ (1,520,272) ============ ============ ============ ============ Basic and diluted loss per share $ 0.00 $ 0.00 $ 0.00 $ 0.00 ------------ ------------ ------------ ------------ Weighted average common shares outstanding 679,321,429 496,055,460 643,317,578 374,837,987 ============ ============ ============ ============

The accompanying notes are an integral part of these financial statements. Advanced Plant Pharmaceuticals, Inc. Unaudited Consolidated Statements of Cash Flows Nine Months Ended ---------------------------- September 30, September 30, 2004 2003 ------------ ------------ Cash Flows From Operating Activities: Loss From Operating Activities $ (524,794) $ 295 Cash Flows From Financing Activities: Payments for property and equipment (3,353) 0 ------------ ------------ Net cash used in investing activities (3,353) 0 ------------ ------------ Cash Flows From Financing Activities: Bank overdraft 7,071 Loans payable to stockholders' - net 176,560 246,494 Due from related companies 8,658 Issuance of common stock 70,000 0 ------------ ------------ Net cash provided by financing activities 262,289 246,494 ------------ ------------ Net increase in Cash (265,858) 246,789 Cash, Beginning of Period 265,858 219 ------------ ------------ Cash, End of Period $ 0 $ 247,008 ============ ============ Supplemental cash flow information: Preferred stock issued for services $ 0 $ 1,750 ============ ============ Common stock issued for services $ 2,312,567 $ 1,432,507 ============ ============ Stockholder loans converted to common stock $ 520,000 ============ The accompanying notes are an integral part of these financial statements. Advanced Plant Pharmaceuticals, Inc. Notes to Unaudited Financial Statements 1. CONDENSED FINANCIAL STATEMENTS In the opinion of the Company, the accompanying unaudited condensed financial statements include all adjustments (consisting only of normal recurring accruals) which are necessary for a fair presentation of the results for the periods presented. Certain information and footnote disclosure, normally included in the financial statements prepared in accordance with generally accepted accounting principles, have been condensed and omitted. The results of operations for the nine months ended September 30, 2004 are not indicative of the results of operations for the year ended December 31, 2004. The condensed financial statements should be read in conjunction with the Company's financial statements included in its annual Form 10 KSB for the year ended December 31, 2003 and Form 10 QSB for the six months ended June 30, 2004. 2. STOCK WARRANTS At September 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. 3. 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 September 30, 2004, the Company has a total liability for accrued salaries to stockholders of $506,300. 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. 4. 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. The Director, advanced to the Company his personal funds, or paid expenses on behalf of the Company. As of September 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 $527,283. This loan payable is non-interest bearing. Advanced Plant Pharmaceuticals, Inc. Notes to Unaudited Financial Statements 4. RELATED-PARTIES STOCK AND ASSET TRANSACTIONS (CONTINUED) 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 September 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. On August 26, 2004, the Company issued 32,666,667 shares of common stock to a consultant for services rendered. The amount recorded for these services was $147,000, or $.0045 per share. On September 23, 2004, the Company issued 11,000,000 shares of common stock to consultants for services rendered. The amount recorded for these services was $49,500, or $.0045 per share. 5. MISCELLANEOUS INCOME During the period ended September 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. 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 Nine Months Ended September 30, 2004 Compared to the Nine Months Ended September 30, 2003. Revenues Revenues generated during the nine months ended September 30, 2004 aggregated $52,532, as compared to $70,660 for the nine months ended September 30, 2003. The decrease of $18,128 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 nine months ended September 30, 2004, aggregated $30,978 as compared to $30,629 for the nine months ended September 30, 2003. The increase of $349 for the nine months ended September 30, 2004 as compared to the nine months ended September 30, 2003, was primarily due to the use of product in connection with clinical trials. Operating Expenses Operating Expenses incurred for the nine months ended September 30, 2004 aggregated $3,403,769 as compared to $1,559,616 for the nine months ended September 30, 2003, which is an increase of $1,844,153. This increase was the result of payment of finders fees in connection with the sales of our products Net Loss The net loss was $3,253,432 for the nine months ended September 30, 2004, as compared to net loss of $1,520,272 for the nine months ended September 30, 2003, which represents an increased net loss of $1,733,160. The reason for the increased net loss is a result of the reasons described above. Three Months Ended September 30, 2004 Compared to the Three Months Ended September 30, 2003. Revenues Revenues generated during the three months ended September 30, 2004 were $3,557, as compared to $4,151 for the three months ended September 30, 2003. The decrease of $594 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 September 30, 2004 was $719 as compared to $1,163 for the three months ended September 30, 2004. The $444 decrease for the three months ended September 30, 2004 was primarily due to decreased sales. Operating Expenses Operating Expenses incurred for the three months ended September 30, 2004, aggregated $451,769 as compared to $742,969 for three months ended September 30, 2003, which is an decrease of $291,200. 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 $449,245 for the three months ended September 30, 2004, as compared to net loss of $739,981 for the three months ended September 30, 2003. The reason for the decreased net loss is a result of the reasons described above. Liquidity and Capital Resources At September 30, 2004, we had working capital deficit of $3,292,046 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 Evaluation of disclosure controls and procedures As of September 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 the 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 the second quarter of 2005. 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. 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 In July 2004, the Company issued 2,500,000 shares of common stock to three consultants for services provided. In September 2004, the Company issued 11,000,000 shares of common stock to two consultants for services provided. * 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. 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. 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: November 22, 2004