U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _______
Commission file number 0-26257
ACCIDENT PREVENTION PLUS, INC.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 11-3461611
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
325 Wireless Boulevard
Hauppauge, New York 11788
-------------------------
(Address of Principal Executive Offices)
(631) 360-0600
--------------
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes No X
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding as of August 18,2000
----------------------------- --------------------------------
Common Stock, $.001 par value 17,778,196
Transitional Small Business Disclosure Format (check one)
Yes No X
<PAGE>
Accident Prevention Plus, Inc.
INDEX
Page
----
PART I. FINANCIAL INFORMATION F-1
Item 1. Financial Statements F-1 - F-17
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 3
PART II. OTHER INFORMATION 5
Item 1. Legal Proceedings 5
Item 2. Changes in Securities and Use of Proceeds 5
Item 3. Defaults Upon Senior Securities 5
Item 4. Submission of Matters to a Vote of Security Holders 5
Item 5. Other Information 5
Item 6. Exhibits and Reports on Form 8-K 5
SIGNATURES 6
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX-MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
Page
Number
------
Consolidated Balance Sheets at June 30, 2000 (unaudited)
and December 31, 1999 F-2
Consolidated Statements of Operations and Comprehemsive
Income for the three and six months ended
June 30, 2000 and 1999 (unaudited) F-3
Consolidated Statement of Stockholders' Deficiency for the
six months ended June 30, 2000 (unaudited) F-4
Consolidated Statements of Cash Flows for the three
and six months ended June 30, 2000 and 1999 (unaudited) F-5 F-6
Notes to Consolidated Financial Statements F-7 to F-16
F-1
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<TABLE>
<CAPTION>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
(Unaudited)
June 30, December 31,
2000 1999
Current Assets: ----------- -----------
<S> <C> <C>
Cash $ 14,277 $ 23,746
Accounts receivable, net 101,636 147,071
Inventory 109,338 130,121
Prepaid expenses 86,866 14,621
Other current assets 5,992 --
----------- -----------
Total Current Assets 318,109 315,559
----------- -----------
Property and Equipment, Net 42,045 21,822
----------- -----------
Other Assets:
Due from officers 227,345 159,997
Due from affiliate 339,891 323,314
Other 10,268 25,696
----------- -----------
Total Other Assets 577,504 509,007
----------- -----------
Total Assets $ 937,658 $ 846,388
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
Current Liabilities:
Notes payable $ 1,008,881 $ 1,022,358
Capital leases payable 7,702 --
Accounts payable 878,568 833,278
Accrued expenses 605,397 435,675
Payroll taxes payable 113,659 92,760
Other taxes payable 24,720 19,917
Customer deposits 137,966 137,966
----------- -----------
Total Current Liabilities 2,776,893 2,541,954
----------- -----------
Long Term Liabilities:
Notes payable, net of current portion 6,424 25,701
Capital leases payable, net of current portion 15,116 --
Convertible note payable 961,000 150,000
Loans payable - officers 350,890 384,854
Note payable - shareholder 38,500 --
Notes payable - director 37,500 37,500
----------- -----------
Total Long Term Liabilities 1,409,430 598,055
----------- -----------
Total Liabilities 4,186,323 3,140,009
----------- -----------
Common Stock Subject to Rescission Offer, - $.001 par value,
139,958 shares issued and outstanding, respectively (Note 8) 181,189 202,939
----------- -----------
Commitments & Contingencies (Note 9) -- --
----------- -----------
Stockholders' Deficiency:
Common stock - $.001 par value, 50,000,000 shares authorized,
17,638,238 shares issued and outstanding, respectively 17,638 17,638
Additional paid-in capital 660,055 660,055
Accumulated - other comprehensive income 5,390 665
Accumulated deficit (4,112,937) (3,174,918)
----------- -----------
Total Stockholders' Deficiency (3,429,854) (2,496,560)
----------- -----------
Total Liabilities and Stockholders' Deficiency $ 937,658 $ 846,388
=========== ===========
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(Unaudited) (Unaudited)
For the three months ended For the six months ended
June 30, June 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Net Sales $ 162,364 $ 90,800 $ 353,840 $ 116,746
Cost of Sales 92,794 50,611 159,289 63,663
------------ ------------ ------------ ------------
Gross Profit 69,570 40,189 194,551 53,083
------------ ------------ ------------ ------------
Expenses:
Selling, general and administrative 540,936 253,236 973,553 476,896
Research and development 12,389 97,247 64,836 142,406
------------ ------------ ------------ ------------
Total Expenses 553,325 350,483 1,038,389 619,302
------------ ------------ ------------ ------------
Loss Before Other Income (Expenses)
And Provision For Income Tax (483,755) (310,294) (843,838) (566,219)
------------ ------------ ------------ ------------
Other Income (Expenses)
Interest income 9,720 8,640 19,443 17,278
Interest expense (66,966) (31,884) (113,624) (68,330)
------------ ------------ ------------ ------------
Total Other Income (Expenses) (57,246) (23,244) (94,181) (46,812)
------------ ------------ ------------ ------------
Loss Before Provision For Income Taxes (541,001) (333,538) (938,019) (613,031)
------------ ------------ ------------ ------------
Provision For Income Taxes -- -- -- --
------------ ------------ ------------ ------------
Net Loss (541,001) (333,538) (938,019) (613,031)
Other Items of Comprehensive Income 4,636 -- 4,725 --
------------ ------------ ------------ ------------
Comprehensive Net Loss $ (536,365) $ (333,538) $ (933,294) $ (613,031)
============ ============ ============ ============
Basic Earnings Per Share:
Net Loss $ (.03) $ (.02) $ (.05) $ (.04)
============ ============ ============ ============
Weighted Average Number of Shares
Outstanding 17,778,196 17,497,812 17,778,196 17,405,641
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
Accumulated
Common Stock Additional Other Total
--------------------------- Paid-in Comprehensive Accumulated Stockholders'
Shares Amount Capital Income (Loss) Deficit Deficiency
------------ ----------- ----------- ------------ ----------- ------------
Balances at December 31, 1999 17,638,238$ 17,638 $ 660,055 $ 665 $(3,174,918) $(2,496,560)
Foreign currency
translation adjustment -- -- -- 4,725 -- 4,725
Net loss for the six months
ended June 30, 2000 -- -- -- -- (938,019) (938,019)
------------ ----------- ----------- ----------- ----------- -----------
Balances at June 30, 2000 17,638,238 $ 17,638 $ 660,055 $ 5,390 (4,112,937) $(3,429,854)
============ =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(Unaudited) (Unaudited)
For the three months ended For the six months ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Operating activities
Net loss $(541,001) $(333,538) $(938,019) $(613,031)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 4,900 1,625 9,062 3,250
Foreign currency translation 4,636 -- 4,725 --
Decrease (increase) in:
Inventory 55,787 (31,908) 20,783 (36,988)
Accounts receivable 45,832 (61,893) 45,435 (32,194)
Prepaid expenses (37,167) (20,708) (72,245) 20,042
Other assets -- --
Other current assets 2,600 -- (5,992) --
Other assets (2,693) (3,699) 15,428 (3,698)
(Decrease) increase in:
Cash overdraft -- (6,275) -- (12,332)
Accounts payable and accrued expenses (6,528) 72,880 215,012 272,234
Payroll taxes payable 7,268 2,604 20,899 4,089
Other taxes payable (1,131) -- 4,803
Customer deposits -- (40,597) -- 30,000
--------- --------- --------- ---------
Net cash used for operating activities (467,497) (421,509) (680,109) (368,628)
--------- --------- --------- ---------
Investing activities
Purchase of property and equipment (6,513) -- (29,285) --
--------- --------- --------- ---------
Net cash used for investing activities (6,513) -- (29,285) --
--------- --------- --------- ---------
Financing activities
Repayments of notes payable (30,775) (13,726) (32,753) (34,160)
Proceeds from capital lease contributions 4,484 -- 27,216 --
Repayments of capital lease payable (1,853) -- (4,398) (2,896)
Proceeds from convertible note payable 579,000 -- 811,000 --
Proceeds from common stock subject to rescission (21,750) 71,553 (21,750) 100,553
Proceeds from sale of common stock -- 420,988 -- 434,038
Expenditures for sale of common stock -- (16,461) -- (35,635)
Proceeds from officers loans payable -- -- -- --
Repayments of officers loans payable (54,500) (53,769) (101,312) (63,975)
Proceeds from directors note payable -- 7,000 -- 7,000
(Advances to) proceeds from affiliates (6,299) (36,640) (16,578) (36,267)
Proceeds from shareholder note -- -- 38,500 --
--------- --------- --------- ---------
Net cash provided by financing activities 468,307 378,945 699,925 368,658
--------- --------- --------- ---------
Net (decrease) increase in cash (5,703) (42,564) (9,469) 30
Cash and cash equivalents at beginning of year 19,980 42,786 23,746 192
--------- --------- --------- ---------
Cash and cash equivalents at end of year $ 14,277 $ 222 $ 14,277 $ 222
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(Unaudited) (Unaudited)
For the three months ended For the six months ended
June 30, June 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ----------- ------------ -----------
Supplemental disclosure of non-cash flow information:
Cash paid during the year for:
Interest $ 25,515 $ 53,067 $ 49,433 $ 68,329
============ =========== ============ ============
Income taxes $ -- $ -- $ -- $ --
============ =========== ============ ============
See accompanying notes to consolidated financial statements.
F-6
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<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
NOTE 1 - ORGANIZATION
THE COMPANY
-----------
Accident Prevention Plus, Inc. (the "Company") was incorporated in the
State of Nevada on October 28, 1998 to become the holding company of
Accident Prevention Plus, LLC a limited liability company, (the "LLC")
and International Purchasing Services, NY, Inc. ("IPS-NY").
INC-NY/LLC
----------
Accident Prevention Plus, Inc. ("Inc-NY") was incorporated during 1993
in the State of New York as a standard corporation. During February
1996, Inc-NY was reorganized and converted to a limited liability
company. The LLC is treated as a partnership for financial and income
tax purposes. The entities are engaged in the design, marketing and
distribution of onboard computer recording and fuel monitoring systems
for commercial and fleet vehicles.
IPS-NY
------
IPS-NY was incorporated in the State of New York on March 3, 1993 to
provide various support services to the LLC including but not limited
to shipping, receiving and warehousing. IPS-NY was also responsible for
purchases of product components, providing financing, and other general
overhead support for the LLC and for its own business purposes. The
sole shareholder of IPS-NY was also the majority member of the LLC.
REORGANIZATION
--------------
During October 1998, pursuant to an Agreement and Plan of
Reorganization (the "Reorganization Agreement") the Company issued
14,205,970 shares of its common stock to the members of the LLC for
100% of the LLC. The Company accounted for the transaction with the LLC
as a corporate reorganization and accordingly, no goodwill was
recorded. In connection with the reorganization, the founding members
in the LLC were elected as the officers of the Company. Accordingly,
after such reorganization, the LLC became a wholly owned subsidiary of
the Company.
ACQUISITION OF IPS-NY
---------------------
Simultaneously with the reorganization during October 1998, the Company
acquired from IPS-NY's sole shareholder, 100% of the issued and
outstanding common stock of IPS-NY by issuing 2,975,000 shares of the
Company's common stock. The acquisition was accounted for by the
purchase method of accounting.
F-7
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
NOTE 1 - ORGANIZATION (cont'd)
KMR TELECOM, LTD.
-----------------
Simultaneously with the reorganization during October 1998, the Company
also intended to acquire all of the issued and outstanding common stock
of KMR Telecom, Ltd ("KMR"), a corporation organized under the laws of
India for 800,000 shares of its common stock. During October of 1999,
it was discovered that the laws of India prohibit a foreign entity from
holding more than a 49% equity interest in a company organized under
the laws of India. Accordingly, the Company and the shareholders of KMR
entered into a rescission agreement canceling the transaction. The
financial statements do not reflect the intended acquisition. In
accordance with the rescission agreement, the rescission was
effectuated retroactively to October 1998.
APP U.K. LTD
------------
On September 13, 1999, Accident Prevention Plus (UK) Limited ("APP UK")
was formed as a private limited company under the laws of England and
Wales to provide sales, marketing and technical support for the Company
in Europe. APP UK is a wholly owned subsidiary of the Company. On
December 17, 1999, Accident Prevention Plus, France SARL ("APP France")
was formed as a private Company under the laws of France. APP France is
a wholly owned subsidiary of APP UK.
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. For the
years ended December 31, 1999 and 1998, the Company generated net
losses of $1,173,837 and $605,241, respectively. At June 30, 2000 the
Company has an accumulated deficit of $4,112,937. Additionally, as of
June 30, 2000, the Company has a working capital deficiency amounting
to $2,458,784.
As of December 31, 1999, the Company owes approximately $93,000 of
payroll taxes and related penalties and interest. Certain taxing
authorities have filed liens against the Company as a result of the
unpaid payroll taxes. Should the taxing authorities take further
action, the results could be detrimental to the Company's ability to
operate. In addition, the Company has not complied with the payment
schedules or covenants of their bank debt. Should the banks take action
against the Company the results could adversely affect the Company.
The Company is aggressively attempting to obtain additional contracts
in order to mitigate future losses. The Company is in the process of
complying with the Securities and Exchange Commission's (SEC) rules
regarding fulfillment of eligibility Rule 15c2-11, adopted under the
Securities Act of 1934, as amended, in order for broker dealers to
publish quotations in the Company's securities. Management is
optimistic that this will enable the Company to raise additional
capital. However, there can be no assurance that it will be able to
obtain additional contracts, pay its payroll taxes or to comply with
SEC eligibility requirements for publishing of quotations in the
Company's securities.
F-8
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
NOTE 2 - GOING CONCERN (cont'd)
These facts raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include
adjustments relating to the recoverability and realization of assets
and classification of liabilities that might be necessary should the
Company be unable to continue in operation.
NOTE 3 - INTERIM RESULTS AND BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instruction to Form
10-QSB and Items 303 and 310(B) of Regulation S-B. In the Company's
opinion, the unaudited consolidated financial statements have been
prepared on the same basis as the annual financial statements and
reflect all adjustments, which include only normal recurring
adjustments, necessary to present fairly the financial position as of
June 30, 2000 and the results of the operations and cash flows for the
three and six month periods ended June 30, 2000 and 1999.
The financial data and other information disclosed in these notes to
the interim consolidated financial statements related to these periods
are unaudited. The results for the three and six month periods ended
June 30, 2000 are not necessarily indicative of the results to be
expected for any subsequent quarter or the entire fiscal year ending
December 31, 2000. The balance sheet at December 31, 1999 has been
derived from the audited consolidated financial statements at that
date.
NOTE 4 - DUE FROM AFFILIATE
Due from affiliate consists of a loan receivable from KMR Telecom, LTD.
("KMR"), a corporation originated under the laws of India, which is
affiliated with the Company through common stock ownership with the
Chief Executive Officer of the Company. The loan is held by IPS - NY
and bears interest at 12% per annum. The Company's Chief Executive
Officer has pledged to the Company his 49% interest in KMR as
collateral for the loan. At June 30, 2000 and December 31, 1999 the
loan due from KMR amounted to $339,891 and $323,314, respectively.
Interest income recorded by the Company in connection with the loan
amounted to $19,443 and $17,278, respectively, for the six months ended
June 30, 2000 and 1999 and $9,720 and $8,639, respectively, for the
three months ended June 30, 2000 and 1999.
F-9
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
NOTE 5 - NOTES PAYABLE
a) Bank of Smithtown
--------------------
On November 30, 1998, the Company, IPS-NY, LLC and the Company's Chief
Executive Officer entered into a settlement agreement with the Bank of
Smithtown ("Smithtown") in connection with a default by IPS-NY under a
U.S. Small Business Administration ("SBA") promissory note dated April
13, 1995 in the sum of $100,000 and a second promissory note dated
December 24, 1996 in the sum of $500,000. In accordance with the
settlement, IPS-NY made the following payments as scheduled: $23,208
and $20,000 both in November 1998 and $16,792 in March 1999.
Additionally, IPS-NY executed a new note in the amount of $60,620
bearing interest at 9% per annum and maturing in one year. Such note
represented the accrued and unpaid interest on the original IPS-NY note
of $500,000 dated December 24, 1996. Lastly, in lieu of canceling the
original IPS-NY $500,000 note dated December 24, 1996, the Company
executed a new note in the amount of $500,000, bearing interest at
prime plus 2% per annum. The new note was to be paid at the rate of
$5,000 per month during the first year, $10,000 per month during the
second year and $15,000 per month during the third year. At the end of
the third year, the entire principal balance remaining, together with
any accrued interest, shall be due and payable. As of June 30, 2000 and
December 31, 1999 the principal balances on the newly issued $500,000
note, the newly issued $60,620 note and the original $100,000 SBA note
are $462,173 and $490,774, $43,828 and $43,828, and $34,488 and
$42,742, respectively.
All notes associated with the above settlement agreement are secured by
the Company's common stock owned by its Chief Executive Officer and all
assets of the Company.
As of June 30, 2000 and December 31, 1999, the Company was not in
compliance with the payment schedule as agreed to above for the
$500,000 note and $60,620 note. To date, Smithtown has not taken any
action against the Company, but should they decide to proceed with an
action the impact could have a material effect upon the Company. Due to
the non-compliance, these notes with Smithtown have been classified as
current liabilities at June 30, 2000 and December 31, 1999.
Annual aggregate maturities of notes payable under the SBA note are as
follows as of December 31, 1999:
Year ended December 31:
2000 $ 17,041
2001 19,012
2002 6,689
---------
$ 42,742
=========
F-10
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
NOTE 5 - NOTES PAYABLE (cont'd)
b) HSBC Bank USA (formerly Marine Midland Bank)
-------------------------------------------
On September 17, 1996, the LLC borrowed $500,000 by executing a
promissory note with HSBC Bank USA (formerly Marine Midland Bank)
("HSBC") with the note being partially guaranteed by the SBA. Such note
was for a term of one year. The current terms of the note are payments
of interest only at prime plus 2% per annum and due on demand. The
Company is currently in the process of negotiating a long-term payout
for this note with HSBC, along with having certain violations of the
debt covenants waived. As of June 30, 2000 and December 31, 1999 the
balance due is $474,816 and $470,715, respectively, and is classified
as current. The note is secured by all of the assets of the Company,
along with personal guarantees by the Chief Executive Officer and
President.
NOTE 6 - CAPITAL LEASE PAYABLE
During the six months ended June 30, 2000, the Company acquired
computer equipment for $27,216 by entering into capital lease
obligations with interest ranging between approximately 11% and 14% per
annum, requiring 36 monthly payments of $782 which include principal
and interest and downpayments aggregating $27,216. The leases are
secured by the related equipment.
At June 30, 2000, the aggregate future minimum lease payments due
pursuant to the above capital lease obligations are as follows:
Total minimal lease payments $ 25,806
Less: Amounting representing interest 2,988
---------
Present value of net minimum lease payments $ 22,818
=========
At June 30, 2000 computer equipment under capital leases are carried at
a book value of $23,988.
NOTE 7 - CONVERTIBLE NOTE PAYABLE
On December 16, 1999, the Company executed a $250,000 convertible
promissory note with an individual, bearing interest at 15% per annum
with principal payable in full on December 31, 2001. The promissory
note contains a provision stating that beginning January 2, 2001 that
upon a 10 day notice the note is due on demand. On September 30, 2000
the note is convertible into common stock at the rate of $1.45 per
share. There also is a prepayment penalty provision if the Company
prepays the note in the first thirteen months. The Company had received
$150,000 in December 1999 related to the note with the remaining
$100,000 received in January 2000. In February and March 2000 the
Company executed two convertible 15% promissory notes with the
individual aggregating $100,000.
F-11
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
NOTE 7 - CONVERTIBLE NOTE PAYABLE (cont'd)
In May and June 2000, the Company executed four 15% promissory notes
with the individual aggregating $300,000. The promissory notes are due
on December 31, 2001, bearing interest at 15% per annum and are payable
monthly in arrears or upon maturity or any earlier conversion of the
note.
At any time subsequent to September 30, 2000 the noteholder will have
the right to convert the principal and accrued interest in whole or in
part into common stock at $1.45 per shares.
During March 2000, the Company entered into seven convertible 10%
promissory notes aggregating $279,000. The Company received proceeds of
$32,000 from three noteholders and $247,000 from four noteholders in
March and April 2000, respectively. In May and June 2000 the Company
executed three convertible 10% promissory notes aggregating $32,000.
The promissory notes are due on December 31, 2001, bearing interest at
10% per annum and are payable monthly in arrears or upon maturity or
any earlier conversion of the note. At any time subsequent to September
30, 2000, the noteholder will have the right to convert the principal
and accrued interest in whole or in part into common stock at $1.45 per
share.
NOTE 8 - COMMON STOCK SUBJECT TO RESCISSION OFFER
Common stock sold subsequent to August 3, 1999 pursuant to the
Company's limited offering memorandums of January and April 1999, may
be in violation of the requirements of the Securities Act of 1933, as
discussed in note 11(e) to the financial statements for fiscal year
ended December 31, 1999 filed with the Company's Annual Report on Form
10-KSB. In addition, certain state securities rules and regulations
may not have been complied with to ensure availability of a private
placement transaction exemption. As such, the proceeds of $202,939
from the issuance of 139,958 shares of common stock at March 30, 2000
and December 31, 1999 have been classified outside of the equity
section in the balance sheet and classified as common stock subject to
rescission. As of March 30, 2000, none of the related investors have
requested the Company to repurchase their shares.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
a) Payroll taxes
----------------
As of June 30, 2000 and December 31, 1999, the Company owes
approximately $113,659 and $93,000, respectively, of payroll taxes and
related estimated penalties and interest. Federal and state tax liens
have been filed against the Company in connection with unpaid payroll
taxes. Although the Company has not entered into any formal repayment
agreements with the respective tax authorities, it has been attempting
to make payments as funds become available.
F-12
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
NOTE 9 - COMMITMENTS AND CONTINGENCIES (cont'd)
b) Significant customers
---------------------
For the six months ended June 30, 2000 and 1999, the Company had three
and two unrelated customers, respectively, which accounted for
approximately 36%, 24.5% and 18%, and 61% and 34%, respectively, of
total revenues. As of June 30, 2000 and December 31, 1999, the Company
had two unrelated customers who accounted for approximately 22% and
75%, and 80% and 20%, respectively, of accounts receivables.
c) Lease commitments
-----------------
Office Space
------------
The Company entered into a sublease agreement for office space
effective January 10, 2000. The sublease agreement is for two
years, with two (one year) options to renew. The office lease
requires monthly payments of $5,200, which includes maintenance
and use of a phone system and furniture. The Company has the
right upon 60 days notice to increase the square footage of
office space used at a rate of $7,500 per month. For the three
and six months ended June 30, 2000, the Company recorded $31,200
of rent expense related to this agreement.
d) Employment agreement
--------------------
On February 1, 2000, the Company entered into an employment
agreement with an individual to become the Executive Vice
President of Sales. The employment agreement is for an initial
two-year term with renewable terms. The officer is entitled to an
annual salary of $80,000 plus commissions. The agreement includes
benefits such as disability and health insurance coverage,
automobile and expense allowances, and travel and entertainment
allowances.
NOTE 10 - STOCKHOLDERS' DEFICIENCY
a) Common stock repurchase
-----------------------
On April 18, 2000, the Company purchased 10,000 and 5,000 shares of
common stock from two shareholders. The Company intends to hold these
shares in treasury.
F-13
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
NOTE 11-- RELATED PARTY TRANSACTIONS
a) Loans Payable - Officers
------------------------
As of June 30, 2000 and December 31, 1999, loans payable-officers
amounting to $350,890 and $384,854, respectively, represent loans made
by the President and Chief Executive Officer of the Company and are
comprised of the following:
i) The loans of the President of the Company as of June 30,
2000 and December 31, 1999 amounted to $350,889 and
$377,930, respectively, as follows:
A $50,000 promissory note with interest accruing at 8% per
annum, which is due on demand (See note 11b(i)).
A $240,000 loan, which the officer has secured personally
through a financial institution. The Company has guaranteed
to reimburse the officer for all interest and the direct
cost of such loan. This loan bears interest at 9.25% per
annum.
The remainder is comprised of advances to the Company and
unreimbursed expenses amounting to $60,890 and $87,930 which
are non-interest bearing.
ii) The loans due the Chief Executive Officer amounting to
$1,924 at December 31, 1999, are non-interest bearing and
represent advances to the Company and unreimbursed expense.
b) Due From Officers
-----------------
Due from officers as of June 30, 2000 and December 31, 1999 amounting
to $227,345 and $159,997, respectively, represents advances to the
following officers:
i) As of June 30, 2000 and December 31, 1999, the Company
advanced to its Executive Vice President $206,970 and
$159,997, respectively. The advances are non-interest
bearing and due on demand.
ii) As of June 30, 2000, the Company advanced the Chief
Executive Officer $20,375 which is non-interest bearing and
due on demand.
F-14
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
NOTE 11 - RELATED PARTY TRANSACTIONS (cont'd)
c) Employment agreements
---------------------
On January 1, 1999, the Company entered into three separate employment
agreements with its Chief Executive Officer, Chief Operating Officer
and Executive Vice President. As of June 30, 2000 and December 31,
1999, the Company has accrued $526,500 and $360,000, respectively, of
salaries and paid $13,500 and $0, respectively to the officers. For
Further information concerning these employment agreements see Note 13
to the financial statements for fiscal year ended December 31, 1999
filed with the Company's Annual Report on Form 10-KSB.
d) Notes Payable - Shareholder
---------------------------
In February 2000, the Company entered into a promissory note with
Bristol Consulting, Ltd. and received proceeds of $38,500. The terms of
the note are interest at ten percent per annum, with the interest and
principal payable in full at the end of two years.
NOTE 12 - SUBSEQUENT EVENTS
a) Convertible note payable
------------------------
During July 2000, the Company issued three convertible 10% promissory
notes aggregating $58,700 to three noteholders. The promissory notes
are due on December 31, 2001, bearing interest at 10% per annum and are
payable monthly in arrears or upon maturity or any earlier conversion
of the note. At any time subsequent to September 30, 2000, the
noteholder will have the right to convert the principal and accrued
interest in whole or in part into common stock at a $1.45 per share.
b) Employment agreements
---------------------
On July 1, 2000 the Company entered into a formal employment agreement
with its Chief Financial Officer. The employment agreement is for an
initial one-year term with renewable (5) five one-year terms based on a
majority vote of the Board of Directors. Upon signing this agreement,
as is permissible with applicable SEC Regulations, the officer is to
receive 250,000 shares of common stock of the Company.
The officer is entitled to annual salary of $120,000 with annual
increases based on the Consumer Price Index, along with a cash bonus of
1% of the annual net profits of the Company. The agreement includes
benefits such as disability and health insurance coverage, automobile
and expense allowances, travel and entertainment allowances, and
options to purchase 500,000 shares of the company's common stock at
$1.45 per share within five years from the effective date of the
agreements. The foregoing options are intended to qualify as incentive
stock options. Lastly, pursuant to the agreements, the officer agreed
to defer the first six months of his salary, which is to be paid in
full on December 31, 2000.
F-15
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
NOTE 12 - SUBSEQUENT EVENTS
c) Common stock for settlement of debt
-----------------------------------
On July 28, 2000 the Company agreed with a vendor (SHS) to issue
100,000 shares of the Company's common stock for $145,000 of accounts
payable due to the vendor. Included in this agreement is the purchase
by the Company of intellectual property rights related to software and
source codes valued at $87,000. The Company will issue these shares of
common stock on or before September 15, 2000.
F-16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
During fiscal years 1999 and 1998, the Company focused primarily on the
research, development and design of the AP+Series products and related products,
and generated little revenues. During those prior fiscal years, the principals
of the Company invested personal funds, arranged for loans and lines of credit
from financial institutions, obtained private debt financing from various
investors, and secured grants to support the development and operating expenses
of the Company.
As of the date of this Report, the Company derives its revenues principally
from the marketing and sale of onboard recording systems, called the AP+Series
products, and other related products to customers generally in the fleet
management and driver training industries. Additional revenues are generated by
the Company through the implementation of maintenance contracts related to the
AP+Series products.
During the six-month period ended June 30, 2000, sales of the AP+Series
products to the Company's customers accounted for approximately 95% of total
gross revenues, with International Purchasing Services, Inc., a wholly-owned
subsidiary of the Company ("IPS") contributing approximately 5%. Although the
Company intends to expand its marketing of the AP+Series and related products in
non-transportation industries, such as the medical fields, management of the
Company believes that sales of the AP+Series and related products to its
customers in the fleet management and driver training industries will continue
to be an important line of business for the Company for the next several years.
RESULTS OF OPERATIONS
Six-Month Period Ended June 30, 2000 Compared with Six-Month Period Ended June
30, 1999
The Company's net losses during the six-month period ended June 30, 2000
were approximately $933,294 compared to a net loss of approximately $613,031 (an
increase of 52%) during the six-month period ended June 30, 1999.
<PAGE>
Net revenues during the six-month period ended June 30, 2000 and 1999 were
$353,840 and $116,746, respectively. Net revenues increased by approximately
$237,094 or 204% for the six-month period ended June 30, 2000 as compared to the
six-month period ended June 30, 1999. The increase in net revenues during the
six-month period ended June 30, 2000 was primarily due to the sale of AP+Series
products to AFT-IFTM, a driver training school ("AFT-IFTM"), American Trucking
Association ("ATA") and VIA TI, a trucking company in France ("VIA") of
$127,904, $86,875 and $63,131, respectively.
Gross profit during the six-month period ended June 30, 2000 and 1999
amounted to $194,551 and $53,083, respectively, or a net increase of $141,468.
Gross profit percentages for the six-month periods ended June 30, 2000 and 1999
were 55% and 45%, respectively, or a net increase of approximately 22%.
The increase in gross profit is attributable to discounts for volume
purchases, reduced component costs, and cost savings from the redesign of the PC
board. The increase in revenues and gross profit during the six-month period
ended June 30, 2000 as compared to the six-month period ended June 30, 1999 is
attributable to (i) the emergence of the Company from primarily a developmental
and research stage to a revenue generating stage, (ii) increased market
penetration, and (iii) fulfillment of major orders. The Company and its
subsidiaries have entered into various agreements with certain entities in order
to establish distribution channels in foreign and domestic countries, realized
successful performance of certain pilot tests and development of new products.
Selling, general and administrative expenses for the six-month period ended
June 30, 2000 and 1999 were $973,553 and $476,896, respectively (an increase of
$496,657 or 104%). The increase in selling, general and administrative expenses
for the six-month period ended June 30, 2000 were primarily due to the Company
incurring increased costs associated with salaries, consulting fees and
professional fees, which amounted to approximately $230,000, $117,000 and
$107,000, respectively. In general, selling, general and administrative expenses
include corporate overhead, administrative salaries, shipping and warehousing
costs, selling expenses, consulting costs, and professional fees.
Research and development expenses for the six-month period ended June 30,
2000 were $64,836 as compared to $142,406 for the six-month period ended June
30, 1999 (an decrease of $77,570 or -54%). The reduction in research and
development expenses is primarily due to the Company's focus on the marketing
and sale of its AP+Series products and related products. Management believes
that as the Company's cash flow increases, additional funds will be expended on
further research and development relating to new products.
Interest expense increased to $113,624 during the six-month period ended
June 30, 2000 compared to interest expense of $68,330 during the six-month
period ended June 30, 1999 (an increase of $45,294 or 66%). The increase is
primarily attributable to interest relating to the loan from HSBC Bank, Bank of
Smithtown and convertible notes payable.
As discussed above, the increase in net loss during the six-month period
ended June 30, 2000 as compared to the six-month period ended June 30, 1999 is
attributable primarily to a substantial increase in selling, general and
administrative expenses and an increase in interest expense. The Company's net
earnings (losses) during the six-month period ended June 30, 2000 were
approximately ($933,294) or ($0.05) per common share compared to a net loss of
approximately ($613,031) or ($0.04) per common share (an increase of 52%) during
the six-month period ended June 30, 1999. The weighted average of common shares
outstanding were 17,778,196 for the six-month period ended June 30, 2000
compared to 17,405,641 for the six-month period ended June 30, 1999.
<PAGE>
Three-Month Period Ended June 30, 2000 Compared with Three-Month Period Ended
June 30, 1999
The Company's net losses during the three-month period ended June 30, 2000
were approximately $541,001 compared to a net loss of approximately $333,538 (an
increase of 62%) during the three-month period ended June 30, 1999.
Net revenues during the three-month period ended June 30, 2000 and 1999
were $162,364 and $90,800, respectively. Net revenues increased by approximately
$71,564 or 79% for the three-month period ended June 30, 2000 as compared to the
three-month period ended June 30, 1999. The increase in net revenues during the
three-month period ended June 30, 2000 was primarily due to the sale of
AP+Series products to VIA TIA and AFT at $50,000 and $44,000, respectively.
Gross profit during the three-month period ended June 30, 2000 and 1999
amounted to $69,570 and $40,189, respectively, or a net increase of $29,381.
Gross profit percentages for the three-month period ended June 30, 2000 and 1999
were approximately 43% and 44%, respectively, or a net decrease of approximately
2%.
Selling, general and administrative expenses for the three-month period
ended June 30, 2000 and 1999 were $540,936 and $253,236, respectively (an
increase of $287,700 or 114%). The increase in selling, general and
administrative expenses for the three-month period ended June 30, 2000 were
primarily due to the Company incurring increases costs associated with its
overhead costs, professional fees, and interest costs.
Research and development expenses for the three-month period ended June 30,
2000 were $12,389 as compared to $97,247 for the three-month period ended June
30, 1999 (a decrease of $84,859 or -87%). Interest expense increased to $66,966
during the three-month period ended June 30, 2000 compared to interest expense
of $31,884 during the three-month period ended June 30, 1999 (an increase of
$35,082 or 110%). The increase is primarily attributable to interest relating to
the loan from HSBC Bank, the Bank of Smithtown and convertible notes payable.
As discussed above, the increase in net loss during the three-month period
ended June 30, 2000 as compared to the three-month period ended June 30, 1999 is
attributable primarily to a substantial increase in selling, general and
administrative expenses. The Company's net earnings (losses) during the
three-month period ended June 30, 2000 were approximately ($536,365) or ($0.03)
per share compared to a net loss of approximately ($333,538) or ($0.02) per
share (an increase of 44%) during the three-month period ended June 30, 1999.
The weighted average number of common shares outstanding were 17,778,196 for the
three-month period ended June 30, 2000 compared to 17,497,812 for the
three-month period ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company is currently experiencing a severe liquidity crisis and must
raise additional capital. Further, the Company has not generated sufficient cash
flow to fund its operations and activities. Historically, the Company has relied
upon internally generated funds, funds from the sale of shares of stock and
loans from its shareholders and private investors to finance its operations and
growth. Management intends to raise additional capital through further public or
<PAGE>
private offerings of its stock and through bank loans or loans from private
investors, although there can be no assurance that the Company will be able to
obtain such financing. The Company's future success and viability are entirely
dependent upon the Company's ability to raise additional capital. Management is
optimistic that the Company will be successful in its capital raising efforts;
however, there can be no assurance that the Company will be successful in
raising additional capital. The failure to raise additional capital will have a
material and adverse affect upon the Company and its shareholders. The Company's
financial statements have been prepared assuming that it will continue as a
going concern and, accordingly, do not include adjustments relating to the
recoverability and realization of assets and classification of liabilities that
might be necessary should the Company be unable to continue in operations.
As of June 30, 2000, the Company's current assets were $318,109 and its
current liabilities were $2,776,893, which resulted in a working capital deficit
of $2,458,784. As of June 30, 2000, the Company's total liabilities were
$4,186,323, and the Company's total liabilities exceeded its total assets by
$3,248,665. The Company's stockholders' deficit increased from $2,496,560 at
December 31, 1999, to $3,429,854 at June 30, 2000.
As of June 30, 2000, the Company was not in compliance with terms of loans
due to financial institutions totaling $1,008,881 requiring the loans to be
reflected as current liabilities. To date the financial institutions have not
taken any actions and are in the process of restructuring and or waiving the
default of the loans. Also, included in the current liabilities are accounts
payable of $878,568, $605,397 of accrued expense (of which $526,500 is accrued
officers salaries), $113,659 of payroll taxes, $24,720 of other taxes payable
and $137,966 of customer deposits. Long term liabilities include convertible
notes payable of $961,000, loans due officers and directors of $388,390, and a
note payable to shareholder of $38,500. The Company's assets consisted primarily
of cash of $14,277, $101,636 in accounts receivable, $109,338 in inventory,
$86,866 in prepaid expenses, 339,891 owing from KMR Telecom Limited, an
affiliate of the Company ("KMR"), $227,345 owing from officers of the Company,
and $16,280 of other assets.
For the six-months ended June 30, 2000, the net cash used for operating
activities was $680,109 compared to net cash used for operating expenses of
$368,628 for the six-months ended June 30, 1999 (an increase of $354,809 or
96%). As discussed above, the increase was primarily comprised of (i) a net loss
of $938,019 for the six-month period ending June 30, 2000 compared to a net loss
of $613,013 for the six-month period ended June 30, 1999 (an increase of
$324,988 or 53%) and (ii) an increase in prepaid expenses to $72,245 for the
six-month period ending June 30, 2000 compared to $20,042 for the six-month
period ended June 30, 1999 (an increase of $52,203 or 260%).
The Company increased its capital expenditures to $29,285 for the six-month
period ended June 30, 2000 compared to $6,513 for the six-month period ended
June 30, 1999, all of which relate to the purchase of equipment.
The Company increased its net cash from financing activities for the
six-months ended June 30, 2000 to $699,925 compared to $368,658 for the
six-month period ended June 30, 1999 (an increase of $354,839 or 96%). The major
component primarily consisted of proceeds from issuance of convertible notes
payable of $811,000 for the six-month period ended June 30, 2000 compared to $0
for the six-month period ended June 30, 1999.
<PAGE>
MATERIAL COMMITMENTS
In addition to those certain material commitments of the Company disclosed
in prior filings and in connection with the research and development expenses
and other overhead costs incurred during fiscal year 2000, the Company has
borrowed funds and entered into various contractual arrangements representing
certain of the following material commitments.
A significant and estimated commitment for the Company for fiscal year 2000
is (i) the issuance of a $250,000 convertible promissory note dated December 16,
1999; and (ii) issuance of additional convertible promissory notes in the
aggregate of $232,000 during the three-month period ended March 31, 2000.
During the three-month period ended June 30, 2000, the Company issued
additional convertible promissory notes in the aggregate of $579,000. The terms
of the notes are interest is to be accrued at 10% per annum payable month in
arrears or upon maturity, notes are payable in full on December 31, 2001, and
the notes are convertible at any time subsequent to September 30, 2000 into
restricted shares of the Company's common stock at the rate of $1.45 per share.
The Company entered into an employment agreement dated July 1, 2000 with
its Chief Financial Officer, Julius J. Valente, Jr. (the "Employment
Agreement"). Pursuant to the terms and provisions of the Employment Agreement,
commencing July 1, 2000 for an initial one-year term with renewable five
one-year terms, Mr. Valente will receive: (i) an annual salary of $120,000 with
annual increases based on the Consumer Price Index, (ii) an annual cash bonus
equal to one percent (1%) of the annual net profits for the preceding fiscal
year; (iii) issuance of 250,000 shares of Common Stock; and (iv) stock options
to purchase 500,000 shares of restricted common stock of the Company at $1.45
per share within five years from the effective date of the Employment Agreement.
Other benefits provided for in the Employment Agreement is disability and health
insurance coverage, automobile and expense allowances and travel and
entertainment allowances. Pursuant to the terms and provisions of the Employment
Agreement, Mr. Valente has agreed to defer the first six months of salary which
is to be paid in full on December 31, 2000.
The Company entered into an employment agreement dated February 1, 2000
with its executive vice president of sales (the "Sales Employment Agreement").
Pursuant to the terms of the Sales Employment Agreement, commencing February 1,
2000 for an initial two-year term with renewable terms, the Company will pay to
the executive vice president of sales an annual salary of $80,000 plus
commissions. The Sales Employment Agreement also provides for disability and
health insurance coverage, automobile and expense allowances, travel and
entertainment allowances.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No report required.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Based on a recent audit of the books and records of the Company by the
Company's independent auditors, Massella, Tomaro & Co. LLP, management of the
Company was apprised that an error occurred in the number of shares of Common
Stock issued pursuant to the Exchange Agreement dated October 28, 1998 between
the Company and members of Accident Prevention Plus, LLC, a limited liability
company.
<PAGE>
|X| As of July 10, 2000, Mr. Richard Goodhart's ownership of shares of
Common Stock increased to 5,886,394 (33.1%) and Mr. Steven Wahrman's
ownership of shares of Common Stock decreased to 2,724,000 (15.3%)
pursuant to an agreement to rectify the error in the number of shares
of restricted Common Stock issued in accordance with the Exchange
Agreement. The Company issued the shares in reliance upon the
exemption from registration provided by Section 4(2) of the Securities
Act of 1933, as amended (the "Securities Act") and Regulation D, Rule
504 promulgated thereunder. Mr. Goodhart represented to the Company
that he acquired the shares for his own account, and not with a view
to distribution, and that the Company made available all material
information concerning the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No report required.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No report required.
ITEM 5. OTHER INFORMATION
No report required.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.21 Employment Agreement dated July 1, 2000 between the
Company and Julius J. Valente.
(b) No reports required.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
ACCIDENT PREVENTION PLUS, INC.
Dated: August 18, 2000 By: /s/ Steven Wahrman
--------------- -----------------------------------
Steven Wahrman, President
