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 September 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 November 1,2000
----------------------------- --------------------------------
Common Stock, $.001 par value 17,988,238
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-19
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 3
PART II. OTHER INFORMATION 8
Item 1. Legal Proceedings 8
Item 2. Changes in Securities and Use of Proceeds 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE-MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Number
------
Consolidated Balance Sheets at September 30, 2000 (unaudited)
and December 31, 1999 F-2
Consolidated Statements of Operations for the three and nine months
ended September 30, 2000 and 1999 (unaudited) F-3
Consolidated Statement of Stockholders' Deficiency for the
nine months ended September 30, 2000 (unaudited) F-4
Consolidated Statements of Cash Flows for the three and nine months
ended September 30, 2000 and 1999 (unaudited) F-5 to F-6
Notes to Consolidated Financial Statements F-7 to F-19
F - 1
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<TABLE>
<CAPTION>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------ (Unaudited)
September 30, December 31,
2000 1999
----------- -----------
Current Assets:
<S> <C> <C>
Cash $ 3,773 $ 23,746
Accounts receivable - net 58,993 147,071
Inventory 84,078 130,121
Prepaid expenses 77,411 14,621
Other current assets 4,036 --
----------- -----------
Total Current Assets 228,291 315,559
----------- -----------
Property & Equipment, Net 37,097 21,822
----------- -----------
Other Assets:
Due from officer 229,056 159,997
Due from affiliate 349,719 323,314
Intangible assets - net 81,000 --
Other 6,900 25,696
----------- -----------
Total Other Assets 666,675 509,007
----------- -----------
Total Assets $ 932,063 $ 846,388
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
Current Liabilities:
Notes payable - bank $ 999,150 $ 1,022,358
Notes payable - shareholders 69,500 --
Capital leases payable 7,931 --
Convertible note payable 1,028,400 --
Notes payable 60,000 --
Accounts payable 970,187 833,278
Accrued expenses 742,144 435,675
Payroll taxes payable 140,925 92,760
Other taxes payable 26,022 19,917
Customer deposits 137,966 137,966
----------- -----------
Total Current Liabilities 4,182,225 2,541,954
----------- ------------
Long Term Liabilities:
Notes payable, net of current portion 13,361 25,701
Capital leases payable, net of current portion 13,415 --
Convertible note payable -- 150,000
Loans payable - officers 364,109 384,854
Notes payable - shareholders 38,500 --
Notes payable - director 37,500 37,500
----------- ------------
Total Long Term Liabilities 466,885 598,055
----------- ------------
Total Liabilities 4,649,110 3,140,009
----------- ------------
Common Stock Subject To Rescission Offer, - $.001 par value,
124,958 and 139,958 shares issued and outstanding,
respectively (Note 10) 181,189 202,939
Commitments & Contingencies (Note 11) -- --
----------- -----------
Stockholders' Deficiency:
Common Stock - $.001 par value, 50,000,000 shares authorized,
17,988,238 and 17,295,970 shares issued and outstanding, respectively 17,988 17,638
Additional paid-in capital 1,152,292 660,055
Accumulated - other comprehensive income 10,657 665
Accumulated deficit (5,079,173) (3,174,918)
----------- -----------
Total Stockholders' Deficiency (3,898,236) (2,496,560)
----------- -----------
Total Liabilities and Stockholders' Deficiency $ 932,063 $ 846,388
=========== ===========
See accompanying notes to consolidated financial statements
F - 2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
(Unaudited) (Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 63,023 $ 239,648 $ 389,435 $ 356,394
Cost of Sales 37,422 114,361 172,057 171,481
------------ ------------ ------------ ------------
Gross Profit 25,601 125,287 217,378 184,913
------------ ------------ ------------ ------------
Expenses:
Selling, general and administrative 850,793 249,352 1,824,346 722,008
Research and development 33,749 117,715 98,585 260,121
------------ ------------ ------------ ------------
Total Expenses 884,542 367,067 1,922,931 982,129
------------ ------------ ------------ ------------
Loss before other income (expenses)
and provision for income tax (858,941) (241,780) (1,705,553) (797,216)
------------ ------------ ------------ ------------
Other Income (Expenses)
Loss on foreign currency transactions (18,622) -- (18,622) --
Interest income 9,827 8,639 29,270 25,916
Interest expense (98,500) (36,897) (209,350) (105,226)
------------ ------------ ------------ ------------
Total Other Income (Expenses) (107,295) (28,258) (198,702) (79,310)
------------ ------------ ------------ ------------
Loss Before Provision for
Income Taxes (966,236) (270,038) (1,904,255) (876,526)
Provision For Income Taxes -- -- -- --
------------ ------------ ------------ ------------
Net Loss (966,236) (270,038) (1,904,255) (876,526)
Other Items of Comprehensive Income 4,875 -- 9,600 --
------------ ------------ ------------ ------------
Comprehensive Net Loss $ (961,361) $ (270,038) $ (1,894,655) $ (876,526)
============ ============ ============ ============
Basic:
Net Loss $ (.05) $ (.02) $ (.11) $ (.05)
============ ============ ============ ============
Weighted Average Number of Shares
Outstanding 17,835,911 17,717,443 17,835,911 17,435,742
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
F - 3
</TABLE>
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<TABLE>
<CAPTION>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT STOCKHOLDERS' DEFICIENCY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
Accumulated
Common Stock Additional Other Total
------------ Paid-in Comprehensive Accumulated Stockholders'
Shares Amount Capital Income (Loss) Deficit Deficiency
---------- -------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1999 17,638,238 $17,638 $ 660,055 $ 665 $ (3,174,918) $(2,496,560)
Issuance of common stock issued
to officer in accordance with
signing of employment contract 250,000 250 362,250 -- -- 362,500
Issuance of common stock in
connection with settlement of
debt and purchase of intangibles 100,000 100 144,900 -- -- 145,000
Commons stock issuance costs -- -- (14,913) -- -- (14,913)
Foreign currency
translation adjustment -- -- -- 9,992 -- 9,992
Net loss for the nine months
ended September 30, 2000 -- -- -- -- (1,904,255) (1,904,255)
---------- --------- ----------- -------- ----------- -----------
Balances at September 30, 2000 17,988,238 $ 17,988 $ 1,152,292 $ 10,657 $(5,079,173) $(3,898,236)
========== ========= =========== ======== =========== ===========
See accompanying notes to consolidated financial statements.
F - 4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
(Unaudited) (Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
2000 1999 2000 1999
------------ ------------ ----------- ------------
Operating activities
<S> <C> <C> <C> <C>
Net loss $ (966,236) $ (270,038) $(1,904,255) $ (876,526)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 10,948 1,625 19,971 8,250
Common stock issued for officers salaries 362,500 -- 362,500 --
Foreign currency translation 5,267 -- 9,992 --
Decrease (increase) in:
Inventory 50,345 50,037 71,128 (5,484)
Accounts receivable 17,558 (97,556) 62,993 (158,357)
Prepaid expenses 9,455 49,596 (62,790) 69,638
Other current assets 1,956 -- (4,036) --
Other assets 3,368 (11,445) 18,796 (15,146)
(Decrease) increase in:
Cash overdraft -- -- -- (19,813)
Accounts payable and accrued expenses 286,366 91,648 501,377 357,539
Payroll taxes payable 27,266 140 48,165 3,783
Other taxes payable 1,302 -- 6,105 --
Customer deposits -- 166,879 -- 166,879
----------- ----------- ----------- -----------
Net cash used for operating activities (189,905) (19,114) (870,054) (469,237)
----------- ----------- ----------- -----------
Investing activities
Purchase of property and equipment -- (10,318) (29,246) (13,692)
----------- ----------- ----------- -----------
Net cash used for investing activities -- (10,318) (29,246) (13,692)
----------- ----------- ----------- -----------
Financing activities
Repayments of notes payable (2,794) (88,139) (35,548) (34,230)
Proceeds from notes payable 60,000 -- 60,000 --
Proceeds from capital lease contributions -- -- 21,346 (2,896)
Repayments of capital lease payable (1,472) -- --
Proceeds from convertible note payable 67,400 -- 878,400 --
Proceeds from sale of common stock -- 47,653 -- 446,056
Proceeds from (repayments of)
common stock subject to rescission -- 64,837 (21,750) 165,390
Cost associated with common stock issuances (14,913) -- (14,913) --
Proceeds from officers loans payable 13,219 -- -- --
Repayments of officers loans payable -- -- (20,745) --
(Advances to) proceeds from affiliates and shareholders (11,539) 6,685 (95,463) (89,756)
Proceeds from shareholder note 69,500 -- 108,000 --
----------- ----------- ----------- -----------
Net cash provided by financing activities 179,401 31,036 879,327 484,564
----------- ----------- ----------- -----------
Net increase (decrease) in cash (10,504) 1,604 (19,973) 1,635
Cash and cash equivalents at beginning of year 14,277 223 23,746 192
----------- ----------- ----------- -----------
Cash and cash equivalents at end of year $ 3,773 $ 1,827 $ 3,773 $ 1,827
=========== =========== ========== ===========
See accompanying notes to consolidated financial statements.
F - 5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
(Unaudited) (Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ----------- ----------
Supplemental disclosure of non-cash flow information:
Cash paid during the year for:
<S> <C> <C> <C> <C>
Interest $ 65,022 $ 36,897 $ 114,455 $ 105,226
=========== =========== =========== ==========
Income taxes $ -- $ -- $ -- $ --
=========== =========== =========== ==========
Schedule of non-cash operating activities:
Issuance of 40,000 shares of common
stock in connection with settlement of
accounts payable $ 58,000 $ -- $ 58,000 $ --
=========== =========== =========== ==========
Schedule of non-cash investing activities:
Issuance of 60,000 shares of common
stock in connection with purchase of
intangibles $ 87,000 $ -- $ 87,000 $ --
=========== =========== =========== ==========
See accompanying notes to consolidated financial statements.
F - 6
</TABLE>
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 NINE MONTHS ENDED SEPTEMBER 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 September 30, 2000
the Company has an accumulated deficit of $5,079,173. Additionally, as
of September 30, 2000, the Company has a working capital deficiency
amounting to $3,953,934 and is in default of it's bank debt and certain
convertible notes payable (See Note 6 and 8).
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.
F - 8
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
NOTE 2 - GOING CONCERN (cont'd)
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.
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
September 30, 2000 and the results of the operations and cash flows for
the three and nine month periods ended September 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 nine month periods ended
September 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.
F - 9
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
NOTE 4 - DUE FROM AFFILIATE (cont'd)
At September 30, 2000 and December 31, 1999 the loan due from KMR
amounted to $349,718 and $323,314, respectively. Interest income
recorded by the Company in connection with the loan amounted to $29,270
and $25,450, respectively, for the nine months ended September 30, 2000
and 1999 and $9,827 and $8,172, respectively, for the three months
ended September 30, 2000 and 1999.
NOTE 5 - INTANGIBLES
Intangibles consist of intellectual property rights to software source
code and a schematic database which the Company acquired in July 2000
for $87,000 through the issuance of 60,000 shares of common stock of
the Company. (See note 11b.) The intangibles are recorded at cost less
accumulated amortization which is computed on a straight - line basis
over a period of three years.
NOTE 6 - NOTES PAYABLE - BANK
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 September 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 $462,174 and $490,774, $43,828 and $43,828, and $31,692
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.
F - 10
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
NOTE 6 - NOTES PAYABLE (cont'd)
a) Bank of Smithtown (cont'd)
--------------------------
As of September 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 September 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
===========
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. As of
September 30, 2000 and December 31, 1999 the balance due is $474,817
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 ("the
Guarantors").
On or about September 21, 2000, HSBC filed suit against LLC and the
Guarantors in the Supreme Court of New York with respect to the
Company's indebtedness to HSBC. The suit filed by HSBC alleged that the
Company failed to comply and is in default under the terms of the
Financing Documents.
F - 11
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
NOTE 6-- NOTES PAYABLE (cont'd)
b) HSBC Bank USA (formerly Marine Midland Bank) (cont'd)
----------------------------------------------------
On November 3, 2000, HSBC, LLC and the Guarantors entered into a
settlement agreement (the "Settlement Agreement") in which HSBC agreed
to (i) a stipulation of discontinuance (to withdraw its pending suit,
without prejudice to the re-commencement of same upon a default under
the Settlement Agreement); (ii) forbear from commencing any other
action or proceeding against LLC and the Guarantors with respect to the
indebtedness of the Company until August 20, 2001; and (iii) forbear
from entering judgment against LLC and the Guarantors until August 20,
2001. However, in the event the Company defaults under the Settlement
Agreement, HSBC has retained the right to commence an action against
LLC and the Guarantors.
Pursuant to the terms of the Settlement Agreement, LLC and the
Guarantors have executed confessions of judgment for the amounts due
and owing HSBC and agreed to make the following payments:
(a) Upon execution of the Settlement Agreement, an initial payment of
$18,960, which represents all accrued and unpaid interest and late
charges on the Financing Documents to the date of the Settlement
Agreement;
(b) Upon execution of the Settlement Agreement, an initial payment of
$100,000, which represents an initial principal payment to reduce
the outstanding balance;
(c) Commencing on December 1, 2000 and continuing on the first day of
each month thereafter until August 20, 2001, monthly payments of
interest on the outstanding principal balance and monthly payments
of principal in the amount of $5,000;
(d) On or before January 15, 2001, a principal payment of $250,000 to
be applied to reduce the outstanding principal balance; and
(e) On or before August 20, 2001, payment of the outstanding balance of
the total indebtedness.
LLC has a distributor agreement with American Overseas Corporation
("AOC"). The agreement calls for certain payments which are disclosed
in note 10m to the financial statements for fiscal year ended December
31, 1999 filed with the Company's annual report on Form 10-KSB. In the
event the Company receives the first payment of $1,000,000 in
accordance with the agreement from AOC prior to January 15, 2001, the
Company is required to immediately pay HSBC an amount equal to
twenty-five percent (25%) of $1,000,000 (i.e. $250,000) or any portion
thereof received by the Company from AOC from time to time.
F - 12
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
NOTE 6 - NOTES PAYABLE (cont'd)
b) HSBC Bank USA (formerly Marine Midland Bank) (cont'd)
----------------------------------------------------
Such amounts received by HSBC will be credited against the $250,000
payment due and owing by the Company on or before January 15, 2001.
Failure of the Company to pay such sums due under the terms of the
Settlement Agreement or perform any of the other obligations set forth
in the Settlement Agreement shall constitute an event of default and
the full amount of the indebtedness, less any payments made, will
become immediately due and payable without further notice or demand
from HSBC. Such an event of default will also entitle HSBC to seek
judgments against LLC and the Guarantors pursuant to the confessions of
judgment.
NOTE 7 - CAPITAL LEASE PAYABLE
During the nine months ended September 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 down payments aggregating $27,216. The leases are
secured by the related equipment.
At September 30, 2000, the aggregate future minimum lease payments due
pursuant to the above capital lease obligations are as follows:
Total minimal lease payments $ 24,576
Less: Amounting representing interest 3,230
-----------
Present value of net minimum lease payments $ 21,346
===========
At September 30, 2000 computer equipment under capital leases are
carried at a book value of $21,891.
NOTE 8 - 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.
F - 13
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
NOTE 8 - CONVERTIBLE NOTE PAYABLE (cont'd)
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.
In May, June and July 2000, the Company executed five 15% promissory
notes with the same individual aggregating $350,000. 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 share.
During March and April 2000, the Company entered into seven convertible
10% promissory notes aggregating $297,000. The Company received
proceeds of $52,000 from three noteholders and $247,000 from four
noteholders in March and April 2000, respectively. In June 2000 the
Company executed two convertible 10% promissory notes aggregating
$12,000. In July and August 2000 the Company executed four convertible
10% promissory notes aggregating $17,400. 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.
The promissory note contains a provision stating that beginning January
2, 2001 that upon a 10 day notice the note is due on demand. 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.
The promissory note contains a provision stating that beginning January
2, 2001 that upon a 10 day notice the note is due on demand. At
September 30, 2000 none of the above mentioned noteholders have
exercised their right to convert to common shares.
At September 30, 2000 the Company is not in compliance with it's
payments of monthly interest to noteholders aggregating $952,500. In
accordance with provisions of the promissory note the Company is
subject to a default interest rate of 24% on the outstanding balances.
NOTE 9 - NOTES PAYABLE
In July, August and September 2000, the Company executed four 10%
promissory notes with certain individuals aggregating $60,000. The
promissory notes are due on December 31, 2000 bearing interest at 10%
per annum.
F - 14
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
NOTE 10 - 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 11e 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 December 31, 1999 have been classified outside of
the equity section in the balance sheet and classified as common stock
subject to rescission. On April 18, 2000, the Company repurchased
10,000 and 5,000 shares of common stock from two of the related
shareholders. The Company has subsequently cancelled these shares. As
of September 30, 2000, the balance of proceeds was $181,189 and the
related shares was 124,985, and none of the other related investors
have requested the Company to repurchase their shares.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
a) Payroll taxes
-------------
As of September 30, 2000 and December 31, 1999, the Company owes
approximately $141,000 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.
b) Significant customers
---------------------
For the nine months ended September 30, 2000 and 1999, the Company had
three and three unrelated customers, respectively, which accounted for
approximately 41%, 28% and 12%, and 51%, 22% and 2%, respectively, of
total revenues. As of September 30, 2000 and December 31, 1999, the
Company had two unrelated customers who accounted for approximately
63% and 22%, and 80%, and 20%, respectively, of accounts receivables.
F - 15
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
NOTE 11 - COMMITMENTS AND CONTINGENCIES (cont'd)
c) Lease commitments (cont'd)
--------------------------
Office Space (cont'd)
---------------------
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 $6,800 per month. For the
three and nine months ended September 30, 2000, the Company recorded
$20,400 and $51,600 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.
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 - 16
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
NOTE 12 - STOCKHOLDERS' DEFICIENCY
a) 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.
NOTE 13 - RELATED PARTY TRANSACTIONS
a) Loans Payable - Officers
------------------------
As of September 30, 2000 and December 31, 1999, loans payable-officers
amounting to $364,109 and $384,854, respectively, represent loans made
by the President of the Company and are comprised of the following:
i) The loans of the President of the Company as of September
30, 2000 and December 31, 1999 amounted to $364,109 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 $74,109 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.
F - 17
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
NOTE 13 - RELATED PARTY TRANSACTIONS (cont'd)
b) Due From Officers
-----------------
Due from officers as of September 30, 2000 and December 31, 1999
amounting to $229,056 and $159,997, respectively, represents advances
to the following officers:
i) As of September 30, 2000 and December 31, 1999, the Company
advanced to its Executive Vice President $208,770 and
$159,997, respectively. The advances are non-interest
bearing and due on demand.
ii) As of September 30, 2000, the Company advanced the Chief
Executive Officer $21,386 which is non-interest bearing and
due on demand.
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. 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. As of September 30, 2000 and December 31, 1999,
the Company has accrued $249,000 and $360,000, respectively, of
salaries and paid $51,000 and $0, respectively to the officers. On
July 1, 2000 the Company entered into a formal employment agreement
with its Chief Financial Officer. For further information see Note
11d.
d) Notes Payable - Shareholders
----------------------------
i) In February 2000 and September 2000, the Company entered into a
promissory note with Bristol Consulting, Ltd. and received
proceeds of $38,500 and $26,000. 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.
ii) In August 2000, the Company executed two 10% promissory notes with
individuals aggregating $43,500. The promissory notes are due on
December 31, 2000 bearing interest at 10% per annum.
NOTE 14 - SUBSEQUENT EVENTS
a) Convertible Note Payable - Officer
----------------------------------
In October 2000, the President of the Company (and shareholder) executed
a promissory note with the Company for $200,000. The promissory note is
due on December 31, 2001, bearing interest at the prime rate and is
payable monthly in arrears or upon maturity or any earlier conversion of
the note.
F - 18
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
NOTE 13 - SUBSEQUENT EVENTS
a) Convertible Note Payable - Officer (cont'd)
-------------------------------------------
At any time subsequent to June 30, 2001, 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) Convertible Note Payable
------------------------
During November 2000, the Company issued a $10,000 convertible 10%
promissory note. The promissory note is due on December 31, 2001, bearing
interest at 10% per annum and is 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.
c) Common Stock Conversions
------------------------
During November 2000, four convertible noteholders exercised their right
to convert the notes they were holding in to common stock of the Company.
The aggregate amount of debt converted was $17,400, which converted to
12,000 shares of common stock were issued.
F - 19
<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 nine-month period ended September 30, 2000, sales of the
AP+Series products to the Company's customers accounted for approximately 95% of
total gross revenues, of which three unrelated customers accounted for
approximately 41%, 28% and 12%, respectively, of the total gross revenues.
International Purchasing Services, Inc., a wholly-owned subsidiary of the
Company ("IPS") contributed approximately 5% of the total gross revenues. Of
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
Nine-Month Period Ended September 30, 2000 Compared with Nine-Month Period Ended
September 30, 1999
The Company's net losses during the nine-month period ended September 30,
2000 were approximately $1,894,655 compared to a net loss of approximately
$876,526 (an increase of $1,018,129 or 116%) during the nine-month period ended
September 30, 1999.
Net revenues during the nine-month period ended September 30, 2000 and 1999
were $389,435 and $356,394, respectively. Net revenues increased by
approximately $33,041 or 9% for the nine-month period ended September 30, 2000
as compared to the nine-month period ended September 30, 1999. The increase in
net revenues during the nine-month period ended September 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 $164,453, $110,876 and $49,846, respectively.
Gross profit during the nine-month period ended September 30, 2000 and 1999
amounted to $217,378 and $184,913, respectively, or a net increase of $32,465.
Gross profit percentages for the nine-month periods ended September 30, 2000 and
1999 were 56% and 52%, respectively, or a net increase of approximately 8%.
3
<PAGE>
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 nine-month period
ended September 30, 2000 as compared to the nine-month period ended September
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.
Selling, general and administrative expenses for the nine-month period
ended September 30, 2000 and 1999 were $1,824,346 and $722,008, respectively (an
increase of $1,102,338 or 153%). The increase in selling, general and
administrative expenses for the nine-month period ended September 30, 2000 were
primarily due to the Company incurring increased costs associated with salaries,
officers sign on compensation through the issuance of common stock, and
consulting/professional fees, which amounted to approximately $379,155, $362,500
and $348,742, respectively. 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 nine-month period ended September
30, 2000 were $98,585 as compared to $260,121 for the nine-month period ended
September 30, 1999 (a decrease of $161,536 or -62%). 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 $209,350 during the nine-month period ended
September 30, 2000 compared to interest expense of $105,226 during the
nine-month period ended September 30, 1999 (an increase of $104,124 or 99%). The
increase is primarily attributable to interest relating to the convertible notes
payable.
As discussed above, the increase in net loss during the nine-month period
ended September 30, 2000 as compared to the nine-month period ended September
30, 1999 is attributable primarily to a substantial increase in selling, general
and administrative expenses and a substantial increase in interest expense. The
Company's net earnings (losses) during the nine-month period ended September 30,
2000 were approximately ($1,894,655) or ($0.11) per common share compared to a
net loss of approximately ($876,526) or ($0.05) per common share (an increase of
$1,018,129 or 116%) during the nine-month period ended September 30, 1999. The
weighted average number of common shares outstanding were 17,835,911 for the
nine-month period ended September 30, 2000 compared to 17,435,742 for the
nine-month period ended September 30, 1999.
Three-Month Period Ended September 30, 2000 Compared with Three-Month Period
Ended September 30, 1999
The Company's net losses during the three-month period ended September 30,
2000 were approximately $961,361 compared to a net loss of approximately
$270,038 (an increase of $691,323 or 256%) during the three-month period ended
September 30, 1999.
Net revenues during the three-month period ended September 30, 2000 and
1999 were $63,023 and $239,648, respectively. Net revenues decreased by
approximately $176,625 or -74% for the three-month period ended September 30,
2000 as compared to the three-month period ended September 30, 1999. The
decrease in net revenues during the three-month period ended September 30, 2000
was primarily due to a slow rate of reorders of the AP+Series products to most
of the Company's significant customers. These significant customers were first
time customers during the three month period ended September 30, 1999 and
initial orders have generally been larger then the reorders placed.
4
<PAGE>
Gross profit during the three-month period ended September 30, 2000 and
1999 amounted to $25,601 and $125,287, respectively, or a net decrease of
$99,686. Gross profit percentages for the three-month period ended September 30,
2000 and 1999 were approximately 41% and 52%, respectively, or a net decrease of
approximately 21%.
Selling, general and administrative expenses for the three-month period
ended September 30, 2000 and 1999 were $850,793 and $249,352, respectively (an
increase of $601,441 or 241%). The increase in selling, general and
administrative expenses for the three-month period ended September 30, 2000 were
primarily due to the Company incurring increased costs associated with its
overhead costs, consulting/professional fees, and interest costs, which amounted
to $716,063, $134,730 and $95,726, respectively. Although net revenues decreased
during the three-month period ended September 30, 2000 and compared to the same
period in 1999, the Company incurred increased selling, general and
administrative expenses as a result of hiring a Chief Financial officer as well
as incurring marketing costs which included the development and printing of a
new brochure.
Research and development expenses for the three-month period ended
September 30, 2000 were $33,749 as compared to $117,715 for the three-month
period ended September 30, 1999 (a decrease of $83,966 or -71%). Interest
expense increased to $98,500 during the three-month period ended September 30,
2000 compared to interest expense of $36,897 during the three-month period ended
September 30, 1999 (an increase of $61,603 or 167%). The increase is primarily
attributable to interest relating to the convertible notes payable.
As discussed above, the increase in net loss during the three-month period
ended September 30, 2000 as compared to the three-month period ended September
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 September 30, 2000 was approximately ($961,361) or
($0.05) per share compared to a net loss of approximately ($270,038) or ($0.02)
per share (an increase of $691,323 or 256%) during the three-month period ended
September 30, 1999. The weighted average number of common shares outstanding was
17,835,911 for the three-month period ended September 30, 2000 compared to
17,717,443 for the three-month period ended September 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
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.
5
<PAGE>
As of September 30, 2000, the Company's current assets were $228,291 and
its current liabilities were $4,182,225, which resulted in a working capital
deficit of $3,953,934. As of September 30, 2000, the Company's total liabilities
were $4,649,110, and the Company's total liabilities exceeded its total assets
by $3,717,047. The Company's stockholders' deficit increased from $2,496,560 at
December 31, 1999, to $3,898,236 at September 30, 2000.
As of September 30, 2000, the Company was not in compliance with terms of
loans due to financial institutions totaling $999,150 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. See "Part II. Item 3. Defaults Upon Senior Securities".
Also, included in the current liabilities are convertible notes payable of
$1,028,400 (due to the Company's non-compliance with monthly interest payment
terms), notes payable of $60,000, accounts payable of $970,187, note payable to
shareholders of $69,500, $742,144 of accrued expense (of which $249,000 is
accrued officers salaries), $140,925 of payroll taxes, $26,022 of other taxes
payable and $137,966 of customer deposits. Long-term liabilities include loans
due officers and directors of $401,609 and a note payable to shareholder of
$38,500. The Company's assets consisted primarily of cash of $3,773, $58,993 in
accounts receivable, $84,078 in inventory, $77,411 in prepaid expenses, $349,719
owing from KMR Telecom Limited, an affiliate of the Company ("KMR"), $229,056
owing from officers of the Company, and $6,900 of other assets.
For the nine-months ended September 30, 2000, the net cash used for
operating activities was $870,054 compared to net cash used for operating
expenses of $469,237 for the nine-months ended September 30, 1999 (an increase
of $400,817 or 85%). As discussed above, the increase was primarily comprised of
(i) a net loss of $1,904,255 for the nine-month period ending September 30, 2000
compared to a net loss of $876,526 for the nine-month period ended September 30,
1999 (an increase of $1,027,729 or 117%), (ii) issuance of common stock to an
executive officer of $362,500 for the nine-month period ending September 30,
2000 compared to $0 for the nine-month period ended September 30, 1999 (an
increase of $362,500 or 100%) and (iii) an increase of accounts payable and
accrued expenses to $501,377 for the nine-month period ending September 30, 2000
compared to $357,539 for the nine-month period ended September 30, 1999 (an
increase of $143,838 or 40%).
The Company increased its capital expenditures to $29,246 for the
nine-month period ended September 30, 2000 compared to $13,692 for the
nine-month period ended September 30, 1999, all of which relate to the purchase
of equipment.
The Company increased its net cash from financing activities for the
nine-months ended September 30, 2000 to $879,327 compared to $484,564 for the
nine-month period ended September 30, 1999 (an increase of $394,763 or 81%). The
major component primarily consisted of proceeds from issuance of convertible
notes payable of $878,400 for the nine-month period ended September 30, 2000
compared to $0 for the nine-month period ended September 30, 1999.
6
<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; (ii) issuance of additional convertible promissory notes in the aggregate
of $152,000 during the three-month period ended March 31, 2000; and (iii)
issuance of additional convertible promissory notes in the aggregate of $559,000
during the three-month period ended June 30, 2000.
During the three-month period ended September 30, 2000, the Company issued
additional convertible promissory notes in the aggregate of $67,400. 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 October 30, 2000 into
restricted shares of the Company's common stock at the rate of $1.45 per share.
As of September 30, 2000, the Company was not in compliance with its
required payments of monthly interest to the above note holders aggregating
$952,500. In accordance with the provisions of the convertible promissory notes,
the Company is subject to a default interest rate of 24% on the outstanding
balance. Management anticipates that the Company will commence making its
required monthly interest payments by approximately January, 2001.
A significant and estimated commitment for the Company for fiscal year 2000
is the issuance of five promissory notes during the three-month period ended
September 30, 2000 aggregating $129,500. The promissory notes are due on
December 31, 2000 and bear interest at the rate of 10% per annum.
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. As of the date of this Quarterly
Report, the Company has not issued the 250,000 shares of Common Stock to Mr.
Valente.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No report required.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three-month period ended September 30, 2000, the Company issued
the following shares of Common Stock:
o On July 28, 2000, the Company entered into a settlement agreement with
a creditor whereby the Company agreed to issue 100,000 shares of its
restricted Common Stock at $1.45 per share pursuant to Section 4(2) of
the Securities Act of 1933, as amended (the "Securities Act"). The per
share price was determined by arms-length negotiation between the
Company and the creditor. Under the terms of the settlement agreement,
the creditor agreed to accept the 100,000 shares of Common Stock as
payment for the approximate $145,000 debt owed to such creditor and
for the purchase by the Company of intellectual property rights
related to software and source codes valued at $87,000. The Company
issued the shares in reliance upon the exemption from registration
provided by Section 4(2) and Regulation D, Rule 504 promulgated there
under, of the Securities Act. The creditor represented to the Company
that it acquired the shares for its own account, and not with a view
to distribution, and that the Company made available to it all
material information concerning the Company.
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.
|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 there under. 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
On or about September 21, 2000, HSBC Bank (formerly known as Marine Midland
Bank) ("HSBC") filed suit against Accident Prevention Plus, LLC, the
wholly-owned subsidiary of the Company ("APP LLC"), Steven Wahrman and Richard
Goodhart, as guarantors of APP LLC's debt to HSBC, in the Supreme Court of New
York with respect to the Company's indebtedness to HSBC.
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HSBC had provided financing to APP LLC in the principal amount of
$500,000.00 pursuant to a loan agreement and promissory note dated September 17,
1996 (the "Financing Documents"), which promissory note was guaranteed by all of
the assets of the Company together with the personal guarantees of Richard
Goodhart, the Chief Executive Officer, and Steven Wahrman, the President of the
Company (collectively, the "Guarantors").
The suit filed by HSBC alleges that the Company failed to comply and is in
default under the terms of the Financing Documents by reason of (i) the
Company's failure to make payments of principal and interest when due under the
Financing Documents, and (ii) the transfer of ownership and control of APP LLC
from the Guarantors to the Company. As of November 3, 2000, the Company is
indebted to HSBC under the Financing Documents in the principal amount of
$474,816.87 plus interest in the amount of $18,959.71, totaling an aggregate of
$493,776.58.
On November 3, 2000, HSBC, APP LLC and the Guarantors entered into a
settlement agreement (the "Settlement Agreement") in which HSBC agreed to (i) a
stipulation of discontinuance (to withdraw its pending suit, without prejudice
to the re-commencement of same upon a default under the Settlement Agreement);
(ii) forbear from commencing any other action or proceeding against APP LLL and
the Guarantors with respect to the indebtedness of the Company until August 20,
2001; and (iii) forbear from entering judgment against APP LLC and the
Guarantors until August 20, 2001. However, in the event the Company defaults
under the Settlement Agreement, HSBC has retained the right to commence an
action against APP LLC and the Guarantors.
Pursuant to the terms of the Settlement Agreement, APP LLC and the
Guarantors have executed confessions of judgment for the amounts due and owing
HSBC and agreed to make the following payments:
(a) Upon execution of the Settlement Agreement, an initial payment of
$18,959.71, which represents all accrued and unpaid interest and late
charges on the Financing Documents to the date of the Settlement
Agreement;
(b) Upon execution of the Settlement Agreement, an initial payment of
$100,000, which represents an initial principal payment to reduce the
outstanding balance;
(c) Commencing on December 1, 2000 and continuing on the first day of each
month thereafter until August 20, 2001, monthly payments of interest
on the outstanding principal balance and monthly payments of principal
in the amount of $5,000.00;
(d) On or before January 15, 2001, a principal payment of $250,000.00 to
be applied to reduce the outstanding principal balance; and
(e) On or before August 20, 2001, payment of the outstanding balance of
the total indebtedness.
APP LLC entered into a distributor agreement dated August 20, 1998 with
American Overseas Corporation ("AOC") pursuant to which AOC is required to pay
to the Company the sum of $5,000,000.00 as follows: (i) $1,000,000.00 no later
than sixty (60) days after the date on which public trading of the stock of the
Company commences (the "Trade Date"); (ii) $1,000,000 no later than eight (8)
months after the Trade Date, but in no event later than August 20, 2001; and
(iii) $3,000,000 on or before August 20, 2001.
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In the event the Company receives the first payment of $1,000,000.00 from
AOC prior to January 15, 2001, the Company is required to immediately pay HSBC
an amount equal to twenty-five percent (25%) of $1,000,000.00 (i.e. $250,000.00)
or any portion thereof received by the Company from AOC from time to time. Such
amounts received by HSBC will be credited against the $250,000.00 payment due
and owing by the Company on or before January 15, 2001.
Failure of the Company to pay such sums due under the terms of the
Settlement Agreement or perform any of the other obligations set forth in the
Settlement Agreement shall constitute an event of default and the full amount of
the indebtedness, less any payments made, will become immediately due and
payable without further notice or demand from HSBC. Such an event of default
will also entitle HSBC to seek judgments against APP LLC and the Guarantors
pursuant to the confessions of judgment.
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.
Settlement Agreement dated November 3, 2000 by and among HSBC Bank USA
(formerly Marine Midland Bank) and Accident Prevention Plus, LLC, Steven Wahrman
and Richard Goodhart.*
* To be included in 10QSB/A for the period ended September 30, 2000
(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: November 14, 2000 By: /s/ Steven Wahrman
------------------------ ----------------------
Steven Wahrman, President
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