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, 1999
[ ] 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 June 1, 2000
Common Stock, $.001 par value 17,778,196
Transitional Small Business Disclosure Format (check one)
Yes No X
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited financial statements of Accident Prevention Plus, Inc. (the
"Company") reflect all adjustments which are, in the opinion of management,
necessary to present a fair statement of the operating results for the interim
period presented.
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
Page
Number
------
Consolidated Balance Sheets at September 30, 1999 (unaudited)
and December 31, 1998 F-2
Consolidated Statements of Operations for the three and nine months
ended September 30, 1999 and 1998 (unaudited) F-3
Consolidated Statement of Stockholders' Deficiency for the
nine months ended September 30, 1999 (unaudited) F-4
Consolidated Statements of Cash Flows for the three and nine months
ended September 30, 1999 and 1998 (unaudited) F-5 to F-6
Notes to Consolidated Financial Statements F-7 to F-21
F-1
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<TABLE>
<CAPTION>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
(Unaudited)
September 30, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Current Assets:
Cash $ 1,827 $ 192
Accounts receivable - net 190,093 31,736
Inventory 20,436 14,952
Prepaid expenses 13,362 83,000
----------- -----------
Total Current Assets 225,718 129,880
----------- -----------
Property and Equipment, Net 21,864 16,422
----------- -----------
Other Assets:
Due from officer 116,465 75,931
Due from affiliate 316,048 271,143
Other 17,091 1,945
----------- -----------
Total Other Assets 449,604 349,019
----------- -----------
Total Assets $ 697,186 $ 495,321
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
Current Liabilities:
Notes payable $ 586,295 $ 563,668
Cash overdraft -- 19,813
Accounts payable 656,433 457,803
Accrued expenses 324,849 165,940
Payroll taxes payable 85,602 81,819
Capital lease obligations -- 2,896
Customer deposits 166,879 --
----------- -----------
Total Current Liabilities 1,820,058 1,291,939
----------- -----------
Long Term Liabilities:
Notes payable 470,358 527,215
Loans payable - officers 394,817 399,134
Notes payable - director 37,500 37,500
----------- -----------
Total Long Term Liabilities 902,675 963,849
----------- -----------
Total Liabilities 2,722,733 2,255,788
----------- -----------
Common Stock Subject To Rescission Offer, - $.001 par value,
114,062 shares issued and outstanding (Note 9) 165,390 --
----------- -----------
Commitments & Contingencies (Note 8) -- --
----------- -----------
Stockholders' Deficiency:
Common Stock - $.001 par value, 50,000,000 shares authorized,
17,638,238 and 17,295,970 shares issued and outstanding, respectively 17,638 17,296
Additional paid-in capital 669,032 223,318
Accumulated deficit (2,877,607) (2,001,081)
----------- -----------
Total Stockholders' Deficiency (2,190,937) (1,760,467)
----------- -----------
Total Liabilities and Stockholders' Deficiency $ 697,186 $ 495,321
=========== ===========
See accompanying notes to consolidated financial statements
F-2
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<TABLE>
<CAPTION>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(Unaudited) (Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 239,648 $ 60,578 $ 356,394 $ 159,019
Cost of Sales 114,361 40,358 171,481 121,404
------------ ------------ ------------ ------------
Gross Profit 125,287 20,220 184,913 37,615
------------ ------------ ------------ ------------
Expenses:
Selling, general and administrative 249,352 126,221 722,008 305,643
Research and development 117,715 9,800 260,121 28,133
------------ ------------ ------------ ------------
Total expenses 367,067 136,021 982,129 333,776
------------ ------------ ------------ ------------
Loss before other income (expenses)
and provision for income tax (241,780) (115,801) (797,216) (296,161)
------------ ------------ ------------ ------------
Other Income (expenses)
Interest income 8,639 -- 25,916 --
Interest expense (36,897) (10,107) (105,226) (39,795)
------------ ------------ ------------ ------------
Total Other Income (Expenses) (28,258) (10,107) (79,310) (39,795)
------------ ------------ ------------ ------------
Loss Before Provision for
Income Taxes (270,038) (125,908) (876,526) (335,956)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net Loss (270,038) (125,908) (876,526) (335,956)
------------ ------------ ------------ ------------
Other Items of Comprehensive Income -- -- -- --
------------ ------------ ------------ ------------
Comprehensive Net Loss $ (270,038) $ (125,908) $ (876,526) $ (335,956)
============ ============ ============ ============
Basic:
Net Loss $ (.02) $ -- $ (.05) $ (.02)
============ ============ ============ ============
Weighted Average Number of Shares
Outstanding 17,717,443 -- 17,435,742 17,180,970
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
F-3
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<TABLE>
<CAPTION>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT STOCKHOLDERS' DEFICIENCY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
Common Stock Additional Member's Total
------------------------- Paid-in Capital Accumulated Stockholders'
Shares Amount Capital (Deficiency) Deficit Deficiency
----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1998 17,295,970 $ 17,296 $ 223,318 -- $(2,001,081) $(1,760,467)
Issuance of common stock in
connection with private
placement memorandums, net
of costs 342,268 342 445,714 -- -- 446,056
Net loss for the nine months
ended September 30, 1999 -- -- -- -- (876,526) (876,526)
----------- ----------- ----------- ---------- ----------- -----------
Balances at September 30, 1999 17,638,238 $ 17,638 $ 669,032 -- $(2,877,607) $(2,190,937)
=========== =========== =========== ========== =========== ===========
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 YEARS ENDED DECEMBER 31, 1998 AND 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(Unaudited) (Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating activities
Net loss $(270,038) $(125,908) $(876,526) $(335,956)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 1,625 807 8,250 2,166
Common stock for services -- -- -- --
Decrease (increase) in:
Inventory 50,037 -- (5,484) (14,952)
Accounts receivable (97,556) 6,023 (158,357) (21,105)
Prepaid expenses 49,596 -- 69,638 --
Other assets (11,445) 615 (15,146) --
(Decrease) increase in:
Cash overdraft -- (12,992) (19,813) 13,670
Accounts payable and accrued expenses 91,648 126,601 357,539 104,663
Payroll taxes payable 140 205 3,783 5,705
Customer deposits 166,879 -- 166,879 (13,810)
--------- --------- --------- ---------
Net cash used for operating activities (19,114) (4,649) (469,237) (259,619)
--------- --------- --------- ---------
Investing activities
Purchase of property and equipment (10,318) -- (13,692) --
--------- --------- --------- ---------
Net cash used for investing activities (10,318) -- (13,692) --
--------- --------- --------- ---------
Financing activities
(Repayments of) proceeds from notes payable (88,139) (1,457) (34,230) 90,803
Repayments of capital lease contributions -- 1,238 (2,896) --
Other loan advances -- -- -- (385)
Sale of partnership interest -- -- -- --
Proceeds from sale of common stock 47,653 -- 446,056 --
Proceeds from common stock subject to rescission 64,837 -- 165,390 --
Advances (to) from affiliates and shareholders 6,685 4,868 (89,756) 166,238
--------- --------- --------- ---------
Net cash provided by financing activities 31,036 4,649 484,564 256,656
--------- --------- --------- ---------
Net increase (decrease) in cash 1,604 0 1,635 (2,963)
Cash and cash equivalents at beginning of year 223 0 $ 192 $ 2,963
========= ========= ========= =========
Cash and cash equivalents at end of year $ 1,827 $ 0 $ 1,827 $ 0
========= ========= ========= =========
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, 1999 AND 1998 (UNAUDITED)
(Unaudited) (Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Supplemental disclosure of non-cash flow information:
Cash paid during the year for:
Interest $ 36,897 $ 8,586 $105,226 $ 23,480
======== ======== ======== ========
Income taxes $ 0 $ 0 $ 0 $ 0
======== ======== ======== ========
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, 1999 AND 1998
(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 June 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 partner 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 partners 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 partners 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 its common stock. The
acquisition was accounted for by the purchase method.
F-7
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(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 UK
------
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 -- PRINCIPLES OF CONSOLIDATION
The accompanying consolidated balance sheet at September 30, 1999 and
December 31, 1998 include the accounts of the Company and its wholly owned
subsidiaries, LLC, IPS-NY and APP UK (the "Companies") after elimination of
all significant intercompany transactions and accounts. The statements of
operations and cash flows for the year ended December 31 1998 include the
balances of the Company and the LLC for the entire year and from October
28, 1998, (the acquisition date) to December 31, 1998 for IPS-NY since
purchase accounting requires the elimination of all operating transactions
of the acquired subsidiary prior to the date of the acquisition. For the
nine and three months ended September 30, 1998 the statement of operations
and cash flows are reflective of the operations of the LLC only. If the
operating transactions of IPS-NY from January 1, 1998 to October 27, 1998
were included in the year ended December 31, 1998 consolidated statement of
operations, the effect of major components would be as follows:
Proforma
---------
Net Sales $ 443,088
Cost of Sales 202,950
---------
Gross Profit 240,138
Expenses 801,424
---------
Net Loss $(561,286)
=========
F-8
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 2 -- PRINCIPLES OF CONSOLIDATION (cont'd)
If the operating transactions of IPS-NY from January 1, 1998 to September
30, 1998 were included in the nine months ended September 30, 1998
consolidated statement of operations, the effect of major components would
be as follows:
Proforma
---------
Net Sales $ 364,419
Cost of Sales 178,171
---------
Gross Profit 186,248
Expenses 466,195
---------
Net Loss $(279,947)
=========
NOTE 3 -- 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, 1998 and 1997, the Company generated net losses of
$605,241 and $661,621, respectively. Additionally, as of December 31, 1998,
the Company has a working capital deficiency amounting to $1,162,059.
As of December 31, 1998, the Company owes approximately $81,819 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 actions, the results could be
detrimental to the Company's ability to operate.
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 such compliance
will enable the Company to raise additional capital. However, there can be
no assurance that it will be able to obtain additional contracts and 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.
F-9
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 4 -- INTERIM RESULTS AND BASIS OF PRESENTATION
The unaudited financial statements as of September 30, 1999 and for the
three and nine month periods ended September 30, 1999 and 1998 have been
prepared by us and are unaudited. In our opinion, the unaudited financial
statements reflect all adjustments, which include only normal recurring
adjustments, necessary to present fairly the financial position as of
September 30, 1999 and the results of our operations and cash flows for the
three and nine month periods ended September 30, 1999 and 1998.
The financial data and other information disclosed in these notes to the
interim financial statements related to these periods are unaudited. The
results for the three and nine month period ended September 30, 1999 and
1998 are not necessarily indicative of the results to be expected for any
subsequent quarter or the entire fiscal year ending December 31, 1999. The
balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date.
Certain information and footnoted disclosures normally included in
financial statements prepared in accordance with accounting principals
generally accepted in the United States have been condensed or omitted
pursuant to the Securities and Exchange Commission's rules and regulations.
It is suggested that these unaudited financial statements be read in
conjunction with our audited financial statements and notes thereto for the
year ended December 31, 1998 as included in our report on Form 10SB filed
on January 14, 2000.
NOTE 5 -- DUE FROM AFFILIATE
Due from affiliate consists of a loan receivable from KMR Telecom, Ltd.
("KMR") a corporation organized 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 as collateral for the loan his 49% interest in KMR.
At September 30, 1999 and December 31, 1998 the loans due from KMR were
$316,581 and $271,143, respectively. Interest income recorded by the
Company related to such loan for the nine months ended September 30, 1999
and 1998 were $25,916 and $-0-, respectively, and $8,639 and $-0-,
respectively, for the three months ended September 30, 1999 and 1998
respectively.
NOTE 6 -- 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.
F-10
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 6 -- NOTES PAYABLE (cont'd)
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
represents 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 rate 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
December 31, 1998 the principal balances on the newly issued $500,000
note, the newly issued $60,620 note and the original $100,0000 SBA
note are $497,306, $60,620 and $58,140, respectively. As of September
30, 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
$491,164, $43,828 and $46,844, 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.
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 SBA. Such note
was for a term of one-year bearing interest at 10.25% per annum. The
current terms of the note are payments of interest only at 9.75% per
annum and due on demand. The Company is currently in the process of
negotiating a long-term payout for this note. As of September 30, 1999
and December 31, 1998 the balance due is $474,817 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.
Annual aggregate maturities of notes payable are as follows as of December
31, 1998:
Year ended December 31:
1999 $ 563,668
2000 89,611
2001 146,044
2002 291,560
2003 --
Thereafter --
-----------
$ 1,090,883
===========
F-11
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 7 -- CAPITAL LEASE OBLIGATIONS
During October 1995 and March 1996, the LLC acquired office equipment with
the following terms and conditions:
i) On October 25, 1995, computer equipment was acquired for $7,051 by
entering into a capital lease obligation with interest at
approximately 13% per annum, requiring 36 monthly payments of $361
which include principal and interest. The lease is secured by the
related equipment. At September 30, 1999, the lease was repaid in
full.
ii) On March 25, 1996, office equipment was acquired for $3,390 by
entering into a capital lease obligation with interest at
approximately 10% per annum, requiring 36 monthly payments of $94
which include principal and interest. The lease is secured by the
related office equipment. At September 30, 1999, the lease was repaid
in full.
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
a) Year 2000
---------
The Companies have addressed and will continue to address the year
2000 issue to ensure the reliability of its operational systems. The
Companies have and will continue to make certain investments in its
software systems and applications to ensure that they are Year 2000
compliant. These expenditures, which are expensed as incurred, are not
expected to be material. The Companies are also working with their
financial institutions with which they conducts their business to
ensure their compliance with Year 2000 issues in order to avoid any
interruptions in their business.
b) Payroll taxes
-------------
As of September 30, 1999 and December 31, 1998, the Company owes
approximately $85,602 and $81,819, 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 monthly payments as funds become available.
c) Advances from grant
-------------------
In 1996, Inc-NY entered into a grantee award agreement with the
University of South Florida ("USF") for the project entitled Fuel
Intake Monitoring System ("FIMS"). USF received a grant ($428,793) for
the project and forwarded the proceeds directly to a sub-contractor
chosen by Inc - NY and USF. Inc - NY's role was to direct the project,
fund the research and development and to bring the product technology
to a saleable commercial product.
F-12
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 8 -- COMMITMENTS AND CONTINGENCIES (cont'd)
c) Advances from grant (cont'd)
----------------------------
Pursuant to the agreement, USF was to receive structured repayments
based on revenues generated from the product sales. In the event that
there are no revenues within two years after the completion of the USF
funding, all rights to the product technology which was funded will
revert exclusively to USF. At September 30, 1999, The Company has not
sold FIMS products to date.
d) 401K Employee Benefit Plan
--------------------------
During 1994, IPS-NY established a non-contributory 401K employee
benefit plan on behalf of its employees. As of September 30, 1999 and
December 31, 1998, IPS-NY has failed to remit approximately $5,000 to
such plan, and accordingly, such amount has been included in accounts
payable.
e) Lack of Insurance
-----------------
The Companies ceased maintaining any product liability insurance or
any other form of general insurance in October 1997. In December 1999,
the Companies obtained product liability and general insurance.
Although the Companies are not aware of any claims resulting from
product malfunctions, there is no assurance that none exists.
f) Significant customers and vendors
---------------------------------
For the nine months ended September 30, 1999 and 1998, the Company had
three and three unrelated customers, respectively, which accounted for
approximately 49 %, 24 %, and 22 %, and 25 %, 21 %, and 9 %,
respectively, of total revenues. As of September 30, 1999, the Company
had two unrelated customers who accounted for approximately 42% and
30% of accounts receivables. As of December 31, 1998, the Company had
two unrelated customers who accounted for approximately 59% and 40% of
accounts receivables.
g) Lease Commitments
-----------------
i) Office Space
------------
During the nine months ended September 30, 1999 and 1998, both
the LLC and IPS-NY shared a common office space. Prior to April
1998, such office spaces were rented on a month-to-month basis.
In April 1998, IPS-NY entered into a reciprocal agreement with
Jaco Electronics, Inc. ("Jaco"). The agreement stipulates that
Jaco will provide, for eighteen months, office space valued at
$1,500 per month and warehousing and shipping support valued at
$5,000 per month. In lieu of such support, IPS-NY agreed to
transfer its then existing backlog sales orders to Jaco, which
amounted to approximately $300,000.
F-13
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 8 -- COMMITMENTS AND CONTINGENCIES (cont'd)
g) Lease Commitments
-----------------
i) Office Space (cont'd)
---------------------
The warehousing and shipping services provided by Jaco have been
accounted for as services provided to the LLC. For the nine
months ended September 30, 1999 and 1998, the Company has
recorded $13,500 and $5,500, respectively of rent expense related
to this agreement. For the three months ended September 30, 1999
and 1998, the Company has recorded rent expense of $4,500 and
$3,000, respectively.
ii) Vehicles
--------
The Company leases three vehicles under non-cancelable operating
leases. Total lease expense was approximately $12,276 and $16,710
for the nine months ended September 30, 1999 and 1998,
respectively. At December 31, 1998, the aggregate future minimum
lease payments due under these non-cancelable leases are $7,487
and $4,294 for the years ended December 31, 1999 and 2000,
respectively.
h) Independent Contractors' Installation and Service Agreements
------------------------------------------------------------
From April 1997 through June 1997, the LLC entered into four separate
installation and service agreements (the "Agreements") with four
foreign corporations whereby such corporations received a 4.9%
partnership interest in the LLC for $2,500. Pursuant to the
agreements, the corporations are responsible for establishing
distribution and sales channels along with the necessary
infrastructure required for the successful marketing of the LLC's
products. Lastly, the corporations are also responsible for
installation and maintenance of the LLC's products. Pursuant to the
agreements, the corporations will be compensated based on a fixed
hourly rate for any installation and/or maintenance service.
From inception through September 30, 1999, no services have been
performed by the above four foreign entities. In connection with the
LLC's reorganization during October 1998, the four foreign
corporations exchanged each of their respective 4.9% interests in the
LLC for a total of 3,180,000 shares of the Company.
i) Bristol Consulting Ltd.
-----------------------
On July 30, 1998, the LLC entered into a consulting agreement with
Bristol Consulting Ltd. ("Bristol") for the assistance and advise of
commercial application in Europe, the Middle East and the Far East as
to corporate structure, capital acquisitions, contract applications,
and mergers and acquisitions.
F-14
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 8 -- COMMITMENTS AND CONTINGENCIES (cont'd)
i) Bristol Consulting Ltd. (cont'd)
--------------------------------
The consulting agreement is for a period of five years requiring
monthly payments of $5,000 for the first three months and $10,000 a
month for the remaining term of the consulting agreement.
For the nine months ended September 30, 1999 and 1998, the LLC paid
$33,000 and $14,600, respectively, to Bristol. As of September 30,
1999 and December 31, 1998, the LLC has accrued a total of $77,400 and
$20,400, respectively.
Lastly, in connection with such consulting agreement, Bristol received
837,414 shares of common stock of the Company upon the reorganization
of the LLC in October 1998 for its 5% partnership interest in the LLC.
j) Royce Anderson and Monroe, Inc.
-------------------------------
On July 30, 1998, the LLC entered into a consulting agreement with
Royce Anderson & Monroe, Inc. ("Royce Anderson") for the assistance
and advise of commercial application in the United States and the rest
of the Western Hemisphere as to corporate structure, capital
acquisitions, contract applications, and mergers and acquisitions. The
consulting agreement is for a period of five years.
In connection with such consulting agreement, Royce Anderson received
2,006,276 shares of common stock of the Company upon the
reorganization of the LLC in October 1998 for its 10% partnership
interest in the LLC.
k) Software Hardware Specialists, Inc.
-----------------------------------
On December 17, 1998, the Company entered into a joint venture
agreement with Software Hardware Specialists, Inc. ("Software
Specialists") which became effective on January 4, 1999. Software
Specialists will provide the engineering and manufacturing management
along with engineering design of the Company's products. The Company
will jointly provide engineering support, manufacturing management and
engineering design to Software Specialists for a period of three
years.
The Company will pay Software Specialist for a period of three years
at established hourly rates. For the nine months ended September 30,
1999, the Company paid Software Specialist $137,970.
F-15
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 8 -- COMMITMENTS AND CONTINGENCIES (cont'd)
l) ATA Foundation, Inc.
--------------------
During August 1999, the Company entered into a consulting agreement
with ATA Foundation, Inc., ("ATA") a non profit corporation, whereby
the Company is to provide electronic recording and data collection
interface in a project to pilot test fatigue management technologies.
The period of performance shall be from August 1, 1999 through
December 31, 2001. The agreement fee of $217,875 will be earned on a
cost reimbursement basis with the Company providing monthly invoices
upon completion of services as prescribed in the agreement.
As of September 30, 1999, the Company has billed a total of $78,010 in
connection with such agreement.
m) Carnegie Mellon University
--------------------------
On November 19, 1998, the LLC entered into a non-disclosure agreement
with Carnegie Mellon University ("Carnegie") in connection with a
letter of intent dated January 6, 1998. The letter of intent
stipulated Carnegie's cooperation in working with the LLC for the
development of new products and research and development of new
prototypes. The non-disclosure agreement established the terms
governing the use and protection of certain confidential information
by both Carnegie and the LLC. As of September 30, 1999, the LLC and
Carnegie have not entered into a formal contract regarding such joint
venture. However, the LLC has made payments to Carnegie totaling
$20,000 through September 30, 1999 for research and development
n) American Overseas Corporation
-----------------------------
The LLC and American Overseas Corporation, ("AOC"), an investment
company formed under the laws of British Virgin Islands, entered into
a distributor agreement dated August 20, 1998 pursuant to which AOC
agreed to (i) assist in the establishment of marketing and
distributing services for certain of the Company's products worldwide,
and (ii) pay the LLC $5 million within a thirty-six (36) month period
for the non-exclusive unlimited rights to purchase products at a price
of 5% above cost and to sell those products worldwide. In accordance
with the agreement on August 20, 1999, AOC was to remit $2 million to
the Company.
On July 22, 1999, the LLC and AOC agreed to amend the contract whereby
the $5 million is to be paid as follows: i) $1 million within 60 days
from the date that the Company becomes publicly traded, ii) an
additional $1 million is to be paid within twelve (12) months of the
beginning trade date and iii) the balance of $3 million to be paid on
or before thirty-six (36) months from the date of the contract.
Lastly, AOC will purchase the Company's product at distributor's cost.
F-16
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 9 -- COMMON STOCK SUBJECT TO RESCISSION OFFER
Common stock sold subsequent to August 3, 1999 pursuant to the Company's
limited offering memorandum of January and April 1999, as discussed in note
10c may be in violation of the requirements of the Securities Act of 1933.
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 $165,390 from the issuance
of 114,062 shares of common stock through September 30, 1999 have been
classified outside of equity in the balance sheet and classified as common
stock subject to rescission. As of September 30, 1999, none of the related
investors have requested the Company to repurchase their shares.
NOTE 10 -- STOCKHOLDERS' DEFICIENCY
a) 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 partners of the LLC for
100% of the LLC. The transaction with the LLC was accounted for by the
Company as a corporate reorganization. In connection with the
reorganization, the founding partners 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. 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 its common
stock.
b) Non-qualified Stock Option Plan
-------------------------------
Effective January 1, 1999, the Company established a non-qualified
stock option plan ("Stock Option Plan") pursuant to which 6,000,000
shares of common stock are reserved for issuance upon the exercise of
options. The option plan is designed to serve as an incentive for
retaining qualified and competent key employees, officers and director
of the Company. The price for each share of common stock purchasable
according to the Stock Option Plan is a $1.45 per share.
c) Limited Offering Memorandums
----------------------------
During January and April 1999, the Company commenced two Limited
Offering Memorandums (the "Offerings") pursuant to Rule 504 of
Regulation D promulgated under the Securities Act of 1933. The
Company's first offering was for 500,000 shares of its common stock at
$1.45 per share before a 10% selling commission. Such offering was
terminated during April 1999 with the Company selling approximately
340,000 shares. The second offering in April 1999 was for 408,475
shares of its common stock at $1.45 per share before a 10% selling
commission.
F-17
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 10 -- STOCKHOLDERS' DEFICIENCY(cont'd)
c) Limited Offering Memorandums (cont'd)
-------------------------------------
As of September 30, 1999, the Company has sold an aggregate of 456,330
shares for the two offerings, yielding net proceeds of $611,446 after
offering costs.
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. 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 $165,390 from the
issuance of the 114,062 shares of common stock through September 30,
1999 have been classified outside of equity in the September 30, 1999
balance sheet and classified as common stock subject to rescission. As
of September 30, 1999 none of the related investors have requested the
Company to repurchase their shares.
NOTE 11 -- RELATED PARTY TRANSACTIONS
a) Loans Payable - Officers
------------------------
As of September 30, 1999 and December 31, 1998, loans payable-officers
amounting to $394,817 and $399,134, respectively, represent loans made
by the President and the Chief Executive Officer of the Company as
follows:
i) The loans of the President of the Company as of September 30,
1999 and December 31, 1998 amounted to $375,655 and $325,751,
respectively, and are comprised of the following:
A $50,000 promissory note with interest accruing at 8% per annum,
which is due on demand. (See note 10d(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 which are non-interest bearing.
ii) The loans due the Chief Executive Officer amounting to $19,162
and $73,383 at September 30, 1999 and December 31, 1998,
respectively, are non- interest bearing and represent advances to
the Company and unreimbursed expenses.
F-18
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 11 -- RELATED PARTY TRANSACTIONS (cont'd)
b) Due From Officer
----------------
As of September 30, 1999 and December 31, 1998, due from officer
amounting to $182,577 and $75,931, respectively, represents advances
to an officer which are non-interest bearing and due on demand.
c) Employment agreements
---------------------
Between November 1995 and January 1996, the LLC entered into three
separate employment agreements with its then Executive Vice President,
Chief Executive Officer and President.
The employment agreements were for a term of five years with annual
salaries of $51,600, $60,000 and $60,000 respectively. The Executive
Vice President, pursuant to his agreement, was also entitled to
commissions on the LLC's gross sales ranging from 2% to 1/2% based on
certain sales levels. In addition, all of the employment agreements
allowed for certain other fringe benefits such as health insurance,
travel and entertainment reimbursements, full reimbursement of auto
insurance, and $500 per month each towards auto leases. In lieu of the
auto lease obligation the LLC entered into two commitments for auto
leases (see note 9gi(i)). As a result of the LLC not generating any
profits, none of the salaries pursuant to the above agreements were
paid through December 31, 1998. Accordingly, effective December 31,
1998, the three officers of the LLC signed a release which forgave all
past consideration pursuant to the employment agreements and entered
into new agreements effective January 1, 1999 as discussed below.
On January 1, 1999, the Company entered into three separate employment
agreements with its Chief Executive Officer, Chief Operating Officer
and Executive Vice President. The employment agreements are for an
initial one-year term with renewable (5) five one-year terms based on
a majority vote of the Board of Directors. Each officer is entitled to
an 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 foregoing options are intended to qualify
as incentive stock options. Each 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.
Lastly, pursuant to the agreements, all three officers have agreed to
defer the first six months of their salary, which will be paid at a
later date. Accordingly, as of September 30, 1999, the Company has
accrued $270,000 of salary and paid $ 0.
F-19
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 11 -- RELATED PARTY TRANSACTIONS (cont'd)
d) Notes Payable
-------------
i) Officer
-------
During June 1996, the LLC borrowed $50,000 from its president at
an interest rate of 8% for a term of 180 days pursuant to a
promissory and demand note. As of September 30, 1999, such note
remains unpaid as a result of the LLC receiving a waiver of
repayment until December 31, 1999. The LLC has continued to
accrue interest on the note at the rate of 8% per annum through
September 30, 1999. As of September 30, 1999 and December 31,
1998, accrued interest on such note amounted to $13,000 and
$10,000, respectively.
ii) Director
--------
During August and December 1997, the LLC borrowed $16,500 and
$17,000, respectively, from a director of the Company without
interest, payable ninety days from date of borrowing. As of
September 30, 1999, such note remains unpaid as a result of the
LLC receiving a waiver of repayment until December 31, 1999.
NOTE 12 -- SUBSEQUENT EVENTS
a) Common Stock Subject to Recession
---------------------------------
As stated in note 9 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. Subsequent to September 30, 1999 the Company has received
proceeds of $37,549 from the issuance of 25,896 shares of common stock
related to the limited offering memorandums.
b) Convertible Promissory Note
---------------------------
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 January2000. On February 27, 2000 and
March 21, 2000, the Company executed two convertible 15% promissory
notes with the individual aggregating $100,000. 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 a $1.45 per
share.
F-20
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 12 -- SUBSEQUENT EVENTS (cont'd)
b) Convertible Promissory Note (cont'd)
------------------------------------
During March 2000, the Company issued seven convertible 10% promissory
notes aggregating $279,000, in April 2000 from the remaining four
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.
F-21
<PAGE>
FORWARD LOOKING STATEMENTS
Statements made in this Form 10-QSB that are not historical or current
facts are "forward-looking statements" made pursuant to the safe harbor
provisions of Section 27A of the Securities Act of 1933 (the "Act") and Section
21E of the Securities Exchange Act of 1934. These statements often can be
identified by the use of terms such as "may", "will", "expect", "believe",
"anticipate", "estimate", "approximate" or "continue", or the negative thereof.
The Company intends that such forward-looking statements be subject to the safe
harbors for such statements. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. Any forward-looking statements represent management's best
judgment as to what may occur in the future. However, forward-looking statements
are subject to risks, uncertainties and important factors beyond the control of
the Company that could cause actual results and events to differ materially from
historical results of operations and events and those presently anticipated or
projected. These factors include adverse economic conditions, entry of new and
stronger competitors, inadequate capital, unexpected costs, failure to
successfully penetrate the Company's markets both in the United States and in
foreign countries, and failure to capitalize upon access to new markets. The
Company disclaims any obligation subsequently to revise any forward-looking
statements to reflect events or circumstances after the date of such statement
or to reflect the occurrence of anticipated or unanticipated events.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
General
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 these 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, 1999, sales of the
AP+Series products to the Company's customers accounted for approximately 100%
of total gross revenues. 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 Operation
Nine-Month Period Ended September 30, 1999 Compared to Nine-Month Period Ended
September 30, 1998
Net revenues during the nine-month period ended September 30, 1999 and 1998
were $356,394 and $159,019, respectively. Net revenues increased by
approximately $197,375 or 124% for the nine-month period ended September 30,
1999 as compared to the nine-month period ended September 30, 1998. The increase
in net revenues during the nine-month period ended September 30, 1999 was
primarily due to the sale of AP+Series products to AFT-IFTM (a driver training
school) and American Trucking Association ("ATA") at $251,000 and $70,000,
respectively. Gross profit during the nine-month period ended September 30, 1999
and 1998 amounted to $184,913 and $37,615, respectively, or a net increase of
$147,298. Gross profit percentages for the nine-month periods ended September
30, 1999 and 1998 were 52% and 24%, respectively, or a net increase of
approximately 117%.
<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, 1999 as compared to the nine-month period ended September
30, 1998 is attributable to (i) the emergence of the Company from primarily a
developmental and research company during fiscal year 1998 to a revenue
generating stage, (ii) creation of a marketing campaign, 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 nine-month period
ended September 30, 1999 and 1998 were $722,008 and $305,643, respectively (an
increase of $416,365 or 136%). In general, selling, general and administrative
expenses include corporate overhead, administrative salaries, shipping and
warehousing costs, selling expenses, consulting costs, and professional fees.
The increase in selling, general and administrative expenses for the nine-month
period ended September 30, 1999 were primarily due to the Company incurring
increased costs associated with salaries, consulting fees and travel, which
amounted to approximately $250,000, $75,000 and $40,000, respectively.
Research and development expenses for the nine-month period ended September
30, 1999 were $260,121 as compared to $28,133 for the nine-month period ended
September 30, 1998 (an increase of $231,988 or 825%). The increase in research
and development expenses is primarily due to the development of an upgradeable
onboard recording system and the Company's ongoing perfecting and expanding of
the capabilities of its products. Moreover, the expenditures for research and
development were reduced during fiscal year 1998 since the Company had limited
funds and utilized available funds for the offer and sale of its equity
securities during 1999. During 1998, the Company had redirected its use of
available funds in order to obtain contracts and raise additional funds, which
were utilized for further research and development expenses and establishment of
a corporate infrastructure.
Interest expense increased to $105,226 during the nine-month period ended
September 30, 1999 compared to interest expense of $39,795 during the nine-month
period ended September 30, 1998 (an increase of $65,431 or 164%). The increase
is primarily attributable to interest relating to the loan from HSBC Bank to the
Company and to the loan from the Bank of Smithtown to International Purchasing
Services, Inc. ("IPS") (which interest had not been included in the nine-month
period ended September 30, 1998 prior to the acquisition by the Company of IPS
on October 28, 1998).
As discussed above, the increase in net loss during the nine-month period
ended September 30, 1999 as compared to the nine-month period ended September
30, 1998 is attributable primarily to a substantial increase in selling, general
and administrative expenses and an increase in research and development
expenses. The Company's net earnings (losses) during the nine-month period ended
September 30, 1999 were approximately ($876,526) or ($0.05) per share compared
to a net loss of approximately ($335,956) or ($0.02) per share (an increase of
<PAGE>
161%) during the nine-month period ended September 30, 1998.The weighted average
number of diluted shares outstanding were 17,435,742 for the nine-month period
ended September 30, 1999 compared to 17,180,970 for nine-month period ended
September 30, 1998.
Three-Month Period Ended September 30, 1999 Compared to Three-Month Period Ended
September 30, 1998
Net revenues during the three-month period ended September 30, 1999 and
1998 were $239,648 and $60,578, respectively. Net revenues increased by
approximately $179,070 or 296% for the three-month period ended September 30,
1999 as compared to the three-month period ended September 30, 1998. The
increase in net revenues during the three-month period ended September 30, 1999
was primarily due to the sale of AP+Series products to AFT-IFTM and ATA at
$214,000 and $70,000, respectively. Gross profit during the three-month period
ended September 30, 1999 and 1998 amounted to $125,287 and $20,220,
respectively, or a net increase of $105,067. Gross profit percentages for the
three-month period ended September 30, 1999 and 1998 were approximately 52% and
33%, respectively, or a net increase of approximately 58%.
Selling, general and administrative expenses for the three-month period
ended September 30, 1999 and 1998 were $249,352 and $126,221, respectively (an
increase of $123,131 or 98%. The increase in selling, general and administrative
expenses for the three-month period ended September 30, 1999 were primarily due
to the Company incurring increases costs associated with its marketing efforts,
professional fees, overseas operations and overhead costs.
Research and development expenses for the three-month period ended
September 30, 1999 were $117,715 as compared to $9,800 for the three-month
period ended September 30, 1998 (an increase of $107,915 or 1101%). The increase
in research and development expenses is primarily due to the development of an
upgradeable onboard recording system and the Company's ongoing perfecting and
expanding of the capabilities of its products.
Interest expense increased to $36,897 during the three-month period ended
September 30, 1999 compared to interest expense of $10,107 during the
three-month period ended September 30, 1998 (an increase of $26,790 or 265%).
The increase is primarily attributable to interest relating to the loan from
HSBC to the Company and the loan from the Bank of Smithtown to IPS (which
interest had not been included in the three-month period ended September 30,
1998 prior to the acquisition by the Company of IPS on October 28, 1998).
As discussed above, the increase in net loss during the three-month period
ended September 30, 1999 as compared to the three-month period ended September
30, 1998 is attributable primarily to a substantial increase in selling, general
and administrative expenses and an increase in research and development
expenses. The Company's net earnings (losses) during the three-month period
<PAGE>
ended September 30, 1999 were approximately ($270,038) or ($0.02) per share
compared to a net loss of approximately ($125,908) or $0.00 per share (an
increase of 114%) during the three-month period ended September 30, 1998. The
weighted average number of diluted shares outstanding were 17,717,443 for the
three-month period ended September 30, 1999 compared to 0 for the three-month
period ended September 30, 1998.
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.
As of September 30, 1999, the Company's current assets were $225,718 and
its current liabilities were $1,820,058, which resulted in a working capital
deficit of $1,594,340. As of September 30, 1999, the Company's total liabilities
were $2,722,733, and the Company's total liabilities exceeded its total assets
by $2,025,547. The Company's Stockholders' deficit increased from $1,760,467 at
December 31, 1998, to $2,190,937 at September 30, 1999.
As of September 30, 1999, the Company was not in compliance with terms of
loans due to financial institutions totaling $586,295 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 or waiving the default
of the loans. Also, included in the current liabilities are accounts payable of
$656,433, $324,849 of accrued expense ($270,000 is accrued officers' salaries),
$85,602 of payroll taxes and $166,879 of customer deposits. Long-term
liabilities include loans due to financial institutions of $470,358 loans due
officers and directors of $432,317. The Company's assets consisted primarily of
cash of $1,827, $190,093 in accounts receivable, $20,436 in inventory, $13,362
in prepaid expenses, $316,048 owing from KMR Telecom Limited, (an affiliate of
the Company), $116,465 owing from officers of the Company, and $17,091 of other
assets.
<PAGE>
For the nine-months ended September 30, 1999 the Company's net cash used
for operating activities was $469,237 compared to net cash used for operating
activities of $259,619 for the nine-months ended September 30, 1998 (an increase
of $209,618 or 81%). The increase was primarily due to a net loss of $876,526
for the nine-month period ended September 30, 1999 compared to a net loss of
$335,956 for the nine-month period ended September 30, 1998 (an increase of
$540,570 or 161%), and an increase in accounts payable, customer deposits and
accounts receivables.
The Company increased its capital expenditures to $13,692 for the
nine-month period ended September 30, 1999 compared to $0 for the nine-month
period ended September 30, 1998, all of which relate to the purchase of
equipment.
The Company increased its net cash from financing activities for the
nine-month period ended September 30, 1999 to $484,564 compared to $256,656 for
the nine-month period ended September 30, 1998 (an increase of $227,908 or 89%).
The major component consisted of proceeds from sale of common stock of $611,446
for the nine-month period ended September 30, 1999 compared to $0 for the
nine-month period ended September 30, 1998.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
No report required.
Item 2. Changes in Securities and Use of Proceeds
No report required.
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) No exhibits required.
(b) No reports required.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ACCIDENT PREVENTION PLUS, INC.
Dated: June 14, 2000 By: /s/ Steven Wahrman
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Steven Wahrman, President
