SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO 2 TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
ACCIDENT PREVENTION PLUS, INC.
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(Name of Small Business Issuer in its charter)
State of Nevada
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(State or other jurisdiction of incorporation or organization)
11-3461611
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(I.R.S. Employer Identification No.)
325 Wireless Blvd.
Hauppauge, New York 11788
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(Address of Principal Executive Offices)
(631) 360-0600
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(Issuer's telephone number)
Securities to be registered pursuant to Section 12(b) of the Act: NONE
Securities to be registered pursuant to Section 12(g) of the Act: COMMON STOCK,
$.001 PAR VALUE
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TABLE OF CONTENTS
Page
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PART I
Item 1. Description of Business. 4
-Risk Factors 17
Item 2. Management's Discussion and Analysis or Plan of Operation. 24
-Results of Operation 26
-Liquidity and Capital Resources 28
Item 3. Description of Property. 32
Item 4. Security Ownership of Certain Beneficial Owners
and Management. 33
Item 5. Directors, Executive Officers, Promoters and Control Persons. 34
Item 6. Executive Compensation. 36
Item 7. Certain Relationships and Related Transactions. 37
Item 8. Description of Securities. 39
PART II
Item 1. Market Price and Dividends on the Registrant's Common
Equity and Other Shareholder Matters. 39
Item 2. Legal Proceedings. 40
Item 3. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. 40
Item 4. Recent Sales of Unregistered Securities. 41
Item 5. Indemnification of Directors and Officers. 43
Item 6. Financial Statements 44
PART III
Item 1. Index to Exhibits. 44
Item 2. Description of Exhibits. 44
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PART I
As used in this Registration Statement, the term "Company" refers to
Accident Prevention Plus, Inc., a Nevada corporation, and its subsidiaries. The
term "APP LLC" refers to Accident Prevention Plus, LLC, a limited liability
company organized under the laws of the State of New York. The term "IPS-NY"
refers to International Purchasing Services, Inc., a New York corporation, and a
wholly-owned subsidiary of the Company. The term "APP UK" refers to Accident
Prevention Plus (UK) Limited, a limited liability company organized under the
laws of England and Wales, and a wholly-owned subsidiary of the Company. The
term "APP France" refers to Accident Prevention Plus, France (SARL), a limited
liability company organized under the laws of France, and a wholly-owned
subsidiary of APP UK.
Statements made in this Registration Statement 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 "1933 Act") and
Section 21E of the Securities Exchange Act of 1934 (the "1934 Exchange Act").
These statements 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'0s
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. Factors that might cause such a difference
in the forward-looking statements include, but are not limited to, those
discussed in the section entitled "Risk Factors" under "Item 1. Description of
Business" on page 17 of this Registration Statement.
The following summary financial information is derived from the financial
statements of the Company, together with the notes thereto, included as an
exhibit to this Registration Statement. This summary information is qualified in
its entirety by reference to, and should be read in conjunction with, the
financial statements together with the notes thereto, and "Item 2. Management's
Discussion and Analysis or Plan of Operation".
For Fiscal Year Ended For Three Months Ended
12/31/99 12/31/98 3/31/00 3/31/99
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Net Sales $701,526 $237,688 $191,476 $ 25,946
Cost of Sales 214,061 147,008 66,495 13,052
Gross Profit 487,465 90,680 124,981 12,894
Expenses $1,558,596 $602,811 $485,064 $269,126
(1)
Net Loss ($1,173,837) ($605,241) ($397,018) ($279,800)
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(1)
Calculated after including Other Expenses/Income.
As of March 31, 2000, the Company's accumulated deficit since inception was
($3,571,936).
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ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT AND ORGANIZATION
Formation of the Company and APP LLC
Accident Prevention Plus, Inc. was formed during 1993 as a corporation
under the laws of the State of New York. During February 1996, Accident
Prevention Plus, Inc. converted to a limited liability company under the laws of
the State of New York ("APP LLC"). Since its inception in 1993, APP LLC has been
engaged in the design, marketing and distribution of onboard recording systems
and fuel monitoring systems for commercial and fleet vehicles.
Accident Prevention Plus, Inc. (the "Company") was incorporated under the
laws of the State of Nevada on October 28, 1998 to become the holding company of
APP LLC and International Purchasing Services, Inc., a New York corporation
("IPS-NY").
Effective as of October 28, 1998, the Company entered into an Exchange
Agreement (the "Exchange Agreement") with all of the equity members of APP LLC
pursuant to which it was agreed that the equity members would exchange their
interests in APP LLC for shares of common stock of the Company and the Company
would issue to the equity members shares of its common stock. As of October 28,
1998, the Company issued 14,205,970 shares of its restricted common stock to the
equity members of APP LLC in accordance with the terms and provisions of the
Exchange Agreement.
In accordance with the terms and provisions of the Exchange Agreement and
the Plan of Reorganization, the Company acts as the holding company of APP LLC
and IPS-NY. As used in this Registration Statement, the term "Company" will
include the subsidiaries of the Company unless otherwise individually
referenced.
Acquisition of International Purchasing Services, Inc.
International Purchasing Services, Inc. ("IPS-NY") was incorporated under
the laws of the State of New York on March 3, 1993 to provide general purchasing
services for other companies, and is a wholly-owned subsidiary of the Company.
Effective as of October 28, 1998, the Company acquired IPS-NY by entering into
an Agreement and Plan of Reorganization ("Plan of Reorganization") with IPS-NY
pursuant to which it was agreed that (i) the sole shareholder of IPS-NY would
transfer all of the issued and outstanding shares of IPS-NY to the Company in
exchange for shares of common stock of the Company, and (ii) the Company would
issue to the sole shareholder of IPS-NY 2,975,000 shares of its common stock. As
of October 28, 1998, the Company issued 2,975,000 shares of its restricted
common stock to the sole shareholder of IPS-NY.
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As of the date of this Registration Statement, IPS-NY is primarily
responsible to the Company for general shipping, receiving and warehousing
services, and for providing general purchasing services for the supply of
electromechanical active and passive components.
Termination of KMR Telecom Ltd.
Effective as of October 28, 1998, the Company also simultaneously acquired
KMR Telecom, Ltd., a corporation organized under the laws of India ("KMR") by
entering into an Agreement and Plan of Reorganization with KMR pursuant to which
it was agreed that (i) all of the shareholders of KMR would transfer all of the
issued and outstanding shares of KMR to the Company in exchange for shares of
common stock of the Company, and (ii) the Company would issue to the
shareholders of KMR an aggregate of 800,000 shares of its common stock.
During October 1999, however, management of the Company determined that
there was a mistake of fact involving the Agreement and Plan of Reorganization
with KMR. Management discovered that the laws of India prohibited a foreign
entity from holding more than a 49% equity ownership interest in a company
organized under the laws of India. Therefore, the Agreement and Plan of
Reorganization between the Company and KMR was in violation of the laws of
India. On November 21, 1999, retroactively effective to October 28, 1998, the
Company entered into a Rescission Agreement with KMR pursuant to which it was
agreed that (i) the Agreement and Plan of Reorganization with KMR would be set
aside, (ii) the previous shareholders of KMR would return to the Company their
respective stock certificates evidencing ownership of the 800,000 shares of
common stock of the Company, and (iii) KMR would cease to be a wholly-owned
subsidiary of the Company with no further rights or duties to the Company. The
previous shareholders of KMR have returned the stock certificates mistakenly
issued to the Company.
Establishment of United Kingdom Subsidiary - Accident Prevention Plus (UK)
Limited
On September 13, 1999, APP-UK formed Accident Prevention Plus (UK) Limited
("APP UK"), as a private limited company under the laws of England and Wales.
APP UK is a wholly-owned subsidiary of the Company and will provide services
including, but not limited to, sales and marketing, administration, and
technical support for the United Kingdom marketplace.
Acquisition of Accident Prevention Plus, France (SARL)
On December 17, 1999, APP-UK formed Accident Prevention Plus, France ("APP
France"), as a limited liability company under the laws of France. APP France is
a wholly-owned subsidiary of APP UK and will provide services including, but not
limited to, sales and marketing, administration, and technical support for the
European marketplace.
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The Company's principal executive offices are located at 325 Wireless
Blvd., Hauppauge, New York 11788. Its telephone number is (631) 360-0600, its
facsimile number is (631) 265-3351, and its e-mail address is
[email protected].
INDUSTRY OVERVIEW
The transportation industry has shown constant and steady growth in terms
of interstate commerce and the number of vehicles on the highways. Currently,
based on estimated 1998 government figures from the Federal Highway
Administration for commercial vehicle registration, over 49,000,000 commercial
vehicles are registered in the United States (with close to 3 billion miles
traveled annually), over 3,836,000 commercial vehicles are registered in the
United Kingdom, over 5,000,000 in France, over 500,000 in Belgium, over
3,800,000 in Canada, over 3,000,000 in Germany, over 2,800,000 in Italy, over
3,800,000 in Mexico, over 380,000 in Egypt, and 1,100,000 in Saudi Arabia.
Management believes that the transportation industry on a worldwide basis
represents a substantial marketplace in which the Company will be able to market
its products.
Management also believes that during the past eight years, fleet managers
of trucking companies have concentrated their efforts at becoming better
educated in the performance and evaluation of the costs associated with
operating and maintaining their fleets. The trend has been to use monitoring
devices, which include tachographs (use is currently mandatory in Europe),
onboard recording devices, fuel management and monitoring systems, and global
position systems ("GPS"). Management believes that fleet managers of major
trucking companies have realized that they are able to control and reduce costs,
thus becoming more profitable, through proper driver training, fleet management
and safety management.
Moreover, the importance of driver training and accident prevention systems
has reached governmental bodies and is being considered for possible legislation
in Europe. Some states in the United States have enacted legislation requiring
the use of breathalyzers for individuals who have been convicted of driving
while intoxicated or driving under the influence in order for those individuals
to be able to start their motor vehicles.
PRODUCTS
Onboard Recording Systems
The Company designs, develops, markets and sells a comprehensive line of
onboard computer recording systems, the APP1000, the APP2000 and the APP3000
(hereinafter, collectively called the "AP+Series"). The AP+Series Products
include a dual axis accelerometer designed and developed by the Company to
measure the sway of a vehicle, and onboard systems that monitor and record data
for accident prevention, driver training and evaluation, and maintenance
operations for fleet vehicles. The basic unit hardware is the same for the three
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series, although the APP2000 and APP3000 series have upgrades and will perform
more functions to meet the requirements of the customer. The AP+Series were
designed to (i) promote safe and efficient driving practices, (ii) provide
security for unauthorized operational use of a vehicle; (iii) automatically
monitor and record vehicle operational data for accident prevention, driver
training, driver evaluation and maintenance purposes; and (iv) reduce the
overall costs of maintaining and operating fleet vehicles. Each of the AP+Series
onboard recording systems are fully programmable data recorder systems that
include a data recorder for each fleet vehicle, a Smart-card for each driver, a
central card-reader with management computer software which is compatible with
Microsoft Windows.
The AP+Series are often dubbed "black boxes" after the ones used in large
aircraft. The AP+Series units can be custom-designed to specific requirements by
using individual operating parameters and are upgradable to meet further needs
of fleet management companies as they adapt to a changing world. The AP+Series
have the ability to monitor, record and retrieve numerous types of data
depending on the individual customer's specific requirements. Some examples of
the analyzed categories for the transportation industry include, but are not
limited to, (i) driving chronologies (maximum speed, deceleration, idling, last
20 overspeedings, brake occurrences and intensities), (ii) trip chronologies
(driver identification, date and time of vehicle usage, total driving time and
distance, dangerous braking occurrences), and (iii) vehicular chronologies
(distance/speed, engine rpm, lights, water temperature, oil temperature, air
pressure, vehicular sway). This data is permanently recorded thus often
providing a record of critical information.
Installation and Use. Installation and use of the AP+Series are comprised
of the following stages.
(i) Electronic sensors that normally pre-exist in each vehicle are
located and utilized whenever possible. In the event that a
vehicle is not equipped with pre-existing electronic sensors,
these sensors are installed in the existing electrical system
throughout various locations in the vehicle;
(ii) An AP+Series recording unit is located either on or under the
vehicle's dashboard. These units will then acquire the information
described above, which is delivered to the recording unit from the
electronic sensors located throughout the vehicle.
(iii) A "Smart card" is given to each driver and contains all
information deemed necessary by fleet/safety management, such as
identifying the driver (name, driver's license category, fleet
number, etc.). In order to start the vehicle, the driver must
insert his "Smart card" into the "Smart card" receptacle. The
vehicle will not start without this initial step, if programmed to
do so, and will not operate in an unauthorized vehicle or by an
unauthorized driver.
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(iv) The "Smart card" gives a permanent image of driver patterns and is
updated automatically each time the card is inserted into the
"Smart card" receptacle.
(v) Upon completion of the route, either daily or weekly, the fleet or
safety manager will insert the "Smart card" for a given vehicle
and/or driver into a "Smart card/memory" card reader that is
usually located at the fleet company's main office, thus
submitting to management a record of all collected data . The
reading of the "Smart card" containing all of the data takes
approximately four seconds.
(vi) The recorded data can then be entered automatically into any
personal computer operating under the "Microsoft Windows"
operating system. The collected data can then be evaluated for a
precise analysis of vehicle condition and driving performance. A
fleet manager can review a particular driver or vehicle in
connection with overall performance or for possible violations of
established company standards regarding speed, acceleration and
deceleration. A fleet manager can also review the overall
performance of drivers or vehicles by viewing performance from any
IBM compatible computer terminal.
Specific Features. Management believes that certain features of the
AP+Series onboard recording systems provide many cost-effective benefits
including reduced fuel consumption, reduction in the occurrence of accidents,
better preventative maintenance, reduced over-speeding by drivers, reduced
theft, an effective driver training tool, and the potential for reduced
insurance rates.
Safety/Accident Prevention. Management considers the AP+Series to be
proactive management tools designed to promote safe and efficient driving
practices. The AP+Series constantly monitors adherence by drivers to established
company driving standards, such as acceleration, deceleration, engine rpm and
speed. The AP+Series also assists drivers on the road by warning them when they
may be violating established company safety standards. It also records the
parameters of actual vehicle operation for appropriate use in driver training
programs. Furthermore, the AP+Series can educate drivers to adapt their driving
patterns to road conditions and environment and provide a powerful tool for
performance evaluation of both driver and vehicle. Management believes that not
only does the AP+Series help in preventing accidents, but it also is a
beneficial tool when accidents do occur.
Reporting. The AP+Series automatically records vehicle operational data
concurrent with sudden accelerations and decelerations, or collisions. The
AP+Series are designed to ensure that the data is secure from power failure and
tampering. Such unbaised recorded data may be used for later analysis, such as
in accident reports, or to confirm or refute claims that may be made against a
company or its drivers. All data recorded from the AP+Series can be printed from
an office printer in a variety of standard or customized reports or graphs.
These reports can be used in driver education programs, maintenance evaluation
of vehicles, and for other general fleet management programs.
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Security. The AP+Series provides security for vehicles and for vehicle
data. With use of an APP+Series, operational access to company vehicles can be
carefully, quickly and conveniently controlled by the fleet manager.
Cost-Effective Use. Management believes that by constantly monitoring fleet
vehicles, the AP+Series permits a company to more accurately schedule preventive
maintenance, increase fuel economy, and extend overall vehicle service life.
System data feedback to drivers should encourage more careful driving habits
that will serve to reduce the frequency of repairs and replacements, as well as
the occurrence accidents. Use of excessive quantities of fuel or oil, high
maintenance vehicles and other dangerous vehicle conditions can also be
identified before they become hazardous to the company's financial status or to
the general public.
Smart Card Technology. Management believes that the AP+Series are unique in
the industry due to use of the "Smart card" technology. The use of AP+Series
custom software gives the AP+Series the ability to be easily upgraded and
customized to meet customer specifications and needs. It also gives the
AP+Series the ability to be utilized outside of the fleet vehicle market.
A Smart card is a small electronic device about the size of a credit card
that contains electronic memory and an embedded integrated circuit. The
integrated circuit laminated into the card holds information securely and
accurately. Smart cards can store information that they are programmed for. They
can be programmed and accessed by many types of electronic readers and writers.
Management believes that use of the "Smart card" will allow the AP+Series
to be utilized by customers for non-transportation operations, such as use in
the medical field for recording and updating patient records and in a wide
variety of other fields where the monitoring, recording and tracking of
information is critical. "Smart card" technology may even be used by customers
of the Company to provide security in any area utilizing the technology
including, but not limited to, payroll, drivers' licenses, passports, medical
applications, debit cards, and student identification cards. See - "Customers
and Marketing".
As of the date of this Registration Statement, the Company has under
development other products including, but not limited to, the AP+Series 4000,
the Fuel Intake Monitoring System ("FIMS"), and a proprietary opacity sensor.
See - "Product Research/Development and Current Status".
MANUFACTURING
The Company is currently engaging the services of manufacturers which are
ISO 9000 certified. As of the date of this Registration Statement, the AP+Series
products are primarily manufactured by Nexus Corporation, a division of Jaco
Electronics located in Vermont ("Nexus"). As of the date of this Registration
Statement, Nexus has manufactured approximately 600 AP+Series products.
Management believes that its relationship with Nexus will enable the Company to
manufacture unlimited quantities of product through this source.
APP LLC and Lockheed Martin Corporation ("Lockheed") entered into a
manufacturing agreement dated January 24, 1997 whereby Lockheed generally agreed
to manufacture the printed circuit board assemblies for the FIMS and other
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product lines for a five year period upon request by the Company. The Company is
not obligated to utilize Lockheed for its manufacturing requirements. During
fiscal year 1999, the Company did not utilize Lockheed for the manufacture of
its products, and the Company does not anticipate that Lockheed will manufacture
any of its products during fiscal year 2000. Management has not made any
determination whether it will use Lockheed for the manufacture of any of its
products in the future.
The Company has established relationships with another manufacturing
company relating to the manufacture of the accelerometers. The Company entered
into a purchase agreement dated October 16, 1998 with Asteria Electronics SDN
BHD ("Asteria"), whereby Asteria agreed to manufacture the accelerometers. As of
the date of this Registration Statement, the Company has placed an order with
Asteria to purchase 300 accelerometers with 150 delivered to date.
The Company entered into an agreement dated May 12, 1999 with Schlumberger
Technologies, Inc., a manufacturer of the "Smart card" ("Schlumberger"). The
agreement with Schlumberger generally provides the Company with the
non-exclusive right to implement and utilize the Smart card technologies. As a
part of such negotiations, Schlumberger agreed to transfer to APP LLC all
technology data relating to the Smart card. Prior to the May 12, 1999 agreement,
APP LLC and Schlumberger had entered into a technology transfer agreement
pursuant to which Schlumberger agreed to provide APP LLC (i) access to all Smart
card technology and associated products for development and distribution by
Schlumberger, and (ii) the ability to employ the Smart card technology. APP LLC
had also entered into non-disclosure agreements with Schlumberger. As of the
date of this Registration Statement, the Company has the software, tooling,
readers and cards to program the AP+Series products for various applications.
PRODUCT RESEARCH/DEVELOPMENT AND CURRENT STATUS
AP+Series
The Company is currently developing the APP4000 system. Management
anticipates that the APP4000 system will include features such as a global
positioning system (GPS") for vehicular tracking, mapping and communications, an
in-vehicle alcohol sensor/breathalyzer unit, a fatigue sensor which will monitor
and record driver alertness, and a fingerprint application for greater security
when used in conjunction with the "Smart card". Management anticipates that
development of the APP4000 system will be completed in approximately six to
eight months from the date when adequate funding becomes available, and will
require approximately $250,000 of funding.
As of the date of this Registration Statement, the Company has installed
the AP+Series units in over 200 vehicles pursuant to an agreement with AFT-IFTM,
the largest driver training institute in Europe ("AFT-IFTM"). AFT-IFTM, which
generally promotes the driver training standards for the European Economic
Community, has subsequently trained over 30,000 drivers using the AP+Series
products. Management believes that the Company's relationship with AFT-IFTM will
enhance the marketability of its products in other countries.
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In the United States, the Company has installed one AP+Series unit on a
driver training simulator located at Carnegie Mellon University/Driver Training
& Safety Institute in Connellsville, Pennsylvania ("CM"). Management believes
that installation of the AP+Series unit on the driver training simulator creates
a strategic marketing edge for the Company because of the high visibility of
such installation to governmental agencies, such as the U.S. Department of
Transportation, the Federal Highway Administration and other universities and
driver training schools. Management believes that use of the AP+Series products
on CM's vehicles and simulators will provide the AP+Series products with greater
visibility for the driver training industry.
The Company has received a letter of intent from CM whereby CM will
distribute the AP+Series products to be used for driver education and research
applications. CM will also receive a commission for any AP+Series products sold
from their referral. The Company is currently in the process of finalizing an
agreement with CM regarding use of the CM Driver Training Institute as a test,
training and research center.
The Company entered into a contract dated August 1, 1999 with the American
Trucking Association ("ATA") pertaining to a federally funded project to study
fatigue in drivers administered by the Federal Highway Administration and ATA
that involved the use of one of the Company's products.
The Company entered into an agreement dated August 31, 1999 with
North-Shore Long Island Jewish Health Systems ("North Shore Hospital") regarding
(i) installation of the APP3000 onboard recording system (which has been
customized for use by North Shore Hospital) and related products on North Shore
Hospital ambulances, and (ii) provision of services to integrate the installed
APP3000 and related products with existing technologies utilized by North Shore
Hospital. As of the date of this Registration Statement, the Company has
installed one APP3000 onboard recording system on an ambulance as a test unit
and, subject to performance, the Company will be required to install an
additional 29 APP3000) onboard recording systems.
As of the date of this Registration Statement, the Company is engaged in
discussions with various companies to integrate alcohol breathalyzers with the
AP+Series products. Some states in North America have already enacted
legislation mandating individuals who have been convicted of driving while
intoxicated ("DWI") or driving under the influence ("DUI") to use alcohol
sensors and breathalyzers in their vehicles. Management believes that the design
of the AP+Series products provides flexibility for integration with other types
of technologies, such as alcohol breathalyzers.
As of the date of this Registration Statement, the Company is also engaged
in discussions with various manufacturers of driver training simulators used by
CM to install the AP+Series products on all such driver training simulators.
Fuel Intake Monitoring System
The Fuel Intake Monitoring System ("FIMS") was designed to automate and
simplify many aspects of the fueling process. Through the technological use of
radio frequency communication, the FIMS will provide a fleet owner with the
ability to reduce fuel theft, receive paperless billing for fuel consumed, and
reduce vehicle downtime by simplifying and speeding up the fueling process.
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Design/Usage. The design of the FIMS consists of a vehicle unit which is
capable of storing and transmitting data concerning the vehicle, including fuel
level, odometer reading, fuel type required, and the maximum amount of fuel
permitted per filling. The other components of the system include a nozzle unit,
tank inlet antenna, ground loop antenna, station controller and a LCD display on
the fuel pump at the retail filling station.
Once a vehicle pulls into a FIMS equipped filling station, the system
automatically identifies the vehicle, reads the vehicle's fuel level, fuel type,
current mileage and authorized fuel load. This identification process takes
approximately five seconds. During this process, the FIMS disables the fuel pump
until the fuel pump nozzle is placed inside the vehicle's fuel tank. In the
event the driver should attempt to remove the nozzle and fill a "gerry can", the
FIMS will no longer "see" the vehicle and will terminate fueling. This makes
pilferage of fuel or "gerry canning" virtually impossible. Gerry canning is a
common method employed by drivers whereby a driver may fuel not only the company
vehicle, but also their own private vehicle or gas can. Management estimates,
based on studies, that one major oil company in Europe with 3.5 million vehicles
under corporate contract was subjected to an approximate 6% rate of fuel
pilferage.
An additional advantage of the FIMS is the elimination of the need for
drivers to carry cash or credit cards for refueling purposes. Fueling is
completely controlled by a company using the FIMS with computerized monitoring
of all relevant vehicle data and subsequent paperless billing.
As of the date of this Registration Statement, the Company has pilot tested
the FIMS at two Shell Oil locations in Ruffec and St. Cloud, France. Management
believes that these pilot tests have proven the concept of FIMS to be valuable
and successful. The FIMS was also tested in the manufacturing laboratories of
Schlumberger, Shell Retail Petroleum Europe and Lockheed Martin. The FIMS
received "CE" approval for sale in Europe from Emitech (the equivalent of the
Underwriters Laboratory in the United States).
Management has made a strategic business decision to hold introduction of
the FIMS into the marketplace until patent searches are completed, and
negotiations are completed with the University of South Florida (USF) with
respect to the Company's rights to the FIMS technology. See the next paragraph
for additional information relating to the FIMS technology and the Company's
right to that technology. Management anticipates that upon its introduction into
the marketplace, the integration of the FIMS into the AP+Series will be
completed.
During fiscal year 1996, APP LLC entered into a grant award agreement with
the Technology Deployment Center, Pinellas County, FL, in conjunction with the
University of South Florida ("USF") for the research, development and design of
the FIMS. USF had received a grant of approximately $428,793 for the research,
development and design of the FIMS and forwarded such proceeds to a
sub-contractor chosen jointly by USF and APP LLC. Pursuant to the terms of the
agreement, APP LLC agreed to (i) direct the research, development and design of
the FIMS and bring such technology to a saleable commercial product, and (ii)
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repay to USF structured payments based on revenues generated from the FIMS
product sales. Pursuant to the terms of the agreement, in the event no revenues
were generated from sales of the FIMS within two years after completion of the
funding, all rights to the technology relating to the FIMS will revert
exclusively to USF. As of the date of this Registration Statement, the Company
has not sold FIMS products and according to the terms of the agreement, rights
to the technology relating to the FIMS should have reverted to USF. The Company
intends to pursue negotiations with USF regarding its respective percentage
ownership interest in the rights to the technology relating to the FIMS in view
of the fact that the Company expended its own funds for payment of research and
development expenses prior to and after such funding. There is no guarantee that
the Company will be successful in such negotiations and may potentially loose
all rights to the technology relating to the FIMS.
Other Products
In conjunction with a subcontractor, the Company has also designed and
developed a proprietary opacity sensor for incorporation into the AP+Series,
which is capable of reading vehicle emissions during the operation of the
vehicle. This function will provide fleet managers with the ability to monitor
and record in real time and ensure their ability to maintain compliance with
measurement requirements of exhaust emissions established under rules and
regulations promulgated by the Environmental Protection Agency ("EPA").
Management intends to conduct patent research on this technology which has been
designed to meet such measurement requirements.
The Company has planned new product development to meet the needs of a
consumer related low-cost system to sell to the major automobile manufacturers.
CUSTOMERS AND MARKETING
Customers
The Company currently sells the AP+Series and related products in Europe,
North America, Africa and Australia. Customers for the AP+Series and related
products are primarily transport companies and driver training institutions. The
Company's current market concentration has been in Europe due to existing
relationships with certain clients. Management's primary objective is to
penetrate the European, North American, African and Australian markets.
For fiscal year ended December 31, 1999, the Company had three unrelated
customers which accounted for approximately 42%, 36% and 17%, respectively, of
total revenues.
For fiscal year ended December 31, 1999 and the three-month period ended
March 31, 2000, presented below in tabular form are the revenues attributed to
sales of the Company's AP+Series products in Europe, North America, Africa and
Australia, which sales constituted 100% of the gross revenues derived by the
Company from the sale of its AP+Series products. The Company has not generated
revenues from the sale of any of its other products.
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--------------------------------------------------------------------------------
Total Sales By Geographic Region
During Fiscal Year During Three-Month Period
Ended 12/31/99 Ended 3/31/00
Europe $353,700 $110,000
North America $ 79,700 $ 80,500
Africa $265,700 $ -0-
Australia $ 2,400 $ -0-
Total $701,500 $190,500
--------------------------------------------------------------------------------
Marketing Strategy
The Company intends to seek to capture market niches in the fields of
transportation and medicine. Some of the proposed developments in the medical
field include the use of Smart card technology in doctors' offices, hospitals,
ambulances and insurance companies. Management believes that within the
transportation industry, the AP+Series products with Smart card technology may
be utilized in emergency vehicles for police, fire and ambulance departments. In
addition, the AP+Series products coupled with the Smart card technology may be
used by a variety of businesses or governmental agencies to create and track
drivers' licenses, or to create passports, medical cards or insurance cards,
which would provide instant access to critical information.
The Company intends to market the AP+Series and related products through
the use of distribution agreements, joint ventures, direct sales and independent
commissioned representatives. To aid in the marketing of the AP+Series and
related products, the Company intends to utilize several marketing approaches
including advertising in trade publications, press releases, Company sponsored
training seminars, speaking engagements and advertising promotional tools, such
as CD-ROMs, catalogs and participation in trade shows. The Company intends to
make its operational software available in various languages to meet the needs
of the particular markets. The Company's services and products are also
electronically advertised on the Company's web page at www.applus.com. The
Company will continue to emphasize attendance at trade shows, Company sponsored
training seminars, press releases, speaking engagements and independent third
party distribution agreements in its marketing efforts. The Company's
international sales represented 89% of the Company's total revenues in fiscal
year 1999 (excluding the continent of North America). Management intends to
direct a significant portion of its marketing efforts toward further market
penetration in international markets, with its primary emphasis upon Europe,
Africa and Australia.
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Contractual Arrangements
The Company has representatives and distributors in Israel, Europe, Africa,
Mexico and India. From April 1997 through June 1997, APP LLC entered into four
separate installation and service agreements with World Asset Management, Inc.,
which is headquartered in New Milton Hampshire, United Kingdom ("WAM"), Atlantic
Financial Management, Inc, which is headquartered in Fouesnant, France ("AFM"),
Avignon Trading, Inc., which is headquartered in Savion, Israel ("Avignon"), and
Darien Partners Investments, Inc., which is headquartered in Malaysia
("Darien"). Pursuant to the terms of the respective installation and service
agreements, WAM, AFM, Avignon and Darien are responsible for (i) establishing
distribution and sales channels along with the necessary infrastructure required
for the successful marketing of the AP+Series products, and (ii) installation
and maintenance of the AP+Series products. In accordance with the terms of the
respective installation and service agreements, WAM, AFM, Avignon and Darien
received an approximate 4.9% membership interest in APP LLC.
Pursuant to the reorganization of the Company and the Exchange Agreement in
which the members of APP LLC agreed to exchange their equity membership
interests in APP LLC for shares of common stock in the Company, the Company
issued (i) 795,000 shares of its restricted Common Stock to WAM, (ii) 790,000
shares of its restricted Common Stock to AFM, (iii) 800,000 shares of its
restricted Common Stock to Avignon, and (iv) 795,000 shares of its restricted
Common Stock to Darien. Neither the Company nor its subsidiaries own any shares
of common stock of WAM, AFM, Avignon or Darien, and the Exchange Agreement among
the Company and WAM, AFM, Avignon and Darien was entered into pursuant to
arms-length negotiations.
Although the Company has not generated any significant revenues to date,
the Company has established these contractual relations with WAM, AFM, Avignon
and Darien in anticipation of future sales and distribution of its products. As
of the date of this Registration Statement, the contractual arrangements with
WAM, AFM, Avignon and Darien primarily provide the Company with installation and
service management in the event the Company establishes a presence in these
foreign markets through the distribution and sale of the AP+Series and related
products. Management believes that this would not only strengthen the Company's
structure and potential marketability of the AP+Series and related products, but
also places the Company in a favorable position to properly service the
AP+Series and related products sold and distributed in those foreign markets.
In addition, APP LLC and American Overseas Corporation, an investment
company formed under the laws of British Virgin Islands ("AOC"), entered into a
distributor agreement dated August 20, 1998 pursuant to which AOC agreed to (i)
assist in the establishment of marketing and distribution services for the
AP+Series and related products worldwide, and (ii) pay APP LLC $5,000,000 within
a thirty-six (36) month period for the non-exclusive unlimited rights to
purchase the AP+Series and related products and to sell those products
worldwide, with an initial payment of $2,000,000 due and owing on August 20,
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1999. During July 1999, the agreement was amended to provide that (i) $1,000,000
payment will be due and owing sixty days from the date that the Company's shares
of common stock commence trading, (ii) an additional $1,000,000 will be due and
owing within eight months from the date the Company's common stock commences
trading, and (iii) the balance of $3,000,000 will be due and owing on or before
August 20, 2001.
EMPLOYEES AND CONSULTANTS
As of the date of this Registration Statement, the Company employs 15
persons on a full-time and 2 persons on a part time basis. The Company's
President and Chief Executive Officer are primarily responsible for all
day-to-day operations of the Company. Other services are provided by outsourcing
and management contracts. As the need arises and funds become available,
however, management may seek additional employees as necessary in the best
interests of the Company. The following lists and describes certain services
performed for the Company by consultants. See "Item 5. Directors, Executive
Officers, Promoters and Control Persons - Advisors and Consultants".
(i) APP LLC and Bristol Consulting Ltd. ("Bristol") entered into a
consulting agreement dated July 30, 1998 pursuant to which Bristol
agreed for a period of five years to (i) assist in the development of
an international market for the AP+Series and related product lines,
and (ii) provide advice regarding corporate structure, capital
acquisition, contracts, equity partners and mergers and acquisitions
pertaining to the Middle East and Far East. The agreement further
provided that APP LLC would pay to Bristol a monthly fee of $5,000 for
the first three months of the agreement and, thereafter, a monthly fee
of $10,000 for the duration of the agreement.
During fiscal year 1999, Bristol performed certain services on behalf
of APP LLC including, but not limited to, (i) the development of
international markets and consummation of the distribution contract
with AOC; and (ii) the establishment of contractual relationships for
the manufacture of accelerometers in the Far East. In accordance with
the terms of the consulting agreement, Bristol received an approximate
5% membership interest in APP LLC. Pursuant to the reorganization of
the Company and the Exchange Agrement in which the members of APP LLC
agreed to exchange their equity membership interests in APP LLC for
shares of common stock in the Company, the Company issued 710,229
shares its restricted common stock to Bristol. During fiscal year
1999, the Company also accrued $120,000 and paid $62,500 to Bristol
for services rendered. See "Item 2. Management's Discussion and
Analysis or Plan of Operation - Material Commitments".
(ii) APP LLC and Royce Anderson & Monroe, Inc. ("Royce Anderson") entered
into a consulting agreement dated July 30, 1998 pursuant to which
Royce Anderson agreed for a period of five years from the date of the
agreement to (i) assist with development of a market within the United
States and the Western Hemisphere for the AP+Series and related
products, and (ii) provide advice regarding corporate structure,
acquisitions, mergers and equity partners.
16
<PAGE>
the establishment of the marketing and sales structure within APP LLC;
and (ii) assistance with the negotiation and consummation of major
contractual arrangements. In accordance with the terms of the
consulting agreement, Royce Anderson received an approximate 10%
membership interest in APP LLC. Pursuant to the reorganization of the
Company and the Exchange Agreement, the Company issued 1,420,597
shares of its restricted common stock to Royce Anderson. During fiscal
year 1999, the Company did not pay any fees to Royce Anderson.
The Company is not a party to any labor contract or collective bargaining
agreement. The Company has experienced no significant labor stoppages in recent
years, and management believes that such relations are satisfactory.
PATENTS, LICENSES, TRADEMARKS, CONCESSIONS AND ROYALTY AGREEMENTS
The Company has no patents, licenses, franchises, concessions or royalty
agreements that are material to its business as a whole. Prior to December 31,
2000, management intends to file an application for trademark protection for its
"AP+Series" products with the United States Patent and Trademark Office. If a
certificate of registration for the trademark "AP+Series" is issued, such
registration will remain in full force and effect for a period of ten years,
subject to satisfaction of certain requirements. Although management believes
that there is no infringement on existing patents, trade secrets or confidential
information, there is no assurance that such legal proceedings might not be
initiated against the Company.
RISK FACTORS
The shares of the Company are highly speculative and involve an extremely
high degree of risk. Shareholders of the Company should consider the following
risk factors.
Recent Losses Incurred in Amounts of $1,173,172 and $605,241 in 1999 and
1998.
The Company incurred recent losses in the amounts of $1,173,172 during
fiscal year 1999 and $605,241 during fiscal year 1998. These losses reflect,
among other factors, expenses associated with research and development of the
AP+Series products and related products, selling, general and administrative and
interest expenses. Such expenses, along with other expenses, will continue to
increase until the Company attains profitable operations. There is no assurance
that the Company will attain profitable operations.
The Company has had limited sales of the AP+Series and related products.
Therefore, the Company does not have any prior substantial financial results
upon which an assessment of the Company's potential for success may be based.
Accordingly, the success of the Company will be in part dependent on
management's ability to continue financing the business operations of the
Company. The Company is subject to all the risks and uncertainties which are
characteristic of a new business enterprise, including the problems, expenses
and other difficulties typically encountered in the course of establishing new
markets, training new personnel, and organizing and conducting operations. The
17
<PAGE>
Company faces all of the risks specifically inherent in the type of business in
which the Company engages. There can be no assurance that the Company will be
able to operate successfully or profitably.
Company's Ability to Continue as a Going Concern.
As of the date of this Registration Statement, there is uncertainty
regarding the Company's ability to continue as a "going concern" as the Company
has generated limited revenues from operations, has a working capital deficit
and a stockholders' deficit. Therefore, the opinion of the Company's auditors,
Massella, Tomaro & Co. LLP, has been qualified with respect to the Company's
ability to continue as a "going concern".
Although management believes that the Company will be able to continue and
maintain its status as a "going concern" based on its future ability to raise
additional capital from private investors, generate revenues and minimize
operating expenses, there can be no assurance that the Company will be able to
continue as a going concern. See "Financial Statements".
Company Depends on Key Personnel.
The Company is substantially dependent upon the personal efforts and
abilities of its officers and directors, Richard J. Goodhart, Steven H. Wahrman
and Jean Paul Daveau. The loss of any of the Company's officers or directors
could be detrimental to the operations of the Company and have a materially
adverse affect on the Company's ability to operate successfully. However,
certain of the officers and directors have entered into extended employment
agreements with the Company. The Company has purchased "key man" life insurance
for Mr. Goodhart in the amount of $500,000 and is currently seeking to obtain
"key man" life insurance for Messrs. Wahrman and Daveau. See "Item 5. Directors,
Executive Officers, Promoters and Control Persons - Advisors and Consultants."
With the exception of Mr. Valente, the Company's Chief Financial Officer,
the Company's current officers and directors do not engage in other businesses
for their own account. They devote their full time to the affairs of the
Company. Mr. Valente does not devote his full time to the affairs of the
Company, and he has and may have other business interests to which he may devote
a major or significant portion of his time. Further, Mr. Valente may engage in
other businesses, either individually or through partnerships and corporations
in which he may have an interest, hold an office or serve on the board of
directors. Certain conflicts of interest, therefore, may arise between the
Company and Mr. Valente. Mr. Valente intends to resolve such conflicts in a
manner that is consistent with his fiduciary duties to the Company.
Company Needs Qualified Employees.
The success of the Company is dependent upon its ability to attract and
retain qualified technical, marketing and production personnel, either by
contractual outsourcing or hiring of employees. The Company may have to compete
with other larger companies for such personnel, and there can be no assurance
that the Company will be able to attract or retain such qualified personnel.
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Industry is Highly Competitive.
The onboard recording systems industry is highly competitive. The Company's
major competitors in the marketplace are primarily Cadec, Mobile Data Systems,
Orpak, Qualcomm, VDO, Elextor, Tripmaster and Eaton Corporation. Such
competition appears to be related primarily to Global Positioning Systems. Data
Express and Qualcomm have similar onboard recording products, and Mobile Data
Systems has developed a system closely resembling the AP+Series products. The
Company may also face competition from other, similar companies with financial
resources far greater than those of the Company. Many of the Company's
competitors may have substantially greater technical, financial and marketing
resources than the Company.
There is a Liquidity Crisis and Need for Additional Financing.
As of the date of this Registration Statement, the Company is experiencing
a severe liquidity crisis and has not generated significant revenues from sale
of the AP+Series and related products. The Company has financed itself primarily
from advances from principal shareholders, bank loans, and raising additional
capital from private investors. The continued development of the AP+Series and
related products and expansion and operation of the Company's business is
dependent upon its ability to obtain additional financing. Management believes
that the Company may require up to $1,000,000 of additional financing to cover
its operational expenses through September 30, 2000. There can be no assurance,
however, that the Company will be able to obtain financing from the sale of debt
or equity instruments, bank loans or other sources on terms acceptable to the
Company. If available, any additional equity financings may be dilutive to the
Company's shareholders and any debt financing may contain further restrictive
covenants and additional debt service requirements, which could adversely affect
the Company's operations. See "Item 2. Management's Discussion and Analysis or
Plan of Operation."
Tax Liens Have Been Filed Against the Company.
At March 31, 2000 and December 31, 1999, the Company owed approximately
$106,391 and $92,760, respectively, for payroll taxes and related penalties and
interest. The Internal Revenue Service and the Employment Commission of the
State of New York have filed liens against the Company, respectively, as a
result of the unpaid payroll taxes. The authority provided to these governmental
entities may enable such taxing authorities to seize the Company's assets to pay
the respective taxes due and owing. In the event that such taxing authorities
initiate any such action or other legal action against the Company, the results
could adversely affect the Company's ability to operate. See "Item 2.
Management's Discussion and Analysis or Plan of Operation".
There is a Possible Violation of Federal/State Securities Laws.
The Company may have violated federal and state securities laws in
connection with the sales of its shares of Common Stock to investors under a
private placement offering that was not registered under the federal securities
laws. The offering and sale of such shares of the Company's Common Stock
pursuant to its Private Placement Memorandum dated January 27, 1999 and April 7,
1999, respectively, was conducted pursuant to an exemption from registration in
accordance with Regulation D, Rule 504, under the Securities Act of 1933, as
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amended (the "1933 Securities Act"). The Company continued to sell its shares of
Common Stock to investors after the date the Company effectively became a
reporting company under the Securities Exchange Act of 1934, as amended (the
"1934 Exchange Act"). The exemption under Rule 504 of Regulation D, and any
other exemption, may not have been available to the Company for these sales. As
a result, the private placement may have violated federal securities laws.
Moreover, certain state securities rules and regulations may not have been
complied with to ensure availability of a private placement transactional
exemption. Management estimates that the Company's potential rescission
liability is in the amount of $202,939. The Company cannot be certain that it
would have such sufficient funds to repurchase the shares of Common Stock sold
in the private placements. In addition, the Company may be subject to liability
and fines or penalties under the federal securities and/or state securities
laws.
Maintenance of Product Liability Insurance.
Due to the nature of the AP+Series products and related products, it is
possible that purchasers of the product could sustain or allege injury due to or
as a result of the malfunction of the product and that the Company could be held
liable for damages due to such injuries. The Company did not maintain any
products liability insurance coverage or any other form of general insurance
coverage from October 1997 through November 1999. In December 1999, the Company
obtained product liability and general insurance coverage in the amount of
$1,000,000 against such liability. There can be no assurance that the Company
will not be held liable for damages not covered by or in excess of any insurance
coverage.
Control of the Company.
As of the date of this Registration Statement and without taking into
account the shares of Common Stock that may be acquired upon exercise of certain
stock options, three of the directors of the Company as a group beneficially own
approximately 45% of the outstanding shares of Common Stock (does not include
exercise of stock options). Based upon this current ownership interest, these
three directors may be in a position to effectively control the business and
affairs of the Company, including certain significant corporate actions such as
the sale or purchase of assets and the issuance and sale of the Company's
securities.
The Company Depends on Its Proprietary Technology.
The Company is heavily dependent upon its proprietary technology. There can
be no assurance that others have not independently developed, or will not
independently develop, similar products and technologies or otherwise duplicate
any of the AP+Series products or related products and technologies.
The Company Depends on Existing Contractual Relations.
The Company's success will depend on the successful introduction and
marketing of the AP+Series products and related products in the global
marketplaces which may, in turn, be dependent upon the continued existence of
favorable contractual relations with its manufacturers and suppliers of integral
component parts, including Schlumberger, the manufacturer of the "smart card".
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The Company's operations could be materially and adversely affected by the
failure of such manufacturers and suppliers to honor their contractual
arrangements with the Company. There is no assurance that such favorable
contractual relations will continue.
The Company Depends on a Limited Number of Customers
During fiscal year ended December 31, 1999, the Company had three unrelated
customers which, in the aggregate, accounted for approximately 95% of the
Company's total sales. Therefore, the operations and generation of revenues are
dependent on the Company's ongoing relationships with these customers. The
Company's business operations and prospects for generation of future revenue
could be materially and adversely affected by the failure of these customers to
continue their respective relationships with the Company.
There are Risks Involved with International Sales/Year 2000 Issues.
The AP+Series products and related products are sold by the Company in
North America and internationally, principally in Europe and Africa, with
intentions to expand globally. During fiscal year ended December 31, 1999,
international sales accounted for approximately 89% of the Company's total
sales. Therefore, the Company faces certain risks associated with international
sales. International sales may be subject to political and economic risks,
including political instability, currency controls and exchange rate
fluctuations, and changes in import/export regulations, tariff and freight
rates. Changes in tariffs or other trade policies could adversely affect the
Company's customers or suppliers.
Many existing computer programs, including programs used by the Company's
distributors in certain foreign countries, use only two digits to identify a
year in the date field. These programs were designed without considering the
impact of the upcoming change in the century. If not corrected, these computer
applications and systems could fail or create erroneous results by, at or after
the year 2000 thus disrupting the distribution and sale of the Company's
products in these countries. As of the date of this Registration Statement, the
Company has not experienced any Y2K problems associated with its AP+Series
products and related products, its computer applications and systems. Management
believes that all of the AP+Series products and related products, its computer
applications and systems are and continue to be Y2K compliant. Management
further believes that the Company's significant distributors and suppliers are
also Y2K compliant. However, in the event that the Company's significant
distributors and suppliers do not maintain Y2K compliance, the Company's
business or operations could be adversely affected or interrupted in these
countries.
There are Political and Economic Risks in Foreign Marketplaces.
The Company intends to enter the global marketplace which includes, but is
not limited to, the marketplaces within the United Kingdom, Israel, Africa and
the Far East and Middle East. As a result, the Company's operations and sale of
the AP+Series and related products in these countries may be subject to
political, economic, legal and other uncertainties occurring within these
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countries. Changes in policies by the respective governments may result in
changes in laws, regulations or the interpretation thereof, confiscatory
taxation, restrictions on imports and sources of supply, import duties,
corruption, and currency revaluation, all of which may materially and adversely
affect the Company. Moreover, economic reforms and growth in the Far East and
Middle East countries have been initiated, and success in certain countries has
been more prevalent than in others. The continuation or increase of any such
disparities regarding economic reforms and growth could affect the political and
social stability of the Far East and Middle East, and thus the operations of the
Company. Moreover, there can be no assurance that future controversies will not
arise which would threaten trade relations between the United States and the
respective country. In any of such eventualities, the business of the Company
could be adversely affected.
Company Operations May be Subject to Government Regulation.
The Company's operations may be subject to a variety of laws, regulations
and licensing requirements of federal agencies including, but not limited to,
the U.S. Department of Transportation and the Federal Highway Administration, as
well as state and local authorities. Each of these agencies may regulate various
aspects of licensing, permitting and operations of the AP+Series and related
products. In certain jurisdictions, the Company may be required to obtain
licenses or permits, to comply with standards governing employee selection and
training, and to meet certain standards in the design and manufacture of the
AP+Series and related products. The loss of such licenses, or the imposition of
conditions to the granting or retention of such licenses, could have a material
adverse effect on the Company. Although management believes that imposition of
any such regulations will not impose great burdens upon the operation of the
Company, such regulations are subject to constant change. Unforeseen changes in
such regulations may have a significant impact on the Company.
The Company's advertising and sales practices may be regulated by both the
Federal Trade Commission and state consumer protection laws. Such regulations
may include restrictions on the manner in which the Company may promote the sale
of its products and the obligation of the Company to provide certain of its
customers with rescission rights.
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Defaults under Credit Arrangements and Restrictions on the Company's
Financing Activities.
The Company is in default under its credit arrangements, and the agreements
with its lenders substantially restrict its activities. As a result, the
Company's ability to obtain financing from conventional lending sources is
severely limited. Historically, the Company has financed its operations in part
by obtaining bank loans and lines of credit. One such financing involved a Small
Business Administration guaranteed purchase order line of credit originated by
Marine Midland Bank (now HSBC Bank). In order to obtain this line of credit, the
Company signed an agreement that restricts its activities in a number of ways,
including subsequent borrowing, the structure of the Company, and its
securities. In addition, the Bank of Smithtown has required that Mr. Richard
Goodhart, a director of the Company, pledge a certain number of his shares of
Common Stock as collateral. See "Item 2. Management's Discussion and Analysis or
Plan of Operation".
There May Be Future Sales of Common Stock.
As of the date of this Registration Statement, the Company has 17,778,196
shares of its Common Stock issued and outstanding. Of the 17,778,196 of the
Company's current outstanding shares of Common Stock, 340,498 are free trading
and 17,437,698 shares are restricted as that term is defined in Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
The Securities Act and Rule 144 promulgated thereunder place certain
prohibitions on the sale of such restricted securities. Such restricted shares
will not be eligible for sale in the open market without registration except in
reliance upon Rule 144 under the Securities Act. In general, a person who has
beneficially owned shares acquired in a non-public transaction for at least one
year, including persons who may be deemed "affiliates" of the Company as that
term is defined under the Securities Act, would be entitled to sell within any
three month-period a number of shares that does not exceed the greater of 1% of
the then outstanding shares or the average weekly trading volume on all national
securities exchanges and through NASDAQ during the four calendar weeks preceding
such sale, provided that certain current public information is then available.
If a substantial number of the shares owned by the existing shareholders were
sold pursuant to Rule 144 or a registered offering, the market price of the
Company's Common Stock could be adversely affected.
Further, future sales of shares of Common Stock pursuant to offerings could
have a depressing effect on the price of the Common Stock and adversely affect
the Company's ability to raise capital in the future.
There May Be Volatility of Stock Prices When the Company's Stock Begins
Trading.
As of the date of this Registration Statement, the Company's Common Stock
does not trade on any market. However, the markets for equity securities have
been volatile and the price of the Company's Common Stock, when it commences
trading, could be subject to wide fluctuations in response to quarter to quarter
variations in operating results, news announcements, trading volume, sales of
Common Stock by officers, directors and principal shareholders of the Company,
general market trends both domestically and internationally, changes in the
supply and demand for the Company's shares, and other factors. These factors can
be expected to affect the market price of the Company's shares of Common Stock
when the Company receives the approval by the National Association of Securities
Dealers, Inc. (the "NASD") to trade the Company's shares of Common Stock on the
OTC Bulletin Board.
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Broker-Dealers May Sell Shares of the Company's Stock.
The Common Stock of the Company will be defined as a "penny stock" under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Exchange Act and the penny stock rules and regulations promulgated thereunder
generally impose additional sales practice and disclosure requirements upon
broker-dealers who sell the Company's Common Stock to persons other than
"accredited investors" (generally, defined as institutions with assets in excess
of $5,000,000 or individuals with net worth in excess of $1,000,000 or an annual
income exceeding $200,000 ($300,000 jointly with a spouse) or in transactions
not recommended by the broker-dealer.
For transactions covered by the penny stock rules, the broker-dealer must
make a suitability determination for each purchaser and receive the purchaser's
written agreement prior to the sale. In addition, the broker-dealer must make
certain mandated disclosures in penny stock transactions, including the actual
sale or purchase price and actual bid and offer quotations, the compensation to
be received by the broker-dealer and certain associated persons, and deliver
certain disclosures required by the Securities and Exchange Commission.
Consequently, the penny stock rules may affect the willingness of broker-dealers
to make a market in or trade the common shares of the Company and thus may also
affect the ability of shareholders of the Company's Common Stock to resell those
shares in the public markets.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
This section contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under the section "Item 1. Description of Business -
Risk Factors". This section should be read in conjunction with the Company's
Consolidated Financial Statements included herein. Certain of the financial
statements and the discussion below in the comparative fiscal year ends include
reference to amounts and balances of the Company and APP LLC for the entire year
and from October 28, 1998 (the acquisition date) to December 31, 1998 for
IPS-NY.
GENERAL
Since inception, the Company has focused primarily on the research,
development and design of the AP+Series products and related products, and
generated little revenues. During prior fiscal years, the principals of the
Company invested personal funds, arranged for loans and lines of credit from
private lenders and financial institutions, and secured grants to support the
research and development expenses of the Company.
As of the date of this Registration Statement, 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 and
integration contracts and its subsidiaries.
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During the three-month period ended March 31, 2000, sales of the AP+Series
products to the Company's customers accounted for approximately 93% of total
gross revenues, with IPS-NY contributing approximately 7%. During fiscal year
ended December 31, 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.
Selected Financial Data
The following selected financial data should be read in conjunction with
the financial statements and related notes thereto appearing elsewhere in this
Form 10-SB. The selected financial data as of December 31, 1998 and 1999 and for
each of the two years in the period ended December 31, 1999 have been derived
from the financial statements of the Company which have been audited by the
Company's independent auditors and are included elsewhere in this Form 10-SB.
The selected financial data provided below is not necessarily indicative of the
future results of operations or financial performance of the Company.
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
------------------------- -------------------------
Statement of Operations Data: 1999 1998 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
(In 000's)
Net Sales $ 702 $ 238 $ 191 $ 26
Cost of Sales 214 147 66 13
----------- ----------- ----------- -----------
Gross Profit 488 91 125 13
Expenses:
Selling, general and administrative 1,156 565 433 224
Research and development 403 38 52 45
----------- ----------- ----------- -----------
Total Expenses 1,559 603 485 269
Loss Before Other Income (Expenses)
And Provision For Income Tax -1,071 -512 -360 -256
Other Income (Expenses)
Interest Income 35 6 10 9
Gain on foreign currency transaction 3 -- -- 4
Interest Expense -141 -99 -47 -36
----------- ----------- ----------- -----------
Total Other Income (Expense) -103 -93 -37 -23
----------- ----------- ----------- -----------
Loss Before Provision For Income Taxes -1,174 -605 -397 -279
Provision For Income Taxes -- -- -- --
----------- ----------- ----------- -----------
Net Loss -1,174 -605 -397 -279
Other items of Comprehensive Income 1
----------- ----------- ----------- -----------
Comprehensive Net Loss -1,174 -605 -396 -279
Basic Earnings Per Share (Net Loss) -.07 -.04 -.02 -.02
Weighted Average Number of Shares
Outstanding 17,629,462 17,195,345 17,785,559 17,298,970
</TABLE>
At December 31, At March 31,
--------------- ------------
Balance Sheet Data: 1999 2000
---- ----
Working capital -$2,226,395 -$2,397,007
Current assets 315 391
Current liabilities 2,542 2,788
Total assets 846 965
Total liabilities 3,140 3,656
Shareholders' Deficiency -2,497 -2,893
25
<PAGE>
RESULTS OF OPERATIONS
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
The Company's net losses for fiscal year ended December 31, 1999 were
approximately $1,173,172 compared to a net loss of approximately $605,241 for
fiscal year ended December 31, 1998.
Net revenues for fiscal year ended December 31, 1999 and 1998 were $701,526
and $237,688, respectively. Net revenues increased by approximately $463,838 or
195% for fiscal year ended December 31, 1999 as compared to fiscal year ended
December 31, 1998. Gross profit for fiscal years ended December 31, 1999 and
1998 amounted to $487,465 and $90,680, respectively, or a net increase of
$396,785. Gross profit percentages for fiscal year ended December 31, 1999 and
1998 were 69% and 38%, respectively, or a net increase of 82%.
The substantial increase in gross profit is a result of larger purchases of
systems, reduced component costs, price re-negotiations with vendors, and
redesign of the PC board layout for cost economy. The increase in sales during
fiscal year ended December 31, 1999 as compared to fiscal year ended December
31, 1998 is attributable to a stronger marketing campaign, and fulfillment of
major contracts, which are either executed or in the final stage of execution.
The Company and its subsidiaries have entered into various agreements with
certain entities in order to establish distribution channels, corporate
structures, contract applications in foreign and domestic countries, performance
of certain pilot tests, and development of new products.
Selling, general and administrative expenses for fiscal year ended December
31, 1999 and 1998 were $1,155,616 and $565,301, respectively (an increase of
$590,315 or 104%). The increase in selling, general and administrative expenses
for fiscal year ended December 31, 1999 were primarily due to the Company
incurring costs associated with its marketing efforts, officers salaries,
professional fees, and personnel costs.
Research and development expenses for fiscal year ended December 31, 1999
were $402,980 as compared to $37,510 for fiscal year ended December 31, 1998 (an
increase of $365,470). The increase in research and development expenses is
primarily due to the development of an upgradeable modular unit to assist in the
diversification of the Company's product lines, the dedication of significant
funds to the development of an advanced system which will be used in ambulances
pertaining to the contract between the Company and North Shore - Long Island
Hospital, 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 anticipated marketing 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.
As a result of these factors, comprehensive net loss for the year ended
December 31, 1999, was $1,173,172, an increase of $567,931, or 93.83%, as
compared to a comprehensive net loss of $605,241 for the year ended December 31,
1998. Management believes that the substantial increase in comprehensive net
loss during the fiscal year ended December 31, 1999 as compared to fiscal year
ended December 31, 1998, is attributable primarily to a substantial increase in
selling, general and administrative expenses and an increase in research and
development expenses. Selling, general and administration expenses include
general corporate overhead, administrative salaries, shipping and warehousing
costs, selling expenses, consulting costs, and professional fees.
26
<PAGE>
Three-Months Ended March 31, 2000 Compared with Three-Months Ended March
31, 1999
Net revenues during the three-month period ended March 31, 2000 and 1999
were $191,476 and $25,946, respectively. Net revenues increased by approximately
$165,530 or 638% for the three-month period ended March 31, 2000 as compared to
the three-month period ended March 31, 1999. The increase in net revenues during
the three-month period ended March 31, 2000 was primarily due to the sale of
AP+Series products to the American Trucking Association ("ATA"). Gross profit
during the three-month period ended March 31, 2000 and 1999 amounted to $124,981
and $12,894, respectively, or a net increase of $112,087. Gross profit
percentages for the three-month period ended March 31, 2000 and 1999 were 65.3%
and 49.7%, respectively, or a net increase of 31%.
The substantial increase in gross profit is a result of larger purchases of
systems, reduced component costs, price re-negotiations with vendors, and cost
savings from the redesign of the PC board. The increase in revenues during the
three-month period ended March 31, 2000 as compared to the three-month period
ended March 31, 1999 is attributable to (i) a stronger marketing campaign, and
(ii) fulfillment of major orders.
Selling, general and administrative expenses for the three-month period
ended March 31, 2000 and 1999 were $432,617 and $223,967, respectively (an
increase of $208,650 or 93%). 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 three-month
period ended March 31, 2000 were primarily due to the Company incurring
increased costs associated with salaries, consulting fees and professional fees,
which amounted to approximately $115,000 ($90,000 accrued), $47,000 and $38,000,
respectively.
27
<PAGE>
Research and development expenses for the three-month period ended March
31, 2000 were $52,447 as compared to $45,159 for the three-month period ended
March 31, 1999 (an increase of $7,288 or 16%). The slight 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 $46,658 during the three-month period ended
March 31, 2000 compared to interest expense of $36,446 during the three-month
period ended March 31, 1999 (an increase of $10,212 or 28%).
As discussed above, the increase in net loss during the three-month period
ended March 31, 2000 as compared to the three-month period ended March 31, 1999
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 ended March
31, 2000 were approximately ($397,018) or ($0.02) per share compared to a net
loss of approximately ($279,800) or ($0.02) per share (an increase of 41.9%)
during the three-month period ended March 31, 1999. The weighted average number
of diluted shares outstanding were 17,785,559 for the three-month period ended
March 31, 2000 compared to 17,298,970 for the three-month period ended March 31,
1999.
LIQUIDITY AND CAPITAL RESOURCES
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
operation.
The Company is experiencing a severe liquidity crisis and must raise
additional capital. Further, the Company has not generated sufficient cash flow
to funds 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 substantial amounts of 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, to no 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.
28
<PAGE>
The Company generated $191,476 and $701,526 in net revenues as of the
three-month period ended March 31, 2000 and fiscal year ended December 31, 1999,
an increase of approximately 638% and 195%, respectively, over revenues of
$25,946 and $237,688 generated as of the three-month period ended March 31, 2000
and fiscal year ended December 31, 1998. Management anticipates that such
generation of revenues will continue to increase on an annual basis. As of the
three-month period ended March 31, 2000, the Company had accounts receivable in
the approximate amount of $147,468 (net of allowance).
Management believes that the Company's continued growth and financial
success will depend on its ability to (i) strengthen and increase its customer
base by enhancing and diversifying use of the AP+Series products and related
products, (ii) increase the number of customers and expand into additional
markets, (iii) control production costs; and (iv) increase the production rate
of the AP+Series products and related products.
As of March 31, 2000, the Company's current assets were $390,864 and its
current liabilities were $2,787,871, which resulted in a working capital deficit
of $2,397,007. As of March 31, 2000, the Company's total liabilities were
$3,641,531, and the Company's total liabilities exceeded its total assets by
$2,676,050. The Company's stockholders' deficit increased from $2,496,560 at
December 31, 1999 to $2,893,489 at March 31, 2000.
As of March 31, 2000, the Company was not in compliance with terms of loans
due to financial institutions totaling $1,005,660 requiring the loans to be
reflected as current liabilities. To date, the financial institutions have not
taken any actions. Although management is optimistic that they will be able to
negotiate waivers of these defaults or to restructure these loans, investors are
cautioned that there can be no assurance that management will be able to achieve
these objectives. Also, included in the current liabilities are accounts payable
of $944,079, $546,414 of accrued expenses of which $120,000 is accrued officers'
salaries, $106,391 of payroll taxes, $25,851 of other taxes payable and $137,966
of customer deposits. Long term liabilities include loans due to financial
institutions of $23,279, the convertible notes payable of $367,500, loans due
officers and directors of $371,063. The Company's assets consisted primarily of
cash of $19,980, $147,468 in accounts receivable, $165,125 in inventory, $49,699
in prepaid expenses, $330,171 owing from KMR, $193,018 owing from officers of
the Company, and $8,592 of other assets.
For the three-month period ended March 31, 2000, the net cash used for
operating activities was $216,073 compared to $52,881 for the three-month period
ended March 31, 1999 (an increase of $163,192 or 308.6%). The main increase was
comprised of a net loss of $397,018 for the three-month period ended March 31,
29
<PAGE>
2000 compared to a net loss of $279,800 for the three-month period ended March
31, 1999 (an increase of $117,218 or 41.9%), and prepaid expenses increased to
$35,078 for the three-month period ended March 31, 2000 compared to $40,750 for
the three-month period ended March 31, 1999 (an increase of $75,828 or 186.1%).
Inventory of $35,004 at March 31, 2000 increased from $5,080 at March 31, 1999
(an increase of $29,924 or 589.1%) and accounts payable increased to $221,540 at
March 31, 2000 compared to $197,577 at March 31, 1999 (an increase of $23,963 or
12.3%).
The Company increased its capital expenditures to $22,732 for the
three-month period ended March 31, 2000 compared to $0 for the three-month
period ended March 31, 1999, all of which relate to the purchase of equipment.
The Company increased its net cash from financing activities for the
three-month period ended March 31, 2000 to $235,039 compared to $10,287 for the
three-month period ended March 31, 1999 (an increase of $245,326 or 3,384.8%).
The major components were proceeds from convertible notes payable of $232,000
for the three-month period ended March 31, 2000 compared to $0 for the
three-month period ended March 31, 1999, proceeds from shareholders' notes
payable of $38,500 for the three-month period ended March 31, 2000 compared to
$0 for the three-month period ended March 31, 1999, as well as proceeds from a
capital lease of $22,732 for the three-month period ended March 31, 2000
compared to $0 for the three-month period ended March 31, 1999.
The Company may have violated federal and state securities laws in
connection with the sales of its shares of Common Stock to investors under a
private placement offering that was not registered under the federal securities
laws. The offering and sale of such shares of the Company's Common Stock
pursuant to its Private Placement Memorandum dated January 27, 1999 and April 7,
1999, respectively, was conducted pursuant to an exemption from registration in
accordance with Regulation D, Rule 504, under the Securities Act of 1933, as
amended (the "1933 Securities Act"). The Company continued to sell its shares of
Common Stock to investors after the date the Company effectively became a
reporting company under the Securities Exchange Act of 1934, as amended (the
"1934 Exchange Act"). The exemption under Rule 504 of Regulation D and any other
exemption may not have been available to the Company for these sales. As a
result, the private placement may have violated federal securities laws.
Moreover, certain state securities rules and regulations may not have been
complied with to ensure availability of a private placement transactional
exemption. As of December 31, 1999, the Company had received proceeds in the
amount of $202,939 from the issuance of shares of Common Stock to investors
under the private placement offering, which may be in possible violation of
federal and state securities laws. As of the date of this Registration
Statement, management estimates that the Company's potential rescission
liability is in the amount of $202,939.
MATERIAL COMMITMENTS
In connection with the research and development expenses and other overhead
costs over the prior fiscal years, the Company, through its subsidiaries and
other arrangements with its officers/shareholders, borrowed funds pursuant to
various contractual arrangements representing certain of the following material
commitments.
30
<PAGE>
A significant and estimated commitment for the Company for fiscal year 2000
is the amounts due and owing under a promissory note with Bank of Smithtown. On
November 30, 1998, the Company, its subsidiaries, IPS-NY and APP LLC, and
Richard Goodhart entered into a settlement agreement with the Bank of Smithtown
in connection with a default by IPS-NY under a promissory note dated April 13,
1995 in the amount of $100,000 and a second promissory note dated December 24,
1996 in the amount of $500,000. Pursuant to the terms of the settlement
agreement, IPS-NY made two separate payments of $23,208 and $20,000 during
November 1998 and a payment of $16,792 during March 1999. Additionally, IPS-NY
executed a new promissory note in the amount of $60,620 bearing interest at 9%
per annum and maturing in one year (representing the accrued and unpaid interest
on the original note of $500,000). In lieu of canceling the original $500,000
note, the Company also executed a new promissory note in the amount of $500,000
bearing interest at prime plus 2% per annum. Pursuant to the terms of the new
promissory note, the Company is required to make monthly payments of (i) $5,000
during the first year (December 1, 1998 through November 30, 1999), (ii) $10,000
during the second year (December 1, 1999 through November 30, 2000, and
(iii)$15,000 during the third year (December 1, 2000 through November 30, 2001.
At the end of the third year, the entire principal balance remaining together
with any accrued interest shall be due and payable. Such notes associated with
the settlement agreement are secured by the assets of the Company and the shares
of Common Stock owned of record by Richard Goodhart, the Company's Chief
Executive Officer. As of March 31, 2000, the principal balance on the newly
issued $500,000 note, the newly issued $60,620 note and the original $100,000
note are $490,774, $43,828 and $42,742, respectively. As of March 31, 2000, the
Company was not in compliance with its monthly payment schedule.
A significant and estimated commitment for the Company for fiscal year 2000
is the amounts due and owing to HSBC Bank USA (formerly Marine Midland Bank)
pursuant to a one-year promissory note dated September 17, 1996 The terms of the
promissory note require the Company to make payments of interest only at prime
plus 2% per annum, with the principal amount of $470,715 due on demand. Such
promissory note is approximately 75% guaranteed by the Small Business
Administration. On April 12, 2000, the Company received approval from HSBC Bank
for a long-term payout, subject to documentation. As of March 31, 2000, the
balance due is $474,817.
As of March 31, 2000 and December 31, 1999, the Company owes approximately
$105,501 and $92,760, respectively, for payroll taxes and related estimated
penalties and interest. The Internal Revenue Service and the Employment
Commission of the State of New York have filed liens against the Company,
respectively. Such taxing authorities have the power to generally seize the
assets of the Company to pay off such amounts due and owing. As of the date of
this Annual Report, the Company has not entered into any formal contractual
arrangements with either taxing authority for repayment of such taxes, penalties
and interest. Management intends to continue making payments as funds are
available until such arrangements are consummated.
The Company has entered into employment agreements dated January 1, 1999
with three of its executive officers/directors, Mr. Richard Goodhart, Mr. Steven
Wahrman and Mr. Jean Paul Daveau (collectively, the "Employment Agreements").
Pursuant to the terms and provisions of the Employment Agreements, commencing
January 1, 1999, each officer/director will receive (i) an annual salary of
31
<PAGE>
$120,000 (of which the first six months of fiscal year 1999 have been deferred
and accrued without interest); (ii) an annual cash bonus equal to one percent
(1%) of the annual net profits for the preceding fiscal year; and (iii) 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 each respective employment agreement
are disability and health insurance coverage, automobile and expense allowances
and travel and entertainment allowances. As of March 31, 2000 and December 31,
1999, the Company has accrued approximately $450,000 and $360,000, respectively,
in aggregate salary and paid $-0-.
The Company entered into a consulting agreement dated July 30, 1998 with
Bristol Consulting Ltd. ("Bristol") pursuant to which the Company is obligated
to pay Bristol a monthly fee of $10,000 for the duration of the agreement, which
terminates July 30, 2003. As of March 31, 2000 and December 31, 1999, the
Company has accrued $107,900 and $77.900. respectively, of payments to Bristol,
and has paid $62,500 to Bristol for services rendered.
A significant and estimated commitment for the Company for fiscal year 2000
is the execution by the Company of a $250,000 convertible promissory note dated
December 16, 1999. The terms of the note are interest is to be accrued at 15%
per annum payable monthly in arrears or upon maturity. The principal is payable
in full on December 31, 2001. The convertible promissory note contains a
provision that beginning January 31, 2001, the note is payable on demand upon
providing a ten day demand. The note is convertible at any time subsequent to
September 30, 2000 into restricted shares of Common Stock at the rate of $1.45
per share. In addition, there is a prepayment penalty provision if the Company
prepays the note in the first thirteen months. At December 31, 1999, the Company
had received $150,000 related to the convertible promissory note and the
remaining $100,000 received during January 2000.
During the three-month period ended March 31, 2000, the Company issued
additional convertible promissory notes in the aggregate of $379,000. The terms
of two of the notes are interest is to be accrued at 15% per annum payable
monthly in arrears or upon maturity. The terms of the remaining notes are
interest is to be accrued at 10% per annum payable monthly in arrears or upon
maturity. All notes are payable in full on December 31, 2001. The notes are
convertible at any time subsequent to September 30, 2000 into restricted shares
of Common Stock at the rate of $1.45 per share. As of March 31, 2000, the
Company had received $32,000 during March and $247,000 during April from the
noteholders.
Management of the Company anticipates that its ability to raise additional
capital from private investors through the sale of debt or equity instruments,
and the ability of the Company to generate future revenues from the sale of its
AP+Series products and related products, will provide the necessary funds to the
Company for payment of such expenses associated with its material commitments
for fiscal year 2000.
Year 2000 COMPLIANCE
The Year 2000 Problem referred to existing computer programs' ability to
appropriately distinguish the year 2000 from the year 1900 when processing
transactions. The Company developed and executed a plan to achieve compliance
with Year 2000 issues that included reviewing its hardware and software that
support its operations and infrastructure, as well as its internal systems that
support the Company's administrative functions. For each of these areas, the
plan called for the Company to identify the systems, address their compliance
with the Year 2000 Problem, test their compliance and make any upgrades
considered necessary to ensure compliance. As of this date, the Company is
successfully running all of its systems and has encountered no issues or
malfunctions related to the Year 2000 Problem. No contingency plans had to be
initiated; and no additional costs were incurred.
ITEM 3. DESCRIPTION OF PROPERTY
Except as described above, the Company does not own any other real estate
or other properties. The Company leases office space in the United States. Its
executive offices are located at 325 Wireless Blvd., Hauppauge, New York 11788.
Management believes that the Company's offices are adequate for its reasonable
foreseeable needs. The Company does not intend to acquire any properties.
32
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of June 27, 2000, the name and address,
and the approximate number of shares of Common Stock of the Company owned of
record or beneficially by each person who owned of record, or was known by the
Company to own beneficially, more than five percent (5%) of the Company's Common
Stock, and the name and shareholdings of each officer and director, and all
officers and directors as a group as of the date of this Registration Statement.
--------------------------------------------------------------------------------
Title of Class Name and Address Amount and Nature Percent of
of Beneficial Owner of Class of Class
--------------------------------------------------------------------------------
(1) (3) (2)
Common Stock Richard J. Goodhart 5,886,394 33.1%
325 Wireless Blvd.
Hauppauge, New York 11788
(1) (2)
Common Stock Steven H. Wahrman 2,724,000 15.3%
325 Wireless Blvd.
Hauppauge, New York 11788
(1) (2)
Common Stock Jean Paul Daveau 1,549,680 8.7%
325 Wireless Blvd.
Hauppauge, New York 11788
(1) (2)
Common Stock All officers and directors 10,160,074 57.1%
as a group (3 persons)
--------------------------------------------------------------------------------
(1)
These are all restricted shares of common stock.
(2)
Includes the assumption of the exercise of options by each option
holder pursuant to the terms of the Non-Qualified Stock Option Plan to purchase
500,000 shares of restricted Common Stock at $1.45 per share, or an aggregate of
1,500,000 shares of restricted Common Stock at $1.45 per share. See "Executive
Compensation - Non-Qualified Stock Option Plan."
33
<PAGE>
(3)
In the event that the Company should default on the promissory note
with the Bank of Smithtown, pursuant to the terms of the settlement agreement
the Bank of Smithtown may foreclose on the shares held of record by Richard
Goodhart (which have been pledged to secure the Company's obligations to the
Bank of Smithtown) and may sell such shares to a third party.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Directors/Executive Officers. The directors and executive officers of the
Company are as follows:
Name Age Position with the Company
------------------- --- -------------------------------
Richard J. Goodhart 51 Director and Chairman of the
Board, Chief Executive Officer
Steven H. Wahrman 42 Director and President, Chief
Operating Officer
Jean Paul Daveau 44 Director and Executive Vice
President of Engineering/Design
Julius J. Valente Jr. 60 Chief Financial Officer
Ives Wahrman 75 Director
Martin Goodhart 78 Director
RICHARD J. GOODHART has been a Director, the Chairman of the Board and
Chief Executive Officer of the Company since October of 1993. Mr. Goodhart has
had nineteen years in international sales and marketing in the electronic
component industry and ten years in purchasing management. Prior to his
involvement in the Company, Mr. Goodhart held positions as the Vice President of
Sale and Finance for Ex-Electronics and was International Sales and Marketing
Manager for Jaco Electronics. Mr. Goodhart holds a Bachelor of Science degree in
Business Management from Western New England College.
STEVEN H. WAHRMAN has been a Director, the President and Chief Operating
Officer of the Company since February of 1996. Mr. Wahrman is responsible for
all phases of worldwide implementation of market research, strategic planning
and promotion and the daily operations of the Company. Mr. Wahrman has twenty
years of experience in sales and marketing. For a period of fourteen years, Mr.
Wahrman was President of S.W. Intimates. Mr. Wahrman holds a Bachelor of Science
degree in Marketing with a minor in Advertising from The American University.
JEAN PAUL DAVEAU has been a Director and the Executive Vice President of
Engineering and Design of the Company since October of 1993. Mr. Daveau is
responsible for establishing and overseeing the engineering and design staff and
all aspects of technical research, including the compilation of specifications
34
<PAGE>
and manuals. Mr. Daveau has spent over a decade designing and developing onboard
recording systems, and has worked with Royal Dutch Shell, Schlumberger, and
Western Atlas. In addition, Mr. Daveau has extensive experience in the fields of
hardware and software, and has acted as a consultant engineer in the industrial
computing industry. For a period of five years, Mr. Daveau was the President and
Managing Director of Microsam.
JULIUS J. VALENTE, JR. has been the Chief Financial Officer of the Company
since December 1999. Mr. Valente has over three decades of experience in
accounting, lending, financial consulting and corporate management. In addition
to his association with the financial services industry, Mr. Valente established
his own financial consulting firm in 1979 known as United Financial Resources
Corporation ("UFRC"). UFRC specializes in developing successful recovery
programs for clientele in manufacturing, retail and service industries.
IVES WAHRMAN has been a Director of the Company since February of 1996. Mr.
Wahrman has an extensive background in the field of merchandise marketing. Mr.
Wahrman has been retired for the past eight years.
MARTIN GOODHART has been a Director of the Company since February of 1996.
Mr. Goodhart has nearly fifty years of experience in the commercial finance
industry having held senior management positions with various credit or lending
institutions. Mr. Goodhart has been retired for the past six years.
As of the date of this Registration Statement, two family relationships
exist among the named directors. Mr. Martin Goodhart is the father of Mr.
Richard Goodhart and Mr. Ives Wahrman is the father of Mr. Steven Wahrman. No
other family relationships exist among any of the named directors and executive
officers. No arrangement or understanding exists between any such director or
officer and any other persons pursuant to which any director or executive
officer was elected as a director or executive officer of the Company. The
directors of the Company are elected annually and serve until their successors
take office or until their death, resignation or removal. The executive officers
serve at the pleasure of the Board of Directors of the Company.
As of the date of this Registration Statement, no director or executive
officer of the Company is or has been involved in any legal proceeding
concerning (i) any bankruptcy petition filed by or against any business of which
such person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time; (ii) any conviction in a
criminal proceeding or being subject to a pending criminal proceeding (excluding
traffic violations and other minor offenses) within the past five years; (iii)
being subject to any order, judgment or decree permanently or temporarily
enjoining, barring, suspending or otherwise limiting involvement in any type of
business, securities or banking activity; or (iv) being found by a court, the
Securities and Exchange Commission or the Commodity Futures Trading Commission
to have violated a federal or state securities or commodities law (and the
judgment has not been reversed, suspended or vacated).
35
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
As of the date of this Registration Statement, none of the officers or
directors of the Company have received any compensation for their respective
roles to date or during fiscal years 1999, 1998 and 1997. On January 1, 1999,
the Company entered into employment agreements with three of its executive
officers/directors, Mr. Richard Goodhart, Mr. Steven Wahrman and Mr. Jean Paul
Daveau. Pursuant to the provisions of the employment agreements, each officer
will receive an annual salary of $120,000 (of which the first six months
commencing January 1, 1999 will be deferred and will accrue without interest).
Each officer will also receive a yearly bonus equal to 1% of the net profits for
the preceding year. Each employment agreement provides for an initial period of
one year, with the ability to be renewed on a yearly basis for a period of five
years upon majority vote of the Board of Directors. In addition, each
officer/director has been granted stock options to purchase 500,000 shares of
restricted Common Stock of the Company at $1.45 per share.The employment
agreements also provide for disability and health insurance coverage, automobile
and expense allowances and travel and entertainment allowances. Effective July
1, 2000, the Company intends to enter into an employment agreement with Julius
J. Valente, Jr. for an initial term of one (1) year. In consideration for Mr.
Valente entering into this agreement, Mr. Valente will receive: (i) 250,000
shares of the Company's common stock, (ii) options to purchase 500,000 shares of
the Company's common stock at market on the date of grant, and a salary of
$10,000 per month.
As of March 31, 2000 and fiscal year end December 31, 1999, the Company has
accrued approximately $450,000 and $360,000, respectively, and paid $-0- to its
executive officers/directors as executive compensation.
Non-Qualified Stock Option Plan
On January 1, 1999, the Board of Directors of the Company adopted the
Non-Qualified Stock Option Plan (the "SOP") which provided for the grant of
options to purchase an aggregate of 6,000,000 shares of Common Stock at $1.45
per share. The purpose of the SOP is to make options available to directors,
management and significant contractors of the Company in order to encourage them
to secure an increase on reasonable terms of their stock ownership in the
Company and to remain in the employ of the Company, and to provide them
compensation for past services rendered.
The SOP is administered by the Board of Directors which determines the
persons to be granted options under the SOP, the number of shares subject to
each option, the exercise price of each option and the option period, and the
expiration date, if any, of such options. The exercise of an option may be less
than fair market value of the underlying shares of Common Stock. No options
granted under the SOP will be transfereable by the optionee other than by will
or the laws of descent and distribution and each option will be exercisable,
during the lifetime of the optionee, only by such optionee.
The exercise price of an option granted pursuant to the SOP may be paid in
cash, by the surrender of options, in Common Stock, in other property, including
the optionee's promissory note, or by a combination of the above.
As of the date of this Registration Statement, options have been granted in
the aggregate of 1,500,000 shares to the following individuals. All options
granted are exercisable by the respective individual from the date of grant
through the date of expiration.
36
<PAGE>
--------------------------------------------------------------------------------
Number of Date of Exercise Date of
Shares Granted Grant Price Expiration
-------------- ----- ----- ----------
Richard Goodhart ..... 500,000 01-01-99 $1.45 01-01-19
Steven Wahrman ....... 500,000 01-01-99 $1.45 01-01-19
Jean Paul Daveau ..... 500,000 01-01-99 $1.45 01-01-19
TOTAL ................ 1,500,000
--------------------------------------------------------------------------------
No share options have been exercised as of the date of this Registration
Statement.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Acquisition of IPS-NY
On October 28, 1998, the Company entered into an agreement and plan of
reorganization with International Purchasing Service, Inc. ("IPS-NY"). Pursuant
to the terms and provisions of the Plan of Reorganization, the Company agreed to
transfer and assign to Mr. Richard Goodhart, the then sole shareholder of
IPS-NY, 2,975,000 shares of its restricted Common Stock in exchange for all of
the issued and outstanding shares of common stock of IPS-NY. Prior to execution
of the Plan of Reorganization, Mr. Goodhart was a director and the president of
IPS-NY and was also a member of APP LLC holding an approximate 51% equity
ownership interest in APP LLC. After consummation of the Plan of Reorganization
and the Exchange Agreement, the Company issued to Mr. Richard Goodhart 2,975,000
shares of its restricted Common Stock in accordance with the terms of the Plan
of Reorganization and 1,561,960 shares of its restricted Common Stock in
accordance with the terms of the Exchange Agreement. On October 28, 1998, Mr.
Richard Goodhart was elected as a director and Chairman of the Board, Chief
Executive Officer of the Company.
37
<PAGE>
Among the factors considered by the board of directors of the Company in
evaluating the acquisition of IPS-NY were (i) the financial condition,
performance and prospects of IPS-NY; (ii) analysis of the value of exclusive
representation agreements between IPS-NY and certain manufacturers, including
Teledyne Vacuum Technologies, Omnirel Corporation and Jaco Electronics
International Division; (iii) analysis of the value of the international sales
structure established by IPS-NY and the existence of certain contacts; (iv)
utilization by the Company of a portion of the line of credit held by IPS-NY
with Bank of Smithtown; (v) analysis of the experience of personnel in IPS-NY in
component purchasing and the value of the existence of a purchasing department;
and (vi) future potential role of IPS-NY, which included control production and
arrangement of sub-contract manufacturing facilities.
The board of directors of the Company valued IPS-NY at approximately
$215,688 and approved the issuance of 10% of the total proposed outstanding
shares of Common Stock of the Company as fair and just compensation for the
acquisition of IPS-NY. For financial statement purposes, the assets and
liabilities of IPS-NY have been recorded at predecessor cost.
Employment Agreements
The Company has entered into employment agreements dated January 1, 1999
with three of its executive officers/directors. As of March 31, 2000, the
Company has accrued approximately $450,000 of salary and paid $-0- to the
officers. See "Item 2. Management's Discussion and Analysis or Plan of Operation
"Material Commitments".
Loans/Notes Payable to Officers
As of March 31, 2000, the Company owed an aggregate of approximately
$371,063 pursuant to loans made by Mr. Steven Wahrman, the President, Mr.
Richard Goodhart, the Chief Executive Officer, and Mr. Julius Valente, the Chief
Financial Officer of the Company. Of the aggregate amount of $371,063,
approximately $365,063 is due and owing to the President represented by a
$50,000 promissory note, a $240,000 loan personally secured by the President on
behalf of the Company through a financial institution, and $75,063 in advances
and unreimbursed expenses. The Company also owes the Chief Executive Officer
$1,924 and the Chief Financial Officer $5,000 pursuant to respective
non-interest bearing notes.
During June 1996, APP LLC borrowed $50,000 from the President of the
Company pursuant to a promissory and demand note. As of December 31, 1999, such
note remains unpaid as a result of the execution by Mr. Wahrman of a waiver of
repayment until December 31, 2001. The note continues to accrue interest at the
rate of 8% per annum. As of March 31, 2000, accrued interest on such note amount
of $15,000.
38
<PAGE>
During August and December 1997, APP LLC borrowed $16,500 and $17,000,
respectively, from Mr. Ives Wahrman, a director of the Company, without
interest, payable ninety days from the date of borrowing. In March 1998, IPS-NY
borrowed $4,000 from Mr. Ives Wahrman under the same terms as APP LLC. As of
March 31, 2000, such notes remain unpaid as a result of the execution by Mr.
Wahrman of two separate waivers of repayment until December 31, 2001,
respectively.
Loans Due From Officer
As of March 31, 2000, Mr. Jean Paul Daveau, the Executive Vice President,
and the Chief Executive Officer owed the Company approximately $193,018. Of the
aggregate amount of $193,018, Mr. Jean Paul Daveau owed the Company
approximately $188,073 resulting from non-interest bearing advances due on
demand. Mr. Richard Goodhart owed the Company approximately $4,945 resulting
from a non-interest bearing advance payable on demand.
ITEM 8. DESCRIPTION OF SECURITIES
The Company is authorized to issue 50,000,000 shares of Common Stock, no
par value.
Common Stock
Holders of shares of Common Stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders of the Company. Except as may be
required by law, holders of shares of Common Stock will not vote separately as a
class, but will vote together with the holders of outstanding shares of other
classes or capital stock. There is no right to cumulate votes for the election
of directors. A majority of the issued and outstanding Common Stock constitutes
a quorum at any meeting of stockholders and the vote by the holders of a
majority of the outstanding shares is required to effect certain fundamental
corporate changes such as liquidation, merger or an amendment to the Articles of
Incorporation.
Holders of shares of Common Stock are entitled to receive dividends if, as
and when, declared by the Board of Directors out of funds legally available
therefore. The Company's agreement with its bank lender may prohibit payment of
Common Stock dividends without the consent of the lender. Upon liquidation of
the Company, holders of shares of Common Stock are entitled to share ratably in
all assets of the Company remaining after payment of liabilities. Holders of
shares of Common Stock have no conversion, redemption or preemptive rights. The
outstanding shares of Common Stock are fully paid and nonassessable. The shares
of Common Stock issued upon exercise of options and payment therefore, will be
validly issued, fully paid and nonassessable.
PART II
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of the date of this Registration Statement, there has been no public
market for the shares of Common Stock of the Company. It is the intention of
management that the shares of Common Stock of the Company will be traded in the
over-the-counter market and quoted on the NASDAQ. The Company must meet certain
criteria in order to qualify for inclusion on NASDAQ.
39
<PAGE>
The 17,778,196 shares of Common Stock outstanding as of the date of this
Registration Statement are held by approximately 172 holders of record in the
United States.
The Board of Directors has never authorized or declared the payment of any
dividends on the Company's Common Stock and does not anticipate the declaration
or payment of cash dividends in the foreseeable future. The Company intends to
retain future earnings, if any, to finance the development and expansion of its
business. Future dividend policies will be subject to the discretion of the
Board of Directors and will be contingent upon, among other things, future
earnings, the Company's financial condition, capital requirements, general
business conditions, level of debt, restrictions with respect to payment of
dividends with respect to bank loans, and other relevant factors.
Transfer Agent
The transfer agent and registrar for the Common Stock is Continental
Transfer & Trust Company, 2 Broadway, New York, N.Y. 10004, telephone number
(212) 509-4000.
ITEM 2. LEGAL PROCEEDINGS
Management is not aware of any legal proceedings contemplated by any
governmental authority or other party involving the Company or its properties.
No director, officer or affiliate of the Company is (i) a party adverse to the
Company in any legal proceedings, or (ii) has an adverse interest to the Company
in any legal proceedings. Management is not aware of any other legal proceedings
pending or that have been threatened against the Company or its properties.
Although the Internal Revenue Service and the Employment Commission of the State
of New York have filed liens against the Company, respectively, as a result of
unpaid payroll taxes, these governmental entities have not initiated legal
proceedings against the Company to seize the Company's assets to pay such taxes.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company's former principal independent accountant, Jeff R. Pearlman,
declined to stand for re-election in July of 1999, and subsequently, management
of the Company engaged the accounting firm of Massella, Tomaro & Co., LLP, as
the Company's independent auditors. The decision to change accountants was
approved by the Board of Directors. During the Company's two most recent fiscal
years and any subsequent interim period preceding the resignation of Mr.
Pearlman, there were no disagreements with Mr. Pearlman which were not resolved
on any matter concerning accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Mr. Pearlman, would have caused Mr. Pearlman to make
reference to the subject matter of the disagreements in connection with his
reports.
40
<PAGE>
Further, there have been no disagreements with the Company's current
principal independent accountant which were not resolved on any matter
concerning accounting principles or practices, financial statement disclosure,
or auditing scope or procedure.
Neither the Company's current principal independent accountant nor its
former principal independent accountant have provided an adverse opinion or
disclaimer of opinion to the Company's financial statements, nor modified their
respective opinion as to uncertainty, audit scope or accounting principles.
The Company's principal independent accountant from January 1997 to July
28, 1999 was Jeff R. Pearlman, 19 West 34th Street, Suite 1118, New York, New
York 10001. The Company's principal independent accountant from August 1, 1999
to the current date is Massella, Tomaro & Co., LLP, 375 North Broadway, Suite
103, Jericho, New York 11753.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
(i) On October 28, 1998, the Company entered into an exchange agreement
with the members of APP LLC, who either held an equity interest or a
right to acquire an equity interest in APP LLC, whereby the Company
issued an aggregate of 14,205,970 shares of its Common Stock to such
members in exchange for their respective proportionate interests in
APP LLC. The issuance of the Commmon Stock described herein was made
in connection with the exchange agreement not involving a public
offering pursuant to the exemtpions provided under Sections 3(b)
and/or 4(2) of the Securities Act of 1933, as amended (the "1933
Act"). The certificates representing issuance of such shares of Common
Stock by the Company to such investors have a legend indicating that
the shares of Common Stock cannot be resold without registration under
the Securities Act of 1933, as amended (the "1933 Securities Act") or
in compliance with an available exemption from registration. The
investors acknowledged that the securities to be issued had not been
registered under the 1933 Securities Act, that the investors
understood the economic risk of an investment in the securities, and
that the investors had the opportunity to ask questions of and receive
answers from the Company's management concerning any and all matters
related to the exchange agreement and acquisition of the securities.
No underwriter was involved in the transaction, and no commissions or
other remuneration were paid in connection with the offer and sale of
the securities.
(ii) On October 28, 1998, the Company entered into an agreement and plan of
reorganization with International Purchasing Service, Inc. ("IPS"),
whereby the Company issued 2,975,000 shares of its Common Stock to
Richard Goodhart, the then sole shareholder of IPS, in exchange for
all of the issued and outstanding shares of IPS. The issuance of the
Common Stock described herein was made in connection with a plan of
reorganization transaction not involving a public offering to a single
investor, pursuant to the exemtpions provided under Sections 3(b)
and/or 4(2) of the 1933 Act. The certificate representing issuance of
such shares of Common Stock by the Company to Richard Goodhart has a
legend indicating that the shares of Common Stock cannot be resold
without registration under the 1933 Securities Act or in compliance
with an available exemption from registration.
41
<PAGE>
(iii)On December 10, 1998, the Company entered into three separate
settlement agreements with three creditors whereby the Company agreed
to issue an aggregate of 115,000 shares of its restricted Common Stock
at $0.001 per share pursuant to the exemtpions provided under Sections
3(b) and/or 4(2) of the 1933 Act. Under the terms of the respective
settlement agreements, the first creditor agreed to accept 50,000
shares of Common Stock as payment for the approximate $44,520 debt
owed to such creditor and for continuation of such services, the
second creditor agreed to accept 50,000 shares of Common Stock as
payment for the approximate $35,075 debt owed to such creditor and for
continuation of such services, and the third creditor agreed to accept
15,000 shares of Common Stock as payment for the approximate $13,338
debt owed to such creditor and for continuation of such services. The
creditors each represented to the Company that they had acquired the
shares for their own respective accounts and not with a view to
distribution, and that the Company made available to them all material
information concerning the Company that they requested. No underwriter
or broker-dealer was involved with these transactions, and no
commissions or other renumeration was paid in connection therewith.
(iv) On April 6, 1999, the Company completed an offering under its Private
Placement Memorandum dated January 27, 1999 to sell shares of its
Common Stock at $1.45 per share pursuant to Section 4(2) of the
Securities Act and Regulation D, Rule 504, thereunder. The offering
was conducted on a "all or none/best efforts" basis until the receipt
of $250,000 in gross subscriptions from investors and, thereafter,
continued on a "best efforts" basis until either the sale of 500,000
shares of Common Stock or May 25, 1999, whichever occurred earlier.
The Company sold and issued 340,498 shares of Common Stock,
representing receipt of approximately $493,722 in gross proceeds. No
underwriter was involved in the transaction, and no commissions or
other remuneration were paid, other than to registered broker-dealers,
in connection with the offer and sale of the Common Stock.
(v) The Company has completed an offering under its Private Placement
Memorandum dated April 7, 1999 to sell shares of its Common Stock at
$1.45 per share pursuant to Section 4(2) of the Securities Act and
Regulation D, Rule 504 promulgated thereunder. The Company sold and
issued 175,228 shares of Common Stock, representing receipt of
approximately $254,080 in gross proceeds. No underwriter was involved
in the transaction, and no commissions or other remuneration were
paid, other than to registered broker-dealers, in connection with the
offer and sale of the Common Stock.
As of the date of this Registration Statement, the Company has 17,778,196
shares of its Common Stock issued and outstanding. Of the 17,778,196 of the
Company's current outstanding shares of Common Stock, 340,498 shares are free
trading. Accordingly, the holders may offer and sell these shares of Common
Stock at such times and in such amounts as they may respectively determine in
their sole discretion.
The holders of free trading Common Stock in the capital of the Company may
in the future offer these shares of Common Stock through market transactions at
prices prevailing in the OTC market or at negotiated prices which may be fixed
42
<PAGE>
or variable and which may differ substantially from OTC prices, when such prices
exist. The holders have not advised the Company that they anticipate paying any
consideration, other than the usual and customary broker's commission, in
connection with the sales of these free trading shares of Common Stock. The
holders are acting independently of the Company making such decisions with
respect to the timing, manner and size of each sale.
Of the 17,778,196 of the Company's current outstanding shares of Common
Stock, 17,437,698 shares are "restricted shares" as that term is defined in the
Securities Act of 1933 and the rules and regulations thereunder. To be eligible
for sale in the public market, the holders must comply with Rule 144. In
general, Rule 144 allows a person holding restricted shares for a period of at
least one year to sell within any three month period that number of shares which
does not exceed the greater of 1% of the Company's then outstanding shares or
the average weekly trading volume of the shares during the four calendar weeks
preceding such sale. Rule 144 also permits, under certain circumstances, sale of
shares by a person who is not an affiliate of the Company and who has satisfied
a two year holding period without any volume limitations, manner of sale
provisions or current information requirements. As defined in Rule 144, an
affiliate of an issuer is a person who, directly or indirectly, through one or
more intermediaries, controls or is controlled by, or is under common control
with, such issuer, and generally includes members of the Board of Directors.
Sales pursuant to Rule 144 or otherwise, if in sufficient volume, could have a
depressive effect on the market price of the Company's securities. Moreover, the
possibility of such sales may have a depressive effect on market prices.
To date, no subsequent sales of restricted shares of Common Stock have been
made.
ITEM 5. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 78.751 of Chapter 78 of the Nevada Revised Statutes contains
provisions for indemnification of the officers and directors of the Company. The
Bylaws require the Company to indemnify such persons to the full extent
permitted by law. The Bylaws with certain exceptions, eliminate any personal
liability of a director to the Company or its shareholders for monetary damages
to the Company or its shareholders for gross negligence or lack of care in
carrying out the director's fiduciary duties as such. Nevada law permits such
indemnification if a director or officer acts in good faith in a manner
reasonably believed to be in, or not opposed to, the best interests of the
Company. A director or officer must be indemnified as to any matter in which he
successfully defends himself.
The officers and directors of the Company are accountable to the
shareholders of the Company as fiduciaries, which means such officers and
directors are required to exercise good faith and integrity in handling the
Company's affairs.
A shareholder may be able to institute legal action on behalf of himself
and all other similarly situated shareholders to recover damages where the
Company has failed or refused to observe the law. Shareholders may, subject to
applicable rules of civil procedure, be able to bring a class action or
derivative suit to enforce their rights, including rights under certain federal
and state securities laws and regulations. Shareholders who have suffered losses
43
<PAGE>
in connection with the purchase or sale of their interest in the Company due to
a breach of a fiduciary duty by an officer or director of the Company in
connection with such sale or purchase including, but not limited to, the
misapplication by any such officer or director of the proceeds from the sale of
any securities, may be able to recover such losses from the Company.
The Company and its affiliates may not be liable to its shareholders for
errors in judgment or other acts or omissions not amounting to intentional
misconduct, fraud or a knowing violation of the law, since provisions have been
made in the Articles of Incorporation and By-laws limiting such liability. The
Articles of Incorporation and By-laws also provide for indemnification of the
officers and directors of the Company in most cases for any liability suffered
by them or arising out of their activities as officers and directors of the
Company if they were not engaged in intentional misconduct, fraud or a knowing
violation of the law. Therefore, purchasers of these securities may have a more
limited right of action than they would have except for this limitation in the
Articles of Incorporation and By-laws. In the opinion of the Securities and
Exchange Commission, indemnification for liabilities arising under the
Securities Act of 1933 is contrary to public policy and, therefore,
unenforceable.
The Company may also purchase and maintain insurance on behalf of directors
and officers insuring against any liability asserted against such person
incurred in the capacity of director or officer or arising out of such status,
whether or not the Company would have the power to indemnify such person.
ITEM 6. FINANCIAL STATEMENTS
Reference is made to Part III, Item 1 and 2 - Index to and Description of
Exhibits for a list of all financial statements filed as part of this
Registration Statement on Form 10-SB.
PART III
ITEM 1 & 2. INDEX TO AND DESCRIPTION OF EXHIBITS
(a) The following Financial Statements are filed as a part of this
Registration Statement:
1. Consolidated Balance Sheets at March 31, 2000 and December 31, 1999.
2. Consolidated Statements of Operations and Comprehensive Income for the
Quarter Ended March 31, 2000 and Fiscal Year Ended December 31, 1999.
3. Consolidated Statements of Stockholders' Deficiency for Quarter Ended
March 31, 2000 and Fiscal Year Ended December 31, 1999.
4. Consolidated Statements of Cash Flow for the Quarter Ended March 31,
2000 and Fiscal Year Ended December 31, 1999.
(b) The following Exhibits are filed as part of this Registration
Statement:
44
<PAGE>
------------------- ------------------------------------------------------------
Exhibit No. Description
------------------- ------------------------------------------------------------
1 Not Applicable.
(1)
2.1 Agreement and Plan of Reorganization dated October 28, 1998
between the Company and KMR Telecom Limited.
(2)
2.2 Agreement and Plan of Reorganization dated October 28, 1998
between the Company and International Purchasing Service,
Inc.
3.1 + Articles of Incorporation of Accident Prevention Plus,
Inc.
By-laws of Accident Prevention Plus, Inc.
3.2 * Articles of Organization for Accident Prevention Plus, LLC.
Operating Agreement for Accident Prevention Plus, LLC.
(3)
3.3 Articles of Incorporation of International Purchasing
Services, Inc.
3.4 * Memorandum of Association of Accident Prevention Plus
(UK) Limited.
Articles of Association of Accident Prevention Plus (UK)
Limited.
3.5 * Translation of the Certificate of Incorporation of Accident
Prevention Plus France (SARL)
Translation of the Excerpt from the Register of Commerce for
Accident Prevention Plus France (SARL)
4 Not Applicable
9 Not Applicable
(4)
10.1 Exchange Agreement dated October 28, 1998 by and among the
Company and Richard Goodhart, Steven Wahrman, Jean Paul
Daveau, Darien Partners Investments, Inc., World Asset
Management, inc., Atlantic Financial Management, Inc.,
Avignon Trading, Inc., Royce Anderson Monroe, Bristol
Consulting, Frank Baker and Michael Gervis.
(5)
10.2 Rescission Agreement dated June 1, 1999, effectuated
retroactively to October 28, 1998, by and between the
Company and KMR Telecom Limited, and Amendment to Rescission
Agreement dated June 16, 2000.
(6)
10.3 Manufacturing Agreement dated January 24, 1997 by and
between the Company and Lockheed Martin Corporation.
(7)
10.4 Schlumberger Associate Program Agreement dated May 12, 1999
between the Company and Schlumberger Malco, Inc.
45
<PAGE>
------------------- ------------------------------------------------------------
Exhibit No. Description
------------------- ------------------------------------------------------------
10.5 * Consultant Agreement dated August 1, 1999 between the
Company and the ATA Foundation, Inc.
10.6 * Agreement dated August 31, 1999 between the Company and
North-Shore Long Island Jewish Health Systems.
10.7 + Independent Contractor's Installation & Service Agreement
dated May 16, 1997 by and between the Company and Atlantic
Financial Management, Inc., and amendment thereto.
10.8 + Independent Contractor's Installation & Service Agreement
dated May 8, 1997 by and between the Company and World Asset
Management, Inc., and amendment thereto.
10.9 + Independent Contractor's Installation & Service Agreement
dated April 11, 1997 by and between the Company and Darien
Partners Investments, Inc., and amendment thereto.
10.10 + Independent Contractor's Installation & Service Agreement
dated June 4, 1997 by and between the Company and Avignon
Trading, Inc., and amendment thereto.
10.11 + Distributor Agreement dated August 20, 1998 by and between
the Company and American Overseas Corporation, and amendment
thereto.
(8)
10.12 Consulting Agreement dated July 30, 1998 by and between the
Company and Bristol Consulting Ltd., and amendment thereto.
(9)
10.13 Consulting Agreement dated July 30, 1998 by and between the
Company and Royce Anderson & Monroe, Inc., and amendment
thereto.
10.14 * Promissory Note dated December 24, 1996 between Bank of
Smithtown and International Purchasing Services, Inc.,
Letter from Bank of Smithtown dated June 16, 2000.
10.15 * Settlement Agreement dated November 30, 1998 among Bank of
Smithtown, the Company and International Purchasing
Services, Inc.
10.16 * Promissory Note dated September 17, 1996 between Marine
Midland Bank (now HSBC Bank USA) and Accident Prevention
Plus, LLC.
10.17 * Employment Agreement dated January 1, 1999 between the
Company and Richard Goodhart.
10.18 * Employment Agreement dated January 1, 1999 between the
Company and Steven Wahrman.
46
<PAGE>
------------------- ------------------------------------------------------------
Exhibit No. Description
------------------- ------------------------------------------------------------
10.19 * Employment Agreement dated January 1, 1999 between the
Company and Jean Paul Daveau.
10.20 * Non-Qualified Stock Option Plan dated January 1, 1999.
11 Not Applicable
16 Certifying Letter from Jeff Pearlman dated April 18, 2000.
21 Not Applicable
24 Not Applicable.
----------
* Indicates filing of new exhibit
+ Previously filed.
(1)
Previously filed as exhibit no. 10.1 to Amendment No. 1 to the Registration
Statement filed on February 14, 2000.
(2)
Previously filed as exhibit no. 10.2 to Amendment No. 1 to the Registration
Statement filed on February 14, 2000.
(3)
Previously filed as exhibit no. 3.2 to Amendment No. 1 to the Registration
Statement filed on February 14, 2000.
(4)
Previously filed as exhibit no. 10.5 to Amendment No. 1 to the Registration
Statement filed on February 14, 2000.
(5)
Previously filed as exhibit no. 10.6 to Amendment No. 1 to the Registration
Statement filed on February 14, 2000.
(6)
Previously filed as exhibit no. 10.13 to Amendment No. 1 to the Registration
Statement filed on February 14, 2000.
(7)
Previously filed as exhibit no. 10.12 to Amendment No. 1 to the Registration
Statement filed on February 14, 2000.
(8)
Previously filed as exhibit no. 10.4 to Amendment No. 1 to the Registration
Statement filed on February 14, 2000.
(9)
Previously filed as exhibit no. 10.3 to Amendment No. 1 to the Registration
Statement filed on February 14, 2000.
47
<PAGE>
The following additional Exhibits are filed as part of this Registration
Statement:
------------------- -----------------------------------------------------------
Exhibit No. Description
------------------- -----------------------------------------------------------
None
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
ACCIDENT PREVENTION PLUS, INC.,
a Nevada corporation
Date: June __, 2000 By:/s/ Steven H. Wahrman
-----------------------------
Steven H. Wahrman, President
48
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Number
------
Independent auditor's report F-1
Consolidated Balance Sheets at March 31, 2000 (unaudited)
and December 31, 1999 F-2
Consolidated Statements of Operations for the three
months ended March 31, 2000 and 1999 (unaudited)
and for the years ended December 31, 1999 and 1998 F-3
Consolidated Statement of Stockholders' Deficiency for
the three months ended March 31, 2000 (unaudited)
and for the years ended December 31, 1999 and 1998 F-4 to F-5
Consolidated Statements of Cash Flows for the three
months ended March 31, 2000 and 1999 (unaudited)
and for the years ended December 31, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-8 to F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Accident Prevention Plus, Inc.
We have audited the accompanying consolidated balance sheet of Accident
Prevention Plus, Inc. and Subsidiaries (the "Company") as of December 31, 1999,
and the related consolidated statements of operations and comprehensive income,
stockholders' deficiency and cash flows for the years ended December 31, 1999
and 1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the
financial statements of Accident Prevention Plus (UK) Limited, a wholly owned
subsidiary, whose statements reflect total assets of $53,815 as of December 31,
1999, with no revenues for the related years then ended. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Accident Prevention
Plus (UK) Limited, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1999, and the results of its operations and cash flows for the
years ended December 31, 1999 and 1998 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company, as of December 31, 1999 has a
working capital deficiency of $2,226,395. In addition, for the years ended
December 31, 1999 and 1998, the Company reported net losses amounting to
$1,173,837 and $605,241, respectively. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
/s/ Massella, Tomaro & Co., LLP
-------------------------------
Massella, Tomaro & Co., LLP
Jericho, New York
March 28, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
(Unaudited)
March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C>
Current Assets:
Cash $ 19,980 $ 23,746
Accounts receivable, net 147,468 147,071
Inventory 165,125 130,121
Prepaid expenses 49,699 14,621
Other current assets 8,592 --
----------- -----------
Total Current Assets 390,864 315,559
----------- -----------
Property and Equipment, Net 40,431 21,822
----------- -----------
Other Assets:
Due from officers 193,018 159,997
Due from affiliate 330,171 323,314
Other 10,997 25,696
----------- -----------
Total Other Assets 534,186 509,007
----------- -----------
Total Assets $ 965,481 $ 846,388
=========== ===========
F-2
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
(Unaudited)
March 31, December 31,
2000 1999
----------- -----------
Current Liabilities:
Notes payable $ 1,022,701 $ 1,022,358
Capital leases payable 4,469 --
Accounts payable 944,079 833,278
Accrued expenses 546,414 435,675
Payroll taxes payable 106,391 92,760
Other taxes payable 25,851 19,917
Customer deposits 137,966 137,966
----------- -----------
Total Current Liabilities 2,787,871 2,541,954
----------- -----------
Long Term Liabilities:
Notes payable 23,379 25,701
Capital leases payable 15,718 --
Convertible note payable 382,000 150,000
Loans payable - officers 371,063 384,854
Note payable - shareholder 38,500 --
Notes payable - director 37,500 37,500
----------- -----------
Total Long Term Liabilities 868,160 598,055
----------- -----------
Total Liabilities 3,656,031 3,140,009
----------- -----------
Common Stock Subject to Rescission Offer, - $.001 par value,
139,958 shares issued and outstanding, respectively (Note 11) 202,939 202,939
----------- -----------
Commitments & Contingencies (Note 12) -- --
----------- -----------
Stockholders' Deficiency:
Common stock - $.001 par value, 50,000,000 shares authorized,
17,638,238 shares issued and outstanding, respectively 17,638 17,638
Additional paid-in capital 660,055 660,055
Accumulated - other comprehensive income 754 665
Accumulated deficit (3,571,936) (3,174,918)
----------- -----------
Total Stockholders' Deficiency (2,893,489) (2,496,560)
----------- -----------
Total Liabilities and Stockholders' Deficiency $ 965,481 $ 846,388
=========== ===========
See accompanying notes to consolidated financial statements.
F-2(a)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Unaudited) (Unaudited)
March 31, March 31, December 31, December 31,
2000 1999 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 191,476 $ 25,946 $ 701,526 $ 237,688
Cost of Sales 66,495 13,052 214,061 147,008
------------ ------------ ------------ ------------
Gross Profit 124,981 12,894 487,465 90,680
------------ ------------ ------------ ------------
Expenses:
Selling, general and administrative 432,617 223,967 1,155,616 565,301
Research and development 52,447 45,159 402,980 37,510
------------ ------------ ------------ ------------
Total Expenses 485,064 269,126 1,558,596 602,811
------------ ------------ ------------ ------------
Loss Before Other Income (Expenses)
And Provision For Income Tax (360,083) (256,232) (1,071,131) (512,131)
------------ ------------ ------------ ------------
Other Income (Expenses)
Interest income 9,723 8,639 35,454 5,610
Gain on foreign currency transaction -- 4,239 2,659 --
Interest expense (46,658) (36,446) (140,819) (98,720)
------------ ------------ ------------ ------------
Total Other Income (Expenses) (36,935) (23,568) (102,706) (93,110)
------------ ------------ ------------ ------------
Loss Before Provision For Income Taxes (397,018) (279,800) (1,173,837) (605,241)
------------ ------------ ------------ ------------
Provision For Income Taxes -- -- -- --
------------ ------------ ------------ ------------
Net Loss (397,018) (279,800) (1,173,837) (605,241)
Other Items of Comprehensive Income 89 -- 665 --
------------ ------------ ------------ ------------
Comprehensive Net Loss $ (396,929) $ (279,800) $ (1,173,172) $ (605,241)
------------ ------------ ------------ ------------
Basic Earnings Per Shares
Net Loss $ (.02) $ (.02) $ (.07) $ (.04)
------------ ------------ ------------ ------------
Weighted Average Number of Shares
Outstanding 17,785,559 17,298,970 17,629,462 17,195,345
------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements.
F-3
</TABLE>
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999 AND
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
Common Stock Additional
------------------------- Paid-in
Shares Amount Capital
----------- ----------- -----------
Balances at December 31, 1997 -- $ -- $ --
Recapitalization of the LLC 14,205,970 14,206 --
Purchase of subsidiary 2,975,000 2,975 --
90,000 shares of common stock
contributed by officers' for
services rendered to the Company -- -- 130,500
Issuance of common stock in
connection with settlements of
debt 115,000 115 92,818
Net loss for the year ended
December 31, 1998 -- -- --
----------- ----------- -----------
Balances at December 31, 1998 17,295,970 17,296 223,318
Issuance of common stock in
connection with private
placement memorandums,
net of offering costs 342,268 342 436,737
Foreign currency
translation adjustment -- -- --
Net loss for the year ended
December 31, 1999 -- -- --
----------- ----------- -----------
Balances at December 31, 1999
(forwarded) 17,638,238 $ 17,638 $ 660,055
----------- ----------- -----------
Table continues on following page.
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999 AND
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
Accumulated
Member's Other Total
Capital Comprehensive Accumulated Stockholders'
(Deficiency) Income(Loss) Deficit Deficiency
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances at December 31, 1997 $ (843,413) $ -- $ -- $ (843,413)
Recapitalization of the LLC 843,413 -- (857,619) --
Purchase of subsidiary -- -- (538,221) (535,246)
90,000 shares of common stock
contributed by officers' for
services rendered to the Company -- -- -- 130,500
Issuance of common stock in
connection with settlements of
debt -- -- -- 92,933
Net loss for the year ended
December 31, 1998 -- -- (605,241) (605,241)
----------- ----------- ----------- -----------
Balances at December 31, 1998 -- -- (2,001,081) (1,760,467)
Issuance of common stock in
connection with private
placement memorandums,
net of offering costs -- -- -- 437,079
Foreign currency
translation adjustment -- 665 -- 665
Net loss for the year ended
December 31, 1999 -- -- (1,173,837) (1,173,837)
----------- ----------- ----------- -----------
Balances at December 31, 1999
(forwarded) $ -- $ 665 $(3,174,918) $(2,496,560)
----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements.
F-4(a)
</TABLE>
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS'DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999 AND
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
Common Stock Additional
------------------------ Paid-in
Shares Amount Capital
---------- ----------- ----------
Balances at December 31, 1999
(from previous page) 17,638,238 $ 17,638 $ 660,055
Foreign currency
translation adjustment -- -- --
Net loss for the three months
ended March 31, 2000 -- -- --
---------- ----------- -----------
Balances at March 31, 2000 17,638,238 $ 17,638 $ 660,055
========== =========== ===========
Table continues on following page.
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999 AND
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
Accumulated
Member's Other Total
Capital Comprehensive Accumulated Stockholder's
(Defidiency) Income (Loss) Deficit Deficiency
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances at December 31, 1999
(from previous page) $ -- $ 665 $(3,174,918) $(2,496,560)
Foreign currency
translation adjustment -- 89 -- 89
Net loss for the three months
ended March 31, 2000 -- -- (397,018) (397,018)
----------- ----------- ----------- -----------
Balances at March 31, 2000 $ 4 $ 754 $(3,571,936) $(2,893,489)
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements
F-5(a)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Unaudited) (Unaudited)
March 31, March 31, December 31, December 31,
2000 1999 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating activities
Net loss $ (397,018) $(279,800) $(1,173,837) $ (605,241)
Adjustments to reconcile net loss to net
cash (used for) provided by operating activities:
Depreciation and amortization 4,123 3,710 6,837 5,265
Foreign currency translation 89 -- 665 --
Common stock for services -- -- -- 130,500
Decrease (increase) in:
Inventory (35,004) (5,080) (115,169) (14,952)
Accounts receivable (397) 29,699 (115,335) (30,365)
Prepaid expenses (35,078) 40,750 68,379 (8,250)
Other current assets (8,592) -- -- --
Other assets 14,699 -- (23,750) (446)
(Decrease) increase in:
Cash overdraft -- (6,057) (19,813) 19,813
Accounts payable and accrued expenses 221,540 197,577 645,210 203,031
Payroll taxes payable 13,631 1,485 10,941 3,346
Other taxes payable 5,934 -- 19,917 --
Customer deposits -- 70,597 137,966 (13,810)
----------- ----------- ----------- -----------
Net cash (used for) provided by operating activities (216,073) 52,881 (557,989) (311,109)
----------- ----------- ----------- -----------
Investing activities
Purchase of property and equipment (22,732) -- (12,238) (2,782)
----------- ----------- ----------- -----------
Net cash used for investing activities (22,732) -- (12,238) (2,782)
----------- ----------- ----------- -----------
Financing activities
Proceeds from notes payable 38,500 -- -- 61,238
Repayments of notes payable (1,979) (20,434) (42,824) --
Proceeds from capital lease contributions 22,732 -- (2,896) (1,698)
Repayments of capital lease payable (2,545) (2,896) -- --
Proceeds from convertible note payable 232,000 -- 150,000 --
Proceeds from common stock subject to rescission -- 29,000 202,939 --
Proceeds from sale of common stock -- 13,050 437,079 --
Expenditures for sale of common stock -- (19,174) -- --
Proceeds from officers loans payable -- 8,089 50,178 126,454
Repayments of officers loans payable (13,791) -- (64,455) --
Proceeds from directors note payable -- -- -- 4,000
(Advances to) proceeds from affiliates (6,857) 373 (52,174) 32,904
Advances to officer (33,021) (18,295) (84,066) (75,931)
Proceeds from IPS-NY prior to acquisition -- -- -- 162,542
----------- ----------- ----------- -----------
Net cash provided by (used for) financing activities 235,039 (10,287) 593,781 309,509
----------- ----------- ----------- -----------
Net (decrease) increase in cash (3,766) 42,594 23,554 (4,382)
Cash and cash equivalents at beginning of year 23,746 192 192 4,574
----------- ----------- ----------- -----------
Cash and cash equivalents at end of year $ 19,980 $ 42,786 $ 23,746 $ 192
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Unaudited) (Unaudited)
March 31, March 31, December 31, December 31,
2000 1999 1999 1998
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Supplemental disclosure of non-cash flow information:
Cash paid during the year for:
Interest $ 3,918 $ 13,062 $ 81,584 $ 128,580
========= ========= ========== =========
Income taxes $ -- $ -- $ -- $ --
========= ========= ========== =========
Schedule of non-cash operating activities:
Issuance of 115,000 shares of common
stock in connection with settlement of debt $ -- $ -- $ -- $ (92,933)
========= ========= ========== =========
Schedule of non-cash investing activities:
Issuance of 115,000 shares of common
stock in connection with settlement of debt $ -- $ -- $ -- $ 92,933
========= ========= ========== =========
90,000 shares of common stock contributed
by officers' for services rendered $ -- $ -- $ -- $ 130,500
========= ========= ========== =========
In connection with acquisition
of IPS - NY 2,975,000 shares of
common stock issued $ -- $ -- $ -- $(535,246)
========= ========= ========== =========
See accompanying notes to consolidated financial statements.
F-7
</TABLE>
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
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 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
of accounting.
F-8
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
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 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.
EUROPEAN SUBSIDIARIES
---------------------
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. Additionally, as of
December 31, 1999, the Company has a working capital deficiency
amounting to $2,226,395.
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 of their bank debt. Should the banks take action against the
Company the results could adversely affect the Company.
The Company is aggressively attempting to obtain additional contracts
in order to mitigate future losses. The Company is in the process of
complying with the Securities and Exchange Commission's (SEC) rules
regarding compliance with Rule 15c2-11, adopted under the Securities
Act of 1934, as amended, in order for broker dealers to publish
quotations in the Company's securities. Management is optimistic that
this will enable the Company to raise additional capital. However,
there can be no assurance that it will be able to obtain additional
contracts, pay its payroll taxes or to comply with SEC eligibility
requirements for publishing of quotations in the Company's securities.
F-9
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 2 - GOING CONCERN (cont'd)
These facts raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include
adjustments relating to the recoverability and realization of assets
and classification of liabilities that might be necessary should the
Company be unable to continue in operation.
NOTE 3 - INTERIM RESULTS AND BASIS OF PRESENTATION
The unaudited consolidated financial statements as of March 31, 2000
and for the three month periods ended March 31, 2000 and 1999 have been
prepared by the Company and are unaudited. 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 March 31, 2000 and the
results of the operations and cash flows for the three month periods
ended March 31, 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 month period ended March 31,
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 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Principles of consolidation
---------------------------
The accompanying consolidated balance sheets at March 31, 2000 and
December 31, 1999 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 the balances of IPS-NY for the period from October 28, 1998,
(the acquisition date) to December 31, 1998 since purchase accounting
requires the elimination of all operating transactions of the acquired
subsidiary prior to the date of acquisition. If the operating
transactions of IPS-NY for the period from January 1, 1998 to October
27, 1998 were included in the December 31, 1998 consolidated statement
of operations, the effect on major components would be as follows:
Proforma
----------
Net Sales $ 443,088
Cost of Sales 202,950
----------
Gross Profit 240,138
Total Expenses 801,424
----------
Net Loss $(561,286)
==========
F-10
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
b) Cash and cash equivalents
-------------------------
The Company considers highly liquid investments with maturities of three
months or less at the time of purchase to be cash equivalents.
c) Accounts Receivable
-------------------
The Company utilizes the allowance method for recognizing the
collectibility of its accounts receivable. The allowance method
recognizes bad debt expense based on a review of the individual accounts
outstanding based on the surrounding facts. As of March 31, 2000 and
December 31, 1999, no allowance was deemed necessary by management.
d) Inventory
---------
Inventory amounting to $165,125 and $130,121 at March 31, 2000 and
December 31, 1999, respectively, consists of components and finished
goods and are valued at the lower of cost (using the specific
identification method) or market. All inventory is pledged as collateral
pursuant to the notes payable as discussed in Note 7.
e) Income taxes
------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income
Taxes" which requires the use of the "liability method" of accounting
for income taxes. Accordingly, deferred tax liabilities and assets are
determined based on the difference between the financial statement and
tax bases of assets and liabilities, using enacted tax rates in effect
for the year in which the differences are expected to reverse. Current
income taxes are based on the respective periods' taxable income for
federal and state income tax reporting purposes.
f) Earnings per share
------------------
During 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." SFAS No. 128 replaced the previously required
reporting of primary and fully diluted earnings per share with basic and
diluted earnings per share, respectively. Unlike the previously reported
primary earnings per share, basic earnings per share excludes the
dilutive effects of stock options. Diluted earnings per share are
similar to the previously reported fully diluted earnings per share.
Earnings per share amounts for all periods presented have been
calculated in accordance with the requirements of SFAS No. 128.
F-11
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
g) Use of estimates
----------------
In preparing the consolidated financial statements in conformity with
generally accepted accounting principles, management is required to
make estimates and assumptions which affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
h) Fair value disclosure at March 31, 2000 and December 31, 1999
-------------------------------------------------------------
The carrying value of cash, accounts receivable, accounts payable and
accrued expenses are a reasonable estimate of their fair value because
of the short-term maturity of these investments. The carrying value of
long-term debt closely approximates its fair value based on the
instruments' interest rate terms, maturity date, and collateral, if
any, in comparison to the Company's incremental borrowing rates of
similar financial instruments.
i) Organizational costs
--------------------
Organizational costs consist of legal costs incurred in the
establishment of the Company. Organizational costs are being amortized
on a straight-line basis over a five year estimated useful life.
j) Effect of New Accounting Standards
----------------------------------
The Company does not believe that any recently issued accounting
standards, not yet adopted by the Company, will have a material impact
on its financial position and results of operations when adopted.
k) Property and Equipment
----------------------
Property and equipment are recorded at cost less accumulated
depreciation which is provided on the straight line basis over the
estimated useful lives of the assets which range between five and seven
years. Expenditures for maintenance and repairs are expensed as
incurred.
l) Deferred Offering Costs
-----------------------
Deferred offering costs consisted of $10,000 in professional fees at
December 31, 1998 in connection with the Company's private placement
memorandum affected during 1999, which were included in prepaid
expenses. Accordingly, all such costs were charged to additional
paid-in capital during the year ended December 31, 1999.
F-12
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
m) Research and Development Costs
------------------------------
Research and development costs are expensed as incurred. Such costs
amounted to $52,447 and $45,159 for the three months ended March 31,
2000 and 1999, respectively, and $402,980 and $37,510 for the years
ended December 31, 1999 and 1998, respectively.
n) Foreign Currency Translation
----------------------------
The accounts of the Company's foreign operations are translated into
U.S. dollars using the current rate method. Assets and liabilities are
translated at the year-end exchange rate and revenues and expenses are
translated at average exchange rates. Gains and losses arising from
the translation of financial statements of foreign operations are
deferred in the "Accumulated - other comprehensive income (loss)"
account included as a separate component of stockholders' deficiency.
The functional currency of all the Company's subsidiaries is the
United States dollar with the exception of APP U.K. and APP France
whose functional currencies are the British pound sterling and the
French franc.
Monetary assets and liabilities denominated in foreign currencies are
translated into U.S. dollars at the year-end rate of exchange.
Non-monetary assets and liabilities denominated in foreign currencies
are translated at historic rates and revenue and expenses are
translated at average rates prevailing during the month of the
transaction. Exchange gains or losses arising from the translation of
long-term monetary assets and liabilities are deferred and amortized
on a straight-line basis over the remaining life of the asset or
liability. All other exchange gains or losses are reflected in the
consolidated statements of operations. At March 31, 2000 and 1999 and
December 31, 1999 and 1998, there were no foreign exchange gains or
losses associated with long-term monetary assets and liabilities.
o) Segment Information
-------------------
The Company has adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 supercedes SFAS
No. 14, "Financial Reporting for Segments of a Business Enterprise,"
replacing the "industry segment" approach with the "management"
approach. The management approach designated the internal organization
that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable
segments. SFAS No.131 also requires disclosures about products and
services, geographic areas, and major customers. The adoption of SFAS
No. 131 did not significantly affect the disclosures of segment
information previously reported.
F-13
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
p) Comprehensive Income
The Company adopted SFAS No. 130, "Accounting for Comprehensive
Income," during the year ended December 31, 1998. This statement
establishes standards for reporting and disclosing comprehensive
income and its components (including revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. The
Company had comprehensive income of $89 and $0 for the three months
ended March 31, 2000 and 1999, respectively, and $665 and $0 for the
years ended December 31, 1999 and 1998.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment are as follows at:
March 31, December 31,
2000 1999
------- -------
Furniture & fixtures $ 1,220 $ 1,220
Computer equipment 79,200 56,468
------- -------
$80,420 $57,688
Less: accumulated depreciation 39,989 35,866
------- -------
$40,431 $21,822
======= =======
Depreciation and amortization expense for the three months ended March
31, 2000 and 1999 amounted to $4,123 and $3,710, respectively.
Depreciation expense for the years ended December 31, 1999 and 1998
amounted to $6,837 and $5,265, respectively.
NOTE 6 - DUE FROM AFFILIATE
Due from affiliate consists of a loan receivable from KMR, which is
affiliated with the Company through common stock ownership with the
Chief Executive Officer of the Company. The loan is held by IPS - NY
and bears interest at 12% per annum. The Company's Chief Executive
Officer has pledged to the Company his 49% interest in KMR as
collateral for the loan. At March 31, 2000 and December 31, 1999 the
loan due from KMR amounted to $330,171 and $323,314, respectively.
Interest income recorded by the Company in connection with the loan
amounted to $9,723 and $8,639, respectively, for the three months
ended March 31, 2000 and 1999 and $35,454 and $5,610, respectively,
for the years ended December 31, 1999 and 1998.
NOTE 7 - 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-14
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 7 - NOTES PAYABLE (cont'd)
a) Bank of Smithtown (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
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
March 31, 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 $488,783 and $490,774, $43,828 and
$43,828, and $38,652 and $42,742, respectively.
All notes associated with the above settlement agreement are secured
by the Company's common stock owned by its Chief Executive Officer and
all assets of the Company.
As of March 31, 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 March 31, 2000 and December 31, 1999.
Annual aggregate maturities of notes payable under the SBA note are as
follows as of December 31, 1999:
Year ended December 31:
2000 $ 17,041
2001 19,012
2002 6,689
-----------
$ 42,742
===========
F-15
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 7 - NOTES PAYABLE (cont'd)
b) HSBC Bank USA (formerly Marine Midland Bank)
--------------------------------------------
On September 17, 1996, the LLC borrowed $500,000 by executing a
promissory note with HSBC Bank USA (formerly Marine Midland Bank)
("HSBC") with the note being partially guaranteed by the SBA. Such
note was for a term of one year. The current terms of the note are
payments of interest only at prime plus 2% per annum and due on
demand. The Company is currently in the process of negotiating a
long-term payout for this note with HSBC. As of March 31, 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.
NOTE 8- ACCRUED EXPENSES
Accrued expenses consist of the following at March 31, 2000 and
December 31, 1999:
(Unaudited)
March 31, 2000 December 31, 1999
-------------- -----------------
Payroll $ 27,135 $ 9,953
Professional fees 30,000 24,348
Officers salaries 450,000 360,000
Interest 19,999 40,776
Other 19,280 598
-------------- -----------------
$ 546,414 $ 435,675
============== =================
NOTE 9 - CAPITAL LEASE PAYABLE
During March 2000, the Company acquired computer equipment for $22,732
by entering into capital lease obligations with interest at
approximately 10.5% per annum, requiring 36 monthly payments of $656
which include principal and interest and downpayments aggregating
$2,545. The leases are secured by the related equipment.
At March 31, 2000, the aggregate future minimum lease payments due
pursuant to the above capital lease obligations are as follows:
Total minimal lease payments $ 23,621
Less: Amounting representing interest 3,434
-----------
Present value of net minimum lease payments $ 20,187
===========
At March 31, 2000 computer equipment under capital leases are carried
at a book value of $21,866.
F-16
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 10 - CONVERTIBLE NOTE PAYABLE
On December 16, 1999, the Company executed a $250,000 convertible
promissory note with an individual, bearing interest at 15% per annum
with principal payable in full on December 31, 2001. The promissory
note contains a provision stating that beginning January 2, 2001 that
upon a 10 day notice the note is due on demand. On September 30, 2000
the note is convertible into common stock at the rate of $1.45 per
share. There also is a prepayment penalty provision if the Company
prepays the note in the first thirteen months. The Company had
received $150,000 in December 1999 related to the note with the
remaining $100,000 received in January 2000. 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 $1.45 per shares.
During March 2000, the Company entered into seven convertible 10%
promissory notes aggregating $279,000. The Company received proceeds
of $32,000 from three noteholders and $247,000 from four noteholders
in March and April 2000, respectively. The promissory notes are due on
December 31, 2001, bearing interest at 10% per annum and are payable
monthly in arrears or upon maturity or any earlier conversion of the
note. At any time subsequent to September 30, 2000, the noteholder
will have the right to convert the principal and accrued interest in
whole or in part into common stock at $1.45 per share.
NOTE 11 - 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, as
discussed in note 13 (e), 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 $202,939 from the issuance of 139,958 shares of common
stock at March 31, 2000 and December 31, 1999 have been classified
outside of the equity section in the balance sheet and classified as
common stock subject to rescission. As of March 31, 2000, none of the
related investors have requested the Company to repurchase their
shares except from two shareholders, (see Note 17).
F-17
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 12 - COMMITMENTS AND CONTINGENCIES
a) Payroll taxes
-------------
As of March 31, 2000 and December 31, 1999, the Company owes
approximately $106,000 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) 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. Pursuant to the agreement, USF was
to receive structured repayments based on revenues generated from the
product sales.
Since there were no revenues within two years after the completion of
the USF funding, all rights to the product technology have in
accordance with the contract reverted to USF. The Company intends to
pursue negotiations with USF regarding its respective percentage
ownership interest in the rights to the technology relating to FIMS in
view of the fact that the Company expended its own funds for payment
of research and development expenses prior to and after such funding.
There is no guarantee that the Company will be successful in such
negotiations and may potentially lose all rights to the technology
relating to FIMS.
c) 401K Employee Benefit Plan
--------------------------
During 1994, IPS-NY established a non-contributory 401K-employee
benefit plan on behalf of its employees. As of March 31, 2000 and
December 31, 1999, IPS-NY has failed to remit approximately $5,000 to
such plan, and accordingly, such amount has been included in accounts
payable.
d) Lack of insurance
-----------------
The Companies ceased maintaining any product liability, officer's life
or any other form of general insurance in October 1997. In December
1999, the Companies obtained general and product liability insurance.
Although the Companies are not aware of any claims resulting from lack
of insurance, there is no assurance that none exists.
F-18
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 12 - COMMITMENTS AND CONTINGENCIES (cont'd)
e) Significant customers
---------------------
For the three months ended March 31, 2000 and 1999, the Company had
one and two unrelated customers, respectively, which accounted for
approximately 98% and 76% and 16%, respectively, of total revenues.
For the years ended December 31, 1999 and 1998, the Company had three
unrelated customers, which accounted for approximately 42%, 36% and
17%, and 56%, 17%, and 16%, respectively, of total revenues. As of
March 31, 2000 and December 31, 1999, the Company had two unrelated
customers who accounted for approximately 57% and 43% and 80% and 20%,
respectively, of accounts receivables.
f) Lease Commitments
-----------------
i) Office Space
Prior to April 1998, IPS-NY, had office space which was rented on
a month-to-month basis. In April 1998, IPS-NY entered into a
reciprocal agreement with Jaco Electronics, Inc. ("Jaco")
stipulating 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. The warehousing and shipping services
provided by Jaco have been accounted for as services provided to
the LLC. For the three months ended March 31, 1999, the Company
recorded $15,000 of warehousing and shipping cost and $4,500 of
rent expense related to this agreement. For the years ended
December 31, 1999 and 1998, the Company recorded $47,500 and
$42,500, respectively, of warehousing and shipping cost and rent
expense of $21,970 and $19,879, respectively.
The Company entered into a sublease agreement for office space
effective January 10, 2000. The sublease agreement is for two
years, with two (one year) options to renew. The office lease
requires monthly payments of $5,200, which includes maintenance
and use of a phone system and furniture. The Company has the
right upon 60 days notice to increase the square footage of
office space used at a rate of $7,500 per month. For the three
months ended March 31, 2000, the Company recorded $15,600 of rent
expense related to this agreement.
F-19
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 12 - COMMITMENTS AND CONTINGENCIES (cont'd)
f) Lease Commitments (cont'd)
--------------------------
ii) Vehicles
--------
The Company leases four vehicles under non-cancelable
operating leases. Total leasing expense was $5,566 and
$1,910 for the three months ended March 31, 2000 and 1999,
respectively. Total leasing expense was $18,607 and $18,561
for the years ended December 31, 1999 and 1998,
respectively. The Company's approximate future minimum lease
payments under these non-cancelable operating leases in
effect on December 31, 1999 are as follows:
2000 $ 18,059
2001 14,621
2002 4,874
--------------
$ 37,554
==============
g) 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 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 March 31, 2000, 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.
h) Bristol Consulting Ltd.
-----------------------
On July 30, 1998, the LLC entered into a consulting agreement
with Bristol Consulting Ltd. ("Bristol") for the assistance and
advice of commercial application in Europe, the Middle East and
the Far East as to corporate structure, capital acquisitions,
contract applications, and mergers and acquisitions. 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. In
addition, 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.
F-20
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 12 - COMMITMENTS AND CONTINGENCIES (cont'd)
--------------------------------------
h) Bristol Consulting Ltd. (cont'd)
--------------------------------
For the three months ended March 31, 2000 and 1999, the LLC paid a
total of $0 and $9,500, respectively. For the years ended December 31,
1999 and 1998, the LLC paid a total of $62,500 and $14,600,
respectively, to Bristol. As of March 31, 2000 and December 31, 1999,
the LLC has accrued a total of $107,900 and $77,900, respectively, of
payments due to Bristol.
i) 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 advice 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.
j) Software Hardware Specialists, Inc.
-----------------------------------
On December 17, 1998, the Company entered into a three year joint
venture agreement with Software Hardware Specialists, Inc. ("SHS")
which became effective on January 4, 1999. SHS, a current shareholder
will jointly provide the engineering and manufacturing management
along with engineering design of the Company's products.The Company
will pay SHS for a period of three years at established hourly rates.
For the three months ended March 31, 2000 and 1999, the Company paid
$46,720 and $11,200, respectively, to SHS for research and
development. For the year ended December 31, 1999, the Company paid to
$182,969.
k) 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
March 31, 2000 and December 31, 1999, the Company billed a total of
$182,875 and $118,000, respectively, in connection with such
agreement.
F-21
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 12 - COMMITMENTS AND CONTINGENCIES (cont'd)
l) Carnegie Mellon Research Institutes
-----------------------------------
On November 19, 1998, the LLC entered into a non-disclosure agreement
with Carnegie Mellon Research Institute and Carnegie Mellon Driver
Training and Safety Institute ("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 March 31, 2000, the LLC and Carnegie have not entered into a
formal contract regarding such joint venture. However, the LLC has
made payments to Carnegie totaling $-0- and $5,000, respectively, for
the three months ended March 31, 2000 and 1999 and $25,000 for the
year ended December 31, 1999 for research and development.
m) 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 thirty-six (36) months 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.
During July 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 eight (8) 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.
NOTE 13 - 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.
F-22
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 13 - STOCKHOLDERS' DEFICIENCY (cont'd)
a) Reorganization (cont'd)
-----------------------
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) Issuance of Common Stock for Settlement of Debt
-----------------------------------------------
During November 1998, the Company issued 115,000 shares of common
stock to certain professionals and vendors as consideration for
forgiveness of accrued expenses associated with accounting and tax
services, software consulting and design services. The shares issued
have been valued at the balance of the accrued expenses amounting to
$92,933.
c) Officers' Contribution
----------------------
During November 1998, the officers of the Company transferred 90,000
shares of common stock which they held personally, to consultants,
professionals and employees of the Company in consideration for
services. Accordingly, in connection with the issuance of such shares,
the Company recorded general and administrative expenses and
additional paid-in capital of $130,500 related to such issuances.
d) 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. At March 31,
2000, no options were granted.
e) 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. As of December 31, 1999, the Company
has sold an aggregate of 482,226 shares for the two offerings,
yielding net proceeds of $640,018 after offering costs.
F-23
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 13 - STOCKHOLDERS' DEFICIENCY (cont'd)
e) Limited Offering Memorandums (cont'd)
-------------------------------------
Common stock sold subsequent to August 3, 1999 pursuant to the
Company's limited offering memorandums, 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 $202,939 from the issuance of 139,958 shares of
common stock through December 31, 1999 have been classified outside of
the equity section in the balance sheet and classified as common stock
subject to rescission. As of March 31, 2000, none of the related
investors have requested the Company to repurchase their shares,
however, see Note 17.
NOTE 14 - PROVISION FOR INCOME TAXES
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes related to differences between the financial statement
and tax bases of assets and liabilities for financial statement and
income tax reporting purposes. Deferred tax assets and liabilities
represent the future tax return consequences of these temporary
differences, which will either be taxable or deductible in the year
when the assets or liabilities are recovered or settled. Accordingly,
measurement of the deferred tax assets and liabilities attributable to
the book-tax basis differentials are computed at a rate of 34%
federal, 9% state and 20% for APP UK pursuant to SFAS No. 109.
The only material tax effect of significant items comprising the
Companies' current deferred tax assets as of December 31, 1999 is the
Companies' net operating carryforward losses ("NOL's") which amounted
to approximately $1,202,000, $575,000 and $57,000, respectively for
the Company, IPS-NY and APP UK.
The deferred tax asset associated with the Companies' NOL's amounted
to approximately $602,000 as of December 31, 1999.
A portion of IPS-NY's net operating loss carry forwards are subject to
provisions of the Internal Revenue Code, Section 382, which limits the
use of net operating loss carryforwards when changes in ownership of
more than 50 percent occur during a three year testing period.
In accordance with SFAS No. 109, the Company has recorded a 100%
valuation allowance for such deferred tax asset since management could
not determine that it was "more likely than not" that the deferred tax
asset would be realized in the future. The Companies' NOL's amounting
to approximately $1,834,000 will expire in the years 2008 through
2014, if not utilized prior. The Company and its subsidiaries filed
separate tax returns for federal and state tax purposes for the tax
year ended December 31, 1998. As such, income tax is based on the
separate taxable income or loss of each entity. For the year ended
December 31, 1999, the Company will file consolidated federal tax
returns.
F-24
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 15 - RELATED PARTY TRANSACTIONS
a) Loans Payable - Officers
As of March 31, 2000 and December 31, 1999, loans payable-officers
amounting to $371,063 and $384,854, respectively, represent loans made
by the President, Chief Executive Officer and Chief Financial Officer
of the Company and are comprised of the following:
i) The loans of the President of the Company as of March 31, 2000
and December 31, 1999 amounted to $371,063 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 15d(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 $81,063 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.
iii) A note due the Chief Financial Officer's spouse at December 31,
1999 amounted to $5,000 and is non-interest bearing. The note was
paid in full in January 2000.
b) Due From Officers
Due from officers as of March 31, 2000 and December 31, 1999 amounting
to $193,018 and $159,997, respectively, represents advances to the
following officers:
i) As of March 31, 2000 and December 31, 1999, the Company advanced
to its Executive Vice President $188,073 and $159,997,
respectively. The advances are non-interest bearing and due on
demand.
ii) As of March 31, 2000, the Company advanced the Chief Executive
Officer $4,945 which is non-interest bearing and due on demand.
F-25
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 15 - RELATED PARTY TRANSACTIONS (cont'd)
c) Employment agreements
---------------------
Between November 1995 and January 1996, the LLC entered into three
separate employment agreements with its then Vice President of
Engineering, 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 Vice President of
Engineering, 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. 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. 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. The foregoing options are intended to qualify
as incentive stock options. Lastly, pursuant to the agreements, all
three officers agreed to defer the first six months of their salary,
which is to be paid at a later date. As of March 31, 2000 and December
31, 1999, the Company has accrued $450,000 and $360,000, respectively,
of salary and paid $ 0 to the officers.
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 March 31, 2000 and December 31,
1999, such note is included in loans payable - officers and
remains unpaid as a result of the Company receiving a waiver of
repayment until December 31, 2001. The LLC has continued to
accrue interest on the note at the rate of 8% per annum through
March 31, 2000. As of March 31, 2000 and December 31, 1999,
accrued interest on such note amounted to $15,000 and $14,000,
respectively.
F-26
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 15 - RELATED PARTY TRANSACTIONS (cont'd)
d) Notes Payable (cont'd)
----------------------
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 the date of borrowing. In
March 1998, IPS - NY borrowed $4,000 from the same director with
the same terms as the LLC. As of March 31, 2000, such notes
remain unpaid as a result of the Company receiving a waiver of
repayment until December 31, 2001.
iii) Shareholder
-----------
In February 2000, the Company entered into a promissory note with
Bristol Consulting and received proceeds of $38,500. The terms of
the note are interest at ten percent per annum, with the interest
and principal payable in full at the end of two years.
F-27
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 16 - INDUSTRY SEGMENTS
The Company's operations have been classified into two segments:
foreign and domestic sales. Information about the two segments for the
years ended December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
Segment Consolidated Segment Consolidated
------- ------------ ------- ------------
Sales:
<S> <C> <C> <C> <C>
Foreign $ 627,301 $ 231,688
Domestic 74,225 --
----------- -----------
Total Sales $ 701,526 $ 231,688
=========== ===========
Gross profit:
Foreign $ 435,889 $ 87,680
Domestic 51,576 3,000
----------- -----------
Total Gross Profit $ 487,465 $ 90,680
Corporate:
Selling, general and
administrative expense:
Foreign $ (57,652) $ --
Domestic (1,097,964) (565,301)
----------- -----------
Total S,G &A (1,155,616) (565,301)
Interest and finance expense (140,819) (98,720)
Interest and other income 38,113 5,610
Research and development (402,980) (37,510)
----------- -----------
Loss from operations (1,173,837) (605,241)
Provision for income tax -- --
----------- -----------
Net (loss) $(1,173,837) $ (605,241)
=========== ===========
Identifiable assets:
Foreign $ 524,200 $ 302,879
Domestic 322,188 192,442
----------- -----------
Total assets $ 846,388 $ 495,321
=========== ===========
</TABLE>
Gross profit is total revenue less cost of sales and excludes general corporate
expenses, interest expense, and income taxes. Identifiable assets are those used
by each segment of the Company's operations.
F-28
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 17 - SUBSEQUENT EVENT
Common stock repurchase
-----------------------
On April 18, 2000, the Company purchased 10,000 and 5,000 shares of
common stock from two shareholders. The Company intends to hold these
shares in treasury (see Notes 11 and 13e).
F-29
