U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _______
Commission file number 0-26257
ACCIDENT PREVENTION PLUS, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 11-3461611
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
325 Wireless Boulevard
Hauppauge, New York 11788
(Address of Principal Executive Offices)
(631) 360-0600
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes No X
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding as of May 11, 2000
Common Stock, $.001 par value 17,638,238
Transitional Small Business Disclosure Format (check one)
Yes No X
<PAGE>
Accident Prevention Plus, Inc.
INDEX
Page
----
PART I. FINANCIAL INFORMATION F-1
Item 1. Financial Statements F-1 - F-17
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 3
PART II. OTHER INFORMATION 5
Item 1. Legal Proceedings 5
Item 2. Changes in Securities and Use of Proceeds 5
Item 3. Defaults Upon Senior Securities 5
Item 4. Submission of Matters to a Vote of Security Holders 5
Item 5. Other Information 5
Item 6. Exhibits and Reports on Form 8-K 5
SIGNATURES 6
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE-MONTH ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Number
------
Consolidated Balance Sheets at March 31, 2000 (unaudited)
and December 31, 1999 F-2 - F-3
Consolidated Statements of Operations and Comprehensive Income
for the three months ended March 31, 2000 and 1999 F-4
Consolidated Statement of Stockholders' Deficiency for the three
month ended March 31, 2000 (unaudited) F-5
Consolidated Statements of Cash Flows for the three-month
ended March 31, 2000 and 1999 (unaudited) F-6 - F-7
Notes to Consolidated Financial Statements (unaudited) F-8 - F-16
F-1
<PAGE>
<TABLE>
<CAPTION>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999
ASSETS
------
(Unaudited)
March 31, December 31,
2000 1999
----------- -----------
Current Assets:
<S> <C> <C>
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
=========== ===========
Table continues on following page.
See accompanying notes to consolidated financial statements
F-2
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999
(CONTINUED)
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 3,641,531 3,140,009
----------- -----------
Common Stock Subject to Rescission Offer, - $.001 par value,
139,958 shares issued and outstanding (Note 8) 202,939 202,939
----------- -----------
Commitments & Contingencies (Note 9) -- --
----------- -----------
Stockholders' Deficiency:
Common stock - $.001 par value, 50,000,000 shares authorized,
17,638,238 shares issued and outstanding, respectively 17,638 17,638
Additional paid-in capital 660,055 660,055
Accumulated - other comprehensive income (loss) 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-3
</TABLE>
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(Unaudited) (Unaudited)
March 31, March 31,
2000 1999
------------ ------------
Net Sales $ 191,476 $ 25,946
Cost of Sales 66,495 13,052
------------ ------------
Gross Profit 124,981 12,894
------------ ------------
Expenses:
Selling, general and administrative 432,617 223,967
Research and development 52,447 45,159
------------ ------------
Total Expenses 485,064 269,126
------------ ------------
Loss Before Other Income (Expenses)
And Provision For Income Tax (360,083) (256,232)
------------ ------------
Other Income (Expenses)
Interest income 9,723 8,639
Gain on foreign currency transaction -- 4,239
Interest expense (46,658) (36,446)
------------ ------------
Total Other Income (Expenses) (36,935) (23,568)
------------ ------------
Loss Before Provision For Income Taxes (397,018) (279,800)
------------ ------------
Provision For Income Taxes -- --
------------ ------------
Net Loss (397,018) (279,800)
Other Items Of Comprehensive Income 89 --
------------ ------------
Comprehensive Net Loss $ (396,929) $ (279,800)
============ ============
Basic Earnings Per Share:
Net Loss $ (.02) $ (.02)
============ ============
Weighted Average Number of Shares
Outstanding 17,785,559 17,298,970
============ ============
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 THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
Accumulated
Common Stock Additional Other Total
-------------------- Paid-in Comprehensive Accumulated Stockholders'
Shares Amount Capital Income (Loss) Deficit Deficiency
------ ------ ------- ------------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1999 17,638,238 17,638 660,055 665 (3,174,918) (2,496,560)
Net loss for the three months
ended March 31, 2000 -- -- -- 89 (397,018) (396,929)
----------- ----------- ----------- ----------- ----------- -----------
Balances at March 31, 2000 17,638,238 $ 17,638 $ 660,055 $ 754 $(3,571,936) $(2,893,489)
=========== =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
F-5
</TABLE>
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
(Unaudited) (Unaudited)
March 31, March 31,
2000 1999
--------- ---------
Operating activities
Net loss $(397,018) $(279,800)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 4,123 3,710
Foreign currency translation 89 --
Decrease (increase) in:
Inventory (35,004) (5,080)
Accounts receivable (397) 29,699
Prepaid expenses (35,078) 40,750
Other current assets (8,592) --
Other assets 14,699 --
(Decrease) increase in:
Cash overdraft -- (6,057)
Accounts payable and accrued expenses 221,540 197,577
Payroll taxes payable 13,631 1,485
Other taxes payable 5,934 --
Customer deposits -- 70,597
--------- ---------
Net cash used for operating activities (216,073) (52,881)
--------- ---------
Investing activities
Purchase of property and equipment (22,732) --
--------- ---------
Net cash used for investing activities (22,732) --
--------- ---------
Financing activities
Proceeds from notes payable - shareholder 38,500 --
Repayments of notes payable (1,979) (20,434)
Proceeds from capital lease payable 22,732 --
Repayments of capital lease payable (2,545) (2,896)
Proceeds from convertible note payable 232,000 --
Proceeds from common stock subject to rescission -- 29,000
Proceeds from sale of common stock -- 13,050
Expenditures for sale of common stock -- (19,174)
Proceeds from officers loans payable -- 8,089
Repayment of officers loans payable (13,791) --
(Advances to) proceeds from affiliate (6,857) 373
Advances to officer's (33,021) (18,295)
--------- ---------
Net cash provided by (used for) financing
activities 235,039 (10,287)
--------- ---------
Net increase (decrease) in cash (3,766) 42,594
Cash and cash equivalents at beginning of year 23,746 192
--------- ---------
Cash and cash equivalents at end of year $ 19,980 $ 42,786
========= =========
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
(Unaudited) (Unaudited)
March 31, March 31,
2000 1999
--------- ---------
Supplemental disclosure of non-cash flow information:
Cash paid during the year for:
Interest $ 23,918 $ 13,062
========= =========
Income taxes $ -- $ --
========= =========
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
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 New York Limited Liability Company, (the
"LLC") and International Purchasing Services, NY, Inc. ("IPS-NY").
INC-NY/LLC
----------
Accident Prevention Plus, Inc. ("Inc-NY") was incorporated during 1993 in
the State of New York as a standard corporation. During February 1996,
Inc-NY was reorganized and converted to a Limited Liability Company. The
LLC is treated as a partnership for financial and income tax purposes. The
entities are engaged in the design, marketing and distribution of onboard
computer recording and fuel monitoring systems for commercial and fleet
vehicles.
IPS-NY
------
IPS-NY was incorporated in the State of New York on March 3, 1993 to
provide various support services to the LLC including but not limited to
shipping, receiving and warehousing. IPS-NY was also responsible for
purchases of product components, providing financing, and other general
overhead support for the LLC and for its own business purposes. The sole
shareholder of IPS-NY was also the majority member of the LLC.
REORGANIZATION
--------------
During October 1998, pursuant to an Agreement and Plan of Reorganization
(the "Reorganization Agreement") the Company issued 14,205,970 shares of
its common stock to the members of the LLC for 100% of the LLC. The Company
accounted for the transaction with the LLC as a corporate reorganization
and accordingly, no goodwill was recorded. In connection with the
reorganization, the founding members in the LLC were elected as the
officers of the Company. Accordingly, after such reorganization, the LLC
became a wholly owned subsidiary of the Company.
ACQUISITION OF IPS-NY
---------------------
Simultaneously with the reorganization during October 1998, the Company
acquired from IPS-NY's sole shareholder, 100% of the issued and outstanding
common stock of IPS-NY by issuing 2,975,000 shares of the Company's common
stock. The acquisition was accounted for by the purchase method of
accounting.
F-8
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NOTE 1 -- ORGANIZATION (cont'd)
KMR TELECOM, Ltd.
-----------------
Simultaneously with the reorganization during October 1998, the Company
also intended to acquire all of the issued and outstanding common stock of
KMR Telecom, Ltd ("KMR"), a corporation organized under the laws of India
for 800,000 shares of its common stock. During October of 1999, it was
discovered that the laws of India prohibit a foreign entity from holding
more than a 49% equity interest in a company organized under the laws of
India. Accordingly, the Company and the shareholders of KMR entered into a
rescission agreement canceling the transaction. The financial statements do
not reflect the intended acquisition. In accordance with the rescission
agreement, the rescission was effectuated retroactively to October 1998.
APP U.K. Ltd.
-------------
On September 13, 1999, Accident Prevention Plus (UK) Limited ("APP UK") was
formed as a private limited company under the laws of England and Wales to
provide sales, marketing and technical support for the Company in Europe.
APP UK is a wholly owned subsidiary of the Company. On December 17, 1999,
Accident Prevention Plus, France SARL ("APP France") was formed as a
private Company under the laws of France. APP France is a wholly owned
subsidiary of APP UK.
NOTE 2 -- GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. For the years
ended December 31, 1999 and 1998, the Company generated net losses of
$1,173,837 and $605,241, respectively. At March 31, 2000 the Company had an
accumulated deficit of $3,571,936. Additionally, as of March 31, 2000, the
Company has a working capital deficiency amounting to $2,397,187.
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 actions, 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
fulfillment of eligibility Rule 15c2-11, adopted under the Securities Act
of 1934, as amended, in order for broker dealers to publish quotations in
the Company's securities. Management is optimistic that such compliance
will enable the Company to raise additional capital. However, there can be
no assurance that it will be able to obtain additional contracts, 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
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 financial statements as of March 31, 2000 and for the three
month periods ended March 31, 2000 and 1999 have been prepared by us and
are unaudited. In our opinion, the unaudited 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 our 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 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 financial statements at that
date.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principals generally
accepted in the United States have been condensed or omitted pursuant to
the Securities and Exchange Commission's rules and regulations. It is
suggested that these unaudited financial statements be read in conjunction
with our audited financial statements and notes thereto for the year ended
December 31, 1999 as included in our report on Form 10-KSB filed on April
14, 2000.
NOTE 4 -- DUE FROM AFFILIATE
Due from affiliate consists of a loan receivable from KMR Telecom, Ltd.
("KMR") a corporation organized under the laws of India, which is
affiliated with the Company through common stock ownership with the Chief
Executive Officer of the Company. The loan is held by IPS - NY and bears
interest at 12% per annum. The Company's Chief Executive Officer has
pledged to the Company 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 periods ended March 31, 2000 and 1999.
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
NOTE 5 -- NOTES PAYABLE
a) Bank of Smithtown
-----------------
On November 30, 1998, the Company, IPS-NY, LLC and the Company's Chief
Executive Officer entered into a settlement agreement with the Bank of
Smithtown ("Smithtown") in connection with a default by IPS-NY under a
U.S. Small Business Administration ("SBA") promissory note dated April
13, 1995 in the sum of $100,000 and a second promissory note dated
December 24, 1996 in the sum of $500,000. In accordance with the
settlement, IPS-NY made the following payments as scheduled: $23,208
and $20,000 both in November 1998 and $16,792 in March 1999.
Additionally, IPS-NY executed a new note in the amount of $60,620
bearing interest at 9% per annum and maturing in one year. Such note
represented the accrued and unpaid interest on the original IPS-NY
note of $500,000 dated December 24, 1996. Lastly, in lieu of canceling
the original IPS-NY $500,000 note dated December 24, 1996, the Company
executed a new note in the amount of $500,000, bearing interest at
prime plus 2% per annum. The new note was to be paid at the rate of
$5,000 per month during the first year, $10,000 per month during the
second year and $15,000 per month during the third year. At the end of
the third year, the entire principal balance remaining, together with
any interest shall be due and payable. As of March 31, 2000 and
December 21, 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 $73,828, $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 Office 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, however, the Company is current with
monthly payments. To date, Smithtown has not taken any action against
the Company, but should they decide to proceed with an action the
impact could have 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-11
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NOTE 5 -- NOTES PAYABLE (cont'd)
b) HSBC Bank USA (formerly Marine Midland Bank)
--------------------------------------------
On September 17, 1996, the LLC borrowed $500,000 by executing a
promissory note with HSBC Bank USA (formerly Marine Midland Bank)
("HSBC") with the note being partially guaranteed by the SBA. Such
note was for a term of one year. The current terms of the note are
payments of interest only at prime plus 2% per annum and due on
demand. Based upon receipt of approval from HSBC Bank, the Company is
currently in the process of negotiating a long-term payout for this
note. As of March 31, 2000 and December 31, 1999 the balances due are
$474,817 and $470,715 and are classified as current.
NOTE 6 -- CAPITAL LEASE PAYABLE
In 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.
NOTE 7 -- CONVERTIBLE NOTE PAYABLE
On December 16, 1999, the Company executed a $250,000 convertible
promissory note with an individual, bearing interest at 15% per annum with
principal payable in full on December 31, 2001. The promissory note
contains a provision stating that beginning January 2, 2001 that upon a 10
day notice the note is due on demand. On September 30, 2000 the note is
convertible into common stock at the rate of $1.45 per share. There also is
a prepayment penalty provision if the Company prepays the note in the first
thirteen months. The Company had received $150,000 in December 1999 related
to the note with the remaining $100,000 received in January 2000. On
February 27, 2000 and March 21, 2000, the Company executed two convertible
15% promissory notes with the individual aggregating $100,000. The
promissory notes are due on December 31, 2001, bearing interest at 15% per
annum and are payable monthly in arrears or upon maturity or any earlier
conversion of the note. At any time subsequent to September 30, 2000 the
noteholder will have the right to convert the principal and accrued
interest in whole or in part into common stock at a $1.45 per share.
F-12
<PAGE>
ACCIDENT PREVENTION PLUS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NOTE 7 -- CONVERTIBLE NOTE PAYABLE (cont'd)
During March 2000, the Company issued seven convertible 10% promissory
notes aggregating $279,000. The Company received $32,000 from three
noteholders in March 2000 and $247,000 in April 2000 from the remaining
four noteholders. The promissory notes are due on December 31, 2001,
bearing interest at 10% per annum and are payable monthly in arrears or
upon maturity or any earlier conversion of the note. At any time subsequent
to September 30, 2000, the noteholder will have the right to convert the
principal and accrued interest in whole or in part into common stock at a
$1.45 per share.
NOTE 8 -- COMMON STOCK SUBJECT TO RESCISSION OFFER
Common stock sold subsequent to August 3, 1999 pursuant to the Company's
limited offering memorandums of January and April 1999, as discussed in
note 11 (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 equity 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.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
a) Payroll taxes
-------------
As of March 31, 2000 and December 31, 1999, the Company owes
approximately $105,501 and $93,000, respectively, of payroll taxes and
related estimated penalties and interest. Federal and state tax liens
have been filed against the Company in connection with unpaid payroll
taxes. Although the Company has not entered into any formal repayment
agreements with the respective tax authorities, it has been attempting
to make payments as funds become available.
b) Significant customers
---------------------
For the 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,
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 receivable.
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
NOTE 9 -- COMMITMENTS AND CONTINGENCIES (cont'd)
c) Lease Commitments
-----------------
Office Space
------------
The Company entered in to a sublease agreement for new 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 has recorded $15,600 of
rent expense related to this agreement.
NOTE 10 -- 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 $365,063 and $377,930,
respectively as follows:
A $50,000 promissory note with interest accruing at 8% per annum,
which is due on demand.
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 $75,063 and $87,930 which are
non-interest bearing.
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
NOTE 10 -- RELATED PARTY TRANSACTIONS (cont'd)
a) Loans Payable - Officers (cont'd)
---------------------------------
ii) The loans due the Chief Executive Officer amounting to $1,924 at
December 31, 1999, is non-interest bearing and represent advances
to the Company and unreimbursed expenses.
iii) A note due the Chief Financial Officer's spouse at December 31,
1999 amounted to $5,000 and is non-interest bearing.
For further information concerning these loans, see Note 13 to the
financial statements for fiscal year ended December 31, 1999 filed
with the Company's Annual Report on Form 10-KSB.
b) Due From Officers
-----------------
Due from officer's as of March 31, 2000 and December 31, 1999
amounting to $193,018 and $159,997 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.
c) Employment agreements
---------------------
On January 1, 1999, the Company entered into three separate employment
agreements with its Chief Executive Officer, Chief Operating Officer
and Executive Vice President. As of 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. For further information concerning
these employment agreements see Note 13 to the financial statements
for fiscal year ended December 31, 1999 filed with the Company's
Annual Report on Form 10-KSB.
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
NOTE 10 -- RELATED PARTY TRANSACTIONS (cont'd)
d) Notes Payable
-------------
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.
NOTE 11 -- 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.
F-16
<PAGE>
FORWARD-LOOKING STATEMENTS
Statements made in this Form 10-QSB that are not historical or current
facts are "forward-looking statements" made pursuant to the safe harbor
provisions of Section 27A of the Securities Act of 1933 (the "Act") and Section
21E of the Securities Exchange Act of 1934. These statements often can be
identified by the use of terms such as "may," "will," "expect," "believe,"
"anticipate," "estimate," "approximate" or "continue," or the negative thereof.
The Company intends that such forward-looking statements be subject to the safe
harbors for such statements. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. Any forward-looking statements represent management's best
judgment as to what may occur in the future. However, forward-looking statements
are subject to risks, uncertainties and important factors beyond the control of
the Company that could cause actual results and events to differ materially from
historical results of operations and events and those presently anticipated or
projected. These factors include adverse economic conditions, entry of new and
stronger competitors, inadequate capital, unexpected costs, failure to
successfully penetrate the Company's markets both in the United States and in
foreign countries, and failure to capitalize upon access to new markets. The
Company disclaims any obligation subsequently to revise any forward-looking
statements to reflect events or circumstances after the date of such statement
or to reflect the occurrence of anticipated or unanticipated events.
F-17
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
- -----------------------------------------------------------------
During fiscal years 1999 and 1998, the Company focused primarily on the
research, development and design of the AP+Series products and related products,
and generated little revenues. During those prior fiscal years, the principals
of the Company invested personal funds, arranged for loans and lines of credit
from financial institutions, obtained private debt and equity financing from
various investors, and secured grants to support the research, development and
operating expenses of the Company in excess of $2,000,000.
As of the date of this Report, the Company derives its revenues principally
from the marketing and sale of onboard recording systems, called the AP+Series
products, and other related products to customers generally in the fleet
management and driver training industries. Additional revenues are generated by
the Company through the implementation of maintenance contracts related to the
AP+Series products.
During the 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 International Purchasing Services, Inc., a wholly-owned
subsidiary of the Company ("IPS") contributing approximately 7%. Although the
Company intends to expand its marketing of the AP+Series and related products in
non-transportation industries, such as the medical fields, management of the
Company believes that sales of the AP+Series and related products to its
customers in the fleet management and driver training industries will continue
to be an important line of business for the Company for the next several years.
Results of Operations
Three Months Ended March 31, 2000 Compared with Three Months Ended March 31,
1999
The Company's net losses during the three-month period ended March 31, 2000
were approximately $397,018 compared to a net loss of approximately $279,800 (an
increase of 41.9%) during the three-month period 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. 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 periods 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 sales and gross
profit during the three-month period ended March 31, 2000 as compared to the
three-month period ended March 31, 1999 is attributable to (i) the emergence of
the Company from primarily a developmental and research stage to a revenue
generating stage, (ii) a stronger marketing campaign, and (iii) fulfillment of
major orders. The Company and its subsidiaries have entered into various
agreements with certain entities in order to establish distribution channels in
foreign and domestic countries, performance of certain pilot tests and
development of new products.
-3-
<PAGE>
As noted 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,
however, 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.
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%). 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 its
marketing efforts, professional fees, overseas operations and overhead costs.
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
modular unit to assist in the diversification of the Company's product lines.
Liquidity and Capital Resources
The Company is currently experiencing a severe liquidity crisis and must
raise additional capital. Further, the Company has not generated sufficient cash
flow to fund its operations and activities. Historically, the Company has relied
upon internally generated funds, funds from the sale of shares of stock and
loans from its shareholders and private investors to finance its operations and
growth. Management intends to raise additional capital through further public or
private offerings of its stock and through bank loans or loans from private
investors, although there can be no assurance that the Company will be able to
obtain such financing. The Company's future success and viability are entirely
dependent upon the Company's ability to raise additional capital. Management is
optimistic that the Company will be successful in its capital raising efforts;
however, there can be no assurance that the Company will be successful in
raising additional capital. The failure to raise additional capital will have a
material and adverse affect upon the Company and its shareholders. The Company's
financial statements have been prepared assuming that it will continue as a
going concern and, accordingly, do not include adjustments relating to the
recoverability and realization of assets and classification of liabilities that
might be necessary should the Company be unable to continue in operations.
As of 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 and are in the process of restructuring and or waiving the
default of the loans. Also, included in the current liabilities are accounts
payable of $944,079, $546,414 of accrued expense 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 $23,379, 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, (an affiliate
of the Company), $193,018 owing from officers of the Company, and $8,592 of
other assets.
-4-
<PAGE>
For the three months ended March 31, 2000, the net cash used for operating
activities was $216,073 compared to $52,881 for the three months ended March 31,
1999 (an increase of $163,192 or 308.6%). As noted above, the main increase was
comprised of a net loss of $397,018 for the three month period ending March 31,
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
months 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 2,384.8%). 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
No report required.
Item 2. Changes in Securities and Use of Proceeds
- -------------------------------------------------
No report required.
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
No report required.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
No report required.
Item 5. Other Information
- -------------------------
No report required.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) No exhibits required.
(c) No reports required.
-5-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
ACCIDENT PREVENTION PLUS, INC.
Dated: May 16, 2000 By: /s/ Steven Wahrman
- ------------------- ----------------------
Steven Wahrman, President
-6-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 19,980
<SECURITIES> 0
<RECEIVABLES> 147,468
<ALLOWANCES> 0
<INVENTORY> 165,125
<CURRENT-ASSETS> 390,864
<PP&E> 40,431
<DEPRECIATION> 0
<TOTAL-ASSETS> 965,481
<CURRENT-LIABILITIES> 2,787,871
<BONDS> 0
0
0
<COMMON> 17,638
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 965,481
<SALES> 191,476
<TOTAL-REVENUES> 191,476
<CGS> 66,495
<TOTAL-COSTS> 66,495
<OTHER-EXPENSES> 485,064
<LOSS-PROVISION> (360,083)
<INTEREST-EXPENSE> (46,658)
<INCOME-PRETAX> (397,018)
<INCOME-TAX> 0
<INCOME-CONTINUING> 89
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (397,018)
<EPS-BASIC> (.02)
<EPS-DILUTED> 0
</TABLE>
