U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE
EXCHANGE ACT OF 1934
From the transition period from __________ to ___________
Commission file number 00030074
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APO HEALTH, INC.
____________________
(Exact name of registrant as specified in its charter)
Nevada 86-0871787
________________ ____________________
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
3590 Oceanside Road, Oceanside, New York 11575
_____________________________________________________
(Address of principal executive offices)
(800) 365-2839
_________________
(Issuer's Telephone Number)
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 __X__ No
As of February 4, 2002, 23,704,023 shares of Common Stock of the issuer were
issued.
APO HEALTH, INC.
FORM 10-Q
QUARTER ENDED DECEMBER 31, 2001
TABLE OF CONTENTS
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Page
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PART I - Financial Information
Item 1 Financial Statements.
Consolidated Balance Sheet as of
December 31, 2001 and September 30, 2001. 3
Consolidated Statement of Income for the three
months ended December 31, 2001 and 2000. 4
Consolidated Statement of Cash Flows for the
Three months ended December 31, 2001 and 2000. 5
Notes to Consolidated Financial Statements. 6 - 11
Item 2 Management's Discussion and Analysis
Or Plan of Operations. 12
PART II - Other Information
Item 1 Legal Proceedings. 13
Item 2 Changes in Securities and Use of Proceeds. 13
Item 3 Default upon Senior Securities. 13
Item 4 Submission of Matters to a Vote of Security Holders. 13
Item 5 Other Information. 13
Item 6 Exhibits and Reports on Form 8-K. 13
Signatures 14
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PART I - FINANCIAL INFORMATION
APO HEALTH, INC.
CONSOLIDATED BALANCE SHEET
December 31, September 30,
2001 2001
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(Unaudited)
ASSETS
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Current Assets:
Cash $ 578,559 $ 179,167
Accounts Receivable, net of allowance
For doubtful accounts of $29,000 and
$29,000 1,704,305 1,768,501
Inventory 2,258,528 1,692,209
Due from Officers 113,904 99,844
Deferred Tax Assets 23,383 36,020
Other Current Assets 236,642 165,935
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Total Current Assets 4,915,321 3,941,676
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Property and Equipment, net of accumulated
Depreciation of $79,578 and $76,606 37,417 40,389
Goodwill, less accumulated amortization
Of $53,802 and $53,802 125,537 125,537
Deposits 32,500 7,500
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Total Assets $ 5,110,775 $ 4,115,102
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LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------------
Current Liabilities:
Bank Notes Payable $ 1,723,716 $ 1,736,224
Accounts Payable 1,829,755 1,056,117
Accrued Expenses 131,023 50,776
Due to Officer - 45,509
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Total Current Liabilities 3,684,494 2,888,626
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Stockholders' Equity:
Common stock, $.0002 par value,
125,000,000 shares authorized, 23,704,081
and 23,132,089 shares issued and outstanding 4,734 4,626
Paid-in Capital 1,591,505 1,452,530
Retained Earnings (Deficit) (169,958) (230,680)
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Total Stockholders' Equity 1,426,281 1,226,476
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Total Liabilities and Stockholders' Equity $ 5,110,775 $4,115,102
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APO HEALTH, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED
DECEMBER 31, 2001 AND 2000 (UNAUDITED)
2001 2000
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Revenue $ 6,807,021 $ 6,368,388
Cost of Revenue 6,075,357 5,595,174
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Gross Margin 731,664 773,214
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Operating Expenses
Selling Expense 224,121 161,579
General and Administrative Expenses 403,929 457,113
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628,050 618,692
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Income from Operations 103,614 154,522
Interest Expense 30,255 45,302
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Income before Provision for Income Taxes 73,359 109,220
Provision for Income Taxes 12,637 13,564
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Net Income $ 60,722 $ 96,656
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Basic and Diluted Earnings
Per Common Share $ .00 $ .01
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Weighted Average Common Shares
Outstanding 23,394,874 14,216,422
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APO HEALTH, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED
DECEMBER 31, 2001 AND 2000 (UNAUDITED)
2001 2000
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Cash Flow From Operating Activities:
Net Income $ 60,722 $ 95,746
Adjustments to Reconcile Net Income to
Net Cash Flows from Operating Activities:
Depreciation and Amortization 2,972 3,708
Deferred Taxes 12,637 1,563
Changes In:
Accounts Receivable 64,196 (425,393)
Inventory (566,319) (73,610)
Other Current Assets 68,377 11,210
Deposits (25,000)
Accounts Payable 773,638 206,594
Accrued Expenses 80,247 (12,805)
Income Taxes Payable - 13,564
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Cash Flows from Operating Activities 471,469 (179,423)
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Cash Flows from Financing Activities:
Advances from Officers, Net (59,569) 80,664
Proceeds (Payment) on Bank Notes Payable, Net (12,508) 106,903
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Cash Flows from Financing Activities (72,077) 187,594
Net Increase (Decrease) in Cash 399,392 8,171
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Cash Balances:
Beginning of Period 179,167 90,732
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End of Period $ 578,559 $ 98,903
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APO HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following financial information is submitted in response to the
requirements of Form 10-Q and does not purport to be financial statements
prepared in accordance with generally accepted accounting principles. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted, although the Company believes the disclosures that are
made are adequate to make the information presented not misleading. Further,
in the opinion of the management, the interim financial statements reflect
fairly the financial position and results of operations for the periods
indicated.
It is suggested that these interim consolidated financial statements be read
in conjunction with the financial statements and notes thereto included in the
Company's Form 10K containing the Company's audited financial statements as of
and for the year ended September 30, 2001 filed with the Securities and
Exchange Commission.
The results of Operations for the three months ended December 31, 2001 are not
necessarily indicative of results to be expected for the entire fiscal year
ending September 30, 2002.
Note 1 - Summary of Accounting Policies
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Nature of Business and Basis of Consolidation
APO Health, Inc. ("APO") was incorporated under the laws of the state of New
York in August 1978. The Company and its wholly-owned subsidiary, Universal
Medical Distributors, Inc. ("Universal") distribute disposable medical
products principally to dental, medical and veterinary professionals and
wholesalers in the United States, principally on the East Coast.
Effective June 13, 2001, Internet Financial Corp.com, Inc., ("IFAN"), a Nevada
corporation, which was an inactive public company, acquired APO,
(collectively, the "Company"), pursuant to a tax-free reorganization
agreement. The acquisition was accounted for by the purchase method under
business combinations in a reverse acquisition transaction. Concurrently, IFAN
changes its name to APO Health, Inc., a Nevada corporation.
Cash and Cash Equivalents
For purposes of the statements of cash flows, cash equivalents include all
highly liquid investments with original maturities of three months or less.
Revenue recognition occurs when products are shipped.
Merchandise inventory is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
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APO HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and equipment is stated at cost. Depreciation is provided for on the
straight-line method over the useful estimated life. The cost of maintenance
and repairs is expenses as incurred.
Goodwill represents the excess of the cost of companies acquired over the fair
value of their net assets at the dates of acquisition and was being amortized
using the straight-line method over 15 years. Effective to the issuance of
FASB No. 142, the Company discontinued amortizing goodwill.
The Company follows Statement of Financial Accounting Standards No. 121,
Impairment of Long-lived Assets, by reviewing such assets for the impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable.
Income taxes are computed using the tax liability method of accounting,
whereby deferred income taxes are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates that will be in effect when the differences
reverse.
Basic net income per share has been calculated based on the weighted average
number of shares of common stock outstanding during the period. Diluted net
income per share is computed by dividing the net income by the weighted
average number of common shares outstanding plus potential dilutive
securities. Effective to the June 13, 2001 acquisition, the weighted average
number of shares of common stock have been retroactively restated to give
effect for the 5.94 to 1 stock split.
Reclassification
Certain reclassifications of certain prior year amounts were made to conform
to the current year presentation.
Estimates and Assumptions
Preparing financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenue and expenses
at the balance sheet date and for the period then ended. Actual results could
differ from these estimates.
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APO HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Supplemental Cash Flow Statement Disclosures
- --------------------------------------------------------
2001 2000
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Cash Paid During the Year for:
Interest $ 19,455 $ 45,302
Income Taxes - 65,000
Common Stock Issued for Consulting
And Professional Fees 139,083
Note 3 - Bank Notes Payable
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On April 2, 2001, the Company renewed its credit facility with HSBC Bank USA
that provides for total borrowings that may not exceed $2,000,000. Bankers
acceptances and letters of credit, which relate to specific importation
transaction, may not exceed $500,000 each and own-note borrowing, which does
not relate to specific transactions, may not exceed $1,500,000. The credit
facility is collateralized by substantially all of the Company's assets and is
personally guaranteed by the two majority Company stockholders. Interest of
prime +1% on the own-note borrowings is payable monthly and the bankers
acceptance fees of 200 basis points above the discount rate are paid at the
inception of the bankers acceptance. Borrowings on the credit facility are
payable on demand, or upon maturity, which is up to 180 days after the
initiation of a bankers acceptance or March 31, 2001, for own-note borrowings,
whichever is earlier. On April 2, 2001, the date the credit facility was
renewed, outstanding own-note borrowings were $1,949,000, and the $449,600
excess over the sub-limit was converted to a term loan payable over one year
in monthly installments of $37,467. Interest will be at the bank's prime rate
plus 1%.
Own-note borrowings was $1,500,000 as of December 31, 2001; acceptances
totaled $111,316 and there were $72,217 letters of credit outstanding. As of
December 31, 2001, the term loan amounted to $112,400.
The credit facility matures March 31, 2002.
Note 4 - Related Parties
- ---------------------------
Advances due to/from officers are non-interest bearing and due on demand.
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APO HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Income Taxes
- ------------------------
Income taxes (benefit) consist of the following:
2001 2000
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Current $ - $ 15,127
Deferred 12,637 (1,563)
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$ 12,637 $ 13,564
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A reconciliation of income tax at the federal statutory income tax rate to
total income taxes is as follows:
2001 2000
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Computed at the federal
statutory rate of 34% $ 24,941 $ 37,134
State income tax 3,668 5,461
Valuation allowance adjustment (7,363) -
Other adjustments (8,609) (29,031)
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$ 12,637 $ 13,564
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The components of deferred taxes are as follows:
2001 2000
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Deferred tax assets
Allowance for doubtful accounts $ 11,600 $ 39,003
Depreciation 8,520 4,563
Net operating loss carryover 7,363 -
Miscellaneous (4,100) 125
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23,383 43,691
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Deferred tax liabilities
Deferred officer compensation - 4,299
State franchise taxes - 6,392
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10,691
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Current net deferred tax assets $ 23,383 $ 33,000
=========== ===========
The Company has a net operating loss carryover of approximately $30,000 to
offset future taxable income. The carryover expires 2016.
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APO HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Common Stock Issuances
- ----------------------------------
On November 28, 2001, the Company issued 463,610 shares of common stock, par
value $.0002, registered on Form S-8, to three consultants and an attorney for
the Company. The shares were valued at $.30 per share based on services to be
provided by the consultants and attorney.
Note 7 - Lease
- -----------------
The Company leases approximately 11,800 square feet in New York on a
month-to-month basis with an affiliated company owned by two officers of the
Company. The affiliates lease underlying the New York lease expires on
December 31, 2004. Lease payments made by the Company approximate lease
payments by the affiliated company.
Future minimum lease payments are as follows:
Year ended December 31,
-----------------------
2002 $ 70,000
2003 72,450
2004 74,900
Total $ 217,350
Note 8 - Commitments and Contingencies
- -----------------------------------------
Litigation
There is an action pending in the Circuit/Superior Court of Marion County,
Indiana entitled Kenro, Inc., on behalf of itself and all other similarly
situated against APO Health, Inc. The lawsuit involves unsolicited broadcast
faxes sent in the state and has been certified as a class action suit. The
Company has petitioned the court to certify its class action certification
order for interlocutory appeal. If the Company can defeat the class
certification, then the plaintiff is limited to a single violation with a
maximum potential recovery of $1,500. If the class certification issue is lost
then the Company's exposure can range in the millions of collars. The Company
has filed a suit seeking indemnification by or contribution from the vendors
who sent the faxes on behalf of the Company. It is the Company's belief and
contention that damages, if any, which may be awarded to the plaintiff are
covered by insurance up to policy limits.
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APO HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
However, on October 24, 2001, the Company was named as a defendant in
Merchant's & Business Men's Mutual Insurance Company vs. APO Health, Inc.
Merchant's & Business Men's Mutual Insurance Company issued a Commercial
Blanket Excess Liability insurance policy to the Company for one year
commencing February 27, 2000 up through February 27, 2001. Merchant's &
Business Men's Mutual Insurance Company alleges in its complaint that policy
coverage with the Company does not extend to the allegations set forth in the
aforementioned Kenro suit. The Company, however, disagrees and contends that
the policy issued by Merchant's & Business Men's Mutual Insurance Company
obligates them to cover any damages that the Company may incur, as a result of
an unfavorable verdict in the Kenro suit.
Employment Agreement
Effective October 1, 2001, the Company entered into a three-year employment
agreement with its chief executive officer that provides for a minimum annual
salary of $250,000 with incentives based on the Company's attainment of
specified levels of sales and earnings as defined in the agreement. The
employment agreement expires September 30, 2004 and shall be automatically
renewed for successive periods of one year unless either party gives written
notice to terminate the agreement.
Note 9 - Concentration of Credit Risk
- ----------------------------------------
The Company maintains bank accounts at one bank. As of December 31, 2001, the
Company had $578,559 on deposit, and only $100,000 in each bank is insured
under federal law.
Note 10 - Subsequent Events
- ------------------------------
On January 2, 2002, the Company acquired 100% of the outstanding stock of
Envirotech Air Quality Services, Inc. ("Envirotech") a Florida corporation
specializing in indoor air quality testing, sanitation, sterilization and
filtration. The purchase price was $25,000 plus the Company will issue 50,000
shares of its restricted common stock to the former shareholders of
Envirotech. In addition, the Company will issue 100,000 common stock purchase
warrants to the former shareholders of Envirotech exercisable for a period of
two years at a purchase price of $.75 per share.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- --------------------------------------------------------------------------
Results of Operations
- ---------------------
Revenue for the three months ended December 31, 2001 increased by $438,633 or
6.9% over the three months ended December 31, 2000. The increase in revenue
was due to increases in sales of product to wholesalers and other distributors
during the period ended December 31, 2001. Gross margins for the three-month
period ended December 31, 2001 was 10.7% a decrease of 1.4% from the period
ended December 31, 2000. The decreased margin was due to the lower margins
that are earned on sales to wholesalers and distributors as opposed to retail
sales. The 1.4% reduction in gross profit margins decreased the gross margin
by approximately $95,300 and the increase sales increased gross profit by
approximately $47,200. Operating expenses for the three months ended December
31, 2001 were $628,050, an increase of $9,358 or 1.5% from the three months
ended December 31, 2000. Selling expenses increased by $62,542 to $224,121, an
increase of 38.7%. Shipping expenses increased by $31,911, advertising expense
increased by $15,777 and credit card processing increased by $7,856,
accounting for 90% of the increases. General and Administrative expenses for
the three months ended December 31, 2001 decreased by $53,184 to $403,929 or
11.6%. Significant decreases in general and administrative expenses include
bad debt of $72,282 and office expenses of $9,933. Significant increases in
general and administrative expenses include consulting fees of $46,599. The
increase in consulting fees includes consultants for corporate planning,
financing and acquisitions. Interest expense decreased by $15,047 to $30,255
as borrowing was reduced and interest rates paid by the Company decreased
substantially.
Financial Condition
- -------------------
As of December 31, 2001, the Company had current working capital of
$1,230,827. In addition, the Company has available approximately $275,000 in
unused credit facilities, including bankers acceptances and letters of credit.
The Company has issued a total of 3,603,634 common stock purchase warrants
exercisable at prices ranging from $1.00 to $2.00 per share and 250,000 common
stock purchase warrants to Dr. Jan Stahl exercisable at $.25 per share. If
these warrants are exercised, the net proceeds to the Company would be in
excess of $4,500,000. These proceeds could be used for acquisitions and or
major capital expansion. At the current time, the Company has no immediate
plans for a material acquisition or major capital expenditures and, therefore,
has sufficient working capital for its current operations.
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PART II - OTHER INFORMATION
APO HEALTH, INC.
ITEM 1 - LEGAL PROCEEDINGS
- ------------------------------
There is an action pending in the Circuit/Superior Court of Marion County,
Indiana entitled "Kenro, Inc., on behalf of itself and all others similarly
situated against APO Health, Inc., Cause No. 490120101CP000016." The lawsuit
involves unsolicited broadcast faxes sent in the state and has been certified
as a class action suit. The Company has petitioned the court to certify its
class action for interlocutory appeal. The Company has filed a suit seeking
indemnification by or contribution from the vendors who sent the faxes on
behalf of the Company. It is the Company's belief and contention that damages,
if any, which may be awarded to the plaintiff are covered by insurance up to
policy limits.
However, on October 24, 2001, the Company was named as a defendant in
Merchant's & Business Men's Mutual Insurance Company vs. APO Health, Inc.,
Case No. 01-605-091, Supreme Court of the State of New York, County of New
York. Merchant's & Business Men's Mutual Insurance Company issued a Commercial
Blanket Excess Liability insurance policy to the Company for one year
commencing February 27, 2000 up and through February 27, 2001. Merchant's &
Business Men's Mutual Insurance Company alleges in its complaint that policy
coverage with the Company does not extend to the allegations set forth in the
aforementioned Kenro suit. The Company, however, disagrees and contends that
the policy issued by Merchant's & Business Men's Mutual Insurance Company
obligates them to cover any monetary damages that the Company may incur, as a
result of an unfavorable verdict in the Kenro suit.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
- -----------------------------------------------------------
None.
ITEM 3 - DEFAULT UPON SENIOR SECURITIES
- ---------------------------------------------
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------------------
None.
ITEM 5 - OTHER INFORMATION
- ------------------------------
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- -------------------------------------------------
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
APO HEALTH, INC.
Date: February 14, 2002 By: /s/ Dr. Jan Stahl
-----------------------
Dr. Jan Stahl, Chairman
Chief Executive Officer
and Secretary
(Principal Executive Officer)
Date: February 14, 2002 By: /s/ Peter Steil
-----------------------
Peter Steil, President
and Treasurer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: February 14, 2002 By: /s/ Dr. Jan Stahl
-----------------------
Dr. Jan Stahl, Director
Date: February 14, 2002 By: /s/ Peter Steil
-----------------------
Peter Steil, Director
Date: February 14, 2002 By: /s/ Kenneth Leventhal
-----------------------
Kenneth Leventhal, Director
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