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 March 31, 2003
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
APO HEALTH, INC.
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(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
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(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 May 7, 2003, 26,604,227 shares of Common Stock of the issuer were issued.
APO HEALTH, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 2003
TABLE OF CONTENTS
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements.
Consolidated Balance Sheet as of
March 31, 2003 and September 30, 2002. 3
Consolidated Statement of Income for the three and six
Months ended March 31, 2003 and 2002. 4
Consolidated Statement of Cash Flows for the
Six months ended March 31, 2003 and 2002. 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
- 2 -
PART I - FINANCIAL INFORMATION
APO HEALTH, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, SEPTEMBER 30,
2003 2002
------------ --------------
(UNAUDITED)
ASSETS
------
CURRENT ASSETS:
Cash $ 249,443 $ 520,618
Accounts Receivable, net of allowance
For doubtful accounts of $50,000 and
$30,000 2,105,105 1,511,295
Inventory 1,532,545 2,242,609
Due from Officers 113,905 113,905
Notes and Other receivable 105,985 258,500
Deferred Tax Assets 12,000 12,000
Other Current Assets 35,743 18,297
----------- -----------
Total Current Assets 4,154,726 4,677,224
Property and Equipment, net of accumulated
Depreciation of $91,120 and $88,496 23,251 28,499
Deferred tax asset 61,563 61,563
Deposits 7,500 7,500
----------- -----------
Total Assets $ 4,247,040 $ 4,774,786
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Bank Notes Payable $ 663,059 $ 1,350,000
Accounts Payable 1,740,863 1,118,288
Accrued Expenses 269,642 200,718
Customer deposits 126,668 665,596
----------- -----------
Total Current Liabilities 2,800,232 3,334,602
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.0002 par value,
125,000,000 shares authorized, 26,404,227
and 24,554,227 shares issued and outstanding 5,274 4,904
Paid-in Capital 1,677,113 1,621,983
Retained Earnings (Deficit) (235,579) (186,703)
----------- -----------
Total Stockholders' Equity 1,446,808 1,440,184
----------- -----------
Total Liabilities and Stockholders' Equity $ 4,247,040 $ 4,774,786
=========== ===========
- 3 -
APO HEALTH, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED
MARCH 31, 2003 AND 2002 (UNAUDITED)
THREE MONTHS SIX MONTHS
2003 2002 2003 2002
------------ ------------ ------------ -------------
Revenue $ 10,570,735 $ 6,899,125 $ 22,235,501 $ 13,389,415
Cost of Revenue 9,996,141 6,298,501 21,101,277 12,114,139
------------ ------------ ------------ ------------
Gross Margin 574,594 600,624 1,134,224 1,275,276
------------ ------------ ------------ ------------
Operating Expenses
Selling Expense 111,189 190,551 267,288 397,863
General and Administrative Expenses 533,546 418,586 860,406 796,721
------------ ------------ ------------ ------------
644,735 609,137 1,127,694 1,194,584
------------ ------------ ------------ ------------
Income from Operations (70,141) (8,513) 6,530 80,692
Interest Expense 28,280 31,988 55,406 62,193
------------ ------------ ------------ ------------
Income (loss) before Provision for
Income Taxes (98,421) (40,501) (48,876) 18,499
Provision for Income Taxes (19,818) -- -- 6,830
------------ ------------ ------------ ------------
Net Income Before Discontinued
Operations (78,603) (40,501) (48,876) 11,669
Discontinued Operations
Gain on Sale of Discontinued
Operations Net of Taxes -- 314,875 -- 314,875
Income (loss) from Discontinued
Operations Net of Taxes -- 26,967 -- 35,519
------------ ------------ ------------ ------------
Discontinued Operations -- 341,842 -- 350,394
------------ ------------ ------------ ------------
Net Income $ (78,603) $ 301,341 $ (48,876) $ 362,063
============ ============ ============ ============
Basic and Diluted Earnings
Per Common Share:
From Continuing Operations $ (.00) $ (.00) $ (.00) $ .00
From Discontinued Operations .00 .01 .00 .01
------------ ------------ ------------
Total $ (.00) $ .01 $ .01 $ .01
============ ============ ============ ============
Weighted Average Common Shares
Outstanding 25,441,560 23,754,874 24,997,893 23,579,874
============ ============ ============ ============
- 4 -
APO HEALTH, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED
MARCH 31, 2003 AND 2002 (UNAUDITED)
2002 2001
----------- ---------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ (48,876) $ 362,063
Adjustments to Reconcile Net Income to
Net Cash Flows from Operating Activities:
Depreciation and Amortization 5,428 11,733
Allowance For Doubtful Accounts 20,000 --
Deferred Taxes -- 12,637
Write-off Goodwill Discontinued Operations -- 125,537
Stock Issued for Services 55,500 --
Changes In:
Accounts Receivable (613,810) (51,645)
Other Receivables 152,515 (302,102)
Inventory 710,064 (394,482)
Other Current Assets (17,446) 120,487
Accounts Payable 622,575 (206,747)
Accrued Expenses 68,924 19,257
Income Taxes Payable -- 126,211
Customer Deposits Payable (538,928) 238,000
Other Current Liabilities -- 41,482
--------- ---------
Cash Flows from Operating Activities 415,766 102,431
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment In Subsidiary -- (25,000
Assets Acquired Net of Cash Investment -- (9,100)
--------- ---------
Net Cash From Investing Activities -- (34,100)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from Officers, Net -- (46,448)
Proceeds (Payment) on Bank Notes Payable, Net (686,941) (92,717)
--------- ---------
Cash Flows from Financing Activities (686,941) (139,165)
--------- ---------
Net Increase (Decrease) in Cash (271,175) (70,834)
--------- ---------
Cash Balances:
Beginning of Period 520,618 179,167
--------- ---------
End of Period $ 249,443 $ 108,333
========= =========
- 5 -
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 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, 2002 filed with the Securities and Exchange
Commission.
The results of Operations for the six months ended March 31, 2003 are not
necessarily indicative of results expected for the entire fiscal year ended
September 30, 2003.
NOTE 1 ACCOUNTING POLICIES
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 APO 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, InternetFinancialCorp.com, Inc.,
("IFAN"), a Nevada corporation, which is 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
changed 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 month 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.
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 expensed as incurred.
-6-
APO HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Earnings Per Share.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.
Reclassifications. 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.
NOTE 2 - SUPPLEMENTAL CASH FLOW STATEMENT DISCLOSURES
2003 2002
------- -------
Cash paid during the year for:
Interest $55,406 $62,193
Income taxes -- --
Non-cash transaction:
Common Stock Issued for Consulting
And Professional Fees $55,500 --
Note 3 - BANK NOTES PAYABLE
On October 29,2002, the Company entered into a financing agreement with
Rosenthal & Rosenthal, Inc. The financing agreement provides the Company with a
maximum credit facility not to exceed $3,000,000.The credit facility is
collateralized by substantially all the Company's assets and $500,000 of the
facility is personally guaranteed by Dr. Jan Stahl,Chairman and CEO of the
Company. Interest is payable monthly on the average daily loan balance at the
announced prime rate of JP Morgan Chase bank plus 2.5%. This agreement is for a
period of three years through October 31,2005 and may be extended on a year to
year basis thereafter unless terminated as provided in the agreement.
-7-
APO HEALTH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 BANK NOTES PAYABLE (CONTINUED)
Bank Notes Payable of the following:
MARCH 31, SEPTEMBER 30,
2003 2002
----------- -----------
Own Note Borrowing $ 663,059 $ 1,350,000
=========== ===========
Note 4 -- INCOME TAXES
Income taxes (benefit) consist of the following:
2003 2002
----------- -----------
Continuing Operations $ -- $ 18,350
Discontinued Operations -- 185,345
----------- -----------
$ -- $ 203,695
=========== ===========
A reconciliation of income tax at the federal
statutory income tax rate to total
income taxes is as follows:
2003 2001
----------- -----------
Computed at the federal
statutory rate of 34% $ -- $ 203,712
State income tax -- 25,399
Operating loss carryforward -- (25,416)
----------- -----------
$ -- $ 203,695
=========== ===========
NOTE 4 INCOME TAXES (CONTINUED)
The components of deferred taxes are as follows:
DECEMBER 30, SEPTEMBER 30,
2002 2002
----------- -----------
Deferred tax assets
Allowance for doubtful accounts $ 12,000 $ 12,000
Depreciation 11,693 11,693
Net operating loss carryover, 27,300 27,300
Reversal of valuation allowance 22,300 22,300
----------- -----------
Total deferred tax assets 73,563 73,563
Less Current Portion 12,000 12,000
----------- -----------
Non current deferred tax asset $ 61,563 $ 61,563
=========== ===========
The Company has a net operating loss carryover of approximately $ 75,000 to
offset future taxable income. The carryover expires 2017.
-8-
APO HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 -DISCONTINUED OPERATIONS
In February 2002, the Company sold the veterinary division of Universal Medical
Distributors, Inc.,.The financial statements for 2001 have been restated to
reflect the discontinued operations of this division. In connection with the
sale of the veterinary division, the Company received a note in the amount of
$250,000 which was due on January 31,2003. As March 31,2003 there was a balance
due of $13,795 subject to final reconciliation of the inventory sold.
In Janaury,2002 , the Company acquired Envirotech Air Quality Services, Inc.
("Envirotech") . The Company sold "Envirotech" in August 2002 which included a
note a in the amount of $8,500 receivable over a period of 19 months with
interest at the rate of 18% per annum.
Note 6 - COMMON STOCK
STOCK OPTION PLAN
- -----------------
On July 22,2002, the Company adopted a Bonus Compensation Warrant Agreement,
whereby, the Company would issue Bonus Compensation Warrants equivalent to 10%
of the price of any merger or acquisition brought to the Company. All of the
warrants being exercisable into shares of common stock at 80% of the 20 day
average bid and ask price of the Company's common stock. The Company authorized
up to a maximum aggregate of 3,000,000 shares of common stock available for any
Bonus Compensation Warrants.
On October 1,2002, the Company filed a form S-8 authorizing the issuance of up
to 1,000,000 shares of common stock for consultants and professionals. In
January the Company issued 650,000 of those shares valued at $.03 per share or
$19,500 for consulting for business development, including mergers and
acquisitions.
On March 14,2003, the Company filed another form S-8 authorizing the issuance of
up to 2,750,000 shares of common stock for consultants and professionals. On
March 26,2003 1,100,000 shares of common stock valued at $.03 per share or
$36,000 for consulting and professional fees for business development including
mergers and acquisitions.
Note 7 - LEASES
The Company leases 11,800 square feet in New York .The lease is month-to-month
with affiliated companies owned by the Company's officers and shareholders. The
affiliate's underlying New York lease expires in 2004 . Lease payments made by
the Company approximate the payments due by the affiliated companies.
Future minimum lease payments are as follows:
Year ended March 31, 2003 $72,450
2004 $56,175
-9-
APO HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 others 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 dollars. 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. 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.
On July 1, 2002, the Court granted the intervention motion of the Kenro
plaintiffs, and, as a matter of law, denied Merchants' motion for summary
judgement and granted the Company's cross-motion for summary judgement, and
finding that the claims asserted against the Company in the Kenro lawsuit fell
within the terms of the Merchants' policies. As a result, the Court ordered that
Merchants has a duty to defend and indemnify the Company in the Kenro lawsuit.
Additionally, the Court found alternatively, that the disclaimer of coverage by
Merchants was untimely, so that Merchants would not be allowed to rely upon or
raise any coverage defenses. The Court also found that the Company is entitled
to be reimbursed for the legal fees that it incurred, and ordered that a hearing
be conducted to determine the amount that Merchant owed. Merchants subsequently
filed a motion for reargument of its unsuccessful summary judgement motion, and
papers in opposition have been submitted by the Company and the Kenro plaintiffs
to the Court. The Company and the Kenro plaintiffs have argued that the Court
should adhere to its original decision for a variety of reasons. Merchants has
also filed an appeal to the Appellate Division from the Court's July 1,2002
Order, and in the event the Court adheres to its decision, it is expected that
Merchants will again notice an appeal, and move to have the two appeals
consolidated.
-10-
APO HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - COMMITMENTS AND CONTINGENCIES (continued)
-
EMPLOYMENT AGREEMENT
- --------------------
Effective October 1, 2001, the Company has 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 cash balances at various financial institutions .At times
such balances exceed the insured limits of the financial institution. The
Company has not experienced any losses in such accounts and does not believe it
is exposed to any significant credit risk on cash balances. As of March 31,
2003, the Company had $264,000 on deposit, in excess of the $100,000 which is
insured under federal law.
-11-
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
- ---------------------
Revenue for the six months ended March 31,2003 was $22,235,501, an increase of
$8,846,086 or 66.1% over the six months ended March 31,2002. The increase in
revenue was due to an unusually large increase in the distribution of products
to wholesale distributors. The Company does not know if they will be able to
sustain this growth in future periods. Cost of sales for the six months ended
March 31,2003 was $21,101,277, an increase of $8,987,138 or 74.2% over the six
months ended March 31,2002. As a result the gross margin for the period ended
March 31,2003 was $1,134,224 or 5.10% compared to $1,275,276 or 9.52% for the
period ended March 31,2002. The decrease in the gross profit margin were a
result of the increased revenue being wholesale products which have low profit
margins and reduced revenue from the retail dental sales. Medical supply sales
which have a higher gross profit margin than the wholesale sales have increased
but have not yet made up for the decrease in the dental sales. The Company
expects that the increases in sales of medical supplies will make up for the
loss in dental sales and increase the Company's overall gross profit margin.
Selling expenses for the six months ended March 31,2003 were $267,288, a
decrease of $130,575 or 32.8% compared to the six months ended March 31,2002.
The Company has reduced shipping costs by $22,646; commissions by $42,314; and
advertising costs by $110,997. Advertising costs in the next three to six months
will increase as the Company brings out several new catalogues. Travel and
entertainment expenses increased by $33,420, which is related directly to
increased contact with medical and wholesale purchasers.
General and administrative expenses for the six months ended March 31,2003
increased by $63,685 or 8.0% from the six months ended March 31,2002. Total
compensation including payroll taxes increased by approximately , 32,000 which
included a bonus of $152,500 for one of the officers for attaining sales levels
included in his employment agreement. Without this bonus, employment expenses
would have decreased by approximately $120,500 which includes the reduction of
two employees and voluntary salary reductions by the three officers of the
Company Other increases included professional and financing fees, which
increased by $21,484, primarily for the Company's new financing agreement.
Insurance increased by $8,992 primarily from the increases in medical expenses.
Other general and administrative expenses increased by approximately $8,500.
Interest expense for the six months ended March 31,2003 was $55,406, a decrease
of $6,787 form the six month period ended March 31,2002. This was accomplished
by entering into a new financing agreement where all collections are applied
against the line of credit on a daily basis and proceeds from the line of credit
are only taken when needed to pay down liabilities. As a result the average
daily balance outstanding on the line of credit has been reduced. The new
financing agreement allows the Company greater flexibility in its ability to
finance increased sales and additional inventory.
-12-
FINANCIAL CONDITION
- -------------------
As of March 31,2003, The Company had net working capital of $1,354,494, an
increase of $11,872 from September 30,2002.. On October 29,2002, the Company
entered into a new financing agreement which increased its credit facility by
$1,000,000 to $3,000,000 giving the Company greater flexibility to finance
larger receivables and inventory allowing for increased sales.
For fiscal 2003, the Company has reduced its budget for both selling and general
and administrative expenses by approximately $255,000 eliminating unnecessary
expenses and revising some of the operations. In addition the Company expects
that consulting and other professional fees will be reduced by approximately
$150,000 which it estimated were non-recurring items. The above reductions would
provide the Company with income from operations based on the current sales
volume.
Based upon the above factors, the Company believes that it has sufficient funds
for operations for the next fiscal year.
-13-
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. 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. 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 dollars. 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. 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.
-14-
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.
-15-
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: May 14, 2003 By: /s/ Dr. Jan Stahl
------------------
Dr. Jan Stahl, Chairman
Chief Executive Officer
And Secretary
(Principal Executive Officer)
Date: May 14, 2003 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: May 14, 2003 By: /s/ Dr. Jan Stahl
------------------
Dr. Jan Stahl, Director
Date: February 18, 2003 By: /s/ Peter Steil
----------------
Peter Steil, Director
Date: February 18, 2003 By: /s/ Kenneth Leventhal
----------------------
Kenneth Leventhal, Director
-16-
CERTIFICATION PURSUANT TO RULE 13a-14 AND 15d-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Dr. Jan Stahl, Chief Executive Officer of APO Health, Inc., certify that:
1. I have reviewed this quarterly report on Form 10 Q of APO Health, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures of a date within 45 days of the filing date of this
quarterly report (the "Evaluation ate"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
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6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated May 14, 2003, By: /s/ Dr. Jan Stahl
----------------------------------
Dr. Jan Stahl
Chief Executive Officer and Director
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CERTIFICATION PURSUANT TO RULE 13a-14 AND 15d-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Dr. Peter Steil, Chief Financial Officer of APO Health, Inc., certify that:
1. I have reviewed this annual report on Form 10 Q of APO Health, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
1. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures of a date within 45 days of the filing
date of this quarterly report (the "Evaluation ate"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
(d) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(e) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
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6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated May 14, 2003, By: /s/ Peter Steil
--------------------------------
Peter Steil
Chief Financial Officer and Director
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