-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A+RziVTRjRZ9hoAGBoHmCrT0RV7/s5GEzIy0lj8VO6lhr4+nask2KDcx0UGV32WJ lITJ22oTXONiKcBXXBqa5A== 0001144204-03-000669.txt : 20030219 0001144204-03-000669.hdr.sgml : 20030219 20030219171853 ACCESSION NUMBER: 0001144204-03-000669 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030219 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APO HEALTH INC /NV/ CENTRAL INDEX KEY: 0001076607 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 860871787 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-30074 FILM NUMBER: 03573348 BUSINESS ADDRESS: STREET 1: 3590 OCEANSIDE ROAD STREET 2: - CITY: OCEANSIDE STATE: NY ZIP: 11572 BUSINESS PHONE: 8003652839 MAIL ADDRESS: STREET 1: 2080 E. FLAMINGO RD STREET 2: SUITE 112 CITY: LAS VEGAS STATE: NV ZIP: 89119 FORMER COMPANY: FORMER CONFORMED NAME: CARIBBEAN VENTURES INC /NV/ DATE OF NAME CHANGE: 19990112 FORMER COMPANY: FORMER CONFORMED NAME: INTERNETFINANCIALCORP COM INC DATE OF NAME CHANGE: 20000229 10-Q 1 doc1.txt 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, 2002 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. ---------------------------- (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, 2003, 24,554,227 shares of Common Stock of the issuer were issued. APO HEALTH, INC. FORM 10-Q QUARTER ENDED DECEMBER 31, 2002 TABLE OF CONTENTS
Page PART I - Financial Information Item 1 Financial Statements. Consolidated Balance Sheet as of December 31, 2002 and September 30, 2002. 3 Consolidated Statement of Income for the three months ended December 31, 2002 and 2001. 4 Consolidated Statement of Cash Flows for the Three months ended December 31, 2002 and 2001. 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
December 31, September 30, 2002 2002 ----------------- ------------------ (Unaudited) ASSETS Current Assets: Cash $ 458,570 $ 520,618 Accounts Receivable, net of allowance For doubtful accounts of $30,000 and $30,000 2,539,472 1,511,295 Inventory 1,703,942 2,242,609 Due from Officers 113,905 113,905 Notes receivable 159,042 258,500 Deferred Tax Assets 12,000 12,000 Other Current Assets 11,034 18,297 ------------ ------------ Total Current Assets 4,997,965 4,677,224 ------------ ------------ Property and Equipment, net of accumulated Depreciation of $91,120 and $88,496 25,875 28,499 Deferred tax asset 41,745 61,563 Deposits 7,500 7,500 ----------- ------------ Total Assets $ 5,073,085 $ 4,774,786 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Bank Notes Payable $ 1,780,776 $ 1,350,000 Accounts Payable 1,472,899 1,118,288 Accrued Expenses 115,233 200,718 Customer deposits 234,266 665,596 ----------- ------------- Total Current Liabilities 3,603,174 3,334,602 ----------- ------------- Stockholders' Equity: Common stock, $.0002 par value, 125,000,000 shares authorized, 24,554,227 and 24,554,227 shares issued and outstanding 4,904 4,904 Paid-in Capital 1,621,983 1,621,983 Retained Earnings (Deficit) (156,976) (186,703) ------------ ------------- Total Stockholders' Equity 1,466,911 1,440,184 ------------ ------------- Total Liabilities and Stockholders' Equity $ 5,073,085 $ 4,774,786 ============ ============
- 3 - APO HEALTH, INC. CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001 (UNAUDITED)
2002 2001 ---------------- ---------------- Revenue $11,664,766 $ 6,490,290 Cost of Revenue 11,105,136 5,815,637 ---------------- ---------------- Gross Margin 559,630 674,653 ---------------- ---------------- Operating Expenses Selling Expense 156,099 207,312 General and Administrative Expenses 326,860 377,458 ---------------- ---------------- 482,959 584,770 ---------------- ---------------- Income from Operations 76,671 89,883 Interest Expense 27,126 30,255 ---------------- ---------------- Income before Provision for Income Taxes 49,545 59,628 Provision for Income Taxes 19,818 10,962 ---------------- ---------------- Income from continuing operations 29,727 48,666 Discontinued operations net of taxes - . 12,056 ---------------- ---------------- Net Income $ 29,727 $ 60,722 ================ ================ Earnings per common share From continuing operations $ .00 $ .00 Discontinued operations .00 .00 ----------------- ---------------- Per Common Share $ .00 $ .00 ================ ================ Weighted Average Common Shares Outstanding 24,554,227 23,394,874 ================ ================
- 4 - APO HEALTH, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001 (UNAUDITED)
2002 2001 ---------------- ---------------- Cash Flow From Operating Activities: Net Income $ 29,727 $ 60,722 Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities: Depreciation and Amortization 2,624 2,972 Deferred Taxes 19,818 12,637 Changes In: Accounts Receivable (1,028,167) 64,196 Inventory 538,667 (566,319) Other Current Assets 7,263 68,377 Deposits - (25,000) Accounts Payable 354,611 773,638 Accrued Expenses (85,485) 80,246 Customer deposits (431,330) - ---------------- ---------------- Cash Flows from Operating Activities (592,272) 471,469 ---------------- ---------------- Cash Flows from Financing Activities: Reduction in notes payable 99,458 - ---------------- ---------------- Cash Flows from Financing Activities 99,458 - ---------------- ---------------- Cash Flows from Financing Activities: Advances from Officers, Net - (59,569) Proceeds (Payment) on Bank Notes Payable, Net 430,776 (12,508) ---------------- ---------------- Cash Flows from Financing Activities 430,766 (72,077) ---------------- ---------------- Net Increase (Decrease) in Cash (62,048) 399,392 Cash Balances: Beginning of Period 520,618 179,167 ------------- -------------- End of Period $ 458,570 $ 578,559 ============= ==============
- 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 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 three months ended December 31, 2002 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 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, 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 The Company follows Statement of Financial Accounting Standards No. 121, Impairment of Long-lived Assets, by reviewing such assets for 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. 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
2002 2001 ------------ ------------ Cash paid during the year for: Interest $ 27,126 $ 30,255 Income taxes - - Non-cash transaction: Common Stock Issued for Consulting And Professional Fees 139,083
Note 3 - BANK NOTES PAYABLE On April 2, 2002, 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 the Company's assets and is personally guaranteed by the two majority Company stockholders. Interest of prime + 1% on the own-note borrowings -7- APO HEALTH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 Bank Notes Payable (continued) 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, 2003, for own-note borrowings, whichever is earlier. The credit facility was extended through March 31,2003 with substantially the same terms. 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. Bank Notes Payable of the following: December 30, September 30, 2002 2002 ---------- ----------- Own Note Borrowing $1,780,776 $1,350,000 ========== ========== Note 4 - INCOME TAXES - ------------------------- Income taxes (benefit) consist of the following: 2002 2001 ------------ ----------- Current $ - $ - Deferred 19,818 12,637 ------------ ----------- Total $ 19,818 $ 12,637 ============ =========== A reconciliation of income taxes at the federal statutory income tax rate to total income taxes is as follows:
2002 2001 ----------------- --------------- Computed at federal statutory rate of 34% $ 16,845 $ 24,941 State income tax 2,973 3,668 Valuation allowance adjustment - (7,363) Other adjustments - . (8,609) ----------------- -------------- Total $ 19,818 $ 12,637
-8- APO HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 2,482 22,300 -------------- ------------- Total deferred tax assets 53,745 73,563 Less Current Portion 12,000 12,000 -------------- ------------- Non current deferred tax asset $ 41,745 $ 61,563 ----------- ------------
The Company has a net operating loss carryover of approximately $ 75,000 to offset future taxable income. The carryover expires 2017. 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 of February 4, 2003, the balance was $50,000 In January 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, with 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. -9- APO HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - LEASES The Company leases 11,800 square feet in New York and a small sales office in Florida. Both leases are 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 December 31, 2003 $72,450 2004 $74,900 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 July1, 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. -10- APO HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Litigation(continued) 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. 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 December 30, 2002, the Company had $350,000 on deposit, in excess of the $100,000 in each bank, which is insured under federal law. -11- ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Results of Operations Revenue for the three months ended December 31, 2002 was $11,664,766, an increase of $5,174,476 or 79.7% over the three months ended December 31,2001. 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 three months ended December 31, 2002 was $11,105,136, an increase of $5,289,499 or 90.9% over the three months ended December 31, 2001. As a result the gross margin for the quarter ended December 31, 2002 was $559,630 or 4.80% compared to $674,653 or 10.39% for the quarter ended December 31, 2001. 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 three months ended December 31, 2002 were $156,099, a decrease of $51,213 or 24.7% compared to the three months ended December 31, 2001. The Company has reduced shipping costs by $20,806; commissions by $24,413; and advertising costs by $21,195. 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 $26,089, which is related directly to increased contact with medical and wholesale purchasers. General and administrative expenses for the three months ended December 31, 2002 decreased by $50,598 or 13.4% from the three months ended December 31,2001. The largest decrease in general and administrative expenses was a reduction of $45,599 in consulting expense for corporate planning, financing and acquisitions. Total compensation including payroll taxes decreased by $52,537. Increases included professional and financing fees, which increased by $21,484, primarily for the Company's new financing agreement. Insurance increased by $5,052 primarily from the increases in medical expenses. Other general and administrative expenses decreased by approximately $22,000 as the Company reduced costs for all nonessential services and supplies. Interest expense for the three months ended December 31,2002 was $27,126, a decrease of $3,129 form the three month period ended December 31,2001. 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 December 31,2002, The Company had net working capital of $1,394,791, an increase of $52,169 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: February 18, 2003 By: /s/ Dr. Jan Stahl ------------------ Dr. Jan Stahl, Chairman Chief Executive Officer And Secretary (Principal Executive Officer) Date: February 18, 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: February 18, 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 -17- 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 February 19, 2003 By: /s/ Dr. Jan Stahl ---------------------------------- Dr. Jan Stahl Chief Executive Officer and Director -18- 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): (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 -19- 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 February 19, 2003 By: /s/ Peter Steil -------------------------------- Peter Steil Chief Financial Officer and Director
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