-----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, E5v5wj9d2ORmRAP1Qg8aXGe4ALy4I3bihnvVuM2F29DXtMD9EQOFQmo98HsCFXN8 VB72miLGxboo9U9ONk14WA== 0001144204-04-001253.txt : 20040212 0001144204-04-001253.hdr.sgml : 20040212 20040212101838 ACCESSION NUMBER: 0001144204-04-001253 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040212 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: 04588610 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: INTERNETFINANCIALCORP COM INC DATE OF NAME CHANGE: 20000229 FORMER COMPANY: FORMER CONFORMED NAME: CARIBBEAN VENTURES INC /NV/ DATE OF NAME CHANGE: 19990112 10-Q 1 form10q.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, 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. - -------------------------------------------------------------------------------- (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 9, 2004, 32,106,045 shares of Common Stock of the issuer were issued. APO HEALTH, INC. FORM 10-Q QUARTER ENDED DECEMBER 31, 2003 TABLE OF CONTENTS Page ---- PART I - Financial Information Item 1 Financial Statements. Consolidated Balance Sheet as of December 31, 2003 and September 30, 2002. 3 Consolidated Statement of Income for the three months ended December 31, 2003 and 2002. 4 Consolidated Statement of Cash Flows for the three months ended December 31, 2003 and 2002. 5 Notes to Consolidated Financial Statements. 6- 11 Item 2 Management's Discussion and Analysis or Plan of Operations. 12-13 PART II - Other Information Item 1 Legal Proceedings. 14-15 Item 2 Changes in Securities and Use of Proceeds. 15 Item 3 Default upon Senior Securities. 15 Item 4 Submission of Matters to a Vote of Security Holders. 15 Item 5 Other Information. 15 Item 6 Exhibits and Reports on Form 8-K. 15 Signatures 16 - 2 - PART I - FINANCIAL INFORMATION APO HEALTH, INC. CONSOLIDATED BALANCE SHEET
December 31, September 30, 2003 2003 ----------- ----------- (Unaudited) ASSETS Current Assets: Cash $ 28,473 $ 405,153 Accounts Receivable, net of allowance for doubtful accounts of $50,000 and $50,000 2,033,903 1,702,741 Inventory 1,790,934 1,396,205 Note receivable 3,796 4,566 Due from Officers 108,905 108,905 Other Current Assets 60,464 55,013 ----------- ----------- Total Current Assets 4,026,475 3,672,583 Property and Equipment, net of accumulated depreciation of $76,096 and $98,992 15,533 18,003 Deposits 7,500 7,500 ----------- ----------- Total Assets $ 4,049,508 $ 3,698,086 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Bank Notes Payable $ 1,388,118 $ 1,008,123 Accounts Payable 529,745 924,029 Accrued Compensation 250,440 248,483 Customer Deposits 547,576 294,587 ----------- ----------- Total Current Liabilities 2,715,879 2,475,222 ----------- ----------- Stockholders' Equity: Common stock, $.0002 par value, 125,000,000 shares authorized, 32,106,045 and 32,106,045 shares issued and outstanding 6,325 6,325 Paid-in Capital 1,920,768 1,920,768 Retained Earnings (Deficit) (593,464) (704,229) ----------- ----------- Total Stockholders' Equity 1,333,629 1,222,864 ----------- ----------- Total Liabilities and Stockholders' Equity $ 4,049,508 $ 3,698,086 =========== ===========
- 3 - APO HEALTH, INC. CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002 (UNAUDITED)
2003 2002 ------------ ------------ Revenue $ 7,389,987 $ 11,664,766 Cost of Revenue 6,746,816 11,105,136 ------------ ------------ Gross Margin 637,171 559,630 ------------ ------------ Operating Expenses Selling Expense 163,845 156,099 General and Administrative Expenses 339,831 326,860 ------------ ------------ 503,676 482,959 ------------ Income from Operations 133,495 76,671 Interest Expense (22,730) (27,126) ------------ ------------ Income before Provision for Income Taxes 110,765 49,545 Provision for Income Taxes -- 19,818 ------------ ------------ Net Income $ 110,765 $ 29,727 ============ ============ Basic and diluted Earnings per common share $ .003 $ .001 ============ ============ Weighted Average Common Shares Outstanding 32,106,045 24,554,227 ============ ============
- 4 - APO HEALTH, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002 (UNAUDITED)
2003 2002 ----------- ----------- Cash Flow From Operating Activities: Net Income $ 110,765 $ 29,727 Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities: Depreciation and Amortization 2,470 2,624 Deferred Taxes -- 19,818 Changes In: Accounts Receivable (331,162) (1,028,167) Inventory (394,729) 538,667 Other Current Assets (5,451) 7,263 Accounts Payable (394,284) 354,611 Accrued Expenses 1,957 (85,485) Customer Deposits 252,989 (431,330) ----------- ----------- Cash Flows from Operating Activities (757,445) (592,272) ----------- ----------- Cash Flows from Investing Activities: Reduction in Notes Payable 770 99,458 ----------- ----------- Cash Flows from Financing Activities 770 99,458 ----------- ----------- Cash Flows from Financing Activities: Proceeds (Payment) on Bank Notes Payable, Net 379,995 430,776 ----------- ----------- Cash Flows from Financing Activities 379,995 430,776 ----------- ----------- Net Increase (Decrease) in Cash (376,880) (62,048) ----------- ----------- Cash Balances: Beginning of Period 405,153 520,618 ----------- ----------- End of Period $ 28,473 $ 458,570 =========== ===========
- 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, 2003 filed with the Securities and Exchange Commission. The results of operations for the three months ended December 31, 2003 are not necessarily indicative of results expected for the entire fiscal year ended September 30, 2004. 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. The Company follows Statement of Financial Accounting Standards No. 144, Impairment of Long-lived Assets by reviewing such assets for impairment whenever changes in circumstances indicate that the carrying amount may not be recoverable. -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. 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 2002 ------------ ------------ Cash paid during the year for: Interest $ 22,730 $ 27,126 Income taxes - - 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 4 - INCOME TAXES Income taxes (benefit) consist of the following: 2003 2002 -------- -------- Current $ 44,298 $ 19,818 Utilization of net operating loss (44,298) (19,818) Deferred -- 19,818 -------- -------- Total $ -- $ 19,818 ======== ======== A reconciliation of income taxes at the federal statutory income tax rate to total income taxes is as follows: 2003 2002 -------- -------- Computed at federal statutory rate of 34% $ 37,653 $ 16,845 State income tax 6,645 2,973 Utilization of net operating loss (44,298) -- -------- -------- Total $ -- $ 19,818 -------- -------- The components of deferred taxes are as follows:
December 31, September 30, 2003 2003 -------- -------- Deferred tax assets Allowance for doubtful accounts $ 20,000 $ 20,000 Depreciation 12,000 12,000 Net operating loss carryover, less Valuation allowance of $176,900 and $221,200 -- -- Reversal of valuation allowance (32,000) (32,000) -------- -------- Total deferred tax assets -- -- -------- -------- Non current deferred tax asset $ $ ======== ========
The Company has a net operating loss carryover of approximately $265,000 to offset future taxable income. The carryover expires 2018. The Company has offset the deferred tax asset by a valuation allowance of $176,900, since it cannot be determined more likely than not whether the Company will be able to utilize such net operating loss carryover. -8- APO HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - 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. To date none of these shares have been issued. On July 22 2002 the Company issued a common stock purchase warrant for 260,000 shares of common stock exercisable at $.10 per share and on September 27, 2002, a common stock purchase warrant for 1,875,000 shares exercisable at $.04 per share, both expiring on August 31, 2007. Stock Options In April, 2001, investors in a private placement received warrants to acquire 1,500,000 shares of Common stock at $1.00 per share. These warrants expire on April 24, 2004. To date none of these warrants have been exercised. In June, 2001, consultants received warrants to acquire 1,350,000 shares of Common stock at prices ranging from $1.00 to $2.00 that expire on September 14, 2004. To date none of these warrants have been exercised. In June, 2001. a consultant received warrants to acquire 1,000,000 shares of Common stock at prices ranging from $1.00 to $2.00 that expire on June 5, 2006. To date none of these warrants have been exercised. Note 6 - LEASES The Company leases 12,000 square feet in New York. The lease is on a month-to-month basis with an affiliated company 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. On December 1, 2002 the Company entered into a sublease agreement to lease approximately 2,000 square feet of its warehouse through November 30, 2005. Future minimum lease payments are as follows: Year ended December 31,2004 $74,900 -9- APO HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - 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., 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. 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. 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. On January 28, 2004, the Company announced that it had reached an out of court settlement in the unsolicited broadcast fax class action lawsuit by Kenro, Inc. Details of the settlement will be approved by the court which must approve the settlement before it becomes final. Mediation in this matter was ordered by the court. -10- APO HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Litigation (continued) The Company's attorneys agreed to settle the litigation for up to $4.5 million which will be placed in a settlement fund created and completely covered by the Company's insurer. Once approved by the court, notice of settlement will be faxed to a list of fax numbers belonging to the class action plaintiffs. As a result of the settlement, if approved, the Company will have no out of pocket expenses related to the creation or management of the Settlement Fund. 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 8 - 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, 2003, the Company had $123,000 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, 2003 was $7,389,987 compared to $11,664,776 for the three months ended December 31, 2002. This decrease of $4,274,779 or 36.6% was a result of a large decrease in sales to wholesale distributors. The Company reduced sales of items which were generating gross margins of 1.0% to 1.5 % as it searched for new sources for these products which would generate a higher gross margin. Cost of revenue for the three months ended December 31, 2003 was $6,746,816 compared to $11,105,136 for the three months ended December 31, 2002. This was a decrease in cost of revenue of $4,358,320 or 39.9%. As a result, the gross margins increased to 8.6% from 4.8%, an improvement of approximately 80.0%. The Company reduced its reliance on low gross profit margin items and concentrated more on its retail dental supply sales and medical supply sales which have higher gross profit margins. The Company expects medical sales to rise at the end of the next quarter when it releases its new catalogue at the end of March, 2004 or the beginning of April, 2004. Selling expenses for the three months ended December 31, 2003 were $163,845 compared to $156,099 for the three months ended December 31, 2002, an increase of $7,746 or 5.0%. Categories of selling expenses, which showed increases, were shipping ($14,189), commissions ($29,133), and telephone expense ($2,950). Categories of selling expenses which showed decreases were advertising ($19,855), postage and mailing ($9,327) and travel and entertainment ($9,313). The large increase in commissions were a result of sales generated by outside sources. The advertising expense decrease was due to the elimination of faxing to customers and that the new medical catalogue has not yet been released. Postage and mailing decreased because the new catalogue was not yet available for distribution. The Company also reduced travel and entertainment expense as the sales personnel spent more effort on the phone rather than meeting with customers. General and administrative expenses for the three months ended December 31, 2003 were $339,831 compared to $326,860 for the three months ended December 31, 2002, an increase of $12,971 or 4.0%. Total compensation including payroll taxes and medical benefits increased by $8,916 which was the largest increase in general and administrative expenses. Costs associated with the new filing requirements of the Sarbanes-Oxley Act of 2002 increased professional and accounting expenses by approximately $7,500. All other categories of general and administrative expenses had minor increases or decreases. Interest expense for the three months ended December 31, 2003 was $22,730 compared to $27,126 to the three month period ended December 31, 2002, a decrease of $4,396 as the average daily balance outstanding on its line of credit decreased from the prior years period. -12- Liquidity and Capital Resources As of December 31, 2003, the Company had net working capital of $1,3910,596, an increase of $113,235 from September 30, 2003, as a result of the net income generated during the period. At December 31, 2003, the Company had a $3,000,000 credit facility of which approximately $1,620,000 was unused which gives the Company the ability to finance additional revenue and inventory. For fiscal 2004, the Company has reduced its budget for both selling and general and administrative expenses by approximately $250,000 eliminating unnecessary expenses and revising some of the operations. In addition, the Company expects that consulting fees which were non-recurring items will be eliminated. The above reductions will increase the Company's profitability based on 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. 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. 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. On January 28, 2004, the Company announced that it had reached an out of court settlement in the unsolicited broadcast fax class action lawsuit by Kenro, Inc. Details of the settlement will be approved by the court which must approve the settlement before it becomes final. Mediation in this matter was ordered by the court. -14- The Company's attorneys agreed to settle the litigation for up to $4.5 million which will be placed in a settlement fund created and completely covered by the Company's insurer. Once approved by the court, notice of settlement will be faxed to a list of fax numbers belonging to the class action plaintiffs. As a result of the settlement, if approved, the Company will have no out of pocket expenses related to the creation or management of the Settlement Fund. 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 9, 2004 By: /s/ Dr. Jan Stahl -------------------------------- Dr. Jan Stahl, Chairman Chief Executive Officer And Secretary (Principal Executive 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 9, 2004 By: /s/ Dr. Jan Stahl ----------------------------------- Dr. Jan Stahl, Director Date: February 9, 2004 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 and Financial 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 Date"); 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 -16- 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 9, 2004 By: /s/ Dr. Jan Stahl ----------------------------------- Dr. Jan Stahl Chief Executive and Financial Officer and Director -17- -----END PRIVACY-ENHANCED MESSAGE-----