Apple iSports Group, Inc. - Quarter Report: 2008 July (Form 10-Q)

 

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FORM 10-QSB

6. COMMITMENTS & CONTINGENCIES

The Company leases office space for the ATM division, under a non-cancelable operating lease. The lease requires minimum monthly payments of approximately $550 per month and expires in January 31, 2010.  Rent expense was $1,683 and $1,616 as of July 31, 2008 and 2007.

On February 5, 2008, Scott Goldsmith (“Mr. Goldsmith”), Paragon Capital LP and the Company signed an Agreement and Release providing for, among other items, (a) cancellation of Mr. Goldsmith’s Preferred stock, (b) cancellation of Mr. Goldsmith’s  warrants, in exchange for (1) payment in full of all of the Company’s liabilities, debts, and payables, (2) an initial payment to Mr. Goldsmith of $200,000, (3) conveyance of the assets and liabilities of Quick Pay, Inc. to Mr. Goldsmith, (4) an additional payment to Mr. Goldsmith upon certain events happening such as a reverse merger with a private company of $400,000 or 1,600,000 shares of common stock, and (5) future assignment of warrants held by Paragon to Mr. Goldsmith upon completion of a reverse merge.  A liability of $400,000 remains as due to Mr. Goldsmith, although this liability can be repaid during July 2009 through September 2009, at the option of the Company, through the issuance of 1,600,000 shares of common stock of the Company.

 

 

 

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As of April 15, 2008, as partial consideration for the cancellation of the 2,000,000 warrants and 1,000,000 Preferred shares, the Company paid $200,000 to Mr. Goldsmith who designated that the capital be transferred to Quick Pay. The $200,000 paid to Quick Pay was recorded as a liability to  Mr. Goldsmith and is included under net liabilities held for sale caption.  As of July 31, 2008 approximately $78,450 remains due to  Mr. Goldsmith by Quick Pay, and any net assets or liability which remain on the Company’s financial statements will be conveyed to Mr. Goldsmith by October 31, 2008, without additional liability to the Company.  

As part of the amendment to the February 5, 2008 agreement the Company has agreed that a $10,000 penalty will be paid to Mr. Goldsmith if the Company does not convey the net assets of Quick Pay by October 31, 2008.  The Company has accrued for the penalty as of April 30, 2008.

 

7.  SUBSEQUENT EVENTS

On August 12, 2008, the Company, Mr. Goldsmith and Paragon Capital entered into a clarification and addendum to the Schedule A agreement which had been entered into by these parties dated December 28, 2007.  This clarification agreement stated amongst other things that the warrants to purchase 4,000,000 shares of common stock that were to be issued to Mr. Goldsmith by the Company will instead be warrants to purchase 5,000,000 shares of common stock with an exercise price of $0.01 per share and they will be issued to Mr. Goldsmith by Paragon rather than the Company.  In addition, the $400,000 amount owed to Goldsmith shall be payable upon the earlier of (i) such time as the Company has completed a PIPE financing of at least $2,000,000 or (ii) such time as the Company completes a reverse merger transaction, or (iii) eighteen months from the date of the original agreement dated December 28, 2007 Schedule A.  In the absence of (1), (ii) or (iii) the Company will have the right to require Goldsmith to convert the $400,000 payment into 1,600,000 common shares, non dilutable for stock splits for a period from 4 years from the date of the issuance of the stock, with piggyback registration rights.  This right expires September 30, 2009.  The Company has agreed that a $10,000 penalty will be paid to Mr. Goldsmith if the Company does not convey the net assets of Quick Pay by October 31, 2008.

On August 29, 2008, pursuant to the terms of a Securities Purchase Agreement, Paragon Capital LP purchased a warrant exercisable for $200,000 into 20,000,000 shares of common stock of Prevention Insurance.com, Inc. (the "Company") from the Company, for an aggregate of $20,000 in cash.

 

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward Looking Statements and Associated Risks

 

We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations with an overview of our description of business, historical operations, plan of operations, and existing ventures.  This overview is followed by a detailed analysis of our results of operations and our financial condition as of, and for, the three months ended July 31, 2008.

 

Certain matters in this Quarterly Report on Form 10-Q for the three months ended July 31, 2008 and our other filings with the SEC, including, without limitation, certain matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby.  Those statements reflect the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things, future events and financial trends affecting the Company.

 

Such forward-looking statements include statements regarding, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans, (e) our anticipated needs for working capital, (f) our lack of operational experience, and (g) the benefits related to ownership of our common stock. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words "may," "will," "should," "expect," "anticipate," "estimate," "believe," "intend," or "project" or the negative of these words or other variations on these words or comparable terminology. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," as well as in this Report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under "Risk Factors" and matters described in this Report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this report will in fact occur as projected.

 

Description of Business

 

Prevention Insurance.com (the "Company") was incorporated in the State of Nevada on May 7, 1975, to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions. The Company was originally incorporated under the name Vita Plus, Inc. later we changed our name to Vita Industries, Inc. and in 1999 again changed it to Prevention Insurance.com.

 

Historical Operations

Historical Operations: In 1983 we made a public offering of 700,000 shares of our common stock for our own account. We registered the stock under the Securities Act of 1933. Upon completion of that offering, we registered the stock under Section 12 (g) the National Association of Securities Dealers Automated Quotation System ("NASDAQ"). However, in 1989 we terminated the registration of our stock under Section 12(g) of the Act because our total assets had decreased to less than $3,000,000. Our stock was then no longer quoted on NASDAQ.

 

 

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From inception until early 1999, our principle business engagement had been the sale and distribution of our own formulations of specific vitamins and nutritional supplements, and of various other health and personal care products. We sold our products through traditional methods: we employed a force of salespersons at our headquarters in Las Vegas, Nevada and compensated them on a commission basis; we also sold through a network of independent brokers. Our sales were made primarily to drug stores and other large retailers. Beginning in 1983, we also manufactured some of our products. However, after a period of approximately eight years, we stopped the manufacturing activity because it did not prove to be profitable. In 1991 we were licensed in Nevada as an agent for health and life insurance. Historically since 1991 we have not derived any significant income from sales of insurance policies.

During the mid 1990s we developed the concept of reducing insurance costs for both health and life insurance through prevention measures by emphasizing the maintenance of good health by members of the insured population. Subsequently, we began the development of hybrid insurance products incorporating preventive features with traditional health and life insurance products. Specifically, we developed two specially formulated preparations of vitamins and nutritional supplements: Nutra-Prevention Formula and Nutra- Protection. Those are formulations that emphasize health maintenance by providing multiple vitamins and a wide range of additional nutritional supplements for daily consumption, and which we believe provide optimal nutrition necessary for good health. We had planned to commence negotiations for joint venture arrangements with insurance companies using those two formulations to offer low-cost, preventive nutritional products combined with reduced premium rates for specialty insurance policies, but to date we have not entered into any such joint ventures.

In 2005, the Company added a second line of business and has been focused on its development of its ATM machine sale operations.  The Company has kept its focus on the second line of business of ATM machine sales for more than two years.  Management does not feel we have re-entered the development stage as we are continuing to receive revenue from our ATM machine sale operations.

 

Effective March 15, 1999, we sold for cash substantially all of our assets associated with the traditional distribution of vitamin and dietary supplement formulations, including all inventory of vitamins and nutritional supplements and substantially all of our furniture and fixtures, and terminated all business activities associated with the distribution of individual vitamins and dietary supplements. However, we did retain our insurance agency license, our newly developed Prevention Insurance website and the ownership rights in the trademarks for Nutra-Prevention and Nutra-Protection formulas.  While the insurance license has been retained, the Company’s main focus has been the ATM machine sales lines of business.  Should an opportunity arise where the Company is able to capitalize on its experience in insurance we will benefit, but at this stage the focus of the company is solely on the further expansion of the line of business devoted to ATM machine sales.

On December 31, 2007, the Company elected Mr. Alan P. Donenfeld to the Board of Directors.  Mr. Donenfeld is also the President, Chief Executive Officer, Chief Financial Officer, of an investment company which he controls is a significant shareholder of the Company.

Effective December 31, 2007, Scott Goldsmith resigned from his positions as Chief Executive Officer, Chief Financial Officer and Director of the Company.  Additionally, Richard Peterson and George T. Nassar resigned from the Company’s Board of Directors.

On February 5, 2008, Scott Goldsmith (“Mr. Goldsmith”), Paragon Capital LP and the Company signed an Agreement and Release providing for, amongst other items, (a) cancellation of Mr. Goldsmith’s preferred stock and (b) cancellation of Mr. Goldsmith’s warrants, in exchange for (1) payment in full of all of the Company’s liabilities, debts, and payables, (2) an initial payment to Mr. Goldsmith of $200,000, (3) conveyance of Quick Pay, Inc. assets and liabilities to Mr. Goldsmith, (4) an additional payment to Mr. Goldsmith upon certain events happening such as a reverse merger with a private company, and (5) future assignment of warrants held by Paragon to Mr. Goldsmith upon completion of a reverse merger.  Upon conveyance of the ATM division “Quick Pay”, the Company may re-enter the development stage if the Company is unable maintain an operating division.

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Plan of Operation

Along with our insurance and ATM sales we will attempt to locate and negotiate with a business entity for the merger of that target business into the Company. In certain instances, a target business may wish to become a subsidiary of the Company or may wish to contribute assets to the Company rather than merge. No assurances can be given that we will be successful in locating or negotiating with any target business.

Management believes that there are perceived benefits to being a reporting company with a class of registered securities. These are commonly thought to include (1) the ability to use registered securities to make acquisition of assets or businesses; (2) increased visibility in the financial community; (3) the facilitation of borrowing from financial institutions; (4) improved trading efficiency; (5) stockholder liquidity; (6) greater ease in subsequently raising capital; (7) compensation of key employees through stock options; (8) enhanced corporate image; and (9) a presence in the United States capital market.

A business entity, if any, which may be interested in a business combination with us may include (1) a company for which a primary purpose of becoming public is the use of its securities for the acquisition of assets or businesses; (2) a company which is unable to find an underwriter of its securities or is unable to find an underwriter of securities on terms acceptable to it; (3) a company which wishes to become public with less dilution of its common stock than would occur normally upon an underwriting; (4) a company which believes that it will be able to obtain investment capital on more favorable terms after it has become public; (5) a foreign company which may wish to gain an initial entry into the United States securities market; (6) a special situation company, such as a company seeking a public market to satisfy redemption requirements under a qualified Employee Stock Option Plan; or (7) a company seeking one or more of the other perceived benefits of becoming a public company.

Management will continue to seek a qualified company as a candidate for a business combination. We are authorized to enter into a definitive agreement with a wide variety of businesses without limitation as to their industry or revenues. It is not possible at this time to predict which company, if any, we will enter into a definitive agreement or what will be the industry, operating history, revenues, future prospects or other characteristics of that company.

During second fiscal quarter 2008, the Company terminated its discussions to merge with a pulp and paper manufacturer in Shanghai, China. After numerous extensions and the merger candidate’s failure to provide audited financial statements, it was determined it was unlikely that a merger could be consummated. A letter informing the company’s council that negotiations were terminated was sent out on October 31, 2007. Additionally, a press release regarding the decision not to renew the extension was issued on October 11, 2007. Since the merger was not consummated, the non-refundable deposit of $27,000 was reclassified to other income.

As a result of the planned disposition of Quick Pay, Inc. under the February 5, 2008 Agreement and Release, and the foregoing, the Company intends to seek to acquire assets or shares of an entity actively engaged in a business, in exchange for its securities.  Its purpose is to seek, investigate and, if such investigation warrants, acquire an interest in business opportunities presented to it by persons or firms who or which desire to seek the perceived advantages the Company may offer.  The Company will not restrict its search to any specific business, industry or geographical location and it may participate in a business venture of virtually any kind or nature.  Our management may affect transactions having a potentially adverse impact upon our shareholders pursuant to the authority and discretion of our board of directors to complete acquisitions without submitting any proposal to the stockholders for their consideration.  If the Company is unable to acquire an actively engaged business prior to the spin-off of Quick Pay, the company will re-enter the development stage.

 

 

 

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We may seek a business opportunity with entities which have recently commenced operations, or which wish to utilize the public marketplace in order to raise additional capital in order to expand into new products or markets, to develop a new product or service, or for other corporate purposes. We may acquire assets and establish wholly-owned subsidiaries in various businesses or acquire existing businesses as subsidiaries.

Our management, which in all likelihood will not be experienced in matters relating to the business of a target business, will rely upon its own efforts in accomplishing our business purposes.

The analysis of new business opportunities will be undertaken by, or under the supervision of our officer and director, who is not a professional business analyst. In analyzing prospective business opportunities, management may consider such matters as:

* the available technical, financial and managerial resources;

* working capital and other financial requirements; history of operations, if any;

* prospects for the future;

* nature of present and expected competition;

* the quality and experience of management services which may be available and the depth of that management;

* the potential for further research, development, or exploration;

* specific risk factors not now foreseeable but which then may be anticipated to impact our proposed activities;

* the potential for growth or expansion;

* the potential for profit;

* the perceived public recognition or acceptance of products, services, or trades; name identification and;

* other relevant factors.

Number of Employees

As of April 30, 2008, the Company had 1 employee.

 

Results of Operations

 

We have, and will continue to have, no capital with which to provide the owners of business opportunities. However, management believes we will be able to offer owners of acquisition candidates the opportunity to acquire a controlling ownership interest in a publicly registered company without incurring the cost and time required to conduct an initial public offering. Our officer and director have not conducted market research and are not aware of statistical data to support the perceived benefits of a merger or acquisition transaction for the owners of a business opportunity.  Due to the plan of operations the historical results do not show or provide any trends with which the Company can forecast the future of the Company.

 

Our audit reflects the fact that we do not have sufficient revenue to cover expenses. Our condition is at present under-capitalized. We have been able to pay off all of our payables as agreed.  Further, that without realization of additional capital, it would be unlikely for the Company to continue as a going concern; we have previously sustained ourselves through commission income of ATM machine sales, although the Company is planning to divest itself of the ATM machine sales operations by October 31, 2008.

 

 

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We have received a small amount of capital from existing shareholders through periodic stock sales and warrant sales. We may also seek out private equity capital or a strategic partner as possible sources of financing. While we currently have minimal cash, it is anticipated that at least for the near term our controlling shareholder, Paragon Capital LP, will continue to invest in the Company in exchange we will issue warrants to purchase our common stock.  Paragon made an investment of $20,000 through the purchase of warrants subsequent to the end of the first quarter.  Additional warrants will be sold to fund our operations going forward until we are able to raise larger amounts of capital and complete a business combination.  Upon the closing of a business combination and a possible financing, we plan to pay  Mr. Goldsmith $400,000 or issue 1,600,000 shares of our common stock, regardless of any stock splits for a period from four years from the date of the issuance of the stock, net of any liabilities not covered in the conveyance of Quick Pay, as the final consideration for amounts owed to him, for the cancellation of his preferred stock and warrants.

Our only operation, Quick Pay, is discontinued and is to be conveyed to Mr. Goldsmith by October 31, 2008.  We are not allocating any additional capital to Quick Pay.  At July 31, 2008, Quick Pay had net liabilities of $55,540, net of related assets.  Regardless of the amount of the net liabilities at the time of the conveyance (anticipated by October 31, 2008), Quick Pay’s net liabilities amount will be eliminated from our balance sheet and is not anticipated to result in any further risk or liability.

As we are divesting ourselves of our only operating division historical results provide no meaningful trend analysis for future financial results.

Critical Accounting Policies

Revenue Recognition

Commission income from the sale of ATM machines is recognized at the time of sale.

Net Loss Per Share Calculation

In February 1997, the FASB issued SFAS No. 128, “Earnings per Share.” Basic net loss per common share ("EPS") is computed by dividing income available to commons stockholders by the weighted-average number of common shares outstanding for the period.   Diluted earnings per shares is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential common shares were issued.  Since the fully diluted loss per share for 2007 and 2006 was anti-dilutive, basic and diluted losses per share are the same.   The weighted-average number of common shares outstanding for computing basic EPS for the three month period ended July 31, 2008 and July 31, 2007 were 97,872,933 and 21,833,492 respectively.

Stock Based Compensation

In December 2004, SFAS No. 123 (revised 2004), "Share-Based Payment"("SFAS 123(R)") was issued.  The Company applies SFAS 123R in accounting for stock options issued to employees. For stock options and warrants issued to non-employees, the Company applies SFAS No. 123R, Accounting for Stock-Based Compensation, which requires the recognition of compensation cost based upon the fair value of stock options at the grant date using the Black-Scholes option pricing model.

There were no options issued as stock based compensation to any officers, directors, or non-employees for the three month period ended July 31, 2008 or July 31, 2007, respectively.

 

 

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Facilities and Leases

 

Prevention Insurance.com leases office space under a non-cancelable operating lease in Las Vegas, Nevada. The lease requires minimum monthly payments of approximately $550 per month. The lease expires January 31, 2010 with minimum rent payable for the year of $6,600.  The lease will be spun off along with QuickPay.

 

Dividends

 

Prevention Insurance.com does not intend to pay dividends in the foreseeable future.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

 

ITEM 4(T). CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures

As required by Rule 13a-15(c) promulgated under the Exchange Act, our management, with the participation of our Chief Executive Officer/Principle Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of July 31, 2008.  Management’s assessment was based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (“COSO”).  Based on this evaluation our Chief Executive Officer/Principle Financial Officer concluded that, as of July 31, 2008, our disclosure controls and procedures were not effective due to the existing weaknesses in our internal control over financial reporting previously identified and discussed in the 2008 10-K and below under “Internal Control Over Financial Reporting.”

In view of the fact that the financial information presented in this quarterly report on Form 10-Q for the fiscal quarter ended July 31, 2008, was prepared in the absence of effective internal control over financial reporting, we have devoted a significant amount of time and resources to the analysis of the financial statements contained in this report.  In particular, we have reviewed the significant account balances and transactions reflected in the financial statements contained in this report and otherwise analyzed the transactions underlying our financial statements to verify the accuracy of the financial statements.  Accordingly, management believes that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations, and cash flows.

 

Nevertheless, there can be no assurance that either this review process or our existing disclosure controls and procedures will prevent or detect all errors and all fraud, if any, or result in accurate and reliable disclosure. A control system can provide only reasonable and not absolute assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Additionally, judgments in decision-making can be faulty and breakdowns in controls can occur because of simple errors or mistakes that are not detected on a timely basis.

 

 

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting that includes effective accounting policies and procedures. Our continuing progress in establishing internal control over financial reporting is described below.

Certain Changes in Internal Control Over Financial Reporting during the Fiscal Quarter Ended July 31, 2008

 

 

 

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During the quarter ended July 31, 2008, there were no other changes to our internal control over financial reporting during the three months ended July 31, 2008 that management believes have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Ineffective Controls Related to the Financial Closing Process

 

The Company's design and operation of controls with respect  to  the process of preparing  and  reviewing  the  annual  and  interim  financial statements  are ineffective.  Deficiencies  identified include the inadequate  segregations  of duties, lack of controls over  procedures  used  to enter transactions into the general  ledger,  and  lack of appropriate review of  the  reconciliations  and supporting workpapers used  in the financial close and reporting process. While these deficiencies did not result  in  a material misstatement of the financial statements, due to the potential pervasive  effect  on  the financial statement account balances and disclosures and the importance of the  annual  and interim financial  closing  and  reporting  process,  in the aggregate, management  has concluded  that  there  is  more  than  a  remote likelihood  that  a  material misstatement  in our annual or interim financial  statements  could  occur  and would not be prevented  or  detected.   Management  intends  on discussing this issue  with  its  outside  consultants  to  develop  controls which are  better applicable to its industry and size.

 

 

PART II

 

 

ITEM 1. LEGAL PROCEEDINGS.

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

 

 

ITEM 5. OTHER INFORMATION

 

 

 

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A.   EXHIBITS PURSUANT TO REGULATION S-K:

 

Exhibit 31.1	Section  302  Certification  by  President  and  Chief Executive Officer
Exhibit 32.1	Section  906  Certification  by  President  and  Chief Executive Officer
Exhibit 10.1	Securities Purchase Agreement dated as of April 30, 2008 between Paragon Capital LP and Prevention Insurance.com, Inc. including Exhibit 1. (1)
Exhibit 10.2	Securities Purchase Agreement dated as of August 29, 2008 between Paragon Capital LP and Prevention Insurance.com, Inc. including Exhibit 1.
Exhibit 10.3	Clarification Agreement dated August 12, 2008 between Scott Goldsmith, Paragon Capital LP and Prevention Insurance.com, Inc.

 

 

(1)           Incorporated herein by reference to the Registrant’s Form 8-K filed May 28, 2008.

 

 

 

 

 

 

 

 

 

 

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SIGNATURE

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto authorized.

 

 

PREVENTION INSURANCE.COM, INC		Date:  September 14, 2008
(Registrant)
By:	/s/ Alan P. Donenfeld
	Alan P. Donenfeld
	Chief Executive Officer, Principal Financial Officer

 

 

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