UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON
D.C. 20549
FORM
10-QSB
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED:
For
the
Quarterly Period Ended September 30, 2007
APRECIA,
INC.
(Name
of
Small Business Issuer in Its Charter)
Delaware
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20-4378866
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(State
or Other Jurisdiction of Incorporation
or
Organization)
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(I.R.S.
Employer
Identification
No.)
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1177
High Ridge Road, Stamford, CT
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06905
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(203)
321-1285
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(Issuer’s
Telephone Number, Including Area
Code)
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Check
whether the registrant (1) filed all reports required to be filed by Section
13
or 15(d) of the Securities Exchange Act of 1934, as amended, 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 o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes x
No o
As
of
September 30, 2007, the issuer had 16,761,597 shares of common stock, $0.0001
par value, issued and outstanding.
Transitional
Small Business Disclosure Format. Yes o No x
APRECIA,
INC.
FORM
10-QSB
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PAGE
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PART
I
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FINANCIAL
INFORMATION
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3
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ITEM
1
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Financial
Statements
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3
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ITEM
2
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Management’s
Discussion and Analysis and Results of Operations
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4
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ITEM
3
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Controls
and Procedures
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11
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PART
II
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OTHER
INFORMATION
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12
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ITEM
1
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Legal
Proceedings
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12
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ITEM
2
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Unregistered
Sales of Equity Securities and Use of Proceeds.
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12
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ITEM
3
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Defaults
Upon Senior Securities
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12
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ITEM
4
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Submission
of Matters to a Vote of Security Holders.
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12
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ITEM
5
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Other
Information
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12
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ITEM
6
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Exhibits
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13
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SIGNATURES
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15
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CERTIFICATIONS
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PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
INDEX
TO CONDENSED FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULES
Balance
Sheet as of September 30, 2007
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F-1
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Statements
of Operations for the 3 months ended September 30, 2007 and
2006
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F-2
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Statements
of Cash Flows for the 3 months ended September 30, 2007 and
2006
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F-3
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Notes
to Financial Statements
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F-5
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APRECIA,
INC.
(A
DEVELOPMENT STAGE COMPANY)
CONDENSED
BALANCE SHEET
SEPTEMBER
30, 2007
(Unaudited)
ASSETS
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Current
Assets:
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Cash
and Cash Equivalents
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$
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3,752
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Total
Current Assets
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3,752
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Property
and Equipment, Net
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1,669
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Deferred
Finance Costs, Net
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41,111
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Total
Assets
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$
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46,532
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LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
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Current
Liabilities:
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Convertible
Debentures
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$
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500,000
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Notes
Payable
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201,960
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Accrued
Expenses
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73,793
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Accrued
Liquidated Damages
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106,667
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Accrued
Interest
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80,089
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Total
Current Liabilities
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962,509
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Commitments
and Contingencies
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Stockholders’
Deficiency:
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Preferred
Stock, $.0001 par value; 10,000,000 shares authorized,
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none
issued and outstanding
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-
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Common
Stock, $.0001 par value; 250,000,000 shares authorized,
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16,761,597
issued and outstanding
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1,676
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Additional
Paid-In Capital
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288,822
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Deficit
Accumulated During the Development Stage
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(1,206,475
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)
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Total
Stockholders’ Deficiency
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(915,977
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)
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Total
Liabilities and Stockholders’ Deficiency
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$
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46,532
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The
accompanying notes are an integral part of these financial
statements.
APRECIA,
INC.
(A
DEVELOPMENT STAGE COMPANY)
CONDENSED
STATEMENT OF OPERATIONS
(Unaudited)
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For
the Three
Months
Ended
September
30, 2007
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For
the Three
Months
Ended
September
30, 2006
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For
the Period
December
15, 2005
(Inception)
to
September
30, 2007
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Net
Revenues
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$
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-
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$
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-
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$
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-
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Costs
and Expenses:
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Officer’s
Compensation
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45,000
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45,000
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285,000
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Software
Development
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42,000
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40,000
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256,985
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Other
General and Administrative Expenses
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32,653
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18,653
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218,486
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Total
Costs and Expenses
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119,653
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103,653
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760,471
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Loss
from Operations
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(119,653
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)
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(103,653
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)
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(760,471
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)
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Other
Expenses:
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Amortization
of Deferred Finance Costs
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(58,726
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)
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(23,125
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)
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(199,002
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)
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Amortization
of Deferred Debt Discount
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(37,654
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)
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-
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(60,246
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)
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Interest
Expense
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(17,352
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)
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(9,950
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)
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(80,089
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)
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Liquidated
Damages
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-
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(30,000
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)
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(106,667
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)
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Total
Other Expenses
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(113,732
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)
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(63,075
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)
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(446,004
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)
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Net
Loss
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$
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(233,385
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)
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$
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(166,728
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)
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$
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(1,206,475
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)
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Weighted
Average Common Shares
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Outstanding
- Basic and Diluted
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16,761,597
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16,293,333
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Net
Loss Per Common Share
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$
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(.01
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)
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$
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(.01
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)
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The
accompanying notes are an integral part of these financial
statements.
APRECIA,
INC.
(A
DEVELOPMENT STAGE COMPANY)
CONDENSED
STATEMENT OF CASH FLOWS
(Unaudited)
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For
the Three
Months
Ended
September
30, 2007
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For
the Three
Months
Ended
September
30, 2006
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For
the Period
December
15, 2005
(Inception)
to
September
30, 2007
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Cash
Flows from Operating Activities:
|
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|
|
|
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Net
Loss
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$
|
(233,385
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)
|
$
|
(166,728
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)
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$
|
(1,206,475
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)
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Adjustments
to Reconcile Net Loss to
Net
Cash (Used) in Operating Activities:
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Amortization
of Debt Discount
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37,654
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-
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60,246
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Amortization
of Deferred Finance Costs
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58,726
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23,125
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199,002
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Depreciation
Expense
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239
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239
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1,193
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Common
Stock Issued for Software Development
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-
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-
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|
970
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Changes
in Assets and Liabilities:
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Increase
in Accrued Expenses
|
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62,542
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13,991
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|
208,794
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Increase
in Accrued Interest
|
|
|
17,352
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9,950
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80,089
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Increase
in Accrued Liquidated Damages
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|
-
|
|
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30,000
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106,667
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|
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Net
Cash (Used) in Operating Activities
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(56,872
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)
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(89,423
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)
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(549,514
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)
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Cash
Flows from Investing Activities:
|
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|
|
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|
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Purchase
of Equipment
|
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|
-
|
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(2,862
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)
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|
(2,862
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)
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|
|
|
|
|
|
|
|
|
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|
Net
Cash Used in Investing Activities
|
|
|
-
|
|
|
(2,862
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)
|
|
(2,862
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)
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|
|
|
|
|
|
|
|
|
|
|
Cash
flows from Financing Activities:
|
|
|
|
|
|
|
|
|
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|
Decrease
in Stock Subscription Receivable
|
|
|
-
|
|
|
354
|
|
|
451
|
|
Proceeds
from Issuance of Convertible Debentures
|
|
|
-
|
|
|
-
|
|
|
500,000
|
|
Proceeds
from Issuance of Notes Payable
|
|
|
-
|
|
|
-
|
|
|
170,000
|
|
Payments
of Finance Costs
|
|
|
-
|
|
|
-
|
|
|
(215,513
|
)
|
Proceeds
from Issuance of Common Stock
|
|
|
-
|
|
|
-
|
|
|
106,190
|
|
Expense
on Sale of Common Stock
|
|
|
-
|
|
|
-
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by Financial Activities
|
|
|
-
|
|
|
354
|
|
|
556,128
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease) in Cash
|
|
|
(56,872
|
)
|
|
(91,931
|
)
|
|
3,752
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
- Beginning of Period
|
|
|
60,624
|
|
|
224,279
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
- End of Period
|
|
$
|
3,752
|
|
$
|
132,348
|
|
$
|
3,752
|
|
The
accompanying notes are an integral part of these financial
statements.
APRECIA,
INC.
(A
DEVELOPMENT STAGE COMPANY)
CONDENSED
STATEMENT OF CASH FLOWS
(Unaudited)
(Continued)
|
|
For
the Three
Months
Ended
September
30, 2007
|
|
For
the Three
Months
Ended
September
30, 2006
|
|
For
the Period
December
15, 2005
(Inception)
to
September
30, 2007
|
|
Supplemental
Cash Flow Informaiton:
|
|
|
|
|
|
|
|
Cash
Paid for Interest
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Cash
Paid for Income Taxes
|
|
$
|
-
|
|
$
|
-
|
|
$
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Non-Cash Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
Subscription
Receivable on Sale of
Common
Stock
|
|
$
|
-
|
|
$
|
451
|
|
$
|
451
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Warrants Issued as
Deferred
Finance Costs
|
|
$
|
-
|
|
$
|
-
|
|
$
|
9,641
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
Discount Attributable to Common
Stock
Warrants on Notes Payable
|
|
$
|
-
|
|
$
|
-
|
|
$
|
43,246
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
Payable Issued as Payment of
Deferred
Finance Costs
|
|
$
|
-
|
|
$
|
-
|
|
$
|
14,960
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange
of Related Party Debt to
Contributed
Capital
|
|
$
|
135,000
|
|
$
|
-
|
|
$
|
135,000
|
|
The
accompanying notes are an integral part of these financial
statements.
APRECIA,
INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1
- Organization
and Basis of Presentation
Aprecia,
Inc. (the “Company”), was incorporated on December 15, 2005 under the laws of
the State of Delaware. The Company has selected June 30 as its fiscal year
end.
The
Company has not yet generated revenues from planned principal operations
and is
considered a development stage company as defined in Statement of Financial
Accounting Standards (“SFAS”) No. 7. The Company originally had planned on
becoming involved in the business of identifying money laundering in various
sporting venues. It has since dropped such plans and is now seeking other
business opportunities but has not yet identified any such opportunity. There
is
no assurance, however, that the Company will achieve its objectives or
goals.
In
the
opinion of the Company’s management, the accompanying unaudited condensed
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the information set forth
therein. These financial statements are condensed and therefore do not include
all of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements.
Results
of operations for interim periods are not necessarily indicative of the results
of operations for a full year.
Certain
items in these condensed financial statements have been reclassified to conform
to the current period presentation.
NOTE
2 -
Going
Concern
The
Company incurred net losses of $233,385 for the three months ended September
30,
2007 and $1,206,475 for the period December 15, 2005 (inception) to September
30, 2007. In addition, the Company has a working capital deficiency of $958,757
and a stockholders’ deficiency of $915,977 at September 30, 2007. These factors
raise substantial doubt about the Company’s ability to continue as a going
concern.
There
can
be no assurance that sufficient funds required during the next year or
thereafter will be generated from operations or that funds will be available
from external sources such as debt or equity financings or other potential
sources. The lack of additional capital resulting from the inability to generate
cash flow from operations or to raise capital from external sources would
force
the Company to substantially curtail or cease operations and would, therefore,
have a material adverse effect on its business. Furthermore, there can be
no
assurance that any such required funds, if available, will be available on
attractive terms or that they will not have a significant dilutive effect
on the
Company’s existing stockholders.
The
accompanying financial statements do not include any adjustments related
to the
recoverability or classification of asset-carrying amounts or the amounts
and
classification of liabilities that may result should the Company be unable
to
continue as a going concern.
The
Company is attempting to address its lack of liquidity by raising additonal
funds, either in the form of debt or equity or some combination thereof.
In
addition, the Company is seeking other business opportunities but has not
yet
identified any such opportunity. There can be no assurances that the Company
will be able to raise the additional funds it requires.
APRECIA,
INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE
3 -
Convertible
Debentures
The
Company entered into a Securities Purchase Agreement dated as of March 10,
2006,
with four investors relating to the issuance and sale, in a private placement
exempt from the registration requirements of the Securities Act of 1933,
as
amended (the “1933 Act”), of 7% Convertible Debentures in the principal amount
of $500,000. Accrued interest on the convertible debentures as of September
30,
2007 was $54,444. The debentures are collateralized by all of the now owned
and
hereafter acquired rights, title and interest of the Company’s
assets.
The
debentures mature 24 months from the closing. The debentures are convertible
at
the option of the holder into the Company’s common stock at the rate of $.12 per
share. Expenses incurred in connection with the private offering of the
debentures were $185,000. Such expenses are carried as deferred finance costs
and are being amortized over the term of the debt.
Since
a
registration statement covering the underlying common stock was not filed
within
90 days, the Company is required to pay liquidated damages of 2% of the
principal amount of $500,000 per month plus interest at the rate of 18% if
the
Company fails to pay the liquidated damages within seven days. Accordingly,
the
Company has accrued $106,667 in liquidated damages and $16,450 interest on
the
liquidated damages as of September 30, 2007.
NOTE
4 -
Note
Payable
In
May
2007 the Company sold $187,000 principal of 7% secured promissory notes (the
“Notes”) and 500,000 Class A Common Stock purchase warrants (the “Warrants”)
(collectively, the “Securities”) for an aggregate purchase price of $170,000.
The Notes are due September 2007 and are secured by the Company’s assets. The
Warrants have an exercise price of $.18 per share and a term of five years.
In
connection with the sale of the Securities, the Company issued as broker’s fees:
(i) 83,111 common stock purchase warrants ($.18 exercise price, five year
term)
and (ii) a promissory note in the amount of $14,963. In addition, the Company
incurred legal fees of approximately $30,500 in connection with the sale
of the
Securities. These costs are being amortized over the life of the related
debt.
NOTE
5 -
Common
Stock
In
March
2006, the Company sold 4,510,000 shares of common stock valued at $451 to
the
founders of the Company.
In
March
2006, the Company issued 9,700,000 shares of common stock valued at $970
for
software development costs.
In
March
2006, the Company sold 2,083,333 shares of common stock to a private investor
for $50,000, and paid cash commissions of $5,000.
In
October 2006, the Company completed a private placement of 468,264 shares
of its
common stock for gross proceeds of $56,190.
APRECIA,
INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE
6 -
Preferred
Stock
The
Company’s Board of Directors may, without further action by the Company’s
stockholders, from time to time, direct the issuance of any authorized but
unissued or unreserved shares of Preferred Stock in series and at the time
of
issuance, determine the rights, preferences and limitations of each series.
The
holders of the Preferred Stock may be entitled to receive a preference payment
in the event of any liquidaton, dissolution or winding-up of the Company
before
any payment is made to the holders of the Common Stock. Furthermore, the
Board
of Directors could issue Preferred Stock with voting and other rights that
could
adversely affect the voting power of the holders of the Common
Stock.
NOTE
7
- Related
Party Transactions
In
September 2007 the Company agreed to provide its CEO with a full release
from
all non-compete and non-solicitation clauses in their agreements, either
written
and oral, and either explicit and implied, in echange for full settlement
of any
outstanding debts owed to the CEO that are unpaid. Accordingly, $135,000
(the
amount of indebtedness) was credited to additional paid-in capital in connection
with such release. In addition, the Company granted the CEO a non-exclusive,
worldwide, royalty-free right and license to use the Monitor Plus software
source code, and all derivative works therof, in return for agreement to
render
reasonable assistance in the winding down of the Compnay’s original business
plans.
NOTE
8 -
Commitments
and Contingencies
Legal
Proceedings
From
time
to time, the Company is named in legal actions in the normal course of business.
In the opinion of management, the outcome of these matters, if any, will
not
have a material impact on the financial condition or results of operations
of
the Company.
Item
2. Management’s Discussion and Analysis or Plan of
Operation
Some
of
the statements under “business”, “Risk Factors,” “Management's Discussion and
Analysis of Financial Condition and Results of Operations,” and elsewhere in
this Quarterly Report on Form 10-QSB constitute forward-looking statements.
These statements relate to future events or our strategy, future operations,
future financial position, future revenues, projected costs, prospects, and
the
plans and objectives of management and involve known and unknown risks,
uncertainties and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed, implied or inferred by these forward-looking statements.
Such factors include, among other things, those listed under "Risk Factors"
and
elsewhere in this Annual Report. In some cases, you can identify forward-looking
statements by terminology such as “may,” “will,” “should,” “could,” “would,”
“expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential” or “continue” or the negative of such terms and other
comparable terminology.
Although
we believe that the expectations reflected in the forward-looking statements
are
reasonable, we do not know whether we can achieve positive future results,
levels of activity, performance, or goals. Actual events or results may differ
materially. We undertake no obligation to update any of the forward-looking
statements after the date of this Annual Report to conform those statements
to
reflect the occurrence of unanticipated events, except as required by applicable
law.
General
Aprecia
Inc., (“we”, “Aprecia”, or the “Company”) was formed to become a leading edge
provider of applied artificial intelligence solutions for thoroughbred and
lottery applications. We developed MonitorPlus, an analysis tool designed to
help the thoroughbred racing and lottery industry by providing alerts when
potential wagering fraud or money laundering is detected. We have marketed
our
products through a partner/distributor primarily to regulatory bodies. Our
success was largely dependent on the market acceptance of MonitorPlus, efficient
utilization of our infrastructure, successful ongoing development of advanced
process technologies and generation of sufficient return on research and
development investments. Because of our inability to satisfy these objectives,
we have substantially curtailed our operations and there is substantial doubt
about our ability to continue as a going concern. As a result, we have explored
strategic and financial alternatives, including a sale of the Company. However,
at this time, there is no assurance that we will be successful in our efforts
to
sell Aprecia or obtain additional financing to fund our operations.
Going
Concern
The
Company incurred net losses of $233,385 for the three months ended September
30,
2007 and $1,206,475 for the period December 15, 2005 (inception) to September
30, 2007. In addition, the Company has a working capital deficiency of $958,757
and a stockholders’ deficiency of $915,977 at September 30, 2007. These factors
raise substantial doubt about the Company’s ability to continue as a going
concern.
There
can
be no assurance that sufficient funds required for us to sustain operations
will
be generated from operations or that funds will be available from external
sources such as debt or equity financings or other potential sources. The lack
of additional capital resulting from the inability to generate cash flow from
operations or to raise capital from external sources would force the Company
to
substantially curtail or cease operations and would, therefore, have a material
adverse effect on its business. Furthermore, there can be no assurance that
any
such required funds, if available, will be available on attractive terms or
that
they will not have a significant dilutive effect on the Company's existing
stockholders.
The
accompanying financial statements do not include any adjustments related to
the
recoverability or classification of asset-carrying amounts or the amounts and
classification of liabilities that may result should we be unable to continue
as
a going concern.
We
are
attempting to address our lack of liquidity by raising additional funds, either
in the form of debt or equity or some combination thereof. There can be no
assurances that we will be able to raise the additional funds we
requires.
Our
Management continues to meet operating deficits primarily through short-term
borrowings and is attempting to utilize other debt and dilutive and non-dilutive
equity financing alternatives to sustain operations. Whether such financing
will
be available as needed and the ultimate form of such financing is uncertain
and
the effects of this uncertainty could ultimately lead to
bankruptcy.
Accordingly,
as of the date of this Report, we are attempting to sell the Company; however,
we can offer no assurances that we will be successful, or, if we are successful,
what the terms of such sale will be.
Revenue
We
have
not generated revenues from planned principal operations and we are considered
a
development stage company as defined in Statement of Financial (“SFAS”) No. 7.
We originally had planned on becoming involved in the business of identifying
money laundering in various sporting venues, but have since dropped such plans
and are now seeking to sell the Company or obtain additional financings.
However, there is no assurance that we will achieve either goal.
Net
Loss
Our
net
loss was $233,385 for the quarter ended September 30, 2007 compared to $166,728
for the quarter ended September 30, 2006. Our net loss for the period December
15, 2005 (inception) to September 30, 2007 was $1,206,475.
Costs
and Expenses
Costs
and
expenses were $119,653 for the quarter ended September 30, 2007 compared to
$103,653 for the quarter ended September 30, 2006, and consisted primarily
of
officer’s compensation and software development. Costs and expenses for the
period December 15, 2005 (inception) to September 30, 2007 was $760,471.
Off-Balance
Sheet Arrangements
We
do not
have any off balance sheet arrangements that are reasonably likely to have
a
current or future effect on our financial condition, revenues, results of
operations, liquidity or capital expenditures.
Research
and Development
Research
and Development (“R&D”) expenses vary. We deem development of a product
complete once the product has been thoroughly reviewed and tested for
performance and reliability. R&D expenses can vary significantly depending
on the timing of product qualifications as costs incurred in production prior
to
qualification are charged to R&D.
Income
Taxes
The
Company has paid only minimum state taxes to date. The Company has unused
federal and state tax net operating loss carry-forwards of approximately
$1,000,000 as of September 30, 2007. Substantially all of the net operating
loss
carry-forwards expire in 2021.
Financing
Activities
In
March
2006, we entered into a Securities Purchase Agreement dated as of March 10,
2006, with four investors relating to the issuance and sale, in a private
placement exempt from the registration requirements of the Securities Act of
1933, as amended (the “1933 Act”), of 7% Convertible Debentures in the principal
amount of $500,000. Accrued interest on the convertible debentures as of June
30, 2007 was $45,694. The debentures are collateralized by all of the now owned
and hereafter acquired rights, title and interest of the Company’s assets. The
debentures mature 24 months from the closing. The debentures are convertible
at
the option of the holder into our common stock at the rate of $0.12 per share.
Expenses incurred in connection with the private offering of the debentures
were
$185,000. Such expenses are carried as deferred finance costs and are being
amortized over the term of the debt.
In
May
2007, we sold $187,000 principal of 7% secured promissory notes (the “Notes”)
and 500,000 Class A Common Stock purchase warrants (the “Warrants”)
(collectively, the “Securities”) for an aggregate purchase price of $170,000.
The Notes are due September 2007 and are secured by the Company’s assets. The
Warrants have an exercise price of $0.18 per share and a term of five years.
In
connection with the sale of the Securities, we issued as broker’s fees: (i)
83,111 common stock purchase warrants ($0.18 exercise price, five year term)
and
(ii) a promissory note in the amount of $14,963. In addition, we incurred legal
fees of approximately $30,500 in connection with the sale of the
Securities.
Access
to
capital markets has historically been important to us. Depending on market
conditions, we may issue registered or unregistered securities to raise capital
to fund a portion of our operations. However, as of the date of this Report,
we
are attempting to sell the Company but can offer no assurances that we will
be
successful, or, if we are successful, what the terms of such sale will be.
Employees
As
of
September 30, 2007, we had no full-time employees and one part-time employee,
our President, CEO and Interim CFO, Isidore Sobkowski. No employees are
presently represented by any labor unions. Our relations with Mr. Sobkowski
are
good.
Related
Party Transactions
In
September 2007, we agreed to provide our CEO, Mr. Sobkowski, with a full release
from all non-compete and non-solicitation clauses in his agreements, either
written and oral, and either explicit and implied, in exchange for full
settlement of any outstanding debts owed to him that are unpaid. In addition,
we
granted the CEO a non-exclusive, worldwide, royalty-free right and license
to
use the MonitorPlus software source code, and all derivative works therof,
in
return for agreement to render reasonable assistance in the winding-down of
the
Compnay’s original business plans. That winding-down continues as of the date of
this Report.
Recently
Issued Accounting Standards
In
February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities -
Including an amendment of FASB Statement No. 115.” Under SFAS No. 159, the
Company may elect to measure many financial instruments and certain other items
at fair value on an instrument by instrument basis subject to certain
restrictions. The Company may adopt SFAS No. 159 at the beginning of 2008.
The
impact of the adoption of SFAS No. 159 will be dependent on the extent to which
the Company elects to measure eligible items at fair value.
In
September 2006, the SEC staff issued Staff Accounting Bulletin (“SAB”) No. 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements.” The Company is required to
adopt SAB No. 108 by the end of 2007 and does not expect the adoption to have
significant impact on the Company’s financial position or results of
operations.
Also
in
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
No. 87, 88, 106 and 132(R).” Under SFAS No. 158, the Company is required to
initially recognize the funded status of a defined benefit postretirement plan
and to provide the required disclosures as of the end of 2007. The Company
does
not expect the adoption of SFAS No. 158 to have a significant impact on its
financial position or results of operations.
Also
in
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement.” SFAS No.
157 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS No. 157 applies under other accounting pronouncements
that require or permit fair value measurements. The Company is required to
adopt
SFAS No. 157 effective at the beginning of 2009.
In
June
2006, the FASB issued Interpretation NO. 48 (“FIN 48”), “Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109.” FIN
48 contains a two step approach to recognizing and measuring uncertain tax
positions accounted for in accordance with SFAS No. 109. The first step is
to
evaluate the tax position for recognition by determining if the weight of
available evidence indicated it is more likely than not that the position will
be sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as the largest
amount which is more than 50% likely of being realized upon ultimate settlement.
The Company is required to adopt FIN 48 effective at the beginning of 2008.
The
Company is evaluating the impact this statement will have on its consolidated
financial statements.
In
February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
Financial Instruments.” SFAS No. 155 permits fair value remeasurement for any
hybrid financial instrument that contains an embedded derivative that otherwise
would require bifurcation. As of March 1, 2007, the Company did not have any
hybrid financial instruments subject to the fair value election under SFAS
No.
155. The Company is required to adopt SFAS No. 155 effective at the beginning
of
2008.
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.”
SFAS No. 154 changes the requirements for the accounting for and reporting
of a
change in accounting principle. The Company adopted SFAS No. 154 at the
beginning of 2007. The adoption of SFAS No. 154 did not impact the Company’s
results of operation and financial condition.
Critical
Accounting Estimates
The
preparation of financial statements and related disclosures in conformity with
generally accepted accounting principles in the United States of America
(“GAAP”) requires our Management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues, expenses and related
disclosures. Estimates and judgments are based on historical experience,
forecasted future events and various other assumptions that the Company believes
to be reasonable under the circumstances. Estimates and judgments may vary
under
different assumptions or conditions. We evaluate our estimates and judgments
on
an ongoing basis. Management believes the accounting policies below are critical
in the portrayal of our financial condition and results of operations and
require management’s most difficult, subjective or complex
judgments.
Contingencies
The
Company is subject to the possibility of losses from various contingencies.
Considerable judgment is necessary to estimate the probability and amount of
any
loss from such contingencies. An accrual is made when it is probable that a
liability has been incurred or an asset been impaired and the amount of loss
can
re reasonably estimated. The Company accrues a liability and charges operations
for the estimated costs of adjudication or settlement of asserted and unasserted
claims existing as of the balance sheet date.
Income
Taxes
The
Company is required to estimate its provision for income taxes and amounts
ultimately payable or recoverable in numerous tax jurisdictions around the
world. Estimates involve interpretations of regulations and are inherently
complex. Resolution of income tax treatments in individual jurisdictions may
not
be known for many years after completion of any fiscal year. The Company is
also
required to evaluate the realizability of its deferred tax assets on an ongoing
basis in accordance with GAAP, which requires the assessment of the Company’s
performance and other relevant factors when determining the need for a valuation
allowance with respect to these deferred tax assets. Realization of deferred
tax
assets is dependent on the Company’s ability to generate future taxable
income.
Research
and Development
Costs
related to the conceptual formulation and design of products and processes
are
expenses as research and development when incurred. Determining when product
development is complete requires judgment by the Company. The Company deems
development of a product complete once the product has been thoroughly reviewed
and tested for performance and reliability.
Stock-based
Compensation
Under
the
provisions of SFAS No. 123(R), stock-based compensation cost is estimated at
the
grant date based on the fair-value of the award and recognized as expense
ratably over the requisite service period of the award. Determining the
appropriate fair-value model and calculating the fair value of stock-based
awards at the grant date requires considerable judgment, including estimating
stock price volatility, expected option life and forfeiture rates. The Company
develops its estimates based on historical data and market information which
can
change significantly over time. A small change in the estimates used can result
in a relatively large change in the estimated valuation.
The
Company will use the Black-Scholes option valuation model to value employee
stock awards. The Company will estimate stock price volatility based on an
average of its historical volatility and the implied volatility derived from
traded options on the Company’s stock. Estimated option life and forfeiture rate
assumptions will be derived from historical data. For stock based compensation
awards with graded vesting that were granted after 2005, the Company will
recognize compensation expense using the straight-line method.
Risk
Factors
There
Is Substantial Doubt As to Our Ability to Continue As a Going Concern Absent
The
Company Being Sold.
As
of
September 30, 2007, we had $3,752 in cash and equivalents.
This
balance was insufficient to satisfy our cash requirements for the remainder
of
2007 and as such we have had to obtain short-term financing from third parties.
However, such funding is insufficient to fund the Company as a going concern
and
as such we must obtain additional funding in a very short period of time, sell
the Company or cease operations. As of the date of this Report, Management
believes that the only viable option for the Company is to sell Aprecia to
a
third party and as such we have started to market the Company for sale. However,
we can offer no assurance that such effort will be success, of if we do indeed
sell the Company, what the terms of such sale would be. Absent the successful
sale of the Company, Management believes that we would have to cease operations,
liquidate the Company and/or file for bankruptcy, all of which would have a
material adverse effect on the Company, its business, operations, finances
and
common stock.
We
Lost Money For The Fiscal Year Ended June 30, 2007, Since Inception And For
The
Three Months Ended September 30, 2007, And Losses Will Continue In The Future
Unless We Sell The Company.
For
the
fiscal year ended June 30, 2007, we incurred a net loss of $762,986, for the
period December 15, 2005 (inception) to June 30, 2007, we incurred a net loss
of
$973,090, and for the three months ended September 30, 2007, incurred a net
loss
of $233,385. We anticipate that we will have to rely on external financing
for
all of our capital requirements. Future losses will continue unless we
successfully implement our business plan or sell the Company. Currently, we
are
dependent upon external financing to fund our operations. We have no assurance
that any third party will lend us funds given our current financial condition.
If such funds are not available, we will discontinue entirely our operations
unless we can sell the Company. If we incur any problems in any of these
scenarios, we will experience significant liquidity and cash flow problems
and
will have to cease operations unless we can sell the Company.
We
Rely On Our CEO And Will Be Harmed If He Leaves.
Our
ability to continue as a going concern until we are able to sell the Company
is
largely dependent on the efforts of Isidore Sobkowski, our President, Chief
Executive Officer and Interim Chief Financial Officer. If he becomes unable
or
unwilling to continue in that role, our prospects for a successful sale will
be
adversely affected.
We
Are Not Able To Generate Sufficient Cash Flows To Fund Our Operations And Make
Adequate Capital Investments.
Our
cash
flow from operations depends primarily on the volume of selling prices and
per
unit manufacturing costs. To develop new product and process technologies,
support future growth, achieve operating efficiencies and maintain product
quality, the Company would had to have made significant capital investments
in
facilities and capital equipment, research and development, and product and
process technology. We have from time to time utilized external sources of
financing. Access to capital markets has historically been very important to
us.
Depending on market conditions, we had planned to issue registered or
unregistered securities to raise capital to fund a portion of our operations.
However, given our current situation, we are unable to generate sufficient
cash
flows to fund our operations, make adequate capital investments or access
capital markets on acceptable terms, and this inability to do so will have
a
material adverse effect on our business and results of operations unless we
can
sell the Company.
There
Currently Is No Public Trading Market For Our Common
Stock.
From
inception, there has been no public trading market for our common stock and
there can be no assurance that an active trading market for our common stock
will ever develop. This could adversely affect shareholders’ ability to sell the
Company’s common stock in short time periods, or possibly at all. In addition,
we believe that factors such as quarterly fluctuations in our financial results
and changes in the overall economy or the condition of the financial markets,
could cause the price of our common stock to fluctuate
substantially.
Our
Net Operating Carryforwards May Be Limited.
Utilization
of the tax benefits of these carry-forwards are subject to limitations imposed
by Section 382 of the Internal Revenue Code. The determination of the
limitations is complex and requires significant judgment and analysis of past
transactions. Accordingly, some portion or all of our carry-forwards may not
be
available to offset any future taxable income.
Product
Development Is Not Possible At This Time.
We
had
planned to develop new products that complemented our traditional products
or
leveraged our underlying design or process technology. However, we were unable
to make significant investments in our product and process technologies. In
light of our present financial problems and the lack of capital, we are not
able
to further develop MonitorPlus or any other products unless and until such
funding is secured or the Company is sold. At this time, we cannot offer any
assurances that either will occur.
Our
Common Stock Is Deemed To Be “Penny Stock”, Which May Make It More Difficult For
Investors To Sell Their Shares Due To Suitability
Requirements.
Although
shares of our common stock have never traded in the public markets and we can
offer no assurances that it ever will, our common stock is nonetheless deemed
to
be “penny stock” as that term is defined in Rule 3a51-1 promulgated under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). Penny stocks
are stock:
|
· |
With
a price of less than $5.00 per
share;
|
|
· |
That
are not traded on a “recognized” national
exchange;
|
|
· |
Whose
prices are not quoted on a NASDAQ automated quotation system
(NASDAQ-listed stock must still have a price of not less than $5.00
per
share); or
|
|
· |
Stock
in issuers with net tangible assets less than $2,000,000 (if the
issuer
has been in continuous operation for at least three years) or $5,000,000
(if in continuous operation for less than three years), or with average
revenues of less than $6,000,000 for the last three
years.
|
Broker-dealers
dealing in penny stocks are required to provide potential investors with a
document disclosing the risks of penny stocks. Moreover, broker-dealers are
required to determine whether an investment in a penny stock is a suitable
investment for a prospective investor. these requirements may reduce the
potential market for the Company’s common stock by reducing the number of
potential investors. This may make it more difficult for investors in the
Company’s common stock to sell shares to third parties or to otherwise dispose
of them. This could cause our stock price to decline.
Shareholders
should be aware that, according to the SEC, the market for penny stocks has
suffered in recent years from patterns of fraud and abuse. Such patterns include
(i) control of the market for the security by one or a few broker-dealers that
are often related to the promoter or issuer; (ii) manipulation of prices through
prearranged matching of purchases and sales and false and misleading press
releases; (iii) “boiler room” practices involving high-pressure sales tactics
and unrealistic price projections by inexperienced sales persons; (iv) excessive
and undisclosed bid-ask differentials and markups by selling broker-dealers;
and
(v) the wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired consequent investor losses.
Our
Management is aware of the abuses that have occurred historically in the penny
stock market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
Management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our securities.
Item
3. Controls and Procedures
An
evaluation was carried out under the supervision and with the participation
of
the Company’s management, including its principal executive officer and
principal financial officer (one person), of the effectiveness of the design
and
operation of the Company’s disclosure controls and procedures (as defined in
Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period
covered by this Report. Based upon that evaluation, the principal executive
officer and principal financial officer (one person) concluded that those
disclosure controls and procedures were effective to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Commission’s rules and forms and that such
information is accumulated and communicated to the Company’s management,
including the principal executive officer and principal financial officer (one
person), as appropriate, to allow timely decision regarding
disclosure.
During
the quarterly period covered by this Report, there were no changes in the
Company’s internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings.
None.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
In
March
2006, we sold 4,510,000 shares of our common stock valued at $451 to the
founders of the Company. The proceeds were used for general working capital
purposes.
Also
in
March 2006, we issued 9,700,000 shares of our common stock valued at $970 for
software development costs.
Also
in
March 2006, we sold 2,083,333 shares of common stock to a private investor
in a
transaction exempt from the registration requirements of the Securities Act
of
1933, as amended, for $50,000, and paid cash commissions of $5,000. The proceeds
were used for general working capital purposes.
In
October 2006, we completed a private placement involving a transaction exempt
from the registration requirements of the Securities Act of 1933, as amended,
of
468,264 shares of its common stock for gross proceeds of $56,192, which were
used for general working capital purposes.
Item
3. Defaults Upon Senior Securities.
Since
a
registration statement covering the common stock to be issued upon conversion
of
the convertible debentures issued by the Company in March 2006 and described
above was not filed within 90 days of the closing, the Company is in default
under the such debentures. Accordingly, the Company is required to pay
liquidated damages equal to 2% of the principal amount of $500,000 per month
plus interest at the rate of 18% if the Company fails to pay the liquidated
damages within seven days. As such, the Company has accrued $106,667 in
liquidated damages and $16,450 in interest on the liquidated damages as of
June
30, 2007.
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
a. |
Exhibits
pursuant to Regulation S-K:
|
DESIGNATION
OF EXHIBIT AS SET FORTH IN ITEM 601 OF REGULATION S-B
|
|
DESCRIPTION
|
|
LOCATION
|
|
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3.1
|
|
Articles
of Incorporation
|
|
Incorporated
by Reference to the Registration Statement on Form SB-2 filed on
November
13, 2006 (File No. 333-138625).
|
|
|
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3.2
|
|
Bylaws
|
|
Incorporated
by Reference to the Registration Statement on Form SB-2 filed on
November
13, 2006 (File No. 333-138625).
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|
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|
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4.1
|
|
Securities
Purchase Agreement dated March 10, 2006 by and between the Company
and
Alpha Capital Aktiengesellschaft, Double U Master Fund LP, Tobanna
Enterprises Corp., and CMS Capital
|
|
Incorporated
by Reference to Amendment No. 1 to the Registration Statement on
Form SB-2
filed on December 27, 2006 (File No. 333-138625).
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4.2
|
|
7%
Convertible Debenture dated March 10, 2006 issued to Alpha Capital
Aktiengesellschaft
|
|
Incorporated
by Reference to Amendment No. 1 to the Registration Statement on
Form SB-2
filed on December 27, 2006 (File No. 333-138625).
|
|
|
|
|
|
4.3
|
|
Registration
Rights Agreement dated March 10, 2006 by and between the Company
and Alpha
Capital Aktiengesellschaft, Double U Master Fund LP, Tobanna Enterprises
Corp., and CMS Capital
|
|
Incorporated
by Reference to Amendment No. 1 to the Registration Statement on
Form SB-2
filed on December 27, 2006 (File No. 333-138625).
|
|
|
|
|
|
4.4
|
|
Security
Agreement dated March 10, 2006 by and between the Company and Alpha
Capital Aktiengesellschaft, Double U Master Fund LP, Tobanna Enterprises
Corp., and CMS Capital and Michael Hartstein, as collateral
agent
|
|
Incorporated
by Reference to Amendment No. 1 to the Registration Statement on
Form SB-2
filed on December 27, 2006 (File No. 333-138625).
|
|
|
|
|
|
4.5
|
|
Collateral
Agent Agreement dated March 10, 2006 by and between the Company
and Alpha
Capital Aktiengesellschaft, Double U Master Fund LP, Tobanna Enterprises
Corp., and CMS Capital and Michael Hartstein, as collateral
agent
|
|
Incorporated
by Reference to Amendment No. 1 to the Registration Statement on
Form SB-2
filed on December 27, 2006 (File No. 333-138625).
|
|
|
|
|
|
4.6
|
|
7%
Convertible Debenture dated March 10, 2006
|
|
Incorporated
by Reference to Amendment No. 1 to the Registration Statement on
Form SB-2
filed on December 27, 2006 (File No. 333-138625).
|
|
|
|
|
|
4.7
|
|
7%
Convertible Debenture dated March 10, 2006
|
|
Incorporated
by Reference to Amendment No. 1 to the Registration Statement on
Form SB-2
filed on December 27, 2006 (File No. 333-138625).
|
|
|
|
|
|
4.8
|
|
7%
Convertible Debenture dated March 10, 2006
|
|
Incorporated
by Reference to Amendment No. 1 to the Registration Statement on
Form SB-2
filed on December 27, 2006 (File No. 333-138625).
|
|
|
|
|
|
10.1
|
|
Asset
Purchase Agreement by and between Isidore Sobkowski and the Company
dated
March 6, 2006
|
|
Incorporated
by Reference to Amendment No. 1 to the Registration Statement on
Form SB-2
filed on December 27, 2006 (File No.
333-138625).
|
DESIGNATION
OF EXHIBIT AS SET FORTH IN ITEM 601 OF REGULATION S-B
|
|
DESCRIPTION
|
|
LOCATION
|
|
|
|
|
|
10.2
|
|
Voting
Agreement by and between Michael Hartstein, Solomon Lax and Isidore
Sobkowski
|
|
Incorporated
by Reference to Amendment No. 1 to the Registration Statement on
Form SB-2
filed on December 27, 2006 (File No. 333-138625).
|
|
|
|
|
|
10.3
|
|
Subscription
Agreement by and among the Company, Alpha Capital Anstalt, and
Harborview
Master Fund L.P.
|
|
Incorporated
by Reference to the Company’s Current Report of Form 8-K filed on May 30,
2007 (File No. 333-138625).
|
|
|
|
|
|
10.4
|
|
Form
of Warrant issued by the Company to each of Alpha Capital Anstalt,
and
Harborview Master Fund L.P.
|
|
Incorporated
by Reference to the Company’s Current Report of Form 8-K filed on May 30,
2007 (File No. 333-138625).
|
|
|
|
|
|
10.5
|
|
Form
of Secured Note issued by the Company to each of Alpha Capital
Anstalt and
Harborview Master Fund L.P.
|
|
Incorporated
by Reference to the Company’s Current Report of Form 8-K filed on May 30,
2007 (File No. 333-138625).
|
|
|
|
|
|
10.6
|
|
Consent
Agreement by and among the Company, Alpha Capital Anstalt, and
Harborview
Master Fund L.P.
|
|
Incorporated
by Reference to the Company’s Current Report of Form 8-K filed on May 30,
2007 (File No. 333-138625).
|
|
|
|
|
|
31.1
|
|
Certification
of President and Chief Executive Officer (one person) pursuant
to Rule
13a-14(a)/15d-14(a) of the Exchange Act
|
|
Provided
Herewith
|
|
|
|
|
|
32.1
|
|
Certification
of President and Chief Executive Officer (one person) pursuant
to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
Provided
Herewith
|
b.
Reports
on Form 8-K:
None.
SIGNATURES
In
accordance with the requirements of the Exchange Act, the Registrant has caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
|
|
APRECIA,
INC.
|
|
|
|
December
12, 2007
|
By: |
/s/
Isidore Sobkowski
|
|
Isidore
Sobkowski, President, Chief Executive Officer
and
Interim Chief Financial Officer
|