10-K 1 sept30200410ksb.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2004 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to________ Commission file number 00030074 APO HEALTH, INC. (Exact name of registrant as specified in its charter) Nevada 86-0871787 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 3590 Oceanside Rd. Oceanside, New York 11575 (Address of principal executive offices) (Zip Code) (800) 365-2839 (Registrant's telephone number including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $.0002 Per Share (Title of Class) Indicate by check mark, whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 |_| Indicate by check mark, if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes |_| No |X| The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter was $3,683,502.61. The number of shares outstanding of each of the registrant's classes of common stock as of December 15, 2004 was 35,921,045 shares. APO HEALTH, INC. FORM 10-K FISCAL YEAR ENDED SEPTEMBER 30, 2004 TABLE OF CONTENTS Page Part I Item 1. Business 1 Item 2. Properties 3 Item 3. Legal Proceedings 3 Item 4. Submission of Matters to a Vote of Security Holders 4 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 5 Item 6. Selected Financial Data 6 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 10 Item 8. Financial Statements and Supplementary Data 10 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 10 Item 9A. Controls and Procedures 10 Item 9B. Other Information 10 Part III Item 10. Directors and Executive Officers of the Registrant 11 Item 11. Executive Compensation 13 Item 12. Security Ownership of Certain Beneficial Owners and Management 14 Item 13. Certain Relationships and Related Transactions 14 Item 14. Principal Accounting Fees and Services 14 Part IV Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 15 Signatures 16 PART I ITEM 1. BUSINESS History Pursuant to a Tax-Free Reorganization Agreement effective June 13, 2001, InternetFinancialCorp.com, Inc. ("IFAN"), a Nevada corporation, acquired 3,046,300 of the 3,209,563 outstanding shares of common stock of APO Health, Inc., which represented approximately 91% of the then outstanding share of common stock. IFAN, an inactive company, subsequently became the sole owner and operator of the business and properties of APO Health, Inc., (collectively the "Company"). Business of the Company The present operations of the Company through its subsidiaries, APO Health Inc., a New York corporation and Universal Medical Distributors, Inc., ("Universal") a distributor and supplier of disposable medical, dental, veterinary supplies, health and beauty aids, and pharmaceuticals. These products include medical and dental disposable items such as syringes, gauze, gowns, facemasks and instruments. Management has elected to maintain its low margin wholesale business and at the same time increase its market share in school, retail medical and dental areas. To attain that goal, the Company has introduced its first institutional retail catalogue and in January 2005, the Company plans to introduce its first physician medical catalogue. The current distribution of revenue is 91% from wholesale accounts and 9% from retail accounts. The goal of the Company with the introduction of the two new catalogues is to increase the higher gross profit retail division to 25% of total revenue. Products and Services Currently, the Company distributes approximately 5,000 different products. New products are constantly added as the needs of the Company's customers increase. The Company obtains its products from vendors throughout the world and does not manufacture any products except for its emergency dental kits. Although the Company does not have any contractual arrangements with suppliers, the Company believes that there are adequate alternative suppliers for any product it sells. Sales and Marketing The Company's products are sold directly by Company employees, through mail order, and by one outside, independent sales representative. The Company's sales organization presently consists of five persons, including Dr. Stahl, the Company's Chief Executive Officer, who oversees a combination of direct salespersons and the one independent sales representatives. The Company's marketing approach attempts to capitalize on its ability to procure products throughout the world at favorable prices and to resell them to its customers. Potential Impact of Changing Economic Factors in the Health Care Markets The health care industry has been typified in recent years by strict cost containment measures imposed by federal and state governments, private insurers and other "third party" payers of medical costs. In response to these pressures, virtually all segments of the health care market have become extremely cost sensitive and in many cases hospitals and other health care providers have become affiliated with purchasing consortiums, which obtain large quantities of products at the lowest possible cost. These factors in combination have had an adverse impact upon smaller suppliers and manufacturers, such as the Company, which are either unable to supply the large quantities sought by the purchasing consortiums or which are unable to respond to the need for lower product pricing. Although management believes that its planned expansion program will enable it to meet the demand for large quantity orders, and despite management's belief that the dramatic increased demand for safety oriented 1 products, such as the disposable products offered by the Company, will offset these factors, there can be no assurance that the Company will be able to overcome the negative impact of these conditions in the health care marketplace. Potential Impact of FDA and Government Regulation Some of the Company's products may be regulated as medical devices by the federal Food and Drug Administration (the "FDA") pursuant to the federal Food and Drug Cosmetics Act (the "Act") and are, or may be, subject to regulation by other federal and state governmental agencies. The FDA has comprehensive authority to regulate the development, production, distribution and promotion of medical devices. Furthermore, certain states impose additional requirements on the distribution of medical devices. The FDA may require pre-market approval of some of the Company's proposed products, requiring extensive testing and a lengthy review process. The cost of complying with present and future regulations may be significant. Furthermore, the regulatory approval process and attendant costs may delay or prevent the marketing of products developed by the Company in the future. The Mandatory Device Reporting ("MDR") regulation obligates manufacturers, including distributors such as the Company, to provide information to the FDA on injuries alleged to have been associated with the use of a product or certain product failures which could cause injury. The FDA is empowered to take action against manufacturers of regulated products including both civil and criminal remedies, and may also prohibit or suspend the marketing of products if circumstances so warrant. Any such action by the FDA could result in a disruption of the Company's operations for an undetermined time. Product Liability: Cost and Availability of Insurance Providers of medical products to hospitals and other health care institutions may encounter liability for damages to patients in the event that their products prove to be defective. Certain of the Company's products and proposed products will be utilized in medical procedures where the Company could be subject to claims for injuries alleged to have resulted from the use of its products. Recent developments in the insurance industry have reduced the availability and increased the cost of liability insurance coverage. At present, the Company has no product liability insurance. Lack of Patent Protection At present, the Company does not rely upon patent protection for any of its products and such protection is not believed to be essential by management because of the character of its products. Furthermore, there is little likelihood that it will develop patentable products or processes in the foreseeable future. In the absence of such protection, the Company will primarily rely upon trade secrets and proprietary techniques, where applicable, to attain or maintain any commercial advantage. There is no assurance that competitors will not independently develop and market, or obtain patent protection for products similar to those designed or produced by the Company, and thus negate any advantage of the Company with respect to any such products. Even if patent protection becomes available to the Company, there can be no assurance that such protection will be commercially beneficial. Competition The medical, dental and veterinary products supply business is intensely competitive. At present, the Company estimates that there are over 40 companies whose products compete with many of the Company's present and proposed products. These companies range from major multinational companies to enterprises that are smaller in size and financial ability than the Company. The Company's present and prospective competitors also include the numerous manufacturers and suppliers of reusable medical products and manufacturers of raw materials used by the Company. Many of the Company's competitors have far greater financial resources, larger staffs, and more established market recognition in both the domestic and international markets than the Company. Dependence Upon Third Party Manufacturers/Suppliers The Company does not directly manufacture any of the products it presently sells. The products distributed by the Company are, for the most part, manufactured by third parties in the United States, the Far East, Mexico and Canada. In general, the Company does not have long-term contracts with its manufacturers. Although the Company believes alternative sources for virtually all of its products are readily available, there can be no assurance that the available supply from such alternative sources would be adequate to meet the demand for production that could result from any significant disruption in the current manufacturers and suppliers of the Company's products. 2 Foreign Manufacturing Foreign manufacturing is subject to a number of risks, including transportation delays and interruptions, political and economic disruptions, the imposition of tariffs and similar import/export controls and changes in governmental policies. Although, to date, the Company has not experienced any material adverse effects due to such risks, there can be no assurance that such events will not occur in the future with the result of possible increases in product costs and/or delays in product delivery which would, in all likelihood, result in the loss of revenues and goodwill by the Company. Employees The Company, including its two subsidiaries, APO Health and Universal, employs a total of 11 persons; two executive personnel; four sales persons; three clerical and administrative personnel; and two warehouse employees. The Company's employees are not represented by any collective bargaining organization. The Company believes its relationship with its employees is good. ITEM 2. PROPERTIES The Company's offices are located at 3590 Oceanside Road, Oceanside, New York. The premises contain approximately 9,800 square feet under a five-year lease (the "Lease") which expired on November 30, 2004 (the "Lease Term"). The Lease Term has been extended for an additional five years through November 30, 2009. These premises are occupied under a Lease between the landlord, who is an unaffiliated third party, and an affiliated company PJS Trading, Corp., a New York corporation ("PJS") owned by Dr. Stahl formed for the express purpose of entering into the Lease. The Company occupies these premises under an oral agreement with PJS and Dr. Stahl whereby the Company has agreed to discharge all of the Lease obligations with the landlord. The annual lease payment under the new lease starts at approximately $77,300 per year and increases to $80,000 in the fifth year with additional increases for real estate taxes over the Lease Term. Neither PJS nor Dr. Stahl derives any profit from the Lease nor will they during the balance of the Lease Term. Management of the Company believes the current facility is adequate for its current operations. Effective December 1, 2004, the Company has subleased for a one year period approximately 2,000 square feet of the warehouse space at approximately $30,000 per year. ITEM 3. LEGAL PROCEEDINGS The Proctor & Gamble Company v. Xetal, et al, CaseNo. 04 Civ. 28250 (DRH), which matter is pending in the United States District Court for the Eastern District of New York. This lawsuit is captioned "Xetal, Inc., d/b/a APO Health, Inc and Universal Medical Distributors, Inc." Xetal Inc. was the former parent of both APO Health Inc. and Universal Medical Distributors, Inc. Xetal Inc., (now known as Sickbay Media Services, Inc.) has had no involvement or interest in either the Company or Universal for four years. On or about July 7, 2004, APO Health, Inc. was served with process in a suit commenced by The Proctor & Gamble Company ("P&G") in the US District Court for the Eastern District of New York, against it and a number of other parties. P&G claimed that the Company, as well as others were involved in the sale of Pantene and Head and Shoulders products which were not manufactured by P&G. The Company purchased several shipments of these products abroad and unbeknownst to the Company, some non P&G products were included in these shipments. The Company has cooperated with P&G as well as the federal regulatory agencies and has supplied P&G with all of its documentation in order to assist P&G in its efforts to remove these products from the marketplace and to allow it to trace back the source of these improper products. In the lawsuit, P&G is seeking, among other relief, a request for a temporary and permanent injunction from selling such products. The Company continues to cooperate with and assist the Food and Drug Administration in its inquiry and has undertaken a voluntary recall of these products. As a result of the Company's continuing cooperation with P&G and the FDA and its lack of knowing culpability, its counsel believes that this proceeding will conclude without any adverse consequence to the Company. 3 On or about December 3, 2004, APO Health, Inc. and Dr. Jan Stahl were served with process in a suit commenced by Alcoa, Inc. ("Alcoa") in the U.S. District Court for the Eastern District of New York, against them and a number of other parties. Alcoa claimed that the Company, as well as others, was involved in the sale of products which were not manufactured by Alcoa. The Company purchased several shipments of these products abroad and unbeknownst to the Company, some non-Alcoa products were included in these shipments. The Company has cooperated with Alcoa as well as the federal regulatory agencies and has supplied Alcoa with all of its documentation in order to assist Alcoa in its efforts to remove these products from the marketplace and to allow it to trace back the source of these improper products. In the lawsuit Alcoa is seeking, among other relief, a request for a temporary and permanent injunction from selling such products. The Company continues to cooperate with and assist the Food and Drug Administration in its inquiry and has undertaken a voluntary recall of these products. As a result of the Company's continuing cooperation with Alcoa and the FDA and its lack of knowing culpability, its counsel believes that this proceeding will terminate without any adverse consequence to the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There was no matter submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. 4 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company's common stock is currently quoted on NASDAQ's OTC Bulletin Board under the symbol "APOA." The high and low prices of the common stock for the quarterly periods of the two years ended September 30, 2004 are as follows: Common ------ Quarter Ended High Low ------------- ----- ----- December 31, 2002 $0.650 $0.015 March 31, 2003 0.080 0.031 June 30, 2003 0.060 0.260 September 30, 2003 0.090 0.053 December 31, 2003 0.050 0.040 March 31, 2004 0.180 0.050 June 30, 2004 0.150 0.090 September 30, 2004 0.090 0.050 As of December 15, 2004, there were approximately 351 holders of record of the Company's common stock. Dividend Policy The Company has not adopted any policy regarding the payment of dividends on its common stock. The Company does not intend to pay any cash dividends on its common stock in the foreseeable future. All cash resources are expected to be invested in developing the Company's business. There are no restrictions that materially limit the Company's ability to pay cash dividends. Recent Sales of Unregistered Securities During the fiscal year ended September 30, 2004, the Company issued a total of 2,567,000 shares of common stock for consulting, compensation and professional services valued at $148,350. These issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. 5 On April 1, 2004, the Company issued a total of 1,000,000 restricted shares of common stock with the Company receiving net proceeds of $90,000. Those issuances were considered exempt from registration by reason of Section 4(2) of the Securities Act of 1933, as amended. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data as of and for each of the years in the five year period ended September 30, 2004. Periods prior to 2002 have been restated to give effect for discontinued operations. Statement of Operations Data:

Fiscal ~~Year~~Years Ended September 30, ---------------------------------------------------------------------------------- 2004 2003 2002 2001 2000 ~~1999~~ ---- ---- ----- ---- ---- Revenue $35,918,887 $47,448,232 $31,998,836 $ 24,143,949 $ 28,882,347 ~~$30,747,128~~ Gross Profit 1,163,017 1,978,024 2,198,162 2,524,717 2,763,830 ~~2,579,870~~ Selling, General and Administrative Expenses 2,658,149 2,323,949 2,515,907 2,303,284 2,648,967 ~~2,432,167~~ Net Income (loss) From continuing operations (1,045,132) (517,256) (247,521) (157,899) (199,257) ~~5,104~~ Discontinued operations 291,498 35,839 16,932 ~~266,120 Extraordinary item -- -- -- -- --~~ Net Income (Loss) (1,048,828) (517,256) 43,977 (122,060) (240,900) ~~271,224~~ Earnings per common From continuing operations $(.03) $(.02) $(.01) $(.01) $(.02) ~~$.00~~ Discontinued operations ~~$.01~~- ~~$.00~~- $~~.00~~ $.0501 ~~Extraordinary item~~ $~~.00~~ $.00 $~~(.00)~~ $.00 Earnings per Common Share $(.03) $(.02) $.00 $(.01) $(.02) ~~$.05~~ Weighted Average Shares Outstanding 34,338,680 27,003,847 23,864,383 21,532,814 13,217,660 5Balance Sheet Data: As of September 30,~~261~~ ---------------------------------------------------------------------------------- 2004 2003 2002 2001 2000 ---- ---- ----- ---- ---- Total Assets $2,~~432~~538,748 $3,698,086 $4,774,786 $ 4,115,102 $ 4,423,752 Total Liabilities 2,126,362 2,475,222 3,334,602 2,888,626 3,546,184 Stockholders' Equity 412,386 1,222,864 1,440,184 1,226,476 877,568

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements This annual report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This Act provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about themselves so long as they identify these statements as forward looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. All statements other than statements of historical fact made in this annual report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. Forward-looking statements reflect management's current expectations and are inherently uncertain. The Company's actual results may differ significantly from management's expectations. 6 Results of Operations Comparison of Fiscal 2004 and 2003 Revenues for the year ended September 30, 2004 was $35,918,887 compared to $47,448,232 for the year ended September 30, 2003. This was a decrease of $11,529,345 or 24.3%. The decrease was entirely due to the decrease in sales of products sold through the Company's wholesale division. The cost of products that the Company had previously imported from both Canada and Europe increased substantially as the United States dollar declined against the Canadian dollar, British pound and the Euro. Because of the price increases in United States dollar terms, the Company was not able to pass along its increased costs to the wholesalers, and therefore, the Company reduced or eliminated its purchases on those products. As a result, overall revenues for the Company declined. Retail sales by the Company were stable from 2003 to 2004. The Company is in the process of preparing a new catalogue of medical supplies which will be distributed to schools, doctors and medical clinics. The Company anticipates that the catalogue will be completed prior to December 2004, and that it will be distributed in January 2005. The gross profit on products included in the catalogue are expected to be from approximately 20% to 40% and management expects the average margin to be approximately 25% on new sales from the catalogue. The cost of revenues for the year ended September 30, 2004, was $34,305,870 compared to $45,470,208 for the year ended September 30, 2003. This was a decrease of $11,164,338 or 24.5%. Included in the cost of revenues was approximately $475,000 for products the Company purchased and had to be recalled and destroyed after it was determined that the products were counterfeit. The gross profit margin for the year ended September 30, 2004, was 4.5% compared to 4.2% for the year ended September 30, 2003. The increase in profit margin is directly related to the Company's decision to reduce purchases from Canada and Europe where the Company would be unable to sell those products at a profit. Selling expenses for the year ended September 30, 2004 were $551,230 compared to $576,250 for the year ended September 30, 2004, a decrease of $25,020 or 4.3%. Commission expense increased from $72,390 to $133,128, an increase of $63,738 representing sales generated by outside sources to augment the internal sales force. Freight costs increased from $242,730 to $296,637, an increase of $53,907 due to increases based on fuel surcharges. Advertising and related costs were $79,575 for the year ended September 30, 2004, a decrease of $103,126 from $182,701 for the year ended September 30, 2003. The Company reduced spending in anticipation of the new catalogue it expects to be completed in January 2005. Advertising and related costs are expected to increase by approximately $75,000 in fiscal 2005. Travel and entertainment expense for the year ended September 30, 2004, declined by $35,200 from the year ended September 30, 2003. General and administrative expenses for the year ended September 30, 2004 were $2,106,919, an increase of $359,220 over the year ended September 30, 2003. In the fourth quarter of the fiscal year ended September 30, 2004, the Company recorded bad debt expense of $681,901 which included writing off advances and increasing the allowance for doubtful accounts directly related to the counterfeit products that the Company purchased and resold.. Compensation decreased by $185,165 in 2004 which was entirely attributable to the fact that in 2003 there was a bonus of $156,732 to one of the officers of the Company. For the year ended September 30, 2004 no bonuses were declared. In 2003, consulting fees related to possible merger and acquisition activities were $250,200. In 2004, total consulting fees decreased to $102,100, a decrease of $148,000. These two items accounted for the entire decrease in general and administrative expenses excluding bad debt expense. All other items of general and administrative expense exhibited minor increases or decreases. There was a final settlement of litigation against the Company in January 2004, and as a result, the Company was reimbursed $92,755 by its insurance carrier for all legal expenses it had previously expended. Interest expense for the year ended September 30, 2004 was $96,451, an increase of $3,985 from the year ended September 30, 2003 .The Company has a financing agreement (see note 4 to the financial statements) which provides for a maximum line of credit of $1,000,000 where collections are applied against the line of credit on a daily basis and proceeds from the line of credit are only taken when needed to pay down liabilities. As a result the average daily balance outstanding on the line of credit increased slightly from the prior year. The financing agreement allows the Company greater flexibility in its ability to finance increased sales and additional inventory. 7 Comparison of Fiscal 2003 and 2002 Revenues for the year ended September 30, 2003 were $47,448,232 compared to $31,998,836 for the year ended September 30, 2002, an increase of $15,449,396 (48.3%). The increase in revenues is attributable to the Company's wholesale business as several products that the Company distributed were in highdemand. Gross margins for the year ended were $1,978,024 compared to $2,198,162 for the year ended September 30, 2002, a decrease of $220,138 (10.0%). The gross margin for the year ended September 30, 2003 was 4.2% compared to 6.9% for the year ended September 30, 2002. The margins declined as some of the wholesale products were generating a gross profit of only 1% to 1.5% because of rising costs for those products without the ability to raise prices. In addition, the 24% decline in the value of the United States dollar against the Canadian dollar and the Euro has affected profit substantially. The margins on retail sales also declined due to increases in product costs and increased competition which did not allow the Company to raise prices. Operating expenses which include both selling and general and administrative expenses for the year ended September 30, 2003 were $2,323,949, compared to $2,515,907 for the year ended September 30, 2002. This was a decrease of $191,950 (7.6%). Selling expenses for the year ended September 30, 2003, were $576,250, compared to $842,212 for the year ended September 30, 2002. This was a decrease of $265,962 (31.5%). Advertising costs including catalogues and other printed materials decreased by approximately $260,000 in the year ended September 30, 2003. The Company eliminated its outside service that sent verified numbers to which it could fax advertising materials, saving approximately $8,000 per month or $96,000 annually. All other selling expenses had minor changes from year to year, decreasing by approximately $6,000. General and administrative expenses for the year ended September 30, 2003 were $1,742,699, compared to $1,673,695 for the year ended September 30, 2002. This was an increase of $74,004 (4.4%). Consulting expenses increased from $81,642 to $250,200, an increase of $168,558. The Company was actively searching for possible combinations or acquisitions during the year ended September 30, 2003. The compensation for financial consultants was paid in common stock of the Company which did not affect the Company's cash flow. Professional expenses, including legal expenses, were $46,220 in the year ended September 30, 2003 compared to $142,405 for the year ended September 30, 2002, a decrease of $96,185. The Company's insurance carrier is defending a class action lawsuit in the State of Illinois; therefore, legal fees incurred by the Company have declined substantially. Officer's compensation for fiscal 2003 increased to $533,956 from $489,446 in fiscal 2002, an increase of $44,510, which includes bonuses of $156,732 in fiscal 2003 compared to $110,000 in fiscal 2002. All other expenses decreased by approximately $18,369 with no significant change in any one expense. Liquidity and Capital Resources As of September 30, 2004, the Company had working capital of $396,262, a decrease of $828,099 from the Company's working capital at September 30, 2003. The Company's loss from continuing operations of $1,048,828 for the year ended September 30, 2004 was funded by the decrease in working capital and increase in cash flows from operations for the year ended September 30, 2004 which was $473,951. At September 30, 2004 the Company has a $1,000,000 credit facility of which approximately $400,000 is unused. The entire loss for the year ended September 30, 2004 was caused by counterfeit goods the Company unintentionally acquired which are included in cost of sales ($475,000) and provision for doubtful accounts and the write-off of bad debts ($680,000) from the sale of those products.. Based upon the above factors, the Company believes that it has sufficient funds for operations for the next fiscal year. Off-Balance Sheet Arrangements The Company does not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on its financial condition, revenues, results of operations, liquidity or capital expenditures. 8 Contractual Obligations As of September 30, 2004, the Company had the following contractual obligations: Payments due by period -------------------------------------------------- Less than More than Total 1 Year 1-3 Years 3-5 Years 5 Years ----- --------- --------- --------- ------ Operating Lease Obligations $387,175 $76,812 $141,796 $155,230 $13,337 Critical Accounting Policies Cash and cash equivalents. For purposes of the statements of cash flows, cash equivalents include all highly liquid investments with original maturities of three month or less. Revenue recognition occurs when products are shipped. Advertising is expensed as incurred. For the years ended September 30, 2004, 2003 and 2002 advertising expense was $25,730, $72,029, $303,849, respectively. Merchandise inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Property and equipment is stated at cost. Depreciation is provided for on the straight-line method over the useful estimated life. The cost of maintenance and repairs is expensed as incurred. The Company follows Statement of Financial Accounting Standards No. 144, Impairment of Long-lived Assets, by reviewing such assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Shipping and handling is expensed as incurred. Shipping and handling is included in selling expense was $296,637, $242,730, and$272,036 for the years ended September 30, 2004, 2003 and 2002, respectively. Income taxes are computed using the tax liability method of accounting, whereby deferred income taxes are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences reverse. Earnings Per Share. Basic net income per share has been calculated based on the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing the net income by the weighted average number of common shares outstanding plus potential dilutive securities. Effective to the June 13, 2001 acquisition, the weighted average number of shares of common stock have been retroactively restated to give effect for the 5.94 to 1 stock split. Reclassifications. Certain reclassifications of certain prior year amounts were made to conform to the current year presentation. Estimates and assumptions. Preparing financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses at the balance sheet date and for the period then ended. Actual results could differ from these estimates. 9 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Changes in United States interest rates would affect the interest earned on our cash and cash equivalents. Based on our overall interest rate exposure at September 30, 2004, a near-term change in interest rates, based on historical movements, would not materially affect the fair value of interest rate sensitive instruments. Our debt instruments have fixed interest rates and terms and, therefore, a significant change in interest rates would not have a material adverse effect on our financial position or results of operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial information required by this Item is attached hereto at the end of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. As of the end of the period covered by this report, our management conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. There was no significant change our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation. ITEM 9B. OTHER INFORMATION None. 10 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the names, ages and business experience of the executive officers and directors of the Company. All information is as of September 30, 2004. Name Age Position Dr. Jan Stahl 56 Chairman, Chief Executive Officer, Acting Chief Financial Officer, Secretary, Director Kenneth Levanthal 49 Director Dr. Jan Stahl is a New York State licensed dentist. Dr. Stahl founded APO Health, the Company's wholly owned subsidiary, in 1987, and has been its Chairman, Chief Executive Officer, Secretary and a Director since such time. Dr. Stahl's primary responsibilities for the Company are in the area of sales and marketing. Prior to founding the Company, Dr. Stahl was a practicing dentist in the state of New York. Kenneth Levanthal founded Universal Medical Distributors, Inc. ("Universal"), a subsidiary of the Company, in 1985 and has served as its president since such time. Prior to founding Universal, Mr. Levanthal had been employed as Executive Vice President of Medardo Corp., a division of Omnicare, Inc., having been employed by Medardo Corp. since 1997, prior to its acquisition by W.R. Grace & Co. (the parent company of Omnicare, Inc.). Omnicare consists of various health care companies with Medarco specializing in the sale of veterinary products. 11 Family Relationships There are no family relationships between or among the Company's directors, executive officers or persons nominated or charged by the Company to become directors or executive officers. Involvement in Legal Proceedings During the past five years, none of the following occurred with respect to the Company's directors or executive officers: (1) no petition under the federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such persons; (2) there has been no petition under the federal bankruptcy laws or any state insolvency law filed by or against, or a receiver, fiscal agent or similar officer appointed by a court for the business or property of any partnership in which such persons were a general partner at or within two years before the time of such filing, or any corporation or business association of which such persons were executive officers at or within two years before the time of such filing; (3) no such persons were convicted in a criminal proceeding or are a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (4) no such persons were the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting their involvement in any type of business practice, or in securities or banking or other financial institution activities; and (5) no such persons were found by a court of competent jurisdiction in a civil action by the Securities and Exchange Commission or by the Commodity Futures Trading Commission to have violated any federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated. Audit Committee Financial Expert The Company does not have an audit committee financial expert (as defined in Item 401 of Regulation S-K) serving on its Board of Directors. The Company has not yet employed an audit committee financial expert on its Board due to the inability to attract such a person. Code of Ethics The Company has adopted a Code of Ethics and Business Conduct that applies to all of its officers, directors and employees. The Code of Ethics has been filed with this annual report as Exhibit 14.1. Upon request, the Company will provide to any person without charge a copy of its Code of Ethics. Any such request should be made to Attn: Dr. Jan Stahl, APO Health, Inc., 3590 Oceanside Rd., Oceanside, New York 11575. The Company's telephone number is (800) 365-2839. The Company is in the process of building a section of its website at www.apohealth.com where its Code of Ethics will be available to investors. Compliance with Section 16(a) of the Exchange Act Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers and persons who beneficially own more than ten percent of a registered class of the Company's equity securities to file with the SEC initial reports of ownership and reports of change in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on the review of copies of such reports furnished to the Company and written representations that no other reports were required, the Company believes that during the fiscal year ended September 30, 2004, its executive officers, directors and all persons who own more than ten percent of a registered class of the Company's equity securities complied with all Section 16(a) filing requirements. 12 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth information concerning the total compensation the Company has paid or that has accrued on behalf of the Company's chief executive officer and other executive officers with annual compensation exceeding $100,000 during the fiscal years ending September 30, 2004, 2003 and 2002.

AsSummary ofCompensation ~~September~~Table ~~30,~~ -------------------------- Long-Term Compensation ---------------------------- ------------ ~~2003~~Annual ~~2002~~Compensation ~~2001~~Awards ~~2000~~Payouts ~~1999~~ ---- ---- ------------------- ---------------------------- ------------ ~~Total~~Securities ~~Assets~~Other Under All Annual Restricted -lying Other Name and Compen- Stock Options/ LTIP Compen- Principal Position Year Salary ($~~3,698,086~~) Bonus ($~~4,774,786~~) sation ($~~4,115,102~~) Award(s) ($~~4,423,752~~) SARs (#) Payouts ($~~4,259,980~~) ~~Total~~sation ~~Liabilities~~($) ~~2,475,222~~----------------------------------- ~~3,334,602~~----- ~~2,888,626~~----------- 3------------- ----------- --------------- ------------ ------------ ---------- Jan Stahl,~~546,184~~ 3Chief Executive 2004 $250,~~609,204~~000 ~~Stockholders'~~$ ~~Equity~~0 -0- -0- -0- -0- -0- Officer (1,) 2003 $222,~~864~~150 1$156,~~440,184~~723 1-0- 34,~~226,476~~666 ~~877~~-0- -0- -0- (2) 2002 $246,~~568~~446 ~~650~~$77,~~776~~000 -0- -0- -0- -0- -0-

(1) It should be noted that the figures listed as "salary" include both base salary and earned commissions, but do not include annual bonus amounts, if any, which are listed separately under the "bonus" column. (2) Dr. Stahl has waived his rights to $180,000 of his bonus for the benefit of the Company. Executive Employment Agreements Dr. Jan Stahl had an employment agreement that expired on September 30, 2004. The agreement has been automatically extended for a period of one year. Benefit Plans On July 22, 2002, the Company adopted a Bonus Compensation Warrant Agreement, whereby, the Company would issue Bonus Compensation Warrants equivalent to 10% of the price of any merger or acquisition brought to the Company. All of the warrants being exercisable into shares of common stock at 80% of the 20 day average bid and ask price of the Company's common stock. The Company is authorized up to a maximum aggregate of 3,000,000 shares of common stock available for any Bonus Compensation Warrants. On July 22, 2002, the Company issued a common stock purchase warrant for 260,000 shares of common stock exercisable at $.10 per share and on September 27, 2002, a common stock purchase warrant for 1,875,000 shares exercisable at $.04 per share, both expiring on August 31, 2007. That issuance was considered exempt from registration by reason of Section 4(2) of the Securities Act of 1933. Board Compensation The Company does not have any formal or informal arrangements or agreements to compensate its directors for services they provide as members of the Company's Board of Directors. 13 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of September 30, 2004, certain information regarding the beneficial ownership of the Company's common stock.

~~Long~~Number ~~Term~~of ~~Compensation~~Shares ~~--------------------------------~~Owned ~~Securities~~Percentage ~~All~~Name ~~Annual~~of ~~Compensation~~Record ~~(1)~~and ~~Restricted~~Beneficially ~~Underlying~~Common ~~Other~~Stock ~~Name~~Outstanding &(1) ~~Principal~~ ---- --------------------------- ~~Stock Options of Compen~~- ~~Position Year Salary Bonus Awards (3) SARS sation~~ ---------------- ---- ------ -~~----~~ ~~------~~Dr. ~~---- ------~~ Jan Stahl, ~~2003~~3141 ~~$222,150~~Ann ~~$156,723~~Street ~~(2) $34~~Baldwin,~~666~~ ~~-0-~~NY ~~-0-~~11510 ~~CEO(1) 2002 246~~11,~~446 77~~112,~~000~~512 ~~-0-~~30.94% ~~-0-~~Kenneth ~~-0-~~Levanthal ~~2001~~24 ~~222,000~~Meadowbrook ~~-0-~~Road ~~43,200~~Huntington ~~-0- -0- Peter Steil~~Station, ~~2003~~NY $11746 42796,~~050 $ -0- $ -0- -0- -0- President(1) 2002 64,~~000 ~~16,500~~2.21% ~~-0-~~All ~~-0-~~Directors ~~-0-~~and ~~2001~~Officers ~~124,800~~As ~~-0-~~a ~~43,200~~Group ~~-0- -0- Kenneth 2003 66~~11,~~300 $ -0- $12~~908,~~067~~512 ~~-0- -0- Levanthal 2002 69,000 $ 16,500 -0- -0- -0- 2001 80,400 -0- -0- -0- -0-~~33.15%

(1) Based upon a total of 35,921,045 shares as of December 15, 2004 Securities Authorized for Issuance Under Equity Compensation Plans None ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company's offices are occupied by the Company under a lease between the landlord who is an unaffiliated third party and an affiliated company PJS Trading,Corp., a New York corporation ("PJS") owned by Dr. Jan Stahl. The Company occupies the premises under an oral agreement with PJS and Dr Stahl whereby the Company discharges all the obligations of the lease with the landlord. Except as set forth above, the Company has not entered into any transaction during the last two years and it has not proposed any transaction to which the Company was or is to be a party, in which any of the following persons had or is to have a direct or indirect material interest: - Any director or executive officer of the Company; - Any nominee for election as a director; - Any security holder named in the "Security Ownership of Certain Beneficial Owners and Management" section above; and - Any member of the immediate family (including spouse, parents, children, siblings, and in-laws) of any such person. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Audit fees The aggregate fees billed for professional services rendered by the Company's principal accountants for the audit of the Company's financial statements, for the reviews of the financial statements included in the Company's annual report on Form 10-K, and for other services normally provided in connection with statutory filings were $27,500 and $22,500 for the years ended September 30, 2004 and 2003, respectively. All Other Fees The Company did not incur any fees for other professional services rendered by its principal accountants during the years ended June 30, 2004 and 2003. 14 PART IV ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K Financial statements and financial statement schedules that have been omitted are not required. (a) The following documents are filed as part of this report. 1. Financial Statements Page Report of Independent Registered Public Accounting Firm. F-1 Balance Sheets as of September 30, 2004 and 2003. F-2 Statements of Operations for the years ended September 30, 2004, 2003, and 2002. F-3 Statements of Changes in Stockholders' Equity For the years ended September 30, 2004, 2003 and 2002. F-4 Statements of Cash Flows for the years ended September 30, 2004, 2003 and 2002. F-5 Notes to Consolidated Financial Statements. F-6-F-11 2. Financial Schedule Valuation and Qualifying Accounts For the years ended September 30, 2004, 2003 and 2002 F-12 (b) Exhibits. Exhibit Number Description ------------------ -- ---------------------------------------------------------- 2.1 Tax-Free Reorganization Agreement between the Company and InternetFinancialCorp.com, Inc., effective June 13, 2001, incorporated by reference to Form 8-K/A filed with the Securities and Exchange Commission on July 23, 2001. 3.1 Restated Articles of Incorporation, incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on October 12, 2001. 3.2 Certificate of Amendment to Articles of Incorporation, changing name to Interfinancialcorp.com, Inc., incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on October 12, 2001. 3.3 Certificate of Amendment to Articles of Incorporation, changing name to APO Health, Inc., incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on October 12, 2001. 3.4 By-laws of the Company, incorporated by reference to registration statement on Form 10 (File No. 000-30074) filed with the Securities and Exchange Commission on February 19, 1999. 14.1 Code of Ethics and Business Conduct 21.1 List of Subsidiaries 31.1 Certification by Dr. Jan Stahl, Chief Executive Officer and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification by Dr. Jan Stahl, Chief Executive Officer and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (c) Reports on Form 8-K. None. 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. APO HEALTH, INC. Date: December 28, 2004 By:/S/ Dr. Jan Stahl --------------------------- Dr. Jan Stahl Chairman, Chief Executive Officer, Acting Chief Financial Officer, Principal Accounting Officer and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /S/ Dr. Jan Stahl Director December 28, 2004 ------------------- Dr. Jan Stahl /S/ Kenneth Levanthal Director December 28, 2004 ------------------ Kenneth Levanthal 16 REPRORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders APO Health, Inc. Oceanside, New York We have audited the accompanying consolidated balance sheets of APO Health, Inc., and subsidiaries as of September 30, 2004 and 2003 the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years ended September 30, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of APO Health, Inc. and subsidiaries as of September 30, 2004 and 2003, and the results of their operations and their cash flows for each of the three years ended September 30, 2004, in conformity with accounting principles generally accepted in the United States. Our audits were made to form an opinion on the basic financial statements taken as a whole. The supplemental schedules listed in the index to the financial statements and schedules are presented to comply with the rules and regulations under the Securities and Exchange Act of 1934 and are not otherwise a required part of the basic financial statements. The supplemental schedules for each of the three years ended September 30, 2004, have been subjected to the auditing procedures applied in the audits of the basic financial statements. In our opinion, the supplemental schedules referred to above fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Linder & Linder Linder & Linder Certified Public Accountants Dix Hills, New York November 29, 2004, except Note 10, as to F-1 APO HEALTH, INC. CONSOLIDATED BALANCE SHEETS September 30, 2004 and 2003

ASSETS ~~2003~~-------- ~~2002~~2004 2003 ------------ ------------ Current Assets Cash $ ~~405~~574,~~153~~732 $ ~~520~~405,~~618~~153 Accounts receivable, net of allowance for doubtful accounts of $50380,000 and $3050,000 1,~~702~~179,~~741~~078 1,~~511~~702,~~295~~741 Inventory 583,040 1,396,205 ~~2,242,609~~ Notes receivables - 4,566 ~~258,500~~ Due from officers - 108,905 ~~113,905 Deferred tax asset -- 12,000~~ Other current assets 186,274 55,013 ~~18,297~~ ------------ ------------ Total Current Assets 2,523,124 3,672,583 ~~4,677,224~~ Property and Equipment, net of accumulated Depreciation of $9888,~~992~~430 and $88,496 8,124 18,003 ~~28,499 Deferred tax asset -- 61,563~~ Deposits 7,500 7,500 ------------ ------------ Total Assets $2,538,748 $3,698,086 ~~$ 4,774,786~~ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Bank notes payable $ 1609,~~008,123~~185 $ 1,~~350~~008,~~000~~123 Accounts payable ~~924,029~~ 1,~~118~~168,~~288~~278 924,029 Accrued compensation 89,224 248,483 ~~200,718~~ Customer deposits 259,675 294,587 ~~665,596~~ ------------ ------------ Total Current Liabilities 2,~~475~~126,~~222~~362 32,~~334~~475,~~602~~222 ------------ ------------ Stockholders' Equity Preferred stock, $.01 par value, 2,000,000 Shares authorized, 0 shares issued Common stock, $.0002 par value, 125,000,000 Shares authorized, 3235,~~106~~673,045 and 2432,~~554~~106,~~227~~045 Shares issued and outstanding 67,~~325~~135 46,~~904~~422 Paid in capital 12,~~920~~158,~~768~~308 1,~~621~~920,~~983~~671 Retained earnings (deficit) (~~704~~1,~~229~~753,057) (~~186~~704,~~703~~229) ------------ ------------ Total Stockholders' Equity 412,386 1,222,864 ~~1,440,184~~ ------------ ------------ Total Liabilities and Stockholders' Equity $2,538,748 $3,698,086 ~~$ 4,774,786~~ ============ ============

See Accompanying Auditor' Report and Notes to Financial Statements. F-2 APO HEALTH, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002

2004 2003 2002 ~~2001~~ -------------- -------------- -------------- Revenues $ 35,918,887 $ 47,448,232 $ 31,998,836 ~~$ 24,143,949~~ Cost of revenues 34,305,870 45,470,208 29,800,674 ~~21,619,232~~ -------------- -------------- -------------- Gross Margin 1,613,017 1,978,024 2,198,162 ~~2,524,717~~ Operating Expenses Selling 551,230 576,250 842,212 ~~744,652~~ General and administrative 2,106,919 1,747,699 1,673,695 ~~1,558,632~~ -------------- -------------- -------------- 2,658,149 2,323,949 2,515,907 ~~2,303,284~~-------------- ~~Income~~-------------- -------------- (~~loss~~Loss) from operations (1,045,132) (345,925) (317,745) ~~221,433~~ -------------- -------------- -------------- Other Income (Expenses) Recovery of Litigation Costs 92,755 - - Interest expense (96,451) (92,~~446~~466) (94,790) ~~153,698 Business acquisition costs~~ -- -- ~~340,225~~ ---------- -- ------------ -------------- Total other expenses (3,696) (92,~~446~~466) (94,790) ~~493,923~~ -------------- -------------- -------------- (Loss) before provision for income taxes (1,048,828) (438,371) (412,535) ~~(272,490)~~ Provision for (recovery) of income tax - 79,155 (165,014) ~~(114,591)~~-------------- ~~Income~~-------------- -------------- (~~loss~~Loss) from continuing operations (1,048,828) (517,526) (247,521) ~~(157,349)~~ Discontinued operations net of taxes of $ 0 , $~~195~~ 0 ,~~059,~~ and $23195,~~892~~059 - - 291,498 ~~35,839~~ -------------- -------------- -------------- Net Income (Loss) $ (1,048,828) $ (517,526) $ 43,977 ~~$ (122,060)~~ ============== ============== ============== Earnings per common share and earnings ~~per~~Per common share assuming dilution From continuing operations $ (.0203) $ (.0102) $ (.01) Discontinued operations .00 .~~01 .~~00 ~~Extraordinary item~~ .~~00 .~~01 ~~.00~~ -------------- -------------- -------------- Net income (loss) per common shares $ (.0203) $ (.0002) $ (.~~01)~~00 ============== ============== ============== Weighted average common Outstanding 34,338,680 27,003,847 23,864,383 ~~21,532,814~~ ============== ============== ==============

See Accompanying Auditors' Report and Notes to Financial Statements. F-3 APO HEALTH, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 2004, 2003, AND 2002

Retained Common Stock Paid-In Earnings Shares Amount Capital (Deficit) Totals ------ ------ ------- ------------ ------------ Balances, September 30, ~~2000~~2001 1423,~~216~~132,~~422~~089 $2 4,~~843~~626 $ ~~983~~1,~~345~~452,530 $ (~~108~~230,~~620~~680) $ ~~877,568 Retroactive stock split~~ 1,~~470~~226,~~000~~476 54Conversion ~~(54) Issuance~~ of ~~stock~~loan ~~for~~payable ~~Officers' bonus 300~~125,000 ~~300~~25 8649,~~100~~975 8650,~~400~~000 ~~Sale~~Acquisition of ~~stock~~subsidiary ~~500~~50,000 ~~100~~10 ~~279~~29,~~900~~990 ~~280~~30,000 ~~Recapitalization Reverse acquisition 2,500,000 500 (500)~~ Issuance of stock For services 41,~~145~~247,~~667~~138 ~~829~~243 ~~103~~89,~~739~~488 ~~104~~89,~~568~~731 Net ~~loss~~income ~~-- (122~~43,~~060)~~977 ~~(122~~43,~~060)~~977 ------------ ------------ ------------ ------------ ------------ Balances, September 30, ~~2001~~2002 2324,~~132~~554,~~089~~227 4,~~626~~904 1,~~452~~621,~~530~~983 (~~230~~186,~~680~~703) 1,~~226~~440,~~476~~184 ~~Conversion of loan payable 125,000 25 49,975 50,000 Acquisition of subsidiary 50,000 10 29,990 30,000~~ Issuance of stock For services 17,~~247~~551,~~138~~818 ~~243~~1,518 89298,~~488~~688 89300,~~731~~206 Net ~~Income~~(loss) ~~-- 43~~(517,~~977~~526) 43(517,~~977~~526) ------------ ------------ ------------ ------------ ------------ ~~Balances~~Balance September 30, ~~2002~~2003 2432,~~554~~106,~~227~~045 46,~~904~~422 1,~~621~~920,~~983~~671 (~~186~~704,~~703~~229) 1,~~440~~222,~~184~~864 Issuance of stock For services 72,~~551~~567,~~818~~000 513 147,837 148,350 Private placement 1,~~421~~000,000 ~~298~~200 89,~~785~~800 ~~300~~90,~~206~~000 Net (~~Loss~~loss) (~~517~~1,~~526~~048,828) (~~517~~1,~~526~~048,828) ------------ ------------ ------------ ------------ ------------ Balance September 30,2004 ~~2003 32~~35,~~106~~673,045 $6 7,~~325~~135 $12,~~920~~158,~~768~~308 $(~~704~~1,~~229~~753,057) $1 412,~~222,864~~386 ============= ============ ============ ============ ============

See Accompanying Auditors' Report and Notes to Financial Statements. F-4 APO HEALTH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2004, 2003, AND 2002

2004 2003 2002 ~~2001~~ ------------ ------------ ------------ CASH FLOW FROM OPERATING ACTIVITIES Net income (loss) $(1,048,828) $ (517,526) $ 43,977 ~~$(122,060)~~ Adjustments to reconcile net income (loss)to net cash ~~Net cash~~ flows from operating activities Depreciation and amortization 9,879 10,496 11,890 ~~16,900~~ Bad debts 330,000 20,000 2,515 ~~(30,800)~~ Deferred taxes 73,563 37,543 ~~(1,457)~~ Stock issued for services 148,350 300,206 89,731 ~~190,969~~ Write off goodwill 125,537 Changes in: Accounts receivable 193,663 (211,446) 256,569 ~~429,560~~ Inventory 813,165 846,404 (550,400) ~~203,124~~ Other current assets (131,261) (36,716) 147,638 ~~(135,693)~~ Accounts payable 244,249 (194,259) 62,171 Deferred compensation (~~393~~50,~~433~~354) ~~Accrued expenses~~ 67,765 149,942 ~~(153,188)~~ Customers deposits payable (34,912) (371,009) 665,596 ------------ ------------ ------------ Cash Flows provided by (used in) Operating Activities 473,951 (12,522) 967,623 ~~3,922~~ ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Notes receivables 4,566 253,934 (258,500) Advances from officer, net - (15,000) (31,448) ------------ ------------ ------------ Cash Flows provided by (used in) Investing Activities ~~253~~4,566 238,934 (~~258~~289,~~500~~948) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES ~~Advances from officer, net (15,000) (31,448) (39,041)~~ Proceeds from bank notes payable, net (398,938) (341,877) (336,224) ~~(156,446)~~ Proceeds from sale of stock ~~-- 280~~90,000 ------------ ------------ ------------ Cash Flows ~~provided by~~ (used in) ~~Financing~~(308,938) ~~Activities~~ (~~356~~341,877) (~~367~~336,~~672~~224) ~~84,513~~ ------------ ------------ ------------ Financing Activities Net increase (decrease) in cash 165,579 (115,645) 341,~~451~~541 ~~88,435~~ Cash Balances Beginning of ~~Period~~Year 405,153 520,618 179,167 ~~90,732~~ ------------ ------------ ------------ End of ~~Period~~Year $ 574,732 $ 405,153 $ 520,618 ~~$ 179,167~~ ============ ============ ============

See Accompanying Auditors' Report and Notes to Financial Statements. F-5 APO HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - SUMMARY OF ACCOUNTING POLICIES Nature of business and basis of consolidation. APO Health, Inc. ("APO") was incorporated under the laws of the state of New York in August 1978. The APO and its wholly-owned subsidiary, Universal Medical Distributors, Inc. ("Universal") distribute disposable medical products principally to dental, medical and veterinary professionals and wholesalers in the United States, principally on the East Coast. Effective June 13, 2001, InternetFinancialCorp.com, Inc., ("IFAN"), a Nevada corporation, which is an inactive public company acquired APO, (collectively, the "Company"), pursuant to a tax-free reorganization agreement. The acquisition was accounted for by the purchase method under business combinations in a reverse acquisition transaction. Concurrently, IFAN changed its name to APO Health, Inc., a Nevada corporation. All significant intercompany balances and transactions have been eliminated in consolidation. Cash and cash equivalents. For purposes of the statements of cash flows, cash equivalents include all highly liquid investments with original maturities of three month or less. Revenue recognition occurs when products are shipped. Advertising is expensed as incurred. For the years ended September 30, 2004, 2003 and 2002 advertising expense was $25,730, $72,029, $303,849, respectively. Merchandise inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Property and equipment is stated at cost. Depreciation is provided for on the straight-line method over the useful estimated life. The cost of maintenance and repairs is expensed as incurred. The Company follows Statement of Financial Accounting Standards No. 144, Impairment of Long-lived Assets, by reviewing such assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Shipping and handling is expensed as incurred. Shipping and handling is included in selling expense was $296,637, $242,730, and$272,036 for the years ended September 30, 2004, 2003 and 2002, respectively. Income taxes are computed using the tax liability method of accounting, whereby deferred income taxes are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences reverse. Earnings Per Share. Basic net income per share has been calculated based on the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing the net income by the weighted average number of common shares outstanding plus potential dilutive securities. Fair value financial statements .The Company's carrying amount of financial statements which include cash, accounts receivable, bank notes payable, and accounts payable approximate fair value. Reclassifications. Certain reclassifications of certain prior year amounts were made to conform to the current year presentation. Estimates and assumptions. Preparing financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses at the balance sheet date and for the period then ended. Actual results could differ from these estimates. F-6 APO HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - SUPPLEMENTAL CASH FLOW STATEMENT DISCLOSURES 2004 2003 2002 Cash paid during the year for: Interest $96,451 $92,477 $91,790 Non cash transactions: Note payable paid for by the issuance of stock $50,000 Reduction of Officers loan With offset to deferred Compensation $109,905 Note 3- OTHER CURRENT ASSETS Other current assets consist of the following: 2004 2003 ---- ---- Prepaid Expenses $ 96,274 $55,013 Consulting fees 40,000 Advance to stockholder 50,000 -------- ------- Total current assets $186,274 $55,013 The Company advanced to one of the stockholders of the Company which is payable on demand and non interest bearing. Subsequent to the year end, the stockholder repaid the advance in full Note 4 - BANK NOTES PAYABLE On October 29, 2002, the Company entered into a financing agreement with Rosenthal & Rosenthal, Inc. The financing agreement provides the Company with a maximum credit facility not to exceed $3,000,000. On September 1, 2004 the credit facility was amended by mutual consent and reduced the maximum amount of credit under the facility to $1,000,000. The credit facility is collateralized by substantially all the Company's assets and $500,000 of the facility is personally guaranteed by Dr. Jan Stahl, Chairman and CEO of the Company. Interest is payable monthly on the average daily loan balance at the announced prime rate of JP Morgan Chase bank plus 2.5% (7.50% as of September 30, 2004). This agreement is for a period of three years through October 31, 2005 and may be extended on a year to year basis thereafter unless terminated as provided in the agreement. The credit facility provides that the Company maintain certain financial covenants. At September 30, 2004, the Company was in violation of certain covenants including its net worth and working capital which were subsequently waived by the lending institution. Bank Notes Payable at September 30, 2004 and 2003 consist of the following: 2004 2003 ---- ---- Own Note Borrowing $ 609,185 $1,008,123 Note 5 - INCOME TAXES Income taxes (benefit) consist of the following: 2004 2003 2002 ---- ---- ---- Current $ - $ 5,592 $ (7,498) Deferred - 73,563 37,543 Total $ - $79,155 $ 30,045 F-7 APO HEALTH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A reconciliation of income tax at the federal statutory income tax rate to total income taxes is as follows: 2004 2003 2002 Computed at the federal statutory Rate of 34% $ - $ - $ 25,168 State income tax (benefit) - - 4,441 Valuation allowance adjustment - 73,563 (22,300) Other adjustments - 5,592 22,736 -------- -------- --------- Total $ - $79,155 $ 30,045 ======== ======== ========= The components of deferred taxes are as follows: 2004 2003 Deferred tax assets Allowance for doubtful accounts $152,000 $ 20,000 Depreciation 21,250 12,000 Deferred compensation 50,400 102,400 Net operating loss carryover 404,025 62,280 Valuation allowance (627,675) (196,680) --------- --------- Total deferred tax assets $ - $ - --------- --------- The Company has a net operating loss carryover of approximately $854,100 to offset future taxable income. The carryover losses expires through 2024. The Company has offset the deferred tax asset by a valuation of $627,675, since it cannot be determined more likely than not whether the Company will be able to utilize such net operating loss carryover. During the year ended September 30, 2004, the valuation allowance increased by $430,995. Note 6 - DISCONTINUED OPERATIONS In February 2002, the Company sold the veterinary division of Universal Medical Distributors, Inc., including customer lists and catalogues for $550,000. In addition the Company sold its inventory related to the veterinary division. The Company wrote off the remaining goodwill associated with the veterinary division, which resulted in a pretax gain on the sale of $436,205. The financial statements for 2001 and 2000 have been restated to reflect the discontinued operations of this division. In connection with the sale of the veterinary division, the Company received a total of $500,000 in cash (which includes the sale of inventory) and received a note in the amount of $250,000 for the balance which was due on January 31, 2003. In January, 2002, the Company acquired Envirotech Air Quality Services, Inc. ("Envirotech") for $25,000 in cash and 50,000 restricted shares of common stock. The Company sold "Envirotech" in August 2002 for $52,900, and recorded a pretax loss from discontinued operations of $22,930. In connection with the sale the Company received $44,400 in cash and a note in the amount of $8,500 receivable over a period of 19 months with interest at the rate of 18% per annum. Note 7 - COMMON STOCK ISSUANCES During the fiscal year ended September 30, 2004, the Company issued a total of 2,567,000 shares of common stock for consulting, compensation and professional services valued at $148,350. On April 1, 2004, the Company issued a total of 1,000,000 restricted share of common stock with the Company receiving net proceeds of $90,000. During the fiscal year ended September 30, 2003, the Company issued a total of 7,551,818 shares of common stock for consulting, compensation and other professional services valued at $300,206 which includes compensation to officers in the approximate amount of $46,700. F-8 APO HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During the fiscal year ended September 30, 2002,the Company issued a total of 1,247,138 shares of common stock for consulting and other professional services valued at $89,731. In addition, the company issued 125,000 shares of common stock for the conversion of a $50,000 note payable and $50,000 shares of common stock as part of the acquisition of "Envirotech" valued at $30,000. Stock Option Plan On July 22, 2002, the Company adopted a Bonus Compensation Warrant Agreement, whereby, the Company would issue Bonus Compensation Warrants equivalent to 10% of the price of any merger or acquisition brought to the Company. All of the warrants being exercisable into shares of common stock at 80% of the 20 day average bid and ask price of the Company's common stock. The Company authorized up to a maximum aggregate of 3,000,000 shares of common stock available for any Bonus Compensation Warrants. To date none of these shares have been exercised. On July 22, 2002, the Company issued a common stock purchase warrant for 260,000 shares of common stock exercisable at $.10 per share and on September 27, 2002, a common stock purchase warrant for 1,875,000 shares exercisable at $.04 per share, both expiring on August 31, 2007. To date none of these warrants have been exercised. Pro Forma Disclosure The Company has adopted the disclosure only provision of SFAS 123, "Accounting for Stock Based Compensation". Under SFAS 123 employee warrants are valued at the grant date using the Black-Scholes valuation model. Had compensation cost for the Company's warrants been determined as prescribed by SFAS 123, pro forma net income (loss) and earnings per share for 2002 would have been changed as follows: 2002 ------- Net income (loss) as reported $43,977 Pro forma compensation (52,253) Net Income (loss) pro forma $(8,276) Diluted earnings (loss) per share $(.00) The estimated per share fair value of the warrants granted in July and September 2002 were $.032 and $.025, respectively using the Black-Scholes option pricing model with the following assumptions: 2002 ------ Dividend yield - Volatility 76.44 Interest rate 3.25% Option life in months 59 Note 8 - LEASES The Company's offices are located at 3590 Oceanside Road, Oceanside, New York. The premises contain approximately 9,800 square feet under a five-year lease (the "Lease") which expired on November 30, 2004 (the "Lease Term"). The Lease Term has been extended for an additional five years through November 30, 2009. These premises are occupied under a Lease between the landlord, who is an unaffiliated third party, and an affiliated company PJS Trading, Corp., a New York corporation ("PJS") owned by Dr. Stahl formed for the express purpose of entering into the Lease. The Company occupies these premises under an oral agreement with PJS and Dr. Stahl whereby the Company has agreed to discharge all of the Lease obligations with the landlord. The annual lease payment under the new lease starts at approximately $77,300 per year and increases to $80,000 in the fifth year with additional increases for real estate taxes over the Lease Term. Neither PJS nor Dr. Stahl derives any profit from the Lease nor will they during the balance of the Lease Term. Management of the Company believes the current facility is adequate for its current operations. Effective December 1, 2004, the Company has subleased for a one year period approximately 2,000 square feet of the warehouse space at approximately $30,000 per year. Rental expense net of subleases was $50,261, $59,429 and $73,881 for each of the three years ended September 30, 2004. F-9 APO HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Future minimum lease payments are as follows: For the years ended September 30, 2005 $ 76,812 2006 70,571 2007 71,225 2008 75,825 2009 79,405 After 2009 13,337 -------- Total $387,175 ======== Note 9 - PROFIT SHARING PLAN The Company established a profit sharing plan in 1992. All full-time employees as defined within the plan are eligible to participate. Contributions to the plan are discretionary and are determined at the Company's year end. The amount contributed or accrued to the profit sharing plan for the years ended September 30, 2004, 2003, and 2002, were $0, $0, and $0, respectively. Note 10 - COMMITMENTS AND CONTINGENCIES Employment Agreement Effective October 1, 2001, the Company has entered into a three-year employment agreement with its chief executive officer that provides for a minimum annual salary of $250,000 with incentives based on the Company's attainment of specified levels of sales and earnings as defined in the agreement. The employment agreement expires September 30, 2004 and shall be automatically renewed for successive periods of one year unless either party gives written notice to terminate the agreement. Legal Proceedings On or about July 7, 2004, APO Health, Inc. was served with process in a suit commenced by The Proctor & Gamble Company ("P&G") in the US District Court for the Eastern District of New York, against it and a number of other parties. P&G claimed that APO, as well as others were involved in the sale of Pantene and Head and Shoulders products which were not manufactured by P&G. APO purchased several shipments of these products abroad and unbeknownst to APO, some non P&G products were included in these shipments. APO has cooperated with P&G as well as the Federal regulatory agencies and has supplied P&G with all of its documentation in order to assist P&G in its efforts to remove these products from the marketplace and to allow it to trace back the source of these improper products. The law suit is seeking, among other relief, a request for a temporary and permanent injunction from selling such products. The Company continues to cooperate with and assist the Federal Drug Administration ("FDA") in its inquiry and has undertaken a voluntary recall of these products. As a result of APO's continuing cooperation with P&G and the FDA and its lack of knowing culpability, its counsel believes that this proceeding will terminate without any adverse consequence to the Company. On or about December 3, 2004, APO Health, Inc. and Dr. Jan Stahl were served with process in a suit commenced by Alcoa, Inc. (Alcoa) in the US District Court for the Eastern District of New York, against it and a number of other parties. Alcoa claimed that APO, as well as others were involved in the sale of products which were not manufactured by Alcoa. APO purchased several shipments of these products abroad and unbeknownst to APO, some non Alcoa products were included in these shipments. APO is cooperating with Alcoa as well as the Federal regulatory agencies and is suppying Alcoa with all of its documentation in order to assist Alcoa in its efforts to remove these products from the marketplace and to allow it to trace back the source of these improper products. The law suit is seeking, among other relief, a request for a temporary and permanent injunction from selling such products. The Company continues to cooperate with and assist the Federal Drug Administration in its inquiry and has undertaken a voluntary recall of these products. As a result of APO's continuing cooperation with Alcoa and the FDA and its lack of knowing culpability, its counsel believes that this proceeding will terminate without any adverse consequence to the Company. F-10 APO HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Product Liability Certain of the Company's products and proposed products will be utilized in medical procedures where the Company could be subject to claims from injuries resulting from use of the Company's products. Recent developments in the insurance industry have reduced the availability and increased the cost of liability insurance coverage. At present, the Company is self-insured for product liability claims. Note 11 - CONCENTRATION OF CREDIT RISK The Company maintains cash balances at various financial institutions. At times such balances exceed the insured limits of the financial institution. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk on cash balances. As of September 30, 2004, the Company had approximately $411,200 on deposit, in excess of the $100,000 in each bank, which is insured under federal law. The concentration of credit risk due to receivables is minimal due to the Company's diverse customer base. For the years ended September 30, 2004, 2003 and 2002 the following customers had in excess of 10% of the total sales. No single vendor accounts for greater than 10% of purchases. 2004 2003 2002 ---- ---- ---- Customer A 40% 38% 25% Customer B 12% 11% Note 12 - Computation of Earnings Per Share Basic earnings per share is calculated using the average number of common shares outstanding. Diluted earnings per share is computed on the basis of average number of common shares outstanding plus the effect of outstanding stock options using the "treasury stock method". Year Ended September 30, ------------------------ 2004 2003 2002 ---- ---- ---- Net income (loss) available for common Shareholders, basic and diluted $(1,048,828) $(517,526) $ 43,977 Weighted average common shares Outstanding-basic 34,338,680 27,003,847 23,864,383 Net effect of dilutive stock options * * * Basic earnings (loss) per share $(.03) $ (.02) $ .00 * antidilutive F-11 APO HEALTH, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED SEPTEMBER 30, 2004, 2003, AND 2002

Balance Year ~~ended~~Ended Beginning of Balance September 30, Account Period Additions Reduction End of Period ------------- ------- ------ ----- ~~2003 2002 2001~~ ---- --------- ------------- ~~Net~~2002 ~~income~~Allowance ~~(loss) available~~ for ~~common~~Doubtful ~~shareholders,~~accounts ~~basic and diluted~~ $ ~~(517~~29,~~526)~~000 $ 431,~~977~~000 $ ~~(122~~30,~~060)~~000 ~~Weighted~~Allowance ~~average~~for ~~common~~Deferred ~~stock~~taxes ~~Outstanding-Basic 27~~$22,~~003,847~~300 23$(22,~~864,383~~300) ~~21,532,814~~$ ~~Net~~- ~~effect~~2003 ofAllowance ~~dilutive~~for ~~stock~~Doubtful ~~options~~accounts *$30,000 *$20,000 *$ ~~Weighted~~50,000 ~~average~~Allowance ~~common~~for ~~stock~~Deferred ~~and~~taxes ~~Common~~$ ~~stock equivalents~~-~~diluted~~0- 27$221,~~003,847~~200 23$(24,~~864,383~~200) 21$ 197,~~532,814~~000 ~~Basic~~2004 ~~earnings~~Allowance ~~per~~for ~~share~~Doubtful accounts $~~(.02)~~50,000 $~~.00~~330,000 $~~(.01)~~ ~~==========~~380,000 ~~==========~~Allowance ~~==========~~for *AntidilutiveDeferred taxes $~~(.02)~~197,000 $~~.00~~431,000 $~~(.01)~~ ~~========== ========== ==========~~628,000

F-12

Balance, Balance, Year Ended Beginning of End of September 30, Account Period Additions Reduction Period ------------- ------- ------ --------- --------- ------ 2001 Allowance for Doubtful accounts $59,800 $ -- $(30,800) $ 29,000 Allowance for Deferred Taxes $ -- $ 22,300 $ -- $ 22,300 2002 Allowance for Doubtful accounts $29,000 $ 1,000 -- $ 30,000 Allowance for Deferred Taxes $22,300 $ -- $(22,300) $ -- 2003 Allowance for Doubtful accounts $30,000 $ 20,000 -- $ 50,000 Allowance for Deferred Taxes $ -0- $221,200 -- $221,200

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