UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended OCTOBER 31, 2004
----------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from to .
-------------- -----------------
Commission file number 333-68008
---------
EFOODSAFETY.COM, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
62-1772151
----------
(I.R.S. Employer Identification No.)
19125 N. INDIAN AVENUE, NORTH PALM SPRINGS, CA 92258
----------------------------------------------------
(Address of principal executive offices)
(760) 329-4304 (Issuer's
telephone number)
1370 ST. GEORGE CIRCLE, PRESCOTT, AZ 86301
(Former name or former address, if changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 93,045,816 common shares issued and
outstanding as of October 31, 2004
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Our financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America.
It is the opinion of management that the interim financial statements for the
quarter ended October 31, 2004 include all adjustments necessary in order to
ensure that the consolidated financial statements are not misleading.
EFOODSAFETY.COM, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
October 31, April 30,
2004 2004
------------------ -----------------
Assets:
Current Assets
Cash $ 396,662 $ 83,600
Marketable Securities 513,852 -
Inventory 295,272 47,107
------------------ -----------------
Total Current Assets 1,205,786 130,707
------------------ -----------------
Fixed Assets
Equipment 81,797 45,000
Furniture and fixtures 1,391 -
Computers 32,427 -
Building improvements 10,680 -
Accumulated depreciation (7,112) -
------------------ -----------------
Total Fixed Assets 119,183 45,000
------------------ -----------------
Total Assets $ 1,324,969 175,707
================== =================
Liabilities:
Current Liabilities
Accounts Payable $ 10,665 $ 260
Long-Term Liabilities
Notes Payable 1,000,000 325,000
Accrued Interest 60,695 3,873
Convertible debentures 1,969,550 -
------------------ -----------------
Total Liabilities 3,040,910 329,133
------------------ -----------------
Stockholders' Equity:
Common Stock, $.0001 Par Value, Authorized
500,000,000 shares, Issued 93,045,816 at
October 31, 2004 and April 30, 2004 9,305 9,305
Paid-In Capital 2,207,634 2,207,634
Cumulative Unrealized Gains and Losses 13,852 -
Deficit Accumulated During the
Development Stage (3,946,732) (2,370,365)
------------------ -----------------
Total Stockholders' Equity (1,715,941) (153,426)
------------------ -----------------
Total Liabilities and
Stockholders' Equity $ 1,324,969 $ 175,707
================== =================
The accompanying notes are an integral part of these financial statements.
EFOODSAFETY.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Cumulative
since
January 28,
1998
inception
For the three months ended For the six months ended of
------------------------------------- -------------------------------------
October 31, October 31, development
------------------------------------- -------------------------------------
2004 2003 2004 2003 stage
----------------- ------------------ ------------------ ----------------- -----------------
Revenues $ 2,273 $ - $ 19,907 $ - $ 22,290
Cost of sales 280 - 6,115 - 6,895
----------------- ------------------ ------------------ ----------------- -----------------
Gross Profit 1,993 - 13,792 - 15,395
----------------- ------------------ ------------------ ----------------- -----------------
Expenses:
Research and development 51,540 - 95,252 - 1,503,752
General and administrative 1,134,553 14,712 1,439,859 27,573 2,399,454
----------------- ------------------ ------------------ ----------------- -----------------
Total Expenses 1,186,093 - 1,535,111 - 3,903,206
----------------- ------------------ ------------------ ----------------- -----------------
Net Loss from Operations (1,184,100) (14,712) (1,521,319) (27,573) (3,887,811)
Other Income (Expense)
Interest income 1,759 - 1,774 - 1,774
Interest expense (42,625) - (56,822) - (60,695)
----------------- ------------------ ------------------ ----------------- -----------------
Net Loss $ (1,224,966) $ (14,712) $ (1,576,367) $ (27,573) $ (3,946,732)
================= ================== ================== ================= =================
Basic loss per share $ (0.02) $ - $ (0.02) $ -
================= ================== ================== =================
Weighted Average Shares 93,045,816 88,055,001 93,045,816 88,029,999
================= ================== ================== =================
The accompanying notes are an integral part of these financial statements.
EFOODSAFETY.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Cumulative
Since
January 28,
1998
For the six months ended Inception of
--------------------------------------
October 31, Development
--------------------------------------
2004 2003 Stage
------------------ ------------------ -----------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $ (1,576,367) $ (27,573) $ (3,946,732)
Adjustments used to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation 7,112 - 7,112
Common stock issued for expenses - - 1,549,184
(Increase) Decrease in Inventory (248,165) - (295,272)
Increase (Decrease) in Accounts Payable 10,405 3,043 10,665
Increase (Decrease) in Accrued Interest 56,822 - 60,695
------------------ ------------------ -----------------
Net Cash Used in operating activities (1,750,193) (24,530) (2,614,348)
------------------ ------------------ -----------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of fixed assets (81,295) - (126,295)
Purchase of marketable securities (500,000) - (500,000)
------------------ ------------------ -----------------
Net cash provided by investing activities (581,295) - (626,295)
------------------ ------------------ -----------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from sale of stock - - 3,910
Capital contributed by shareholder - 24,530 663,845
Proceeds from loans 675,000 - 1,000,000
Proceeds from convertible debentures 1,969,550 - 1,969,550
------------------ ------------------ -----------------
Net cash provided by Financing Activities 2,644,550 24,530 3,637,305
------------------ ------------------ -----------------
Net (Decrease) Increase in
Cash and Cash Equivalents 313,062 - 396,662
Cash and Cash Equivalents
at Beginning of Period 83,600 - -
------------------ ------------------ -----------------
Cash and Cash Equivalents
at End of Period $ 396,662 $ - $ 396,662
================== ================== =================
EFOODSAFETY.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ - $ - $ -
Franchise and income taxes $ - $ - $ -
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On October 29, 2003, the Company issued 1,500,000 restricted shares of
common stock, par value $.0001, to acquire Food Safe, Inc.
The accompanying notes are an integral part of these financial statements.
EFOODSAFETY.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies for eFoodSafety.com, Inc. &
Subsidiary (a development stage company) is presented to assist in understanding
the Company's consolidated financial statements. The accounting policies conform
to generally accepted accounting principles and have been consistently applied
in the preparation of the consolidated financial statements.
Interim Financial Statements
The unaudited consolidated financial statements for the six months
ended October 31, 2004 reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to fairly state the
financial position and results of operations for the six months ended October
31, 2004 and 2003. Operating results for interim periods are not necessarily
indicative of the results which can be expected for full years.
Organization and Basis of Presentation
The Company was incorporated in Nevada on October 28, 1996 as DJH
International, Inc. to market products through the Internet. On October 16,
2000, the Company entered into an agreement and plan of reorganization with
Global Procurement Systems, Inc. ("GPS") whereby the Company acquired GPS. This
business combination was accounted for as a reverse merger with GPS being the
surviving entity for financial reporting purposes. As a result of the
acquisition, the Company issued 37,620,000 shares of common stock in exchange
for the outstanding shares of GPS and changed its name to eFoodSafety.com, Inc.
GPS was incorporated under the laws of the State of Nevada on January
28, 1998. Since January 28, 1998 the Company is in the development stage, and
has not commenced planned principal operations.
On October 29, 2003, the Company issued 1,500,000 restricted shares of
common stock to acquire Food Safe, Inc. As of October 29, 2003, Food Safe, Inc.
is a wholly owned subsidiary of the Company.
In May 2004, the Company incorporated Knock-Out Technologies, Ltd.
("Knock-Out") as a wholly- owned subsidiary of the Company. Knock-Out is to be a
manufacturer of all-natural, non-toxic, food-grade products.
Nature of Business
The Company was organized as a vehicle to provide methods and products
to ensure the safety of fruits and vegetables being marketed worldwide.
EFOODSAFETY.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Business Condition
These accompanying consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business. As
of October 31, 2004, the Company has accumulated operating losses of $3,946,732
since its inception. The continuation of the Company is dependent upon the
continuing financial support of directors and stockholders. It is the intention
of the Company to raise new equity financing of approximately $2,500,000 within
the upcoming year. Amounts raised will be used to implement the company's plan
of operations. While the Company is expending its best efforts to achieve the
above plans, there is no assurance that any such activity will generate funds
that will be available for operations.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. These financial statements do not include any
adjustments that might arise from this uncertainty.
Principles of Consolidation
The consolidated financial statements for the six months ended October
31, 2004 include the accounts of eFoodSafety.com, Inc. and its subsidiaries Food
Safe, Inc. and Knock-Out Technologies, Ltd. Food Safe, Inc. was acquired by the
Company on October 29, 2003. Knock-Out Technologies, Ltd. was incorporated by
the Company in May 2004 as a wholly-owned subsidiary.
The results of subsidiaries acquired or sold during the year are
consolidated from their effective dates of acquisition through their effective
dates of disposition.
All significant intercompany balances and transactions have been
eliminated.
EFOODSAFETY.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Depreciation
Office furniture, equipment and leasehold improvements, are stated at
cost. Depreciation and amortization are computed using the straight-line method
over the estimated economic useful lives of the related assets as follows:
Furniture & Fixtures 5-10 years
Equipment 5- 7 years
Computers 3- 5 years
Leasehold improvements 2-10 years
Maintenance and repairs are charged to operations; betterments are
capitalized. The cost of property sold or otherwise disposed of and the
accumulated depreciation thereon are eliminated from the property and related
accumulated depreciation accounts, and any resulting gain or loss is credited or
charged to income.
Earnings (Loss) per Share
Basic loss per share has been computed by dividing the loss for the
year applicable to the common stockholders by the weighted average number of
common shares outstanding during the years. There were no common equivalent
shares outstanding at October 31, 2004 and 2003.
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of
credit risk such as foreign exchange contracts, options contracts or other
foreign hedging arrangements. The Company maintains the majority of its cash
balances with one financial institution, in the form of demand deposits.
Revenue recognition
Revenue is recognized from sales of product at the time of shipment to
customers. Title passes to the customer at the time the items are shipped, and
are no longer owned by the Company.
Reclassifications
Certain reclassifications have been made in the 2003 financial
statements to conform with the 2004 presentation.
EFOODSAFETY.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investment in Marketable Securities
The Company's securities investments that are bought and held for an
indefinite period of time are classified as available-for-sale securities.
Available-for-sale securities are recorded at fair value on the balance sheet in
current assets, with the change in fair value during the period excluded from
earnings and recorded net of tax as a component of other comprehensive income.
Investments in securities are summarized as follows:
October 31, 2004
---------------------------------------------------------
Gross Gross
Unrealized Unrealized Fair
Gain Loss Value
----------------- ------------------ ------------------
Available-for-sale securities $ 13,852 $ - $ 513,852
================= ================== ==================
April 30, 2004
---------------------------------------------------------
Gross Gross
Unrealized Unrealized Fair
Gain Loss Value
----------------- ------------------ ------------------
Available-for-sale securities $ - $ - $ -
================= ================== ==================
Realized gains and losses are determined on the basis of specific
identification. During the three and six months ended October 31, 2004 and 2003,
sales proceeds and gross realized gains and losses on securities classified as
available-for-sale securities were:
For the Three Months Ended For the Six Months Ended
October 31, October 31,
2004 2003 2004 2003
----------------- ----------------- ------------------ ------------------
Sale Proceeds $ - $ - $ - $ -
================= ================= ================== ==================
Gross Realized Losses $ - $ - $ - $ -
================= ================= ================== ==================
Gross Realized Gains $ - $ - $ - $ -
================= ================= ================== ==================
EFOODSAFETY.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2 - INCOME TAXES
As of April 30, 2004, the Company had a net operating loss carryforward
for income tax reporting purposes of approximately $1,800,000 that may be offset
against future taxable income through 2024. Current tax laws limit the amount of
loss available to be offset against future taxable income when a substantial
change in ownership occurs. Therefore, the amount available to offset future
taxable income may be limited. No tax benefit has been reported in the financial
statements, because the Company believes there is a 50% or greater chance the
carryforwards will expire unused. Accordingly, the potential tax benefits of the
loss carryforwards are offset by a valuation allowance of the same amount.
NOTE 3 - DEVELOPMENT STAGE COMPANY
The Company has recently begun principal operations and as is common
with a development stage company, the Company has had recurring losses during
its development stage. The Company's financial statements are prepared using
generally accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. However, the Company does not have significant cash
or other material assets, nor does it have an established source of revenues
sufficient to cover its operating costs and to allow it to continue as a going
concern. In the interim, shareholders of the Company have committed to meeting
its minimal operating expenses. Revenues as of October 31, 2004 are not
considered significant enough for the Company to come out of the development
stage.
NOTE 4 - COMMON STOCK TRANSACTIONS
On February 9, 1998, the Company issued approximately 50,385,000 shares
(post split) of common stock to its officers and directors for payments made on
the Company's behalf during its formation in the amount of approximately $3,910.
On October 16, 2000, the Company entered into an agreement and plan of
reorganization with Global Procurement Systems, Inc. ("GPS") whereby the Company
acquired GPS. This business combination was accounted for as a reverse merger
with GPS being the surviving entity for financial reporting purposes. As a
result of the acquisition, the Company issued 37,620,000 shares of common stock
in exchange for the outstanding shares of GPS and changed its name to
eFoodSafety.com, Inc.
The merger was recorded as a recapitalization. In connection with this
recapitalization, the number of shares outstanding prior to the merger have been
restated to their post merger equivalents (increased from 360 shares to
50,385,000) and the par value of the Common Stock changed from no par value to
$.0001. All references in the accompanying financial statements to the number of
Common shares and per-share amounts since inception have been restated to
reflect the equivalent number of post merger shares.
EFOODSAFETY.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4 - COMMON STOCK TRANSACTIONS (continued)
On October 29, 2003, the Company issued 1,500,000 restricted shares of
common stock to acquire Food Safe, Inc. As of October 29, 2003, Food Safe, Inc.
is a wholly owned subsidiary of the Company.
On November 10, 2003, the Company issued 1,800,000 shares of common
stock for general and administrative expenses valued at $30,000.
On April 19, 2004, the Company issued 200,000 shares of common stock
for general and administrative expenses valued at $100,000.
On April 21, 2004, the Company issued 1,500,000 shares of common stock
for research and development expenses valued at $750,000.
During March and April of 2004, the Company issued 40,816 shares of
common stock for general and administrative expenses valued at $19,184.
On November 14, 2003, the Company changed the number of authorized
Common shares from 50,000,000 to 500,000,000. Par value of the Company's Common
shares was changed from $.0005 to $.0001. On December 5, 2003, the Company did a
3 for 1 forward stock split. All references in the accompanying financial
statements to the number of Common shares and per-share amounts since inception
have been restated to reflect the equivalent number of post stock split shares.
NOTE 5 - RENT AND LEASE EXPENSE
The Company relocated its corporate offices to 19125 N. Indian Avenue,
North Palm Springs, California, effective September 1, 2004 and has finalized a
three year lease for 30,000 square feet of warehouse space, 12,000 square feet
of outside space, and executive office space. The Company will pay $32,000 per
month for the lease.
The minimum future lease payments under these leases for the next five
years are:
Year Ended April 30, Real Property
- ------------------------------------------ -----------------
2005 $ 256,000
2006 384,000
2007 384,000
2008 128,000
2009 -
-----------------
Total five year minimum lease payments $ 1,152,000
=================
The lease generally provides that insurance, maintenance and tax
expenses are obligations of the Company. It is expected that in the normal
course of business, leases that expire will be renewed or replaced by leases on
other properties.
EFOODSAFETY.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6 - RELATED PARTY TRANSACTIONS
During 2004 and 2003, shareholders have paid general and administrative
expenses on behalf of the Company. These payments have been recorded as expenses
and as paid-in capital to the Company. The amount of paid-in capital contributed
by shareholders totaled $24,630 and $37,459 for the years ended April 30, 2004
and 2003 respectively.
During the year ended April 30, 2004, shareholders loaned the Company
$325,000. During the six months ended October 31, 2004, shareholders loaned the
Company an additional $675,000. The notes are payable in a lump-sum including
interest at 5% on June 3, 2009. The total amount of principal and interest due
on these notes is $1,027,622 and $328,873 as of October 31, 2004 and April 30,
2004, respectively.
NOTE 7 - ACQUISITION
On October 29, 2003, the Company issued 1,500,000 restricted shares of
common stock to acquire Food Safe, Inc. Food Safe, Inc. had no assets or
liabilities, except for a patent pending that has been valued at $650,000 and
expensed as part of research and development expense in the financial
statements. As of October 29, 2003, Food Safe, Inc. is a wholly owned subsidiary
of the Company.
In May 2004, the Company incorporated Knock-Out Technologies, Ltd.
("Knock-Out") as a wholly- owned subsidiary of the Company. Knock-Out is to be a
manufacturer of all-natural, non-toxic, food-grade products.
NOTE 8 - INVENTORY
During the year ended April 30, 2004, the Company purchased inventory
of $47,887. During the six months ended October 31, 2004, the Company purchased
inventory of $254,000. The inventory consists of ozonation equipment that will
be resold to clients. The inventory has been recorded at cost. In April 2004,
$780 of inventory was sold to a third-party. In June 2004, $5,835 of inventory
was sold to a third- party.
NOTE 9 - CONVERTIBLE DEBENTURES
On July 21, 2004, the Company sold $2.0 million in convertible
debentures. The convertible debentures carry an interest rate of 6% per annum,
payable quarterly. The debentures carry a conversion price of $.40 per share of
the Company's common stock.
The purchasers of the debentures receive an A Warrant to purchase an
amount of common stock equal to 50% of the number of shares of common stock
purchased via this investment. The A Warrants expire two years from the date of
issuance and the exercise price of the A Warrants is $.80 per share.
The purchasers of the debentures also receive a B Warrant to purchase
an amount of common stock equal to 50% of the number of shares of common stock
purchased via this investment. The B Warrants expire two years from the date of
issuance and the exercise price of the B Warrants is $1.00 per share.
EFOODSAFETY.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10 - SUBSEQUENT EVENTS
The Company filed a complaint in the Superior Court of Riverside
County, California on November 5, 2004 against Mr. Karney and other parties
alleging breach of fiduciary duty, conversion, constructive trust, fraud and
declaratory relief. The Company believes that Mr. Karney misappropriated
approximately $189,000 from the Company and attempted to cause the Company to
enter into invalid contracts with close personal friends without proper
authorization. These friends were also paid Company proceeds without providing
any consideration. As of December 2, 2004, the Company completed service of
process of its complaint on all named defendants including its former Chief
Executive Officer, Clarence "Bill" Karney, AmeriFinancial, Inc., Conn Chemicals
Engineering Company, Inc. and Trac Force dba Freshtrak.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD LOOKING STATEMENTS
This registration statement contains forward-looking statements as that
term is defined in the Private Securities Litigation Reform Act of 1995. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as "may",
"will", "should", "expects", "plans", "anticipates", "believes", "estimates",
"predicts", "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks in the
section entitled "Risk 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 or implied by these forward-looking statements. Certain
important risks could cause results to differ materially from those anticipated
by some of the forward-looking statements. Some, but not all, of the risks that
could cause actual results to differ from those suggested by the forward-looking
statements include, among other things:
o our ability to successfully implement our business plan;
o our ability to develop commercially viable products;
o the efficiency and reliability of our products;
o the loss of the services of any member of our management team;
o whether or not our products are able to compete successfully with
products of other suppliers and whether or not some or all of our
products are rendered obsolete by newer products or technologies;
o the implementation of any government regulation that could make it
impossible, more difficult or more costly to bring our products to
market;
o our ability to obtain financing as and when we need it; and
o other factors, all of which are difficult to predict and many of which
are beyond our control.
You are cautioned not to place undue reliance on these forward-looking
statements, which relate only to events as of the date on which the statements
are made. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these
statements to actual results.
As used in this registration statement, the terms "we", "us", "our",
"eFood", "eFoodSafety" and the "Company" mean eFoodSafety.com, Inc., unless
otherwise indicated.
DESCRIPTION OF BUSINESS
eFoodSafety.com, Inc., a Nevada corporation, originally incorporated
under the name DJH International, Inc., was formed on October 28, 1996. We are
engaged in the food safety business which involves sanitizing and disinfecting
food product storage areas and transportation containers, such as produce
distribution centers, meat processing facilities, and produce trucks. Through
our acquisition of Knock-Out Technologies in May 2004, we are also involved in
the development of herbal, non-toxic food grade products, including an anthrax
sporocidal.
Our initial products are designed to eradicate harmful agents from
fruits and vegetables. We have identified various new product applications and
product line extensions and are involved in ongoing product research and
development efforts in that regard. Through April 30, 2004, we have had nominal
revenue and our efforts have primarily been concentrated on product development
and testing and assembling our sales and support organization.
Our corporate headquarters is located at 19125 N. Indian Avenue, North
Palm Springs, California, 92258.
HISTORY AND COMPANY DEVELOPMENT
eFoodSafety.com, Inc. was incorporated in Nevada on October 28, 1996 as
DJH International, Inc. to market products through the Internet. The founder,
Michael J. Daniels, saw a need for good products and services to be marketed
traditionally and via the World Wide Web and sought opportunities through
companies that had the ability to sell and deliver in a timely fashion.
On October 16, 2000, we entered into an agreement and plan of
reorganization with Global Procurement Systems, Inc. whereby we acquired Global.
As a result of the acquisition, we issued 37,620,000 common shares and changed
our name to eFoodSafety.com, Inc. Upon the merger, Ms. Patricia Ross assumed the
official duties as president and brought us to our present path toward
development of sanitation services and products in the fruit and vegetable
market worldwide.
On October 29, 2003, the Company issued 1,500,000 restricted shares of
common stock to acquire Food Safe, Inc. As of October 29, 2003, Food Safe, Inc.
is a wholly owned subsidiary of the Company.
In May 2004, the Company incorporated Knock-Out Technologies, Ltd.
("Knock-Out") as a wholly- owned subsidiary of the Company. Knock-Out is to be a
manufacturer of all-natural, non-toxic, food-grade products.
We have undergone no bankruptcy, receivership or similar proceedings.
We are still considered to be a development stage company. We have
little revenue and are dependent upon the raising of capital through placement
of its common stock. There can be no assurance that we will be successful in
raising the capital required through the sale of debt or equity securites, and
that would be able execute our business plan even if we obtained such capital.
Success of the plan of operation is contingent on the prudent usage of funds
raised, through equity and/or debt financing, to finance our food safety
products and services business.
PRODUCTS
We intend to offer a suite of products and processes designed to
eliminate pathogens and pesticides from phases of food distribution, primarily
produce. The U.S. Department of Agriculture (USDA) has estimated that the annual
value of all food consumption in the U.S. totals $760 billion. Of this amount
18% or $137 billion, is fruits and vegetables. The USDA further estimates that
less than 2% of all fruits and vegetable are pathogen, or "germ free", at the
initial packing point, and less still are provided with a way to continue to
eliminate the growth of pathogens during the distribution cycle.
We have developed products and equipment based on treatment of fruits
and vegetables with ozone. We believe ozone to be effective in keeping produce
free from pathogens and pesticides. The ozone material, along with water and
citric acid (to maintain desired water ph balance) would be sprayed on produce.
Our research, covering the past four years and, our process development
has demonstrated that our chemical-free Food Safe Program, utilizing ozone or
electronic pasteurization, virtually eliminated all pesticides and pathogens,
including E. Coli, Salmonella, and Listeria, at the packing house or
distribution center. Pesticides are chemical sprays used on a product while it
is growing in the field. The residue is left on the product under the normal
packing process. Pathogens are disease-causing bacteria, such as Salmonella,
Listeria, and E.Coli. The Food Safe Process effectively removes both pesticides
and pathogens. The Food Safety Program is intended to be a complete process that
would incorporate an application and monitoring system utilizing an ozonated
wash to fresh fruit and vegetables. A monitoring device will continuously
monitor water quality, Oxidation Reduction Potential (ORP), ph balance, and
maintains continuous records that satisfy Hazard Analysis Critical Control Point
(HACCP) requirements. The data supplied by the monitoring device would be sent
to the USDA to ensure compliance with HACCP standards.
The ozone-based products and services provided by eFoodSafety are
available in an array of formats.
PRODUCE DISTRIBUTION FACILITY. To establish the Food Safe Program, the Company
intends to acquire a produce distribution facility. A "run-through" will be
completed after the Company has acquired such a distribution facility, set up
production lines, tested equipment, and ensured that all FDA standards have been
met or exceeded. From the time the Company takes possession of a distribution
facility, the first test run will be in 30 days of that point. The Company will
be fully operational, including equipment, labor, sales, and product testing,
approximately two (2) days after the test run. eFood's marketing plans will be
initiated immediately and those clients, if any, currently awaiting commencement
would then be serviced.
For the entire sanitization program to be deemed efficient, the process
must be completed at the company's distribution facility upon it being acquired
and operational. The results of such process shall exceed any FDA/USDA
standards. As stated above, the company offers a variety of services implemental
in a multitude of environments.
Therefore, billing for the company's products and services must be
determined on a case-by-case basis further described below:
Outline of the sanitization process listed by service and cost if the
client brings the produce to the company-owned distribution facility
for processing. This process exceeds any FDA, USDA Standards:
1. Inspection of Product Cost per unit $ 0.10
2. Handling Product before Processing Cost per unit $ 0.15
3. Food Safety Process/Packaging Cost per unit $ 2.50
4. Chemical Inspection Cost per unit $ 0.25
5. Sanitizing the Truck Cost per unit $ 0.15
6. Cost of Delivery of Product Cost per unit $ 1.75
-----------------
Total Cost per unit $ 4.90
=================
Please note that all prices are subject to change.
Outline of a la carte services available at the company-owned
distribution facility without utilizing the sanitization process:
1. Load Consolidation Cost per unit $ 1.00
2. Store Drop Delivery Cost per unit $ 1.50
3. Repacking Cost per unit $ 2.25
4. Storage Cost per unit $ 0.50
5. Sales/Marketing Cost per unit $ 1.00
6. Transportation Cost per load $ 250.00
Please note that all prices are subject to change.
Outline of services available at the customer's facility, not including
the cost for leasing/purchasing eFood approved equipment:
1. Process Cost per unit $ 0.30
Please note that a unit could be defined as follows:
a) trays (berries); b) cartons (oranges, peppers,
bananas); c) lugs (grapes, tomatoes); d) sacks
(potatoes, cucumbers), etc.
The program will use common materials, as will the manufacture of
equipment, so that we will have a multitude of vending sources from which to
choose. In addition, we plan to market our products and services so as not to
become dependent on any one customer.
EQUIPMENT LEASING. In addition to developing a Food Safe Program, we intend to
supply machinery and materials to those patrons who will be leasing/purchasing
the equipment and performing the process at their own (the vendor) facility. The
equipment will be custom fabricated by eFoodSafety.com, at its Palm Springs
manufacturing facility, thus causing the Company to require a deposit from the
customer in order to outlay any initial manufacturing costs. By performing the
process in the vendor's facility, it will give an extended shelf life to the
produce, including a reduction in pathogens, and an impression of sanitization
to the end- customer, but such produce will not meet any certification for
government standards due to cross contamination in packing, shipping, delivery,
etc.
TRUCK WASHING SERVICES. Using our ozone-based technology, we also are developing
a truck washing service designed to wash trucks and the produce they deliver.
This is intended to reduce the level of pathogens that may grow on produce
during the transportation process.
KNOCK-OUT SUBSIDIARY PRODUCTS. Through our subsidiary, Knock-Out Technologies,
we are developing a variety of products based on a proprietary blend of organic,
non-toxic and food-based substances. These products include an anthrax
sporocidal, a germicidal cleaner, a wound care antiseptic, an herbicide and an
insect repellent.
We are currently having an outside organization, Celsis Laboratory
Group, commence EPA protocol testing for the anthrax germicidal and sporocidal
product.
SALES AND MARKETING
Initially, the program will be marketed locally. In order to set up a
potential customer base, the Company intends to introduce its program to various
parties in the fruit and vegetable industry, as well as various government
officials. The company sales staff will carry out its marketing plan in the
areas of produce sales, equipment sales, food safe audits, and distribution
center access. The local marketing areas are the states of Arizona, California,
Maryland, Nevada, Oregon and Washington.
We also plan to market all services, products and produce through
outside commissioned sales persons and through our website,
http://www.e-foodsafety.com.
CUSTOMERS
Our potential customers for our food safety products include produce
shippers and processors, meat processors and liquid processors.. Customers for
our Knock-Out subsidiary products vary depending on the product. Potential
customers for our anthrax sporocidal may include the U.S. government, which has
expressed interest in products that kill the anthrax virus. Potential customers
for the germicidal cleaner includes nursing homes, hospitals and food service
facilities.
COMPETITION
The produce and meat industries are extremely competitive and have
become highly fragmented over the years. Operators have been attempting to hold
or increase market share through the development and operating of traditional
sales and distribution outlets.
There are presently, to the best of our knowledge, no companies that
provide complete inspection services, processes and equipment. There are,
however, competitors that do provide partial food-safe
programs. We would compete with companies who use chlorine, irradiation and
other methods designed to eliminate pathogens and pesticides from produce and
other food items.
We will compete with many different companies regarding certain
commodities in the market place including, but not limited to:
GOVERNMENT REGULATION
The only license required by the food safety products will be a PACA
(Perishable Agricultural Commodities Act) License and a State's License issued
by the State Department in each state the Company is conducting its business. On
December 9, 2003, the Company received its PACA license from the U.S. Department
of Agriculture. In June 2001, the FDA approved the use of ozone on food
products.
Any distribution center we develop would be subject to various federal,
state and municipal regulations with regards to health, safety and environmental
issues. Such facilities are subject to supervision or periodic inspection by
other regulators.
INTELLECTUAL PROPERTY
Although we have filed for patent protection for some of our certain
products, there is no assurance we will obtain patent approval. Even if they
were obtained, we may not have any patent protection for any derivative uses of
such products, or for any other products we may later acquire or develop. We
also cannot assure that we will be able to obtain foreign patents to protect our
products.
Litigation may be required to enforce our intellectual property rights,
protect our trade secrets or determine the validity and scope of proprietary
rights of others. Any action we take to protect our intellectual property rights
could be costly and could absorb significant management time and attention. In
addition, as a result of any such litigation, we could lose any proprietary
rights we have. If any of the foregoing occurs, we may be unable to execute on
our business plan and you could lose your investment.
RESEARCH & DEVELOPMENT
We do not anticipate incurring material research and development costs
during the next 12 months, nor do we anticipate the acquisition or sale of any
material property, plant or equipment during the next 12 months. During the
three and six months ended October 31, 2004, we have acquired and expensed
$51,540 and $95,252 for research and development, respectively. During the three
and six months ended October 31, 2003, we acquired and expensed $0 and $0 for
research and development, respectively.
EMPLOYEES
We currently have eleven paid full time employees. We believe that
relations with our employees is good. We believe that the management team will
eventually consist of approximately ten officers and/or directors and that, as
our business grows, we may have up to six supervisors oversee the operations
divisions a distribution center. The employees at each facility will be
contracted through local vendors.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE AND SIX MONTHS ENDED OCTOBER 31, 2004
Prior to April 2004, we had no active operations. Thus any comparisons
of results of operations and financial position compared with the three and six
months ended October 31, 2003 and the financial position as at October 31, 2004
are not relevant.
SALES
Our revenues from operations for the three and six months ended October
31, 2004 were $2,273 and $19,907, respectively, and was generated from a sale of
an Ozone Air Clean unit and accessories.
COST OF SALES AND GROSS PROFIT
Our cost of sales for the three and six months ended October 31, 2004
was $280 and $6,115, respectively, generating a percentage margin on sales of
87.68% and 69.29%.
RESEARCH AND DEVELOPMENT
Research and Development expenses include $83,453 cash compensation
paid to William Nelson.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
A summary of our Selling, General and Administrative costs is as
follows:
Cash based compensation was paid to our staff of eleven full-time
employees, consulting fees for outside directors, legal advisors and marketing
consultants.
Other selling, general and administrative costs include rent, office
expenses, and travel expenses.
INTEREST EXPENSE
Interest expenses of $42,625 and $56,822 were incurred during the three
and six months ended October 31, 2004 and relate to interest accrued on
outstanding promissory notes payable to related parties in lump-sum including
interest at 5% on June 3, 2009. Interest expenses also included $29,835 and
$33,073 from $2.0 million in convertible debentures that were sold during the
first quarter.
LIQUIDITY AND CAPITAL RESOURCES
As of October 31, 2004, we had working capital of $1,195,121. As a
result of our operating losses during the six months ended October 31, 2004, we
generated a cash flow deficit of $1,750,193 from operating activities. We used
cash flows in connection with investing activities of $581,295 during the six
months ended October 31, 2004 for the purchase of fixed assets, and the purchase
of marketable securities. We met our cash requirements for the six months ended
October 31, 2004 through loans of $675,000 from shareholders and the sale of
convertible debentures of $1,969,550.
On July 21, 2004, the Company sold $2.0 million in convertible
debentures. The convertible debentures carry an interest rate of 6% per annum,
payable quarterly. We paid a consultant 10% of the gross proceeds of $2.0
million ($200,000) as a finder's fee. The debentures carry a conversion price of
$0.40 per
share of the Company's common stock.
The purchasers of the debentures receive an A Warrant to purchase an
amount of common stock equal to 50% of the number of shares of common stock
purchased via this investment. The A Warrants expire two years from the date of
issuance and the exercise price of the A Warrants is $0.80 per share.
The purchasers of the debentures also receive a B Warrant to purchase
an amount of common stock equal to 50% of the number of shares of common stock
purchased via this investment. The B Warrants expire two years from the date of
issuance and the exercise price of the B Warrants is $1.00 per share.
Our operating revenues may be less than adequate to fund future
operations and growth. We will continue to fund our operations through
additional sales of our securities and/or through shareholder loans. There is no
guarantee that we will be successful in obtaining any additional financing
should it be required. If we cannot secure additional financing when needed, we
may be required to cease operations.
By adjusting its operations and development to the level of
capitalization, management believes it has sufficient capital resources to meet
projected cash flow deficits through the next twelve months.
However, if thereafter, we are not successful in generating sufficient
liquidity from operations or in raising sufficient capital resources, on terms
acceptable to us, this could have a material adverse effect on our business,
results of operations liquidity and financial condition.
In May 2004, the Company incorporated Knock-Out Technologies, Ltd.
("Knock-out") as a wholly- owned subsidiary of the Company. Knock-Out is to be a
manufacturer of all-natural, non-toxic, food-grade products.
Our independent certified public accountants have stated in their
report, which is included with our audited financial statements for the year
ended April 30, 2004, that we have incurred operating losses in the last two
years and that we are dependent on management's ability to raise capital and
develop profitable operations. These factors, among others, may raise
substantial doubt about our ability to continue as a going concern.
We have no off-balance sheet arrangements, special purpose entities,
financing partnerships or guarantees.
CRITICAL ACCOUNTING POLICIES
Our critical accounting policies are those which we believe require
significant judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain. A discussion of our critical
accounting policies is set forth in the Notes to our Financial Statements
included as part of this Registration Statement.
RISK FACTORS
An investment in our securities is very speculative and involves a high
degree of risk. You should carefully consider the following risk factors, along
with the other matters discussed in this prospectus, before you decide to buy
our securities. Any of these factors could cause the value of your investment to
decline significantly or become worthless. If you decide to buy our securities,
you should be able to afford a
complete loss of your investment.
WE ARE A DEVELOPMENT STAGE COMPANY, WITH VIRTUALLY NO REVENUE, LIMITED OPERATING
HISTORY, AND YOU COULD LOSE YOUR ENTIRE INVESTMENT.
We have had virtually no revenue and have operated with cash from debt
or equity financings. We have a limited operating history and our operations are
subject to all the risks inherent in a business enterprise with such a limited
operating history, including limited capital, possible delays in the development
and successful execution and implementation of our business plan, uncertain
markets, and the absence of an operating history. The likelihood that we will
succeed must be considered in light of the problems, expenses, and delays
frequently encountered in connection with the development of new businesses, as
well as many other factors. Our business has not shown a profit. Since we
commenced operations, we have accumulated a net loss. There is no assurance that
we will be able to develop successfully the business we are pursuing. We cannot
be certain that our business will be successful or that we will generate
significant revenues.
WE HAVE CAPITAL REQUIREMENTS AND WE MAY HAVE THE NEED FOR ADDITIONAL CAPITAL IN
THE FUTURE.
As of October 31, 2004, we believe that execution of our primary
business goal will result in net losses for at least the next two quarters.
Based on our estimates, we believe our current resources will be sufficient to
fund operations through the first quarter of 2005. We had been dependent
primarily on private placements of our debt and equity securities and
shareholder loans to fund our operations. In the near term, we intend to focus
on increasing our revenues and marketing efforts for our products. Although our
management is cautiously optimistic that we will be able to grow our revenue in
the near future, there can be no assurance that we will generate sufficient
revenue to support our operations, and if such revenue will be sustainable.
In the event that we will seek additional capital, there can be no
assurance that any such funding will be available to us when needed, on
commercially reasonable terms, or at all. If we are unable to generate
sufficient additional revenue or obtain additional financing if needed, we will
likely be required to curtail our marketing and operating plans and possibly
cease our operations. In addition, any additional equity financing may involve
substantial dilution to our then-existing stockholders.
Our independent accountants have included an explanatory paragraph in
our financial statements included in our public filings, which are incorporated
by reference into this prospectus, stating that we have incurred operating
losses since inception and that we are dependent on our management's ability to
develop profitable operations, and that these factors, among others, may raise
substantial doubt about our ability to continue as a going concern.
IF OUR PRODUCTS AND SERVICES DO NOT GAIN MARKET ACCEPTANCE, IT IS UNLIKELY THAT
WE WILL BECOME PROFITABLE.
The market for products that affect the sanitizing of fruits and vegetables is
evolving and we have many competitors. Competitors used various technologies,
including chlorine-based solutions, to eliminate pathogens and bacteria in the
food storage and distribution process. Compared to these technologies, our
technology is unproven and less mature, and the use of our technology by our
potential customers is limited.
The commercial success of our products will depend upon the adoption of our
technology by food transportation, distribution and storage facilities as an
approach to remove pathogens from fruits, vegetables and other foods. Market
acceptance will depend on many factors, including:
o the willingness and ability of food industry distributors and producers
to adopt new technologies;
o the willingness of governments to approve our products;
o our ability to convince potential industry customers that our
technology is an attractive alternative to currently accepted
technologies for reduction of pathogens from meats, fruits, vegetables
and other food items;
o our ability to manufacture products and provide services in sufficient
quantities with acceptable quality and at an acceptable cost; and
o the willingness by our potential customers to make capital expenditures
for our products.
If our products do not achieve a significant level of market
acceptance, demand for our products will not develop as expected and it is
unlikely that we will become profitable.
RISK OF LOSS OF INVESTMENT DUE TO HIGHLY COMPETITIVE NATURE OF OUR INDUSTRY.
The market for sanitation products for fruits and vegetables is intensely
competitive. We have limited operating history and minimal revenues from
operations. We currently have assets and financial resources, but we had
operated at a loss for some time and must now execute its business plan. We are
smaller than our national competitors, and consequently lack comparable
financial resources to enter into certain markets. In fact, we compete with
several companies that specialize in the $5 billion dollar fruit and vegetable
sanitation market. Most of these companies have longer histories, greater name
recognition and more financial resources than we do.
RISK OF FAILING TO OBTAIN CRITICAL INTELLECTUAL PROPERTY
Management has decided not to enter into an agreement with Clarence W. Karney
for the right to use the Global Inspection Service (GIS) that is a concept
created by Mr. Karney. The company plans to negotiate an agreement whereby GIS
can be implemented and offered as a standard service. No contract has been
entered into to date although a letter of intent to contract has been signed.
Failure to reach a definitive agreement with Mr. Karney for the right to offer
GIS could adversely affect the Company's ability to continue in business.
Furthermore, no assurances can be given that a contract entered into would be
the product of arms length negotiations and result in terms favorable to the
Company.
DEPENDENCE ON KEY PERSONNEL.
The success of the Company will depend to a great extent on Mark Taggatz,
Patricia Ross-Gruden, William Nelson, and other members of our management. These
individuals do not have employment contracts and may terminate their employment
at any time. If we lose our key personnel, our business may suffer. We depend
substantially on the continued services and performance of our senior management
and, in particular, their contracts and relationships, especially within the
fresh fruit and vegetable industry.
NEED TO BUILD OUT OUR SALES AND MARKETING ORGANIZATION.
We are and shall continue marketing our existing products and future products
that we may license or acquire either through the utilization of contract sales
representatives and brokers, the establishment of our own sales force, strategic
alliances and various other methods. We are in the early stages of developing
such sales and marketing channels, and further development of those channels
will require an investment of substantial amounts of capital. Accordingly,
despite our plans, we may be unable to substantially develop our own marketing
channels.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OR WE MAY INFRINGE
THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH MAY RESULT IN LAWSUITS AND
PREVENT US FROM SELLING OUR PRODUCTS.
We rely on patent, trademark, and trade secret laws to protect our trademarks,
content, and proprietary technologies and information. We have filed or intend
to file patents for several of our products. However, there can be no assurance
that such laws will provide sufficient protection to us, or other parties will
not develop technologies that are similar or superior to ours.
There are no pending lawsuits against us regarding infringement of any existing
patents or other intellectual property rights or any material notices that we
are infringing the intellectual property rights of others. However, there can be
no assurance that third parties will not assert infringement claims in the
future. If any claims are asserted and determined to be valid, there can be no
assurance that we will be able to obtain licenses of the intellectual property
rights in question or obtain licenses on commercially reasonable terms. Our
involvement in any patent dispute or other intellectual property dispute or
action to protect proprietary rights may have a material adverse effect on our
business, operating results, and financial condition. Adverse determinations in
any litigation may subject us to liabilities, require us to seek licenses from
third parties, and prevent us from marketing and selling our products. Any of
these situations can have a material adverse effect on our business, operating
results, and financial condition.
RISK OF INCURRING HIGH LEGAL COST DUE TO LITIGATION.
While we are not currently involved in any litigation, that is no indication
that we will be precluded from being sued in the future. In the past, especially
during periods of market volatility, securities class action litigation has
often been instituted against companies similar to ours. Such litigation, if
instituted, could result in substantial costs and diversions of management's
attention and resources, which could have a material adverse effect on our
business, results of operations and financial condition.
RISK OF EXTERNAL INFLUENCES
The price or our stock could be affected by external influences, which are
beyond our control. Examples of these influences are:
o An abrupt economic change resulting in an unexpected downturn in
demand;
o Governmental restrictions or excessive taxes on imports;
o Over-abundance of products and services related to the sanitation
industry; and
o Sudden increase in raw materials, such as steel.
RISK DUE TO MINORITY STATUS OF NEW INVESTORS
Our directors and executive officers beneficially own approximately 55,885,000
common shares; approximately 60.06% of the outstanding common stock if all the
shares offered are sold. As a result, these shareholders, if they act as a
group, will have a significant influence on all matters requiring shareholder
approval, including the election of directors and approval of significant
corporate transactions. Such control may have the effect of delaying or
preventing a change in control of the Company.
RISKS DUE TO RESALE RESTRICTIONS IMPOSED BY STATE "BLUE SKY LAWS"
There are state regulations, which might affect the transferability of our
shares. We have not registered its shares for resale under the securities or
"blue sky" laws of any state and we have no plans to register or qualify its
shares in any state. Current shareholders, and persons who desire to purchase
the shares in any trading market that may develop in the future, should be aware
that there may be significant state restrictions upon the ability of new
investors to purchase the securities.
SEC and "blue sky" laws, regulations, orders, or interpretations place
limitations on offerings or sales of securities by development stage companies,
or if such securities represent "cheap stock" previously issued to promoters or
others. These limitations typically provide, in the form of one or more of the
following limitations, that such securities are:
o not eligible for sale under exemption provisions permitting sales
without registration to accredited investors or qualified purchasers;
o not eligible for the transactional exemption from registration for
non-issuer transactions by a registered broker-dealer;
o not eligible for registration under the simplified small corporate
offering registration (SCOR) form available in many states;
o required to be placed in escrow and the proceeds received held in
escrow subject to various limitations; or
o not permitted to be registered or exempted from registration, and thus
not permitted to be sold in the state under any circumstances.
Virtually all 50 states have adopted one or more of these limitations, or other
limitations or restrictions affecting the sale or resale of stock of development
stage companies, or "cheap stock" issued to promoters or others.
Specific limitations on offerings by development stage companies have been
adopted in:
Alaska Maryland Rhode Island
Arkansas Nebraska South Carolina
California New Mexico South Dakota
Delaware Ohio Tennessee
Florida Oklahoma Utah
Georgia Oregon Vermont
Idaho Pennsylvania Washington
Indiana
Any secondary trading market, which may develop, may only be conducted in those
jurisdictions where an applicable exemption is available or where the shares
have been registered.
ITEM 3. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer has
concluded, based on an evaluation conducted within 90 days prior to the filing
date of this quarterly report on Form 10-QSB, that the Company's disclosure
controls and procedures have functioned effectively so as to provide those
officers the information necessary whether:
(i) this quarterly report on Form 10-QSB contains any untrue
statement of a material fact or omits to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this
quarterly report on Form 10-QSB, and
(ii) the financial statements, and other financial information
included in this quarterly report on Form 10-QSB, fairly
present in all material respects the financial condition,
results of operations and cash flows of the Company as of, and
for, the periods presented in this quarterly report on Form
10-QSB.
There have been no significant changes in the Company's internal
controls or in other factors since the date of the Chief Executive Officer's and
Chief Financial Officer's evaluation that could significantly affect these
internal controls, including any corrective actions with regards to significant
deficiencies and material weaknesses.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company filed a complaint in the Superior Court of Riverside
County, California on November 5, 2004 against Mr. Karney and other parties
alleging breach of fiduciary duty, conversion, constructive trust, fraud and
declaratory relief. The Company believes that Mr. Karney misappropriated
approximately $189,000 from the Company and attempted to cause the Company to
enter into invalid contracts with close personal friends without proper
authorization. These friends were also paid Company proceeds without providing
any consideration. As of December 2, 2004, the Company completed service of
process of its complaint on all named defendants including its former Chief
Executive Officer, Clarence "Bill" Karney, AmeriFinancial, Inc., Conn Chemicals
Engineering Company, Inc. and Trac Force dba Freshtrak.
ITEM 2. CHANGES IN SECURITIES. None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.
ITEM 5. OTHER INFORMATION. None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
On October 4, 2004, the Company filed on Form 8-K under Item 5.02,
Departure of Directors or Principal Officers; Election of Directors; Appointment
of Principal Officers.
On December 14, 2004, the Company filed on Form 8-K under Item 8.01,
Other Events.
Exhibits
Exhibits Required by Item 601 of Regulation S-B
(3) ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Articles of Incorporation (incorporated by reference from our
Registration Statement on Form SB-2 as amended on February 4, 2003)
3.2 Corporate Bylaws (incorporated by reference from our Registration
Statement on Form SB-2 as amended on February 4, 2003)
31 CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32 CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EFOODSAFETY.COM, INC.
By: /s/ Mark Taggatz
Mark Taggatz, President, CEO
(Principal Executive and Financial Officer)
Date: December 15, 2004