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 JULY 31, 2005
-------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from to .
-------------- -----------------
Commission file number 333-68008
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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)
(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: 110,344,009 common shares issued and
outstanding as of July 31, 2005
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
In the opinion of management, the interim financial statements for the quarter
ended July 31, 2005 include all adjustments necessary in order to make the
consolidated financial statements not misleading.
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
July 31, April 30,
2005 2005
------------------ ------------------
Assets:
Current Assets
Cash $ 36,042 $ 38,336
Marketable securities - 165,543
Accounts receivable - 386
Prepaid expenses - 7,000
Deposits 32,800 32,800
------------------ ------------------
Total Current Assets 68,842 244,065
------------------ ------------------
Fixed Assets
Equipment 62,191 61,500
Furniture and fixtures 8,033 7,583
Computer and software 18,937 18,937
Building improvements 16,361 16,361
Vehicles 11,170 11,170
Accumulated Depreciation (30,775) (23,256)
------------------ ------------------
Total Fixed Assets 85,917 92,295
------------------ ------------------
Total Assets $ 154,759 $ 336,360
================== ==================
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(continued)
(Unaudited)
July 31, April 30,
2005 2005
------------------ ------------------
Liabilities:
Current Liabilities
Accounts payable $ 224,746 $ 257,786
Accrued interest 41,016 39,661
------------------ ------------------
Total current liabilities 265,762 297,447
------------------ ------------------
Long-Term Liabilities
Notes payable 1,378,000 1,228,000
Convertible debentures 50,000 50,000
Accrued interest 67,376 56,009
------------------ ------------------
Total long-term liabilities 1,495,376 1,334,009
------------------ ------------------
Total Liabilities 1,761,138 1,631,456
------------------ ------------------
Stockholders' Equity:
Common Stock, $.0001 Par Value
Authorized 500,000,000 shares, Issued
110,344,009 at July 31, 2005
and 107,026,190 at April 30, 2005 11,034 10,703
Paid-In Capital 6,433,322 5,352,452
Cumulative unrealized gains and losses - 258
Deficit Accumulated During the
Development Stage (8,050,735) (6,658,509)
------------------ ------------------
Total Stockholders' Equity (1,606,379) (1,295,096)
------------------ ------------------
Total Liabilities and
Stockholders' Equity $ 154,759 $ 336,360
================== ==================
The accompanying notes are an integral part of these financial statements.
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative
since
January 28,
1998
inception
For the three months of
ended July 31, development
2005 2004 stage
------------------- ------------------ ------------------
Revenues $ 59,247 $ 17,634 $ 148,004
Cost of sales 44,631 5,835 86,814
------------------- ------------------ ------------------
Gross Profit 14,616 11,799 61,190
------------------- ------------------ ------------------
Expenses
Sales and marketing 7,118 - 87,277
Research and development 60,716 43,712 2,577,315
Consulting 896,202 - 1,785,271
General and administrative 430,923 305,306 3,532,266
------------------- ------------------ ------------------
Total Expenses 1,394,959 349,018 7,982,129
------------------- ------------------ ------------------
Net Loss from Operations (1,380,343) (337,219) (7,920,939)
Other Income (Expense)
Interest income 3 15 2,421
Dividend income 308 - 10,334
Gain/Loss on sale of
marketable securities 529 - 5,788
Interest Expense (12,723) (14,197) (148,339)
------------------- ------------------ ------------------
Net Loss $ (1,392,226) $ (351,401) $ (8,050,735)
=================== ================== ==================
Basic & Diluted loss per share $ (0.01) $ -
=================== ==================
Weighted Average Shares 109,053,643 93,045,816
=================== ==================
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 three months ended Inception of
July 31, Development
2005 2004 Stage
------------------- ------------------ -----------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $ (1,392,226)$ (351,401) $ (8,050,735)
Adjustments used to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation 7,519 1,636 30,775
Common stock issued for accrued interest - - 9,497
Common stock issued for expenses 1,081,202 - 3,737,105
Gain/Loss on sale of marketable securities (529) - (5,788)
(Increase) Decrease in Inventory - (248,165) -
(Increase) Decrease in Prepaid Expenses & Deposits 7,000 (32,800)
(Increase) Decrease in Accounts Receivable 386 - -
Increase (Decrease) in Accounts Payable (33,040) 4,841 62,630
Increase (Decrease) in Accrued Interest 12,722 14,197 270,508
------------------- ------------------ -----------------
Net Cash Used in operating activities (316,966) (578,892) (3,978,808)
------------------- ------------------ -----------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of fixed assets (1,141) (22,890) (116,692)
Purchase of marketable securities - (500,000) (500,000)
Dividends reinvested in marketable securities (566) - (10,592)
Proceeds from sale of marketable securities 166,379 - 516,379
------------------- ------------------ -----------------
Net cash provided by investing activities 164,672 (522,890) (110,905)
------------------- ------------------ -----------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from sale of stock - - 3,910
Capital contributed by shareholder - - 663,845
Proceeds from loans 150,000 675,000 1,378,000
Proceeds from convertible debentures - 1,969,550 2,080,000
------------------- ------------------ -----------------
Net cash provided by Financing Activities 150,000 2,644,550 4,125,755
------------------- ------------------ -----------------
Net (Decrease) Increase in
Cash and Cash Equivalents (2,294) 1,542,768 36,042
Cash and Cash Equivalents
at Beginning of Period 38,336 83,600 -
------------------- ------------------ -----------------
Cash and Cash Equivalents
at End of Period $ 36,042 $ 1,626,368 $ 36,042
=================== ================== =================
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 Ozone Safe Food, Inc. On August 24,
2005, the Company sold Ozone Safe Food, 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. &
Subsidiaries (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 three months
ended July 31, 2005 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 three months ended July 31,
2005 and 2004. 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. The Company has been in the development state since January 28, 1998
and although planned principal operations have commenced, there has been no
significant revenue therefrom.
On October 29, 2003, the Company issued 1,500,000 restricted shares of
common stock to acquire Ozone Safe Food, Inc. As of October 29, 2003, Food Safe,
Inc. was a wholly owned subsidiary of the Company. On August 24, 2005, the
Company sold Ozone Safe Food, Inc.
In May 2004, the Company issued 1,000,000 restricted shares of common
stock to acquire 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.
Knock-Out Technologies, Ltd., a wholly owned subsidiary, has developed an
environmentally safe sporicidal product that eradicates anthrax and a germicidal
product that kills six major bacteria.
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(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 July 31, 2005, the Company has accumulated operating losses of $8,050,735
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 financing, 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 year ended April 30, 2005
and the three months ended July 31, 2005 include the accounts of
eFoodSafety.com, Inc. and its subsidiaries Ozone Safe Food, Inc. and Knock-Out
Technologies, Ltd. Ozone Safe Food, Inc. was acquired by the Company on October
29, 2003. Knock-Out Technologies, Ltd. was acquired by the Company in May 2004.
All significant intercompany balances and transactions have been
eliminated.
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(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 July 31, 2005 and 2004.
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 2004 financial
statements to conform with the 2005 presentation.
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(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:
July 31, 2005
---------------------------------------------------------
Gross Gross
Unrealized Unrealized Fair
Gain Loss Value
----------------- ------------------ ------------------
Available-for-sale securities $ - $ - $ -
================= ================== ==================
April 30, 2005
---------------------------------------------------------
Gross Gross
Unrealized Unrealized Fair
Gain Loss Value
----------------- ------------------ ------------------
Available-for-sale securities $ 258 $ - $ 165,543
================= ================== ==================
Realized gains and losses are determined on the basis of specific
identification. During the three months ended July 31, 2005 and 2004, sales
proceeds and gross realized gains and losses on securities classified as
available-for-sale securities were:
For the Three Months Ended
July 31,
2005 2004
------------------ ------------------
Sale Proceeds $ 166,379 $ -
================== ==================
Gross Realized Losses $ - $ -
================== ==================
Gross Realized Gains $ 529 $ -
================== ==================
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2 - INCOME TAXES
As of April 30, 2005, the Company had a net operating loss carryforward
for income tax reporting purposes of approximately $6,000,000 that may be offset
against future taxable income through 2025. 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 July 31, 2005 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. & SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4 - COMMON STOCK TRANSACTIONS (continued)
In August 2003, the Company issued 6,750,000 shares of common stock
(post-split) for services valued at $11,250.
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 May 3, 2004, the Company issued 1,000,000 restricted shares of
common stock to acquire Knock-Out Technologies, Ltd. ("Knock-Out") as a
wholly-owned subsidiary of the Company. The acquisition was expensed.
On May 3, 2004, the Company issued 750,000 restricted shares of common
stock for expenses of $375,000.
On July 9, 2004, the Company issued 40,816 shares of common stock for
general and administrative expenses valued at $24,490.
On August 5, 2004, the Company issued 20,408 shares of common stock for
general and administrative expenses valued at $10,612.
On September 17, 2004, the Company issued 20,408 shares of common stock
for general and administrative expenses valued at $8,367.
In August 2004, the Company issued 300,000 shares of common stock for
general and administrative expenses valued at $177,000.
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4 - COMMON STOCK TRANSACTIONS (continued)
During the year ended April 30, 2005, the Company issued 5,098,742
shares of common stock as payment towards the Company's convertible debentures.
The total payment was valued at $2,039,497.
During the quarter ended July 31, 2005, the Company issued 3,317,819
shares of common stock for services. The shares were valued at the market price
of the stock on the date of issuance. The services were valued at $1,081,202.
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
- ------------------------------------------ -----------------
2006 $ 384,000
2007 384,000
2008 128,000
2009 -
2010 -
-----------------
Total five year minimum lease payments $ 896,000
=================
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.
NOTE 6 - RELATED PARTY TRANSACTIONS
During 2004, 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 for the year ended April 30, 2004.
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6 - RELATED PARTY TRANSACTIONS (continued)
During the year ended April 30, 2004, shareholders loaned the Company
$325,000. During the year ended April 30, 2005, shareholders loaned the Company
an additional $903,000. During the three months ended July 31, 2005,
shareholders loaned the Company an additional $150,000. The notes are payable in
a lump-sum including interest of 5% to 6%, and are due between June 3, 2009 and
June 1, 2010. The total amount of principal and interest due on these notes is
$1,453,376 and $1,284,009 as of July 31, 2005 and April 30, 2005, respectively.
NOTE 7 - ACQUISITION
On October 29, 2003, the Company issued 1,500,000 restricted shares of
common stock to acquire Ozone Safe Food, Inc. Ozone Safe Food, 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, Ozone Safe Food, Inc. was a wholly
owned subsidiary of the Company. On August 24, 2005, the Company sold Ozone Safe
Food, Inc.
On May 3, 2004, the Company issued 1,000,000 restricted shares of
common stock to acquire 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. Knock-Out had no assets or
liabilities. The acquisition has been expensed in the financial statements.
Knock-Out has developed an environmentally safe sporicidal product that
eradicates antrhrax and a germicidal product tht kills six major bacteria.
NOTE 8 - 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 outstanding principal balance of the debentures
are due on July 21, 2007.
The purchasers of the debentures received 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 received 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.
During the year ended April 30, 2005, the Company issued 5,098,742
shares of common stock as payment towards the Company's convertible debentures.
The total payment was valued at $2,039,497.
At July 31, 2005 and April 30, 2005, the total amount of principal and
interest due on the convertible debentures is $91,016 and $89,661, respectively.
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9 - LITIGATION
EFOODSAFETY.COM, INC. V. KARNEY, ET al. (Case No. INC 046894). The
Company filed a complaint in the Superior Court of Riverside County, California
on November 5, 2004 against Mr. Karney, AmeriFinancial, Inc., Trac Force, Inc.,
and Does 1-50 alleging breach of fiduciary duty, conversion, constructive trust,
fraud and declaratory relief. The Company alleges that Mr. Karney
misappropriated no less than $189,000 from the Company and attempted to cause
the Company to enter into invalid contracts with close personal friends without
proper authorization. All named defendants have been served. The case is still
at the pleading stage and only limited discovery has taken place as certain
defendants are contesting jurisdiction and venue. No trial date has been sent.
GARCIA V. EFOODSAFETY.COM, INC. (Case No. 50-2004-CA-010352-MB-AH). On
November 4, 2004, Edward Garcia and Stephen Baugh, principals of Trac Force,
Inc., filed a Complaint in the Circuit Court of the 15th Judicial Circuit in
Palm Beach County, Florida seeking to enforce an agreement to acquire Trac
Force, Inc. in exchange for shares of the Company's common stock and a seat on
the Company's Board. The case is still in the early stages and only limited
discovery has taken place. No trial date has been sent.
AMERIFINANCIAL, INC. V. EFOODSAFETY.COM, INC. (Case No. H-05-0205). On
December 17, 2004, AmeriFinancial, Inc. filed a Complaint in the US District
Court for the Southern District of Texas (Houston Division) against the Company
seeking to enforce an agreement for the issuance of shares in exchange for
consulting and capital raising services. The Company strongly disputes the
claims alleged and denies the validity of the purported agreement. This case is
presently stayed pending changes in California litigation.
A legal proceeding was instituted in the Superior Court of the State of
Arizona in and for the Yavapi County on July 8, 2005 against eFoodSafety.com,
Inc., the registrant, and Patricia Ross-Gruden, William R. Nelson, Mark Taggatz
and Robert Bowker, officers and/or directors, by Richard Speidell, alleging
breach of an employment agreement and seeking specific performance, damages and
other relief. A similar legal proceeding was instituted in that court on that
date against Mark Taggatz, an officer and director of the registrant, Aquentium
Inc. and other unnamed defendants, by Clarence Karney, alleging breach of an
employment agreement and seeking damages and other relief.
Both Mr. Speidell and Mr. Karney were terminated by the Board of
Directors of the registrant on September 27, 2004, as Chief Operating Officer
and Chairman and Chief Executive Officer, respectively. As also reported above,
the Company instituted a legal proceeding against Mr. Karney and others in the
Superior Court of Riverside County, California on November 5, 2004, alleging
breach of fiduciary duty, conversion, constructive trust and fraud; the
complaint alleges, among other things, that Mr. Karney misappropriated $189,000
and entered into contracts with close personal friends without any
authorization.
The Board of Directors of the registrant and the individual defendants
believe both complaints are without any merit whatsoever and intend to defend
themselves vigorously. They believe the legal proceedings merely represent the
latest attempts by disgruntled former employees to pursue personal grievances,
to harass the registrant and its officers and directors and to interfere with
their devoting time, energy and attention to the business of the registrant.
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10 - SUBSEQUENT EVENTS
On August 24, 2005, the Company sold its Ozone Safe Food, Inc.
subsidiary to Mark Taggatz, former President and Chief Executive Officer of the
Company, in exchange for 1.5 million shares of the Company's common stock and an
agreement to receive royalty payments on equipment sales up to $60 million
through December 31, 2008. The shares were used to eliminate $300,000 of the
Company's debt.
On August 31, 2005, the Company acquired MedElite, Inc. from Dr.
Richard Goldfarb in exchange for 10,000,000 shares of the Company's common
stock, plus potential bonuses of restricted shares if certain sales/revenue
benchmarks are achieved. MedElite distributes clinically proven products to
physicians who then prescibe the products for their patients. It is the
exclusive U.S. distributor of the Talsyn(TM) product line that has been
clinically proven to facilitate and improve the appearance, redness and strength
of scars.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION AND RISK FACTORS
Certain statements in this report constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements deal with our current plans, objectives, projections,
expectations, assumptions, strategies, and future events. Words such as "may,"
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates,"
"will," "should," "could," and variations of such words and similar expressions
are intended to identify such forward-looking statements. Similarly, statements
that describe our plans, our strengths and weaknesss and other information that
is not historical information also are forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of the Company to be materially different from any future results, performance
or achievements, expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions, which will, among other thing, impact the ability of the Company to
implement its business strategy, and changes in, or failure to comply with,
governmental regulations affecting food and health.
In addition to the other information contained in this annual report, the
following risk factors, among others, that make investment in shares of the
Company's common stock speculative and risky should be carefully considered.
Poor Financial Position. For each of the fiscal years ended April 30, 2004 and
2005, we had net losses of $1,735,965 and $4,281.321, respectively. At April 30,
2005, our total liabilities exceeded out total assets by $1,391,818 and the
deficit accumulated during the development stage was $6,662,936. For the three
months ended July 31, 2005, we had a net loss of $1,392,226. At July 31, 2005,
our total liabilities exceeded our total assets by $1,606,379 and the deficit
accumulated during the development stage was $8,050,735. As a result of our
recurring losses from operations and our having no established source off
revenue, we require considerable additional financing to continue in as a
going-concern. The continuing financial
support of directors, officers and shareholders to satisfy our liabilities and
commitments is essential to the continuation of the Company and there can be no
assurance that such financial support will be available in the future.
Dependence on Key Personnel. The success of the Company is largely dependent
upon the continued contributions of its key management personnel, particularly
Patricia Ross-Gruden and Robert Bowker. The success of the Company also depends
upon its ability to attract and retain additional qualified personnel. The
process of locating personnel with the combination of skills and attributes
required to implement our strategies is very competitive and there can be no
assurance that we will be successful in attracting and retaining such personnel,
particularly in view of our poor financial position. The loss of the services of
our key management personnel or the inability to attract and retain additional
qualified personnel could limit or disrupt our future business operations.
Government Regulation. Increased federal or state government regulation of the
food and health industries could adversely affect our business, financial
condition and results of operation, by requiring further testing of our products
and imposing other or different licensing requirements.
No Dividends Expected. We have not paid any cash or other dividends on our
common shares since inception and we do not expect to pay any dividends in the
future. We expect to use any earnings in our operations.
Intense Competition in the Food and Health Industries. There is intense
competition among providers, both individuals and entities, of various
technologies to improve food and health conditions. Many of these competitors
have substantially greater financial and marketing resources than the Company,
stronger name recognition, brand loyalty and long-standing relationships with
our target customers. Our future success is dependent upon our ability to
compete and our failure to do so could adversely affect our business, financial
condition and results of operation.
Limited or Sporadic Market Quotations; Possible Illiquidity; Penny Stock
Restrictions. Shares of our common stock are quoted and traded from time to time
on the OTC Bulletin Board and in the so-called "Pink Sheets," but the quotations
and trades are limited and sporadic. As a result, our shareholders may find it
difficult to obtain accurate quotations concerning the market value of their
shares. Our shareholders also may experience more difficulty in attempting to
sell their shares than if the shares were listed on a national stock exchange of
quoted on the Nasdaq Stock Market. Also, our common shares are classified as a
"penny stock" because they are not traded on a national stock exchange or on the
Nasdaq Stock Market and the market price is less than $5 per share. Rules of the
Securities and Exchange Commission impose additional sales practice requirements
on broker-dealers that recommend the purchase or sale of penny stocks to persons
other than those who qualify as an "established customer" or an "accredited
investor." Among other things, a broker-dealer must make a determination that
investments in penny stocks are suitable for the customer and must make special
disclosures to the customer concerning the risks of penny stocks. Application of
the penny stock rules to our common shares could adversely affect the market
liquidity of the shares, which in turn may adversely affect the ability of
shareholders to sell their shares.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED JULY 31, 2005 AND 2004
SALES
Our revenues from operations for the three months ended July 31, 2005
were $59,247 compared to revenues of $17,634 for the three months ended July 31,
2004.
COST OF SALES AND GROSS PROFIT
Our cost of sales for the three months ended July 31, 2005 was $44,631
compared to cost of sales of $5,835 for the three months ended July 31, 2004.
RESEARCH AND DEVELOPMENT
Research and Development expenses for the three months ended July 31,
2005 was $60,716. For the three months ended July 31, 2004, research and
development expense was $43,712.
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. The Company also issued 3,117,819 shares of common stock for
expenses of $1,021,202.
Other selling, general and administrative costs include rent, office
expenses, and travel expenses.
INTEREST EXPENSE
Interest expenses of $12,723 were incurred during the three months
ended July 31, 2005 and relate to interest accrued on outstanding promissory
notes payable to related parties in lump-sum, including interest of 5% to 6%,
and are due between June 3, 2009 and June 1, 2010.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 2005, we had working capital deficit of $196,920. As a
result of our operating losses during the three months ended July 31, 2005, we
generated a cash flow deficit of $316,966 from operating activities. We provided
cash flows in connection with investing activities of $164,672 during the three
months ended July 31, 2005, for the purchase of fixed assets, and the purchase
and sale of marketable securities. We met our cash requirements for the three
months ended July 31, 2005 through loans of $150,000 from shareholders.
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 are convertible at $0.40
per share and expire July 21, 2007.
The purchasers of the debentures also received an A Warrant to purchase
an amount of common stock equal to 50% of the number of shares of common stock
purchased upon conversion. 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 received a B Warrant to purchase
an amount of common stock equal to 50% of the number of shares of common stock
upon conversion. 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 expect to continue to meet our cash requirements
during the fiscal year ending April 30, 2006 and to fund 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 the Company's 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.
Our independent certified public accountants have stated in their report which
was part of our audited financial statements for the fiscal years ended April
30, 2004 and 2005, that we have suffered recurring losses from operations and
have no established source of revenue and those matters 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.
ITEM 3. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer are
responsible for establishing and maintaining adequate internal control over
financial reporting and disclosure controls and procedures for the Company.
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's Chief Executive Officer and its Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures, as defined in Rule 15d-15 under the Securities Exchange Act of
1934 (the "Exchange Act") and the Company's internal control over financial
reporting. Based upon the evaluations, the Company's Chief Executive Officer and
Chief Financial Officer concluded that, as of the end of the period, the
Company's disclosure controls and procedures and internal control over financial
reporting were effective in timely alerting them to material information
relating to the Company required to be included in the reports that the Company
files and submits pursuant to the Exchange Act.
The public accounting firm that audited the financial statements in our
April 30, 2005 annual report did not issue an attestation report on management's
assessment of the Company's internal control over financial reporting.
(b) Changes in Internal Control Over Financial Reporting
Based on the evaluation as of July 31, 2005, there were no significant
changes in the Company's internal controls over financial reporting or in any
other areas that could significantly affect the Company's internal controls
subsequent to the date of the most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
EFOODSAFETY.COM, INC. V. KARNEY, ET al. (Case No. INC 046894). The
Company filed a complaint in the Superior Court of Riverside County, California
on November 5, 2004 against Mr. Karney, AmeriFinancial, Inc., Trac Force, Inc.,
and Does 1-50 alleging breach of fiduciary duty, conversion, constructive trust,
fraud and declaratory relief. The Company alleges that Mr. Karney
misappropriated no less than $189,000 from the Company and attempted to cause
the Company to enter into invalid contracts with close personal friends without
proper authorization. All named defendants have been served. The case is still
at the pleading stage and only limited discovery has taken place as certain
defendants are contesting jurisdiction and venue. No trial date has been sent.
GARCIA V. EFOODSAFETY.COM, INC. (Case No. 50-2004-CA-010352-MB-AH). On
November 4, 2004, Edward Garcia and Stephen Baugh, principals of Trac Force,
Inc., filed a complaint in the Circuit Court of the 15th Judicial Circuit in
Palm Beach County, Florida seeking to enforce an agreement for the Company to
acquire Trac Force, Inc. in exchange for shares of the Company's common stock
and a seat on the Company's Board. The case is still in the early stages and
only limited discovery has taken place. No trial date has been sent.
AMERIFINANCIAL, INC. V. EFOODSAFETY.COM, INC. (Case No. H-05-0205). On
December 17, 2004, AmeriFinancial, Inc. filed a complaint in the United States
District Court for the Southern District of Texas (Houston Division) against the
Company seeking to enforce an agreement for the issuance of shares in exchange
for consulting and capital raising services. The Company strongly disputes the
claims alleged and denies the validity of the purported agreement. This case is
presently stayed pending changes in California litigation.
A legal proceeding was instituted in the Superior Court of the State of
Arizona in and for the Yavapi County on July 8, 2005 against eFoodSafety.com,
Inc., and Patricia Ross-Gruden, William R. Nelson, Mark Taggatz and Robert
Bowker, officers and/or directors, by Richard Speidell, alleging breach of an
employment agreement and seeking specific performance, damages and other relief.
A similar legal proceeding was instituted in that court on that date against
Mark Taggatz, an officer and director of the Company, Aquentium Inc. and other
unnamed defendants, by Clarence Karney, alleging breach of an employment
agreement and seeking damages and other relief.
Both Mr. Speidell and Mr. Karney were terminated by the Board of
Directors of the registrant on September 27, 2004, as Chief Operating Officer
and Chairman and Chief Executive Officer, respectively. Also, the Company
instituted a legal proceeding against Mr. Karney and others described in the
first paragraph above.
The Board of Directors and the individual defendants believe both
complaints by Messrs. Speidell and Karney are without any merit whatsoever and
intend to defend themselves vigorously. They believe the
legal proceedings merely represent the latest attempts by disgruntled former
employees to pursue personal grievances, to harass the Company and its officers
and directors and to interfere with their devoting time, energy and attention to
the business of the Company.
ITEM 2. CHANGES IN SECURITIES.
During the quarter ended July 31, 2005, the Company issued 3,317,819
shares of common stock for services. The shares were valued at the market price
of the stock on the date of issuance. The services were valued at $1,081,202.
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 August 16, 2005, the Company filed a Form 8-K under Item 502,
Departure of Directors or Principal Officers; Election of Directors; Appointment
of Principal Officers.
On August 30, 2005, the Company filed a Form 8-K under Item 2.01,
Completion of Acquisition or Disposition of Assets.
On September 7, 2005, the Company filed a Form 8-K under Item 2.01,
Completion of Acquisition or Disposition of Assets.
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 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 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/Patricia Ross-Gruden
Patricia Ross-Gruden, Director, Chief
Executive Officer and Chief Financial Officer
Date: September 14, 2005