UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB/A (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, 2005 ---------------- [ ] 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.) 7702 E. DOUBLETREE RANCH ROAD, SUITE 300, SCOTTSDALE, ARIZONA 85258 ------------------------------------------------------------------- (Address of principal executive offices) (480) 607-2606 (Issuer's telephone number) 19125 N. INDIAN AVENUE, NORTH PALM SPRINGS, CALIFORNIA 92258 (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 [ ] Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). 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: 120,344,009 common shares issued and outstanding as of October 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 October 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) October 31, April 30, 2005 2005 ------------------ ------------------ Assets: Current Assets Cash $ 127,751 $ 38,336 Marketable securities - 165,543 Prepaid expenses - 7,000 Deposits - 1,800 ------------------ ------------------ Total Current Assets 127,751 212,679 ------------------ ------------------ Fixed Assets Furniture and Equipment 3,121 - ------------------ ------------------ Total Fixed Assets 3,121 - ------------------ ------------------ Net Assets of Discontinued Operations - 123,681 ------------------ ------------------ Total Assets $ 130,872 $ 336,360 ================== ==================
EFOODSAFETY.COM, INC. & SUBSIDIARIES (A Development Stage Company) CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited) October 31, April 30, 2005 2005 ------------------ ------------------ Liabilities: Current Liabilities Accounts payable $ 237,761 $ 257,786 Accrued expenses 1,658 Accrued interest 42,393 39,661 ------------------ ------------------ Total current liabilities 281,812 297,447 ------------------ ------------------ Long-Term Liabilities Notes payable 1,341,200 1,228,000 Convertible debentures 50,000 50,000 Accrued interest 90,724 56,009 ------------------ ------------------ Total long-term liabilities 1,481,924 1,334,009 ------------------ ------------------ Total Liabilities 1,763,736 1,631,456 ------------------ ------------------ Stockholders' Equity: Common Stock, $.0001 Par Value Authorized 500,000,000 shares, Issued 120,344,009 at October 31, 2005 and 107,026,190 at April 30, 2005 12,034 10,703 Paid-In Capital 8,314,928 5,352,452 Cumulative unrealized gains and losses - 258 Deficit Accumulated During the Development Stage (9,959,826) (6,658,509) ------------------ ------------------ Total Stockholders' Equity (1,632,864) (1,295,096) ------------------ ------------------ Total Liabilities and Stockholders' Equity $ 130,872 $ 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 For the six months of ended October 31, ended October 31, development 2005 2004 2005 2004 stage -------------- ------------- ------------- ------------- ----------------- Revenues $ - $ - $ - $ - $ - Cost of sales - - - - - -------------- ------------- ------------- ------------- ----------------- Gross Profit - - - - - -------------- ------------- ------------- ------------- ----------------- Expenses Sales and marketing 60,800 - 60,800 - 60,800 Research and development 43,438 - 43,438 - 43,438 Consulting - - 896,202 - 1,888,671 General and administrative 79,336 76,589 275,609 125,343 1,976,351 -------------- ------------- ------------- ------------- ----------------- Total Expenses 183,574 76,589 1,276,049 125,343 3,969,260 Other Income (Expense) Interest income - 1,759 3 1,774 2,421 Dividend income - - 308 - 10,334 Gain/Loss on sale of marketable securities - - 529 - 5,788 Interest Expense (24,725) (42,625) (37,448) (56,822) (173,064) Write-off of Goodwill (1,699,169) - (1,699,169) (1,699,169) -------------- ------------- ------------- ------------- ----------------- Net Income (Loss) from Continuing Operations (1,907,467) (117,455) (3,011,826) (180,391) (5,822,950) Discontinued Operations Income (Loss) from Discontinued Operations (1,623) (1,107,511) (289,491) (1,395,976) (4,136,876) -------------- ------------- ------------- ------------- ----------------- Net Income (Loss) $ (1,909,091) $ (1,224,966) $ (3,301,317) $ (1,576,367) $ (9,959,826) ============== ============= ============= ============= =================
EFOODSAFETY.COM, INC. & SUBSIDIARIES (A Development Stage Company) CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
For the three months For the six months ended October 31, ended October 31, 2005 2004 2005 2004 ------------ ------------ ------------------ ----------------- Income (Loss) per common share Continuing Operations $ (0.02) $ - $ (0.03) $ - Discontinued Operations - (0.01) - (0.02) ------------ ------------ ------------------ ----------------- Net Income (Loss) $ (0.02) $ (0.01) $ (0.03) $ (0.02) ============ ============ ================== ================= Weighted Average Shares 117,044,009 93,045,816 113,865,262 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 six months ended Inception of October 31, Development 2005 2004 Stage ------------------- ------------------ ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ (3,301,317)$ (1,576,367) $ (9,959,826) Adjustments used to reconcile net loss to net cash provided by (used in) operating activities: 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) Write-off of Goodwill 1,699,169 - 1,699,169 (Increase) Decrease in Prepaid Expenses & Deposits 8,800 - - Increase (Decrease) in Accounts Payable (20,025) 10,405 75,645 Increase (Decrease) in Accrued Expenses 1,658 - 1,658 Increase (Decrease) in Accrued Interest 37,447 56,822 295,233 ------------------- ------------------ ----------------- Net Cash Used in continuing activities (493,595) (1,509,140) (4,147,307) Net Cash Used in discontinued activities 7,905 (241,053) (225) ------------------- ------------------ ----------------- Net Cash Used in operating activities (485,690) (1,750,193) (4,147,532) ------------------- ------------------ ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Cash acquired from MedElite 831 - 831 Purchase of fixed assets (3,121) - (3,121) 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 (used in) continuing activities 163,523 (500,000) 3,497 Net cash provided by (used in) discontinued activities (1,618) (81,295) (117,169) ------------------- ------------------ ----------------- Net cash provided by (used in) investing activities 161,905 (581,295) (113,672) ------------------- ------------------ -----------------
EFOODSAFETY.COM, INC. (A Development Stage Company) CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued)
Cumulative Since January 28, 1998 For the six months ended Inception of October 31, Development 2005 2004 Stage ------------------- ------------------ ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of stock - - 3,910 Capital contributed by shareholder - - 663,845 Proceeds from loans 413,200 675,000 1,641,200 Proceeds from convertible debentures - 1,969,550 2,080,000 ------------------- ------------------ ----------------- Net cash provided by Financing Activities 413,200 2,644,550 4,388,955 ------------------- ------------------ ----------------- Net (Decrease) Increase in Cash and Cash Equivalents 89,415 313,062 127,751 Cash and Cash Equivalents at Beginning of Period 38,336 83,600 - ------------------- ------------------ ----------------- Cash and Cash Equivalents at End of Period $ 127,751 $ 396,662 $ 127,751 =================== ================== ================= 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. On August 24, 2005, the Company issued 1,500,000 shares of common stock as payment for notes payable of $300,000. On August 31, 2005, the Company issued 10,000,000 restricted shares of common stock, par value $.0001, to acquire MedElite, 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 and six months ended October 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 and six months ended October 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, Ozone Safe Food, 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. On August 31, 2005, the Company issued 10,000,000 restricted shares of common stock to acquire MedElite, Inc. as a wholly-owned subsidiary of the Company. 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. EFOODSAFETY.COM, INC. & SUBSIDIARIES (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. 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. 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, 2005, the Company has accumulated operating losses of $9,959,826 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. EFOODSAFETY.COM, INC. & SUBSIDIARIES (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Principles of Consolidation The consolidated financial statements for the year ended April 30, 2005 and the six months ended October 31, 2005 include the accounts of eFoodSafety.com, Inc. and its subsidiaries Ozone Safe Food, Inc., Knock-Out Technologies, Ltd., and MedElite, Inc. Ozone Safe Food, Inc. was acquired by the Company on October 29, 2003 and disposed of on August 24, 2005. Knock-Out Technologies, Ltd. was acquired by the Company in May 2004. MedElite, Inc. was acquired by the Company on August 31, 2005. 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. Depreciation Office furniture and equipment 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 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, 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. EFOODSAFETY.COM, INC. & SUBSIDIARIES (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Reclassifications Certain reclassifications have been made in the 2004 financial statements to conform with the 2005 presentation. 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, 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 and six months ended October 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 For the Six Months Ended October 31, October 31, 2005 2004 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. 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. In August 2003, the Company issued 6,750,000 shares of common stock (post-split) for services valued at $11,250. EFOODSAFETY.COM, INC. & SUBSIDIARIES (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 Ozone Safe Food, Inc. As of October 29, 2003, Ozone Safe Food, 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. 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. EFOODSAFETY.COM, INC. & SUBSIDIARIES (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 4 - COMMON STOCK TRANSACTIONS (continued) 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 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. The shares were returned to the Company and cancelled. On August 24, 2005, the Company issued 1,500,000 shares of common stock as payment for $300,000 in notes payable. The shares were valued at $.20 per share. 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. The shares were valued at $.17 per share, which was the market value on the date of the issuance. 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 During 2004, the Company had relocated its corporate offices to that of Ozone Safe Food, Inc., which was at 19125 N. Indian Avenue, North Palm Springs, California. The company entered into a three year lease that was effective September 1, 2004 and was for 30,000 square feet of warehouse space, 12,000 square feet of outside space, and executive office space. The Company was paying $32,000 per month for the lease. With the disposal of Ozone Safe Food, Inc., this lease is no longer being paid by the Company. The minimum future lease payments under these leases for the next five years are: Year Ended April 30, Real Property - ------------------------------------------ ----------------- 2006 $ - 2007 - 2008 - 2009 - 2010 - ----------------- Total five year minimum lease payments $ - ================= 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. & SUBSIDIARIES (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. 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 six months ended October 31, 2005, shareholders loaned the Company an additional $413,200. 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. During the quarter ended October 31, 2005, the Company issued 1,500,000 shares of common stock for payment of $300,000 in notes payable. The total amount of principal and interest due on these notes is $1,431,924 and $1,284,009 as of October 31, 2005 and April 30, 2005, respectively. NOTE 7 - ACQUISITIONS 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 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 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. 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. The shares were value at $.17 per share, which was the market value of the stock on the date of the acquisition. In the acquisition, the Company acquired net assets of $831. The Company recognized goodwill of $1,699,169 in connection with the acquisition, which was subsequently written off to expense. EFOODSAFETY.COM, INC. & SUBSIDIARIES (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 October 31, 2005 and April 30, 2005, the total amount of principal and interest due on the convertible debentures is $92,393 and $89,661, respectively. 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. EFOODSAFETY.COM, INC. & SUBSIDIARIES (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 9 - LITIGATION (continued) 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. NOTE 10 - DISCONTINUED OPERATIONS On August 24, 2005, Ozone Safe Food, Inc., a wholly owned subsidiary of the Company, was sold, and is no longer a subsidiary of the Company. The assets and liabilities of Ozone Safe Food, Inc. consisted of the following:
October 31, April 30, 2005 2005 ------------------ ----------------- Deposits $ - $ 31,000 Accounts Receivable - 386 Property and Equipment, net of $23,256 accumulated depreciation - 92,295 ------------------ ----------------- Total assets $ - $ 123,681 ================== =================
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. No gain or loss has been recognized in connection with the disposal. EFOODSAFETY.COM, INC. & SUBSIDIARIES (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 10 - DISCONTINUED OPERATIONS (continued) Net assets to be disposed of have been separately classified in the accompanying consolidated balance sheet at April 30, 2005. The April 30, 2005 balance sheet has been restated to conform with the current year's presentation. Operating results of this discontinued operation for the three and six months ended October 31, 2005 are shown separately in the accompanying consolidated statement of operations. The operating statement for the three and six months ended October 31, 2004 has been restated to conform with the current year's presentation and are also shown separately. The operating results of this discontinued operation for the three and six months ended October 31, 2005 and 2004 consist of:
For the three months ended For the six months ended October 31, October 31, 2005 2004 2005 2004 ----------------- ----------------- ---------------- ----------------- Sales $ 12,510 $ 2,273 $ 71,757 $ 19,907 Cost of Sales (6,604) (280) (51,235) (6,115) Sales and Marketing - (72,908) (7,118) (81,018) Research and Development - (51,539) (60,716) (95,251) Consulting - (361,500) - (380,500) General and Administrative (7,529) (623,557) (242,179) (852,999) ----------------- ----------------- ---------------- ----------------- Net Income (Loss) $ (1,623) $ (1,107,511) $ (289,491) $ (1,395,976) ================= ================= ================ =================
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 $1,295,096 and the deficit accumulated during the development stage was $6,658,509. For the six months ended October 31, 2005, we had a net loss of $3,301,317. At October 31, 2005, our total liabilities exceeded our total assets by $1,632,864 and the deficit accumulated during the development stage was $9,959,826. 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 OCTOBER 31, 2005 AND 2004 SALES Our revenues from operations for the three months ended October 31, 2005 were $0 compared to revenues of $0 for the three months ended October 31, 2004. COST OF SALES AND GROSS PROFIT Our cost of sales for the three months ended October 31, 2005 was $0 compared to cost of sales of $0 for the three months ended October 31, 2004. RESEARCH AND DEVELOPMENT Research and Development expenses for the three months ended October 31, 2005 was $43,438. For the three months ended October 31, 2004, research and development expense was $0. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES A summary of our Selling, General and Administrative costs is as follows: Consulting fees for outside directors, legal advisors and marketing consultants. Other selling, general and administrative costs include rent, office expenses, and travel expenses. During the three months ended October 31, 2005, the Company wrote-off $1,699,169 of goodwill that was recorded as part of the acquisition of MedElite, Inc. INTEREST EXPENSE Interest expenses of $24,725 were incurred during the three months ended October 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 October 31, 2005, we had working capital deficit of $154,061. As a result of our operating losses during the six months ended October 31, 2005, we generated a cash flow deficit of $485,690 from operating activities. We provided cash flows in connection with investing activities of $161,905 during the six months ended October 31, 2005, for the purchase of fixed assets, and the purchase and sale of marketable securities. We met our cash requirements for the six months ended October 31, 2005 through loans of $413,200 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 October 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. 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. The shares were returned to the Company and cancelled. On August 24, 2005, the Company issued 1,500,000 shares of common stock as payment for $300,000 in notes payable. The shares were valued at $.20 per share. 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. The shares were valued at $.17 per share, which was the market value on the date of the issuance. The shares issued in the foregoing transactions were not registered under the Securities Act of 1933 in reliance upon the exemption afforded by Section 4(2) and/or Rule 506 of Regulation D thereof. No underwriters were involved. 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 September 30, 2005, the Company filed a Form 8-K under Item 502, Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers. 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: December 16, 2005