UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended APRIL 30, 2006
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Commission file number 333-68008
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EFOODSAFETY.COM, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 62-1772151
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
7702 E DOUBLETREE RANCH ROAD SUITE 300 SCOTTSDALE AZ 85258
(Address of principal executive offices)
(480) 607-2606
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act: None.
Check whether the issuer is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. [ ]
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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
[X ]
Indicate by check mark whether the registrant is a shell company (as
defined by Rule 12b-2 of the Exchange Act). Yes No X
1
Issuer's revenues for its most recent fiscal year: $537,038
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State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days: As of July 19, 2006, the
Company had 113,359,480 common shares held by non-affiliates with an aggregate
market value of $28,339,870.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of July 19, 2006, the
Company had 176,714,480 common shares issued and outstanding.
Documents Incorporated By Reference: None
Transitional Small Business Disclosure Format: Yes [ ] No [X]
2
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION AND RISK FACTORS
Certain statements in this annual 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 weaknesses 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 health and nutricutical products.
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, 2005
and 2006, we had net losses of $1,735,965, $4,276,894 and $9,385,323,
respectively. At April 30, 2006, the deficit accumulated since inception on
October 16, 2000 was $16,043,832. As a result of our poor financial position and
recurring losses from operations, we require considerable additional financing
to continue as a going-concern. The continuing financial support of directors,
officers and shareholders to satisfy our liabilities and commitments as our
operations are commencing to generate revenues 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 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.
3
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 HEALTH INDUSTRIES. There is intense competition among
providers, both individuals and entities, of various technologies to improve
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 trading activity are limited and sporadic. As a result, our shareholders may
find it difficult to obtain accurate quotations concerning the market price 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
or 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.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
eFoodSafety.com, Inc. ("eFood" or the "Company") is a development stage company
all of whose planned principal operations have commenced, but the Company has
not generated any significant revenue. The Company is a holding company
operating through wholly owned subsidiaries and dedicated to improving and
health conditions around the world through innovative technologies.
The Company was incorporated in Nevada on October 28, 1996 as DJH International,
Inc., which acquired Global Procurement Systems, Inc. on October 16, 2000 for
shares of its common stock and changed its name to eFoodSafety.com, Inc. Ozone
Safe Food, Inc. ("OSF") was acquired on October 29, 2003 for shares of the
Company's common stock, Knock-Out Technologies, Ltd ("Knock-Out") was acquired
on May 3, 2004 for shares of the Company's common stock and MedElite, Inc. was
acquired on August 31, 2005 for shares of the Company's common stock. The
Company sold Ozone Safe Food, Inc. to Mark Taggatz, former President and Chief
Executive Officer of the Company, on August 24, 2005 in exchange for 1.5 million
shares of the Company's common stock, which were returned to the Company and
cancelled.
4
Knock-Out is developing a variety of products based on a proprietary blend of
organic, non-toxic and food-based substances. These products include an anthrax
sporicidal, a germicidal cleaner, a wound care antiseptic, an herbicide and an
insect repellent. Knock-Out has developed an all-natural and environmentally
safe sporicidal formulated entirely of food-grade components that eradicates
anthrax as well as a germicidal product that kills major bacteria: including
E-coli, Listeria, Pseudomonas, Salmonella, Staphylococcus and Streptococcus and
avian flu. Its anthrax sporicidal product eradicated with 100% efficacy Bacillus
Subtilis and Clostridium Sporogenes bacteria on both hard and porous surfaces in
a outside, third-party laboratory study that is a requisite for EPA licensure.
As a result of these successful laboratory results, Knock-Out will seek EPA
licensing for this product as both an Anthrax Sporicial Agent and a Hospital
Sterilizing Agent. Potential customers for Knock-Out's anthrax sporicidal
product may include the U.S. government, which has expressed interest in
products that kill the anthrax virus. Potential customers for the germicidal
cleaner product include nursing homes, hospitals and food service facilities.
Knock-Out also has completed its product formulations on what it calls the
"Total Solution" to the potential Bird Flu pandemic. The Citroxin formulation
has definitively proven in independent laboratory testing to eliminate the H9N2
virus, which is the surrogate organism used in all laboratory testing for the
Bird Flu, on both hard and porous surfaces. The Citroxin formulation can be
sprayed on bird cages and hen houses without it being harmful to animals or
humans in surrounding areas if ingested. The EPA has issued Registration No.
82723-1 for the Big 6 Plus Germicidal product, currently marketed under then
name "Citroxen."
Humans who have contracted the H5N1 virus, commonly known as Bird Flu, can rely
on the Citroxin O2 formulation, an ingestible product that the company believes
will prove to have dramatic effects on the Bird Flu virus. Clinical trials are
currently ongoing on the Influenza Viruses A and B, but testimonials from humans
who have taken the product with influenza-like symptoms indicate very promising
results.
The Citroxin formulation for the Bird Flu virus will undergo testing on live
subjects in Thailand, a region that has been affected by the Bird Flu virus,
after protocol testing on a wide range of infectious diseases. The Citroxin
formulation tests will be conducted by the National Center for Genetic
Engineering and Biotechnology, a branch of the National Science and Technology
Development Agency (NSTDA) located in the greater Bangkok metropolitan area. The
NSTDA was established in 1991 by the Royal Government of Thailand and officially
commenced its operation in 1992. The establishment of NSTDA, unlike other public
science and technology organizations in Thailand, was unique as it was aimed to
"be the Agency with a high degree of autonomy and mobility unbound by the normal
rules, procedures, and regulations of governmental bureaucracy" in order to
"conduct, support, coordinate, and promote efforts in scientific and
technological development between the public and private sectors towards maximal
benefit for national development." Since its establishment, NSTDA has served as
the hub where leading scientists and experts meet and work to tackle scientific
and technological issues of imminent concern to both national and international
communities.
5
MedElite, Inc. distributes clinically proven products to physicians who then
prescribe the products for their patients. It is the exclusive U.S. and
worldwide distributor of the Talsyn(TM)-CI/bid Scar Cream that has been
clinically proven to facilitate and improve the appearance, redness and strength
of scars (www.talsyn.com). The company is also is a distributor for
Cinnergen(TM), a non-prescription liquid whole food nutritional supplement that
promotes healthy glucose metabolism (www.cinnergen.com), and Trimmendous(TM), a
weight loss formula focusing on the body's 24-hour metabolic processes. The
company has recently entered into a joint venture agreement with CK41 Direct,
Inc. to launch an anti-acne skin care system, with a branded name and celebrity
spokesperson to-be-announced in the near future. The company is also is a
distributor for Cinnergen(TM), a non-prescription liquid whole food nutritional
supplement that promotes healthy glucose metabolism (www.cinnergen.com), and
most recently became a distributor for Trimmendous(TM), a weight loss formula
focusing on the body's 24-hour metabolic processes. MedElite has entered into
several non-exclusive international, national and regional distribution
agreements for its products.
SALES AND MARKETING. Our products are marketed domestically and internationally
through several non-exclusive distribution agreements and by our attending trade
shows and industry-related events and seminars. We also plan to market all
services and products through outside commissioned sales persons and through our
website, http://www.efoodsafety.com.
COMPETITION. There is intense competition among providers, both individuals and
entities, of various technologies to improve 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.
GOVERNMENT REGULATION. Increased federal or state government regulation of the
health industry could adversely affect our business, financial condition and
results of oeperation, by requiring frter testing of our products and imposing
other or different licensing requirements.
INTELLECTUAL PROPERTY. We consider patent protection important for our business,
particularly with respect to Knock-Out's products. However, we may not have any
patent protection for any derivative uses of our products, or for any other
products we may later acquire or develop. We also cannot assure that we will be
able to obtain foreign patents to protect our products.
Litigation may be required to enforce our intellectual property rights, protect
our trade secrets or determine the validity and scope of proprietary rights of
others. Any action we take to protect our intellectual property rights could be
costly and could absorb significant management time and attention. In addition,
as a result of any such litigation, we could lose any proprietary rights we
have. If any of the foregoing occurs, we may be unable to execute on our
business plan and you could lose your investment.
RESEARCH & DEVELOPMENT. We do not anticipate incurring significant research and
development costs during the next 12 months.
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EMPLOYEES. None, other than Mrs. Gruden, Mr. Matula, Mr. Bowker and Dr.
Goldfarb, none of whom receives any compensation for services as an officer or
as a director. See Item 9.
ITEM 2. DESCRIPTION OF PROPERTY. The Company has no real property. The principal
executive offices at Scottsdale, Arizona are leased at $250 per month ,with the
lease expiring in August 2006. Knock-Out 's principal offices in White Plains,
New York, are leased at $250 per month, with the lease expiring in August 2006.
MedElite's principal offices in Langhorne, PA are leased at $1,000 per month.
The Company considers such facilities adequate for the foreseeable future.
ITEM 3. 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 Clarence W. 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, a former
officer and director of the Company who is a principal shareholder,
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. In settlement of this and other, related proceedings
described below, the Company transferred 100,000 restricted shares and paid
$30,000 to Chris F. Conn, C. Mark Conn and Conn Chemical Engineeriing Company
and transferred 1,000,000 restricted shares and $30,000 to Edward S. Garcia and
Stephen C. Baugh. Mr. Karney is the only remaining defendant and a default has
been entered against him and the Company has requested entry of a default
judgment against him.
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. This proceeding has been settled., as described above.
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. This proceeding has been settled, as
described above.
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 Gruden, William R. Nelson, Mark Taggatz and Robert Bowker, then
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,
then an officer and director of the Company, Aquentium Inc. and other unnamed
defendants, by Mr. Karney, alleging breach of an employment agreement and
seeking damages and other relief. The proceeding by Mr. Karney against the
Company and its officers and/or directors was dismissed by the court and Mr.
Karney was ordered to pay costs to the Company;, the case by Mr. Speidell was
dismissed.
7
As previously reported, both Mr. Speidell and Mr. Karney were terminated, as
Chief Operating Officer and Chairman and Chief Executive Officer, respectively,
by the Board of Directors of the Company on September 27, 2004. As also
previously reported, the Company instituted a legal proceeding against Mr.
Karney and others described in the first paragraph above.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.
None/Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Shares of the Company's common stock are quoted and traded from time to time on
the OTC Bulletin Board and the so-called "Pink Sheets," with the trading symbol
"EFSF."
The following table sets forth the high and low bid prices for the Company's
shares for each quarter during the two fiscal years ended April 30, 2006 and
2005. The prices reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not represent actual transactions.
2006: HIGH LOW
First Quarter $0.36 $0.24
Second Quarter $0.37 $0.17
Third Quarter $0.31 $0.20
Fourth Quarter $0.50 $0.25
2005 HIGH LOW
First Quarter $0.72 $0.49
Second Quarter $0.57 $0.25
Third Quarter $0.58 $0.26
Fourth Quarter $0.46 $0.32
At July 19, 2006, the market price of the Company's common stock was
$.28 per share.
As of July 19, 2006, there were 176,715,480 issued and outstanding
shares of common stock that were held of record by approximately 5,800
shareholders.
DIVIDEND POLICY. We have not and do not plan to pay dividends at this time or
anytime soon. The board of directors will decide on any future payment of
dividends, depending on our results of operations, financial condition, capital
requirements, and any other relevant factors. However, we expect to use any
future earnings for operations and in the business.
TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar for our common
stock is Signature Stock Transfer, Inc., 2301 Ohio Drive, Suite #100, Plano,
Texas 75093; telephone (972) 612-4120.
8
RECENT SALES OF UNREGISTERED SECURITIES. As described more fully in Note 4 to
the Notes to the Consolidated Financial Statements included as part of this
annual report, during the past three years the Company has issued shares of its
common stock for: acquisitions of Knock-Oct and MedElite (and Ozone Safe Foods,
which since has been disposed of); cash; services; general, administrative and
other expenses; compensation to directors, and repayment of loans, including
accrued interest, Such shares were issued without registration under the
Securities Act of 1933, in reliance upon the exemptions afforded by Section 4(2)
and Rule 506 of Regulation D thereof. The persons who acquired the shares were
either officers and directors of the Company, advisers and consultants or others
who had access to material information about the Company; there were no
underwriters involved in any of the transactions.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
YEAR ENDED APRIL 30, 2006
SALES
Our revenues from operations for the year ended April 30, 2006 were
$537,038. Our revenues from operations for the year ended April 30, 2005 were
$0. The increase in our revenues was due to our sales of Cinnergen and our
distribution agreement with Nutralab.
RESEARCH AND DEVELOPMENT
During the year ended April 30, 2006, we incurred research and
development expenses of $119,008. Most of these expenses were from our two
wholly-owned subsidiaries, Knock-Out Technologies, Inc. and MedElite, Inc.
Knock-Out Technologies incurred research and development expenses of $70,405
while MedElite, Inc. incurred research and development expenses of $6,103. the
Company had research and development expenses of $42,500. During the year ended
April 30, 2005, the Company did not incur any research and development expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
A summary of our Selling, General and Administrative costs is as
follows:
During the year ended April 30, 2006, the Company incurred sales and
marketing expense of $1,194,043, compared to sales and marketing expense of $0
during the year ended April 30, 2005. The increase in sales and marketing
expense is primarily due to payments made pursuant to our distribution agreement
with Nutralab.
Cash and stock compensation were paid for consulting fees, for outside
directors, legal advisors and marketing consultants. The Company issued
37,342,319 shares of common stock for expenses of $6,267,732 and prepaid expense
of $4,060,000. The Company also paid $320,014 to settle two lawsuits by paying
$45,000 in cash and issuing 1,100,000 shares of common stock that were valued at
$275,000. For the year ended April 30, 2005, the Company issued 1,131,632 shares
of common stock for expenses of $595,469.
9
General and administrative expenses also included salaries paid to
three officers. Patricia Gruden, CEO of eFoodSafety.com receives an annual
salary of $24,000. Robert Bowker, President of Knock-Out Technologies, Inc.
receives an annual salary of $75,000. Dr. Richard Goldfarb, President of
MedElite, Inc. receives an annual salary of $150,000.
Other selling, general and administrative costs include rent, office
expenses and travel expenses.
INTEREST EXPENSE
Interest expenses of $62,674 and $131,743 were incurred during the year
ended April 30, 2006 and 2005, respectively, and relate to interest accrued on
outstanding promissory notes due between June 3, 2009 and June 1, 2010 and
payable to related parties, with interest at the annual rate of 5% to 6%.
Interest expense for the years ended April 30, 2006 and 2005 included $4,142 and
$49,157 at the annual rate of 6%, from $2.0 million in convertible debentures.
During the year ended April 30, 2006, the remaining amount due on the
convertible debentures of $87,975 was converted to 215,971 shares of common
stock.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 2006, we had working capital of $3,022,737. As a result of our
operating losses during the year ended April 30, 2006, we generated a cash flow
deficit of $1,072,188 from operating activities. We were provided cash flows in
connection with investing activities of $157,783 during the year ended April 30,
2006, with the proceeds from sales of marketable securities. We met our cash
requirements for the year ended April 30, 2006 through loans of $1,095,019 from
shareholders and the sale of common stock for $850,000.
On July 21, 2004, the Company sold $2.0 million in convertible debentures. The
convertible debentures carried 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 were convertible at $0.40 per share
and were to expire July 21, 2007. As of April 30, 2006, the full amount of the
convertible debentures had been converted to common stock.
The purchasers of the debentures also received A and B Warrants that expired
without exercise in 2006, to purchase additional shares of common stock at $.80
and $1.00 per share, respectively.
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, 2007 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.
10
Our independent certified public accountants have stated in their report which
is included as part of our audited financial statements for the fiscal years
ended April 30, 2006 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 7. FINANCIAL STATEMENTS.
The financial statements of the Company and supplementary data are included
beginning immediately before the signature page to this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None/Not Applicable.
ITEM 8A. 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 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 adequate and 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 Securities Exchange Act of 1934.
(b) Changes in Internal Control Over Financial Reporting
Based on the evaluation as of April 30, 2006, 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.
11
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
The management team consisting of the following individuals is conducting the
business of the company:
NAME POSITION AGE
Patricia Gruden President/CEO/CFO/Director 65
Robert Bowker President of Knock-Out Technologies, Ltd/Director 57
Timothy Matula Secretary/Director 46
Richard Goldfarb, MD President of MedElite, Inc./Director 52
PATRICIA GRUDEN, President/CEO/CFO since August 2005 and a Director since
October, 2000, has extensive business experience in operations, training,
finance, management, expansion of start-up and growth companies, and government
lobbying. Mrs. Gruden has been selected as one of the ten most influential women
in the transportation and travel industry in Arizona and has been honored by
Athena as one of the 100 most influential women in Arizona. Further, Mrs. Gruden
was elected the first woman President of a Chamber of Commerce in Arizona and
had been selected to represent Arizona at the White House Conference for Small
Business.
ROBERT BOWKER, President of Knock-Out Technologies, Ltd. And a Director since
May 2004, has extensive knowledge of and experience with herbs, natural
supplements and natural healing. Mr. Bowker has been involved with exotic and
domestic animals since childhood, thus finding himself challenged with various
diseases and illnesses of these animals. The challenge was to effectively treat
the viral, bacterial, and protozoan borne illnesses while doing no harm to the
animals. Mr. Bowker began experimenting with an unorthodox approach on humans,
using acquired knowledge, intuition and true passion for the work. Further,
having traveled on three continents, Mr. Bowker's proficiency in holistic
methods and natural healing properties was also broadened. He has been
instrumental in the development of Knock-Out's environmentally safe products
formulated entirely of food grade components.
TIMOTHY MATULA, Secretary since August 2005 and a Director since September 2004,
joined Shearson Lehman Brothers as a financial consultant in 1992. In 1994 he
joined Prudential Securities and when he left Prudential in 1997, he was
Associate Vice President, Investments, Quantum Portfolio Manager. Mr Matula has
served as a director of Eat At Joe's from 1996 to present and, the Topaz Group
from 2000 to 2003, publicly held companies, and has served as a consultant to a
wide range of businesses in the U.S and Asia.
RICHARD GOLDFARB, MD., Richard M. Goldfarb, M.D. FACS, President of MedElite,
Inc. and a Director since September 2005, is a Fellow of the American College of
Surgeons. He is a board certified surgeon and a practicing surgeon in General
and Trauma surgery. He also serves as Medical Director of Bucks County Clinical
Research.
12
AUDIT COMMITTEE
The Company's board of directors does not have an audit committee or an
"audit committee financial expert," as that term is defined under the Securities
Exchange Act of 1934. The board of directors as a whole performs the
responsibilities of an audit committee. It believes that all members of its
audit committee are financially literate and experienced in business matters,
and that one or more members of the audit committee are capable of (i)
understanding generally accepted accounting principles ("GAAP") and financial
statements, (ii) assessing the general application of GAAP principles in
connection with our accounting for estimates, accruals and reserves, (iii)
analyzing and evaluating our financial statements, (iv) understanding our
internal controls and procedures for financial reporting; and (v) understanding
audit committee functions, all of which are attributes of an audit committee
financial expert. However, the board of directors believes that there is not any
audit committee member who has obtained these attributes through the experience
specified in the definition of "audit committee financial expert." Further, like
many small companies, it is difficult for the Company to attract and retain
board members who qualify as "audit committee financial experts," and
competition for these qualified individuals is significant.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Company does not have a class of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934. Accordingly, the Company's
executive officers and directors and persons who own more than 10% of its equity
securities are not subject to the beneficial ownership reporting requirements of
Section 16(a) of that Act. However, although not required, certain of such
persons do file beneficial ownership reports voluntarily with the Securities and
Exchange Commission.
To the best of our knowledge and based solely upon our review of the
reports filed and submitted to the Company during the fiscal year ended April
30, 2006, the Company believes that all reports were timely filed by such
persons.
CODE OF ETHICS
The Company has not yet adopted a code of ethics applicable to it chief
executive officer and chief financial officer, but expects to do so during the
fiscal year ending April 30, 2007.
ITEM 10. EXECUTIVE COMPENSATION.
Patricia Gruden served as President and Chief Executive Officer during
the fiscal year ended April 30, 2006 and received total compensation of $24,000
for her services; no other executive officer received total annual salary and
bonus in excess of $100,000. Mark Taggatz who served as President and Chief
Executive Officer until August 24, 2005, also did not receive any compensation
during the fiscal years ended April 30, 2005 and 2006.
Robert Bowker, President of Knock-Out Technologies, Inc. receives an
annual salary of $75,000; Dr. Richard Goldfarb, President of MedElite, Inc.
receives an annual salary of $150,000.
13
The Company did not award any other compensation to Mrs. Gruden, Mr.
Taggatz or to any other executive officer for service as executive officers
during the fiscal years ended April 30, 2005 and 2006, nor any stock, restricted
stock, stock options or stock appreciation rights; the Company does not have any
equity compensation or long-term incentive plans.
Directors receive no cash compensation for their services.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as at June 22, 2006, certain
information with respect to the beneficial ownership of our common stock by each
shareholder known by us to be the beneficial owner of more than five percent
(5%) of our common stock, and by each of our current directors and executive
officers, and all executive officers and directors as a group. Each person has
sole voting and investment power with respect to the shares of common stock.
Name and Shares Percentage of
Address of Beneficially Common
Beneficial Owner Owned (1) Stock
- --------------------------------------------------------------------------------
Clarence W. Karney
1370 St. George Circle
Prescott, AZ 86301 25,192,500 14.26
Patricia Gruden* 23,612,500 13.36
Robert Bowker* 2,550,000 *
Timothy Matula* 1,750,000 *
Dr. Richard Goldfarb* 10,000,000 5.66
All Officers and Directors as a group (4 in number) 38,162,500 21.6
Less than one percent (1%).
(1) Except as indicted,the address of all beneficial owners is 7702 E.
Doubletree Ranch Road, Suite 300, Scottsdale, Arizona 85258.
There are no securities authorized for issuance to officers and
directors under equity compensation plans.
CHANGE IN CONTROL. We are not aware of any contract or other arrangement, the
operation of which may, at a subsequent date, result in a change in control of
the Company. There are no provisions in governing instruments of the Company
that could delay a change in control of the Company.
14
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company issued 1,500,000 shares to Mark Taggatz, a former officer
and director, on October 29, 2003, to acquire Ozone Safe Food, Inc. On August
24, 2005, the Company sold Ozone Safe Food, Inc. to Mr. Taggatz in exchange for
the 1,500,000 shares and an agreement to receive royalty payments on up to $60
million equipment sales through December 31, 2008.
The Company issued 1,000,000 shares to Robert Bowker on May 3, 2004, to
acquire Knock-Out Technologies, Ltd. Mr. Bowker became a director of the Company
in connection with the transaction.
The Company issued 10,000,000 shares to Dr. Richard Goldfarb on August
31, 2005, to acquire MedElite, Inc. Dr. Goldfarb became a director of the
Company in connection with the transaction.
Knock-Out and MedElite now are wholly-owned subsidiaries whose
financial statements are consolidated with the Company's financial statements.
ITEM 13. EXHIBITS.
3.1 Articles of Incorporation (incorporated by reference to Registration
Statement on Form SB-2 as amended on February 4, 2003)
3.2 Corporate Bylaws (incorporated by reference to Registration Statement
on Form SB-2 as amended on February 4, 2003)
99(a) Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
99(b) Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
ITEM 14. PRINCIPAL ACCOUNTANT FEES & SERVICES
The following is a summary of the fees billed to us by Robison, Hill &
Company, our principal accountant, for professional services rendered for the
years ended April 30, 2006 and 2005:
Service 2006 2005
- ------------------------------- ------------------- -------------------
Audit Fees $24,625 $13,425
Audit-Related Fees - -
Tax Fees 375 575
All Other Fees - -
------------------- -------------------
Total $25,000 $14,000
=================== ===================
AUDIT FEES. Consist of fees billed for professional services rendered for the
audits of our consolidated financial statements included in our annual report,
reviews of our interim consolidated financial statements included in quarterly
15
reports, other services performed in connection with filings with the Securities
and Exchange Commission and related comfort letters and other services that are
normally provided by Robison, Hill & Company in connection with statutory and
regulatory filings or engagements.
TAX FEES. Consist of fees billed for professional services for tax compliance,
tax advice and tax planning. These services include assistance regarding
federal, state and local tax compliance and consultation in connection with
various transactions and acquisitions.
ALL OTHER FEES. Consist of fees billed for products and services provided by the
principal accountant other than Audit Fees, Audit-Related Fees and Tax Fees.
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Auditors
The Audit Committee pre-approves all audit and non-audit services provided by
the independent auditors. These services may include audit services,
audit-related services, tax services and other services as allowed by law or
regulation. Pre-approval is generally provided for up to one year and any
pre-approval is detailed as to the particular service or category of services
and is generally subject to a specifically approved amount. The independent
auditors and management are required to periodically report to the Audit
Committee regarding the extent of services provided by the independent auditors
in accordance with this pre-approval and the fees incurred to date. The Audit
Committee may also pre-approve particular services on a case-by-case basis.
The Audit Committee pre-approved 100% of the Company's 2006 and 2005 audit fees,
audit-related fees, tax fees, and all other fees to the extent the services
occurred after May 6, 2003, the effective date of the Securities and Exchange
Commission's final pre-approval rules. To the Company's knowledge, 0% of the
hours expended on the principal accountant's engagement to audit the Company's
financial statements for the fiscal year ended Aril 30, 2006 and 2005 were
attributed to work performed by a person other than the principal accountant's
full-time employees.
16
EFOODSAFETY.COM, INC.
(FORMERLY A DEVELOPMENT STAGE COMPANY)
-:-
INDEPENDENT AUDITOR'S REPORT
APRIL 30, 2006 AND 2005
CONTENTS
Page
Independent Auditor's Report...............................................F - 1
Consolidated Balance Sheets
April 30, 2006 and 2005,.................................................F - 2
Consolidated Statements of Operations for the
Years Ended April 30, 2006 and 2005......................................F - 4
Consolidated Statement of Stockholders' Equity for the
Years Ended April 30, 2005 and 2006......................................F - 5
Consolidated Statements of Cash Flows for the
Years Ended April 30, 2006 and 2005......................................F - 7
Notes to Consolidated Financial Statements.................................F - 9
INDEPENDENT AUDITOR'S REPORT
eFoodSafety.com, Inc. & Subsidiaries
(Formerly A Development Stage Company)
We have audited the accompanying balance sheets of eFoodSafety.com,
Inc. & Subsidiaries (formerly a development stage company) as of April 30, 2006
and 2005, and the related statements of operations, stockholders' equity, and
cash flows for the years ended April 30, 2006 and 2005. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of eFoodSafety.com,
Inc. & Subsidiaries (formerly a development stage company) as of April 30, 2006
and 2005, and the results of its operations and its cash flows for the years
ended April 30, 2006 and 2005 in conformity with accounting principles generally
accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has suffered recurring losses
from operations and has no established source of revenue. This raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are described in Note 1. These consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Respectfully submitted
/s/ Robison, Hill & Co.
Certified Public Accountants
Salt Lake City, Utah
August 10, 2006
MEMBERS OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
MEMBERS OF THE SEC PRACTICE SECTION and THE PRIVATE COMPANIES PRACTICE SECTION
1366 East Murray-Holladay Road, Salt Lake City, Utah 84117-5050
Telephone 801/272-8045, Facsimile 801/277-9942
F - 1
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(Formerly A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
April 30,
2006 2005
------------------ ------------------
Assets:
Current Assets
Cash $ 1,068,950 $ 38,336
Marketable securities - 165,543
Prepaid expenses 2,060,000 7,000
Deposits - 1,800
------------------ ------------------
Total Current Assets 3,128,950 212,679
------------------ ------------------
Fixed Assets
Computers and Accessories 3,080 -
Equipment 3,121 -
Furniture and Fixtures 1,042 -
Accumulated Depreciation (488) -
------------------ ------------------
Total Fixed Assets 6,755 -
------------------ ------------------
Non-Current Assets
Prepaid expense 2,000,000 -
------------------ ------------------
Net Assets of Discontinued Operations - 123,681
------------------ ------------------
Total Assets $ 5,135,705 $ 336,360
================== ==================
F - 2
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(Formerly A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(continued)
April 30,
2006 2005
------------------ ------------------
Liabilities:
Current Liabilities
Accounts payable $ 76,127 $ 257,786
Accrued expenses 1,821 -
Due to Nutralab 28,265 -
Accrued interest - 39,661
------------------ ------------------
Total current liabilities 106,213 297,447
------------------ ------------------
Long-Term Liabilities
Notes payable 507,984 1,228,000
Convertible debentures - 50,000
Accrued interest 109,696 56,009
------------------ ------------------
Total long-term liabilities 617,680 1,334,009
------------------ ------------------
Total Liabilities 723,893 1,631,456
------------------ ------------------
Stockholders' Equity:
Common Stock, $.0001 Par Value
Authorized 500,000,000 shares, Issued
176,514,480 at April 30, 2006
and 107,026,190 at April 30, 2005 17,651 10,703
Paid-In Capital 20,437,993 5,352,452
Cumulative unrealized gains and losses - 258
Retained Deficit (16,043,832) (6,658,509)
------------------ ------------------
Total Stockholders' Equity 4,411,812 (1,295,096)
------------------ ------------------
Total Liabilities and
Stockholders' Equity $ 5,135,705 $ 336,360
================== ==================
The accompanying notes are an integral part of these financial statements.
F - 3
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(Formerly A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
April 30,
2006 2005
------------------ ------------------
Revenues $ 537,038 $ -
------------------ ------------------
Expenses
Sales and marketing 1,194,043 -
Research and development 119,008 -
Consulting 5,442,447 992,469
Professional fees 504,954 523,963
Legal settlements 320,014 -
General and administrative 291,691 206,033
------------------ ------------------
Total Expenses 7,872,157 1,722,465
------------------ ------------------
Other Income (Expense)
Interest income 293 2,418
Dividend income 308 10,026
Gain/Loss on sale of
marketable securities 529 5,259
Interest Expense (62,674) (131,743)
Write-off of Goodwill (1,699,169) -
------------------ ------------------
Total Other Income (Expense) (1,760,713) (114,040)
------------------ ------------------
Net Income (Loss) from Continuing Operations (9,095,832) (1,836,505)
Discontinued Operations
Income (Loss) from Discontinued Operations (289,491) (2,440,389)
------------------ ------------------
Net Income (Loss) $ (9,385,323) $ (4,276,894)
================== ==================
Income (Loss) per common share
Continuing Operations $ (0.07) $ (0.02)
Discontinued Operations - (0.02)
------------------ ------------------
Net Income (Loss) $ (0.07) $ (0.04)
================== ==================
Weighted Average Shares 136,671,859 103,850,275
================== ==================
The accompanying notes are an integral part of these financial statements.
F - 4
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(Formerly A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 2006 AND 2005
Common Stock Treasury Paid-In Retained
Shares Par Value Stock Capital Deficit
------------ --------- -------- ----------- -----------
Balance at April 30, 2004 99,795,816 $ 9,980 $ - $ 2,218,209 $(2,381,615)
May 2004 - Shares issued to acquire
Knock-Out Technologies, Inc. 1,000,000 100 - 499,900 -
May 2004 - Shares issued for expenses 750,000 75 - 374,925 -
July 2004 - Shares issued for consulting 40,816 4 - 24,486 -
August 2004 - Shares issued for consulting 20,408 2 - 10,610 -
August 2004 - Shares issued for expenses 300,000 30 - 176,970 -
September 2004 - Shares issued for
consulting 20,408 2 - 8,365 -
Shares issued for payment
of convertible debentures 5,098,742 510 - 2,038,987 -
Net loss - - - - (4,276,894)
------------ --------- -------- ----------- -----------
Balance at April 30, 2005 107,026,190 10,703 - 5,352,452 (6,658,509)
May and June 2005 - Shares issued for
consulting and expenses 3,317,819 332 - 1,080,870 -
July 2005 - Shares issued for legal services 700,000 70 - 174,930 -
August 2005 - Shares returned to company as treasury stock
for assets of Ozone Safe Food, Inc. - - (150) (117,244) -
August 2005 - Treasury shares issued for notes payable - - 150 299,850 -
August 2005 - Shares issued for consulting 12,000,000 1,200 - 2,168,800 -
August 2005 - Shares issued to acquire MedElite 10,000,000 1,000 - 1,699,000 -
September 2005 - Shares issued to board of directors for services 812,500 81 - 146,169 -
September 2005 - Shares issued for legal services 500,000 50 - 154,950 -
September 2005 - Shares issued for payment of convertible debt 78,354 8 - 27,416 -
September 2005 - Shares issued for expenses 560,000 56 - 171,944 -
F - 5
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(Formerly A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 2006 AND 2005
(continued)
Common Stock Treasury Paid-In Retained
Shares Par Value Stock Capital Deficit
----------- --------- ---------- ----------- ------------
October 2005 - Shares issued for services 250,000 $ 25 $ - $ 74,975 $ -
October 2005 - Shares issued for product development 100,000 10 - 29,990 -
November 2005 - Shares issued to settle lawsuits 1,100,000 110 - 274,890 -
November 2005 - Shares issued for product development 200,000 20 - 59,980 -
November 2005 - Shares issued for consulting and prepaid expense 1,000,000 100 - 269,900 -
December 2005 - Shares issued for expenses 782,000 78 - 187,602 -
January 2006 - Shares issued for legal service 200,000 20 - 53,980 -
February 2006 - Shares issued for consulting 300,000 30 - 95,970 -
February 2006 - Shares issued for product development 200,000 20 - 49,980 -
February 2006 - Shares issued to repay shareholder loans 6,130,000 613 - 703,563 -
February 2006 - Shares issued for consulting and prepaid expense 13,200,000 1,320 - 2,638,680 -
March 2006 - Shares issued for payment of convertible debt 137,617 13 - 60,538 -
April 2006 - Shares issued for consulting and prepaid expense 13,200,000 1,320 - 2,638,680 -
April 2006 - Shares issued for prepaid consulting 1,000,000 100 - 359,900 -
April 2006 - Shares issued for expenses 320,000 32 - 105,568 -
April 2006 - Shares issued for cash 3,400,000 340 - 849,660 -
Notes payable from shareholders reclassified as paid-in capital - - - 825,000 -
Net loss - - - - (9,385,323)
----------- --------- ---------- ----------- ------------
Balance at April 30, 2006 176,514,480 $ 17,651 $ - $20,437,993 $(16,043,832)
=========== ========= ========== =========== ============
The accompanying notes are an integral part of these financial statements.
F - 6
EFOODSAFETY.COM, INC.
(Formerly A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
April 30,
2006 2005
----------------- ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $ (9,385,323) $ (4,276,894)
Adjustments used to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation 488 -
Common stock issued for accrued interest - -
Common stock issued for expenses 10,742,731 1,095,469
Common stock issued for accrued interest 52,118 9,497
Gain/Loss on sale of marketable securities (529) (5,259)
Write-off of Goodwill 1,699,169 -
(Increase) Decrease in Prepaid Expenses & Deposits (4,051,200) -
Increase (Decrease) in Accounts Payable (181,659) 257,526
Increase (Decrease) in Accrued Expenses 30,086 -
Increase (Decrease) in Accrued Interest 14,026 91,797
----------------- ------------------
Net Cash Used in continuing activities (1,080,093) (2,827,864)
Net Cash Used in discontinued activities 7,905 30,177
----------------- ------------------
Net Cash Used in operating activities (1,072,188) (2,797,687)
----------------- ------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Cash acquired from MedElite 831 -
Purchase of fixed assets (7,243) -
Purchase of marketable securities - (500,000)
Dividends reinvested in marketable securities (566) (10,026)
Proceeds from sale of marketable securities 166,379 350,000
----------------- ------------------
Net cash provided by (used in) continuing activities 159,401 (160,026)
Net cash provided by (used in) discontinued activities (1,618) (70,551)
----------------- ------------------
Net cash provided by (used in) investing activities 157,783 (230,577)
----------------- ------------------
F - 7
EFOODSAFETY.COM, INC.
(Formerly A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
For the Years Ended
April 30,
2006 2005
----------------- ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from sale of stock 850,000 -
Capital contributed by shareholder - -
Proceeds from loans 1,095,019 903,000
Proceeds from convertible debentures - 2,080,000
----------------- ------------------
Net cash provided by Financing Activities 1,945,019 2,983,000
----------------- ------------------
Net (Decrease) Increase in
Cash and Cash Equivalents 1,030,614 (45,264)
Cash and Cash Equivalents
at Beginning of Period 38,336 83,600
----------------- ------------------
Cash and Cash Equivalents
at End of Period $ 1,068,950 $ 38,336
================= ==================
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 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.
On January 31, 2006, the Company issued 6,130,000 shares of common
stock as repayment for shareholder loans totaling $690,034 and accrued interest
of $14,143.
In September 2005, the Company issued 78,354 shares of common stock for
principal and interest on convertible debentures. The transaction was valued at
$27,424.
In March 2006, the Company issued 137,617 shares of common stock for
principal and interest on convertible debentures. The transaction was valued at
$60,551.
The accompanying notes are an integral part of these financial statements.
F - 8
EFOODSAFETY.COM, INC.
(Formerly 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 (formerly 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.
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.
F - 9
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(Formerly 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 marketing worldwide. With
the sale of Ozone Safe Food, Inc. the Company changed direction to become a
company dedicated to improving food and health conditions around the world
through its innovative technologies. The Company's Knock-Out Technologies, Ltd.
subsidiary has developed an environmentally safe sporicidal product formulated
entirely of food-grade components that eradicates anthrax and a germicidal
product, Big 6 Plus - EPA Reg. No 82723-1 that kills six major bacteria: E-coli,
Listeria, Pseudomonas, Salmonella, Staphylococcus, and Streptococcus, Avian
Influenza and Black Mold. The sporicidal product has completed its final
efficacy laboratory study requisite for EPA registration. The Company's
MedElite, Inc. subsidiary distributes clinically proven products to physicians
who then prescribe the products for their patients. It is the exclusive U.S. and
worldwide distributor of the Talsyn(TM)-CI/bid Scar Cream that has been
clinically proven to facilitate and improve the appearance, redness and strength
of scars. The Company is also a distributor for Cinnergen(TM), a non-
prescription liquid whole food nutritional supplement that promotes healthy
glucose metabolism, and most recently became a distributor for Trimmendous(TM),
a weight loss formula focusing on the body's 24-hour metabolic process.
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 April 30, 2006, the Company has accumulated operating losses of $16,043,832
since its inception. The continuation of the Company is dependent upon the
continuing financial support of directors and stockholders.
F - 10
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(Formerly A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 years ended April 30,
2006 and 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.
Revenue recognition
The Company reports revenues on a net basis. As part of the
distribution agreement entered into with Nutralab, Inc. (see Note 6), the
Company is entitled to 95% of the net gross sales of all auto-ship sales of
Cinnergen sold through a direct response marketing campaign. The product is
shipped by Nutralab and title and risk of loss remain with Nutralab.
Concentration of Risk
As of April 30, 2006, the Company's revenues are from the sale of
Cinnergen, as part of a distribution agreement with Nutralab, Inc. The loss of
this product would have an adverse effect on the Company's operations.
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.
F - 11
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(Formerly A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Total depreciation expense for the years ended April 30, 2006 and 2005
was $488 and $0, respectively.
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 April 30, 2006 and 2005.
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.
Reclassifications
Certain reclassifications have been made in the 2005 financial
statements to conform with the 2006 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:
April 30, 2006
---------------------------------------------------------
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
================= ================== ==================
F - 12
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(Formerly A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Realized gains and losses are determined on the basis of specific
identification. During the years ended April 30, 2006 and 2005, sales proceeds
and gross realized gains and losses on securities classified as
available-for-sale securities were:
For the Years Ended
April 30,
2006 2005
------------------ -----------------
Sale Proceeds $ 166,379 $ -
================== =================
Gross Realized Losses $ - $ -
================== =================
Gross Realized Gains $ 529 $ -
================== =================
NOTE 2 - INCOME TAXES
As of April 30, 2006, the Company had a net operating loss carryforward
for income tax reporting purposes of approximately $16,000,000 that may be
offset against future taxable income through 2026. 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. During the year ended April 30, 2006, the
Company began its planned principal operations and was no longer a development
stage company.
F - 13
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(Formerly A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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.
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 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.
F - 14
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(Formerly 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.
In July 2005, the Company issued 700,000 shares of common stock for
legal services valued at $175,000.
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.
In August 2005, the Company issued 12,000,000 shares of common stock
for consulting expenses and finders fees related to the acquisition of MedElite.
The services were valued at $2,170,000.
In September 2005, the Company issued 500,000 shares of common stock
for legal services valued at $155,000.
In September 2005, the Company issued 78,354 shares of common stock for
principal and interest on convertible debentures. The transaction was valued at
$27,424.
In September 2005, the Company issued 560,000 shares of common stock
for various expenses. The expenses were valued at $172,000.
In October 2005, the Company issued 100,000 shares of common stock for
advertising and marketing expense valued at $30,000.
In October 2005, the Company issued 250,000 shares of common stock for
expenses valued at $75,000.
In November 2005, the Company issued 200,000 shares of common stock for
product development related to its agreements with Nutralab. The shares were
valued at $60,000.
F - 15
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(Formerly A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4 - COMMON STOCK TRANSACTIONS (continued)
In November 2005, the Company issued 1,000,000 shares of common stock
for consulting expense. The agreement expires December 31, 2006. The Company
recorded consulting expense of $90,000 and prepaid expense of $180,000.
In December 2005, the Company issued 782,000 shares of common stock for
expenses valued at $187,680.
During the quarter ended January 31, 2006, the Company issued 812,500
shares of common stock to the Board of Directors for service to the Company. The
shares were valued at $.18 per share, which was the market value of the shares
on the date of authorization. Compensation expense of $146,250 was recorded in
association with this transaction.
During the quarter ended January 31, 2006, the Company issued 1,100,000
restricted shares of common stock as part of a legal settlement valued at
$275,000. The shares were valued at $0.25 per share, which was the market value
at the time of settlement.
On January 31, 2006, the Company issued 6,130,000 shares of common
stock as repayment for shareholder loans totaling $690,034 and accrued interest
of $14,143.
In January 2006, the Company issued 200,000 shares of common stock for
legal expenses valued at $54,000.
In February 2006, the Company issued 300,000 shares of common stock for
consulting expenses valued at $96,000.
In February 2006, the Company issued 200,000 shares of common stock for
product development related to its agreements with Nutralab. The shares were
valued at $50,000.
In February 2006, the Company issued 13,200,000 shares of common stock
for consulting expense. Consulting expense of $880,000 and prepaid expense of
$1,760,000 was recorded pursuant to this agreement.
In March 2006, the Company issued 137,617 shares of common stock for
principal and interest on convertible debentures. The transaction was valued at
$60,551.
In April 2006, the Company issued 13,200,000 shares of common stock for
consulting expense. Consulting expense of $880,000 and prepaid expense of
$1,760,000 was recorded pursuant to this agreement.
In April 2006, the Company issued 1,000,000 shares of common stock for
consulting expense. The agreement expires December 31, 2007. The Company
recorded prepaid expense of $360,000.
In April 2006, the Company issued 320,000 shares of common stock for
expenses valued at $105,600.
F - 16
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(Formerly A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4 - COMMON STOCK TRANSACTIONS (continued)
During the quarter ended April 30, 2006, the Company received $850,000
in cash for 3,400,000 shares of common stock.
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.
In August 2005, MedElite, Inc., a subsidiary of the Company, entered
into a lease agreement for office space at 668 Woodbourne Road, Suite 109,
Middletown, Pennsylvania. The lease is effective October 31, 2005 and expires on
October 31, 2008. The lease payments are $1,033 for the first year, $1,064 for
the second year, and $1,096 for the third year.
The minimum future lease payments under these leases for the next five
years are:
Year Ended April 30, Real Property
- ------------------------------------------ -----------------
2007 $ 12,582
2008 12,960
2009 6,576
2010 -
2011 -
-----------------
Total five year minimum lease payments $ 32,118
=================
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.
F - 17
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(Formerly A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6 - COMMITMENTS
On October 11, 2005, the Company entered into a distribution agreement
with Nutralab, Inc. whereby the Company became Nutralab's exclusive distributor
in the United States and Canada with respect to the distribution and sale of
Cinnergen in a direct response marketing campaign. As part of the agreement, the
Company has agreed to pay a total $300,000 at the rate of $50,000 per month for
six months for a direct response marketing campaign for Cinnergen, commencing
November 15, 2005 and ending May 15, 2006. After May 15, 2006, the Company has
agreed to maintain a $200,000 a month direct response marketing campaign for
Cinnergen. The terms of this agreement commence on October 11, 2005 and are
non-expiring, or expire at the time Cinnergen is no longer sold. The Company
also issued 100,000 shares of restricted common stock to Nutralab for product
development related to this agreement.
NOTE 7 - RELATED PARTY TRANSACTIONS
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 year ended April 30, 2006, shareholders
loaned the Company an additional $1,095,019. 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. During the
quarter ended January 31, 2006, the Company issued 6,130,000 shares of common
stock as repayment for shareholder loans totaling $690,034 and accrued interest
of $14,143. The total amount of principal and interest due on these notes is
$617,680 and $1,284,009 as of April 30, 2006 and 2005, respectively.
During the year ended April 30, 2006, $825,000 in notes payable due to
shareholders was waived by the shareholders. These amounts of notes payable that
were forgiven has been reclassified to paid-in capital.
NOTE 8 - 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.
F - 18
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(Formerly A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8 - ACQUISITIONS
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.
NOTE 9 - CONVERTIBLE DEBENTURES
On July 21, 2004, the Company sold $2.0 million in convertible
debentures. The convertible debentures carry an interest rate of 6% per annum,
payable quarterly. The debentures carry a conversion price of $.40 per share of
the Company's common stock. The 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.
During the year ended April 30, 2006, the Company issued 215,971 shares
of common stock as payment towards the Company's convertible debentures. The
total payment was valued at $87,975. As of April 30, 2006, the convertible
debentures had been paid in full.
F - 19
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(Formerly A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10 - LITIGATION
CLARENCE WILLIAM KARNEY V. EFOODSAFETY.COM, INC., ET AL.; YAVAPAI
COUNTY (ARIZONA) SUPERIOR COURT; NO. CV 2005-0656; FILED JULY 18, 2005. Mr.
Karney was employed by the Company. He filed this complaint, alleging that the
defendants subjected him and others to certain conduct during his employment,
and that such conduct gave rise to a claim for "hostile working environment".
The defendants moved to dismiss the complaint in its entirety. By order dated
October 26, 2005, the Court granted the defendants' motion to dismiss the
action. The Court then ordered the plaintiff to pay $3,500 in legal fees,
$103.82 in expenses, and $91 in costs. The Court entered judgment against the
plaintiff to that effect on December 29, 2005.
CLARENCE WILLIAM KARNEY V. EFOODSAFETY.COM, INC., ET AL.; YAVAPAI
COUNTY (ARIZONA) SUPERIOR COURT; NO. CV 2005-0623; FILED JULY 8, 2005. Mr.
Karney was employed by the Company. He filed this complaint, alleging that the
defendants had breached an employment agreement. The defendants answered,
denying the plaintiff's allegations. After the defendants answered, the
plaintiff moved to voluntarily dismiss the complaint in its entirety. By order
dated May 23, 2006, the Court dismissed the action without prejudice. The time
for the plaintiff to appeal from the dismissal has expired, and he has not filed
any appeal. Any unfavorable outcome in this matter is extremely unlikely.
CLARENCE WILLIAM KARNEY V. EFOODSAFETY.COM, INC., ET AL.; YAVAPAI
COUNTY (ARIZONA) SUPERIOR COURT; NO. CV 2006-0128; FILED FEBRUARY 2, 2006. Mr.
Karney was employed by the Company. He filed this complaint, alleging that the
Company breached a "Management Lockup Agreement" that he and defendant Patricia
Ross Gruden signed with the Company in July 2004. The defendants moved to
dismiss the complaint in its entirety. By order dated May 4, 2006, the Court
granted the defendants' motion to dismiss the action. The defendants filed an
application for attorneys' fees and costs. This application remains pending. The
likelihood of an unfavorable outcome is not determinable.
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., Conn Chemicals,
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 funds from the Company and attempted to cause the Company
to enter into invalid contracts with close personal friends without proper
authorization. AmeriFinancial filed a motion to quash service of summons of
eFoodSafety.com's complaint which was granted by the Court. In an effort to
avoid the uncertainty of this litigation and the potential for a substantial
loss, eFoodSafety.com has settled with Conn Chemicals and TracForce and both
parties were dismissed from this action with prejudice. Default was entered
against Mr. Karney on August 8, 2005. A hearing on the default judgment against
Mr. Karney will be held on August 17, 2006.
During the year ended April 30, 2006, the Company transferred 100,000
shares of restricted common stock and paid $15,000 to Chris F. Conn, C. Mark
Conn and Conn Chemicals Engineering Company, and transferred 1,000,000 shares of
restricted common stock and paid $30,000 to Edward S. Garcia and Stephen C.
Baugh to settle a portion of this lawsuit. The legal proceeding continues
against Mr. Karney, the only remaining defendant.
F - 20
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(Formerly A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10 - LITIGATION (continued)
GARCIA V. EFOODSAFETY.COM, INC. (Case No. 50-2004-CA-010352-MB-AH).
During the quarter ended January 31, 2006, the Company transferred 1,000,000
shares of restricted common stock and paid $30,000 to Edward S. Garcia and
Stephen C. Baugh to settle this lawsuit and to remove them as defendants in Case
No. INC 046894 filed in Riverside County, California as part of the settlement
agreement.
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 disputed the
claims alleged and denied the validity of the purported agreement. On June 14,
2006, the parties entered into a confidential settlement agreement. On June 30,
2006, the Company was dismissed from this action with prejudice.
NOTE 11 - 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:
April 30,
2006 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.
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 year ended
April 30, 2006 are shown separately in the accompanying consolidated statement
of operations. The operating statement for the year ended April 30, 2005 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 years
ended March 31, 2006 and 2005 consist of:
F - 21
EFOODSAFETY.COM, INC. & SUBSIDIARIES
(Formerly A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 11 - DISCONTINUED OPERATIONS (continued)
For the Years Ended
April 30,
2006 2005
------------------ ------------------
Sales $ 71,757 $ 86,374
Cost of Sales (51,235) (41,403)
Sales and Marketing (7,118) (80,159)
Research and Development (60,716) (608,099)
Consulting - (385,350)
General and Administrative (242,179) (1,411,752)
------------------ ------------------
Net Income (Loss) $ (289,491) $ (2,440,389)
================== ==================
F - 22
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) 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 Gruden
Patricia Gruden, President, Chief Executive Officer, Chief Financial Officer
Date: August 14, 2006
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
By:/s/Patricia Gruden
Patricia Gruden, Director, Chief
Executive Officer and Chief Financial Officer
Date: August 14, 2006
By:/s/ Robert Bowker
Robert Bowker, Director
Date: August 14, 2006
By:/s/ Timothy Matula
Timothy Matula, Director and Secretary
Date: August 14, 2006
By/s/ Richard Goldfarb
Richard Goldfarb, Director
Date: August 14, 2006
17