UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JULY 31, 2006
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from ______________ to _________________.
Commission file number 333-68008
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EFOODSAFETY.COM, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
62-1772151
----------
(I.R.S. Employer Identification No.)
7702 E. DOUBLETREE RANCH ROAD, SUITE 300, SCOTTSDALE, ARIZONA 85258
-------------------------------------------------------------------
(Address of principal executive offices)
(480) 607-2606
(Issuer's telephone number)
(Former name or former address, if changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined by
Rule 12b-2 of the Exchange Act). Yes No X
-------- --------
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: 180,114,480 common shares issued and
outstanding as of July 31, 2006
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EFOODSAFETY.COM, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
July 31, April 30,
2006 2006
------------------ ------------------
Assets:
Current Assets
Cash $ 995,578 $ 1,068,950
Prepaid expenses 1,545,000 2,060,000
Due from shareholders 360 -
------------------ ------------------
Total Current Assets 2,540,938 3,128,950
------------------ ------------------
Fixed Assets
Computers and accessories 3,080 3,080
Equipment 3,121 3,121
Furniture and fixtures 1,042 1,042
Accumulated Depreciation (827) (488)
------------------ ------------------
Total Fixed Assets 6,416 6,755
------------------ ------------------
Non-Current Assets
Prepaid expense 2,000,000 2,000,000
------------------ ------------------
Total Assets $ 4,547,354 $ 5,135,705
================== ==================
EFOODSAFETY.COM, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
(Unaudited)
July 31, April 30,
2006 2006
---------------- --------------
Liabilities:
Current Liabilities
Accounts payable $ 76,127 $ 76,127
Accrued expenses 1,530 1,821
Due to Nutralab 54,882 28,265
---------------- --------------
Total current liabilities 132,539 106,213
---------------- --------------
Long-Term Liabilities
Notes payable 477,909 507,984
Accrued interest 117,543 109,696
---------------- --------------
Total long-term liabilities 595,452 617,680
---------------- --------------
Total Liabilities 727,991 723,893
---------------- --------------
Stockholders' Equity:
Common Stock, $.0001 Par Value
Authorized 500,000,000 shares, Issued
180,114,480 at July 31, 2006
and 176,514,480 at April 30, 2006 18,011 17,651
Paid-In Capital 21,340,133 20,437,993
Deficit Accumulated During the
Development Stage (17,538,781) (16,043,832)
---------------- --------------
Total Stockholders' Equity 3,819,363 4,411,812
---------------- --------------
Total Liabilities and
Stockholders' Equity $ 4,547,354 $ 5,135,705
================ ==============
The accompanying notes are an integral part of these financial statements.
EFOODSAFETY.COM, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months
ended July 31,
2006 2005
----------------- -----------------
Revenues $ 500,979 $ -
----------------- -----------------
Expenses
Sales and marketing 907,314 -
Research and development 13,205 -
Consulting 515,000 896,202
Legal settlements 390,000 -
General and administrative 170,125 196,273
----------------- -----------------
Total Expenses 1,995,644 1,092,475
----------------- -----------------
Other Income (Expense)
Interest income 7,391 3
Dividend income - 308
Gain/Loss on sale of
marketable securities 173 529
Interest Expense (7,848) (12,723)
----------------- -----------------
Total Other Income (Expense) (284) (11,883)
----------------- -----------------
Net Income (Loss) from Continuing Operations (1,494,949) (1,104,358)
Discontinued Operations
Income (Loss) from Discontinued Operations - (287,868)
----------------- -----------------
Net Income (Loss) $ (1,494,949) $ (1,392,226)
================= =================
Income (Loss) per common share
Continuing operations $ (0.01) $ (0.01)
Discontinued operations - -
----------------- -----------------
Net Income ( Loss) $ (0.01) $ (0.01)
================= =================
Weighted Average Shares 177,646,003 109,053,643
================= =================
The accompanying notes are an integral part of these financial statements.
EFOODSAFETY.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended
July 31,
2006 2005
------------------ -----------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $ (1,494,949) $ (1,392,226)
Adjustments used to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation 339 -
Common stock issued for expenses 890,000 1,081,202
Gain/Loss on sale of marketable securities - (529)
(Increase) Decrease in Prepaid Expenses & Deposits 515,000 7,000
Increase (Decrease) in Accounts Payable - (33,040)
Increase (Decrease) in Accrued Expenses 26,326 -
Increase (Decrease) in Accrued Interest 7,847 12,722
------------------ -----------------
Net Cash Used in continuing activities (55,437) (324,871)
Net Cash Used in discontinued activities - 7,905
------------------ -----------------
Net Cash Used in operating activities (55,437) (316,966)
------------------ -----------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Dividends reinvested in marketable securities - (566)
Proceeds from sale of marketable securities - 166,379
------------------ -----------------
Net cash provided by (used in) continuing activities - 165,813
Net cash provided by (used in) discontinued activities - (1,141)
------------------ -----------------
Net cash provided by investing activities - 164,672
------------------ -----------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from sale of stock 12,500 -
Proceeds from loans - 150,000
Payments on shareholder loans (30,435) -
------------------ -----------------
Net cash provided by Financing Activities (17,935) 150,000
------------------ -----------------
Net (Decrease) Increase in
Cash and Cash Equivalents (73,372) (2,294)
Cash and Cash Equivalents
at Beginning of Period 1,068,950 38,336
------------------ -----------------
Cash and Cash Equivalents
at End of Period $ 995,578 $ 36,042
================== =================
EFOODSAFETY.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ - $ -
Franchise and income taxes $ - $ -
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On 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.
EFOODSAFETY.COM, INC.
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.
Interim Financial Statements
The unaudited consolidated financial statements for the three months
ended July 31, 2006 reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to fairly state the
financial position and results of operations for the three months ended July 31,
2006 and 2005. 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 exchange for the 1,500,000 shares and the
agreement to pay a percentage of gross sales of equipment during the period
ending December 31, 2008.
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
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 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 July 31, 2006, the Company has accumulated operating losses of $17,538,781
since its inception. The continuation of the Company is dependent upon the
continuing financial support of directors and stockholders.
EFOODSAFETY.COM, INC. & SUBSIDIARIES
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 three months ended July
31, 2006 and 2005 and the year ended April 30, 2006 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 July 31, 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
EFOODSAFETY.COM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
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.
Total depreciation expense for the three months ended July 31, 2006 was
$339.
Earnings (Loss) per Share
Basic loss per share has been computed by dividing the loss for the
year applicable to the common stockholders by the weighted average number of
common shares outstanding during the years. There were no common equivalent
shares outstanding at July 31, 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.
EFOODSAFETY.COM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Investments in securities are summarized as follows:
July 31, 2006
------------------------------------------------
Gross Gross
Unrealized Unrealized Fair
Gain Loss Value
-------------- --------------- ---------------
Available-for-sale securities $ - $ - $ -
============== =============== ===============
April 30, 2006
------------------------------------------------
Gross Gross
Unrealized Unrealized Fair
Gain Loss Value
-------------- --------------- ---------------
Available-for-sale securities $ - $ - $ -
============== =============== ===============
Realized gains and losses are determined on the basis of specific
identification. During the three months ended July 31, 2006 and 2005, sales
proceeds and gross realized gains and losses on securities classified as
available-for-sale securities were:
(Unaudited)
For the Three Months Ended
July 31,
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.
EFOODSAFETY.COM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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.
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.
EFOODSAFETY.COM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4 - COMMON STOCK TRANSACTIONS (continued)
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.
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 and
the agreement to pay a percentage of gross sales of equipment during the period
ending December 31, 2008. 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.
EFOODSAFETY.COM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4 - COMMON STOCK TRANSACTIONS (continued)
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.
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 services 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.
EFOODSAFETY.COM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4 - COMMON STOCK TRANSACTIONS (continued)
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.
During the quarter ended April 30, 2006, the Company received $850,000
in cash for 3,400,000 shares of common stock.
On June 22, 2006, the Company issued 1,500,000 shares of common stock
as part of a legal settlement with AmeriFinancial. The shares were valued at
$390,000.
On July 10, 2006, the Company issued 2,000,000 shares of common stock
for product development. The shares were valued at $500,000.
On July 10, 2006, the Company issued 100,000 shares of common stock for
cash of $12,500.
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.
EFOODSAFETY.COM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5 - RENT AND LEASE EXPENSE (continued)
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.
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 was
$595,452 and $617,680 as of July 31, 2006 and April 30, 2006, respectively.
EFOODSAFETY.COM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 7 - RELATED PARTY TRANSACTIONS (continued)
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 have 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.
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 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.
EFOODSAFETY.COM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10 - LITIGATION (continued)
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.
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.
EFOODSAFETY.COM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10 - LITIGATION (continued)
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. As part of
the agreement, the Company issued 1,500,000 shares of common stock to
AmeriFinancial. 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.
Operating results of this discontinued operation for the three months
ended July 31, 2006 are shown separately in the accompanying consolidated
statement of operations. The operating statement for the three months ended July
31, 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 three months ended July 31, 2006 and 2005 consist of:
(Unaudited)
For the Three Months Ended
July 31,
2006 2005
------------------ ------------------
Sales $ - $ 59,247
Cost of Sales - (44,631)
Sales and Marketing - (7,118)
Research and Development - (60,716)
General and Administrative - (234,650)
------------------ ------------------
Net Income (Loss) $ - $ (287,868)
================== ==================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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 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.
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED JULY 31, 2006 AND 2005
SALES
Our revenues from operations for the three months ended July 31, 2006
were $500,979. Our revenues from operations for the three months ended July 31,
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 three months ended July 31, 2006, we incurred research and
development expenses of $13,205. 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 $3,444
while MedElite, Inc. incurred research and development expenses of $9,761.
During the three months ended July 31, 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 three months ended July 31, 2006, the Company incurred sales
and marketing expense of $907,314, compared to sales and marketing expense of $0
during the three months ended July 31, 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
2,000,000 shares of common stock for expenses of $500,000. The Company also
issued 1,500,000 shares of common stock to settle a lawsuit. The shares were
valued at $390,000. For the three months ended July 31, 2005, the Company issued
3,117,819 shares of common stock for expenses of $1,021,202.
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 $7,848 and $12,723 were incurred during the three
months ended July 31, 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%.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 2006, we had working capital of $2,408,400. As a result
of our operating losses during the three months ended July 31, 2006, we
generated a cash flow deficit of $55,438 from operating activities. We used cash
flows in connection with financing activities of $17,935 during the three months
ended July 31, 2006. We received proceeds of $12,500 from the sale of common
stock, and made payments on shareholder loans of $30,435.
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.
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 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.
(b) Changes in Internal Control Over Financial Reporting
There was no change in the Company's internal control over financial
reporting identified in connection with the evaluation that occurred during the
Company's last fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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.
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. As part of
the agreement, the Company issued 1,500,000 shares of common stock to
AmeriFinancial. On June 30, 2006, the Company was dismissed from this action
with prejudice.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The Company issued the following securities without registration under
the Securities Act of 1933 in reliance upon the exemption afforded by Section
4(2) of that Act, based upon the limited number of persons who acquired the
securities in each issuance; no underwriters were involved.
On June 22, 2006, the Company issued 1,500,000 shares of common stock
as part of a legal settlement with AmeriFinancial. The shares were valued at
$390,000.
On July 10, 2006, the Company issued 2,000,000 shares of common stock
for product development. The shares were valued at $500,000.
On July 10, 2006, the Company issued 100,000 shares of common stock for
cash of $12,500.
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.
No reports were filed on Form 8-K during the three months ended July
31, 2006.
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 to
Exhibit 3.1 to the Registration Statement on Form SB-2,
effective February 4, 2003, File No. 333-68008)
3.2 Corporate Bylaws (incorporated by reference to Exhibit 3.2 to
the Registration Statement on Form SB-2 , effective February
4, 2003, File No. 333-68008)
31 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EFOODSAFETY.COM, INC.
By:/s/Patricia Ross-Gruden
Patricia Ross-Gruden, Director, Chief
Executive Officer and Chief Financial Officer
Date: September 13, 2006