Eugene Science (EUSI) 10QSB 2006 Q1 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO __________________

Commission file number 000-50601

EUGENE SCIENCE, INC.

(Name of small business issuer as specified in its charter)

Delaware	33-0827004
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

16-7 SMJUNG-DONG, OJUNG-GU, BUCHEON, KYONGGI-DO KOREA

(Address of principal executive offices)

Issuer’s telephone number: 82-32-676-6283

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 in Rule 12b-2 of the Exchange Act). ¨

The number of outstanding shares of the issuer’s common stock as of May 20, 2006 was 32,165,974.

Transitional Small Business Disclosure Format (Check one): Yes ¨ No x

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

EUGENE SCIENCE, INC.

CONSOLIDATED FINANCIAL STATEMENTS

PERIODS ENDED MARCH 31, 2006 and 2005

(UNAUDITED)

CONTENTS

Report of Independent Registered Public Accounting Firm	1
Consolidated Balance Sheets	2
Consolidated Statements of Stockholders' Deficit	3
Consolidated Statements of Operations	4
Consolidated Statements of Cash Flows	5
Notes to Financial Statements	6-16

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders of

Eugene Science, Inc.

We have reviewed the accompanying consolidated balance sheets of Eugene Science, Inc. and subsidiary (the "Company") as at March 31, 2006 and 2005, and the related consolidated statements of operations, stockholders' deficit, and cash flows for the quarter then ended. These interim consolidated financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses and negative working capital from operations and operates in a country whose economy is currently unstable, which raises substantial doubt about its ability to continue as a going concern. Management's plan in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

CHARTERED ACCOUNTANTS

Toronto, Canada

May 18, 2006

1

EUGENE SCIENCE, INC.

Consolidated Balance Sheets

March 31, 2006 and 2005

(Unaudited)

	2006			2005
ASSETS
Current
Cash and cash equivalents (note 3)	$	23,834		$	53,420
Accounts receivable (net of allowance for doubtful accounts $26,503; 2005 - $Nil) (note 16)		45,544			47,739
Inventory (note 4)		111,365			12,779
Accounts receivable from a related company		-			2,709,496
Advances to a related company (note 5)		1,179,189			1,401,927
Prepaid and sundry assets (note 16)		211,559			189,442
		1,571,491			4,414,803
Properties and Equipment (note 6)		9,499,945			9,683,453
Investments (note 7)		441,381			537,613
Intangible Assets		183,271			174,041
	$	11,696,088		$	14,809,910
LIABILITIES
Current
Accounts payable	$	8,972,826		$	6,138,505
Accounts payable to related party		301,302			429,496
Rental deposits (note 8)		164,520			157,539
Loans payable - current portion (note 9)		10,976,109			10,198,884
Advances from a related company (note 10)		19,228
Advances from shareholder and officer (note 11)		518,664			6,230
		20,952,649			16,930,654
Accrued Severance		573,918			450,857
Deposit		1,504,844			1,588,684
Loans Payable (note 9)		41,644			319,268
		23,073,055			19,289,463
STOCKHOLDERS' DEFICIENCY
Capital Stock (note 13)		31,166			3,537
Paid in Capital		16,418,734			16,216,558
Accumulated Other Comprehensive Income (Loss)		(2,255,671	)		(1,724,530	)
Accumulated Deficit		(25,571,196	)		(18,975,118	)
		(11,376,967	)		(4,479,553	)
	$	11,696,088		$	14,809,910

APPROVED ON BEHALF OF THE BOARD

Director Director

2

EUGENE SCIENCE, INC.

Consolidated Statements of Stockholders’ Deficit

March 31, 2006 and 2005

(Unaudited)

	Number of Shares		Capital Stock		Paid in Capital in excess of Par Value		Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders' Deficit
Balance, January 1, 2005 (note 13)	35,368,800	$	3,537	$	15,223,558	$	(1,676,719	)	$	(18,028,969	)	$	(4,478,593	)
Issuance of common shares by subsidiary					993,000								993,000
Unrealized loss on investments							(56,310	)					(56,310	)
Foreign exchange on translation							8,499						8,499
Net loss										(946,149	)		(946,149	)
Balance, March 31, 2005	35,368,800	$	3,537	$	16,216,558	$	(1,724,530	)	$	(18,975,118	)	$	(4,479,553	)
Balance, January 1, 2006 (note 13)	311,659,748	$	31,166	$	16,418,734	$	(1,777,866	)	$	(24,372,702	)	$	(9,700,668	)
Unrealized loss on investments							(107,113	)					(107,113	)
Foreign exchange on translation							(370,692	)					(370,692	)
Net loss										(1,198,494	)		(1,198,494	)
Balance, March 31, 2006	311,659,748	$	31,166	$	16,418,734	$	(2,255,671	)	$	(25,571,196	)	$	(11,376,967	)

3

EUGENE SCIENCE, INC.

Consolidated Statements of Operations

March 31, 2006 and 2005

(Unaudited)

	2006			2005
Revenue
Manufacturing	$	102,458		$	243,590
Merchandise		19,985			172,642
		122,443			416,232
Cost of Sales
Manufacturing		67,564			236,279
Merchandise		15,936			136,314
		83,500			372,593
Gross Profit		38,943			43,639
Expenses
Salaries, employee benefits, and retirement allowance		334,332			230,050
Professional fees		63,751			60,588
Research and development		113,064			168,880
Office and general		13,614			9,961
Repairs and maintenance		16,152			15,514
Travel		15,542			46,912
Utilities		14,662			14,790
Insurance		2,551			8,411
Advertising, promotion, and entertainment		10,790			2,527
Bad debts		10,157			43,367
Foreign exchange		(248	)		(34	)
Depreciation		84,996			109,804
		679,363			710,770
Operating Loss		(640,420	)		(667,131	)
Other Income (Expenses)
Provision for uncollectible loan and accounts receivable from related party		(108,894	)		-
Net rental income		36,964			38,219
Miscellaneous income		-			10,685
Interest expense - net		(439,439	)		(283,404	)
Interest - other (note 6)		(46,705	)		(44,518	)
		(558,074	)		(279,018	)
Net Loss	$	(1,198,494	)	$	(946,149	)
Basic Loss Per Share	$	0.00		$	0.00
Weighted Average Number of Shares (note 13)		311,659,748			272,790,948

4

EUGENE SCIENCE, INC.

Consolidated Statements of Cash Flows

March 31, 2006 and 2005

(Unaudited)

	2006			2005
Cash Flows from Operating Activities
Net loss	$	(1,198,494	)	$	(946,149	)
Adjustments for:
Provision for uncollectible loans and accounts receivable from related party.		108,894			-
Depreciation		152,355			192,172
Amortization of intangible assets		15,577			15,102
Change in non-cash working capital
Accounts receivable		49,425			(14,261	)
Inventory		(50,779	)		2,315
Accounts payable to related party		21,596			152,987
Accounts payable		747,841			521,535
Accrued severance		96,484			24,490
Prepaid and sundry assets		(29,545	)		(81,223	)
Rental deposits		6,280			1,523
		(80,366	)		(131,509	)
Cash Flows from Investing Activities
Intangible assets		(3,942	)		-
Cash Flows from Financing Activities
Advances to a related company		(259,127	)		(476,676	)
Deposit		57,442			17,264
Loans payable		164,139			(385,717	)
Advances from shareholders and officer		159,109			61
Advances from a related company		(37,722	)		-
Issuance of common stock		-			993,000
		83,841			147,932
Foreign Exchange on Cash and Cash Equivalents		945			316
Net Increase in Cash and Cash Equivalents		478			16,739
Cash and Cash Equivalents - beginning of period		23,356			36,681
Cash and Cash Equivalents - end of period	$	23,834		$	53,420
Interest and Income Taxes Paid
During the year, the company had cash flows arising from interest and income taxes paid as follows:
Interest paid	$	87,262		$	296,753
Income taxes paid	$	-		$	-

5

EUGENE SCIENCE, INC.

Notes to Consolidated Financial Statements

March 31, 2006 and 2005

(Unaudited)

1.Description of Business and Going Concern

a)Description of Business

Eugene Science Inc. (formerly "Ezcomm Enterprises, Inc.") was incorporated on August 26, 1998 under the name Orcas Ltd., under the laws of the state of Delaware. As Orcas Ltd., the Company was in the business of building and promoting arcade video games and vending machines. The Company underwent a reverse merger and abandoned this enterprise to develop a loyalty reward program based in Taipei, Taiwan. On January 18, 2000, the Company changed its name to Ezcomm Inc. to reflect this change in business. On July 19, 2004, Ezcomm Inc. changed its name to Ezcomm Enterprises, Inc. The Company has been inactive since inception.

On September 30, 2005, in accordance with a Share Exchange Agreement dated September 1, 2005, the Company entered into a reverse-takeover transaction with Eugene Science, Inc. (Korea), whereby 89.5% of all the outstanding shares of the Korean subsidiary were exchanged for 272,790,948 shares of the Company. As a result of the transaction, the shareholders of Eugene Science, Inc. (Korea) will control 88.5% of the Company. While the Company is the legal parent, Eugene Science, Inc. (Korea) as a result of the reverse-takeover, became the parent company for accounting purposes.

Eugene Science, Inc. (Korea), a company operating in Bucheon, Kyunggi-Do, Korea, was founded on July 1, 1997 under the laws of the Republic of Korea to manufacture and sell biotechnology products.

Eugene Science, Inc. (Korea) manufactures CZTM series cholesterol-lowering functional food ingredients, beverages and capsules fortified with CZTM series ingredients, and ordinary corn oil. The merchandise sales include the purchase and resale of vegetable oil products which include the ingredients of CZTM series.

b)Going Concern

The Company's financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has experienced recurring losses since 2000 and has negative cash flows from operations that raise substantial doubt as to its ability to continue as a going concern. For the years ended March 31, 2006 and 2005, the Company experienced net losses of $1,198,494 and $946,149 and negative working capital of $19,254,357 and $12,318,927 respectively.

The Company's ability to continue as a going concern is also contingent upon its ability to secure additional financing, initiating sale of its product and attaining profitable operations.

In May 2005, plant sterols, the main ingredient of CZTM series, was formally approved as a health function food ingredient by the Korean Food & Drug Administration, making it possible for the Company to advertise the cholesterol-lowering function of CZTM and food enriched with CZTM. The Company expects that the favorable change in the regulation will strongly help in selling CZTM to major food companies. The Company has also developed new capsule products that are efficient and convenient in delivering the health function of CZTM. The Company is actively developing sales channels for CZTM and the capsule products.

The Company also plans to strengthen the cooperation with its international partners to restart shipping to overseas markets. The Company expects to sell CZTM to major food companies through its international strategic partners such as Archer Daniels Midland Company. In regards to CZTM capsules, the Company also plans to provide a large volume to the United States market starting early 2006 through marketing companies in the United States.

In addition, management is pursuing various sources of equity financing. Although the Company plans to pursue additional financing, there can be no assurance that the Company will be able to secure financing when needed or obtain such on terms satisfactory to the Company, if at all.

6

EUGENE SCIENCE, INC.

Notes to Consolidated Financial Statements

March 31, 2006 and 2005

(Unaudited)

The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

2.Summary of Significant Accounting Policies

The accounting policies of the Company are in accordance with generally accepted accounting principles of the United States of America, and their basis of application is consistent. Outlined below are those policies considered particularly significant:

a)Basis of Financial Statement Presentation

These financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America with the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business.

b)Basis of Consolidation

The merger of the Company and Eugene Science Inc. (Korea) has been recorded as the recapitalization of the Company, with the net assets of the Company brought forward at their historical basis. The intention of the management of Eugene Science Inc. (Korea) was to acquire the Company as a shell company listed on Nasdaq. Management does not intend to pursue the business of the Company. As such, accounting for the merger as the recapitalization of the Company is deemed appropriate.

The consolidated financial statements included the operations of:

Eugene Science, Inc. (Formerly Ezcomm Enterprises, Inc.)

Eugene Science, Inc. (Korea)

Ucolebio, Inc. (a subsidiary of Eugene Science, Inc. (Korea)).

Minority interests are recorded to the extent of their equity. Losses in excess of minority interest equity capital are charged against the majority interest and will be reversed when the losses reverse.

c)Unit of Measurement

The US Dollar has been used as the unit of measurement in these financial statements.

Preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and related notes to financial statements. These estimates are based on management's best knowledge of current events and actions the Company may undertake in the future. Actual results may ultimately differ from estimates, although management does not believe such changes will materially affect the financial statements in any individual year.

d)Revenue Recognition

The Company generates revenues from sales of manufactured goods and merchandise, as well as rental of the company's buildings.

Revenues from products sales are recognized in accordance with Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB No. 101") when delivery has occurred provided there is persuasive evidence of an agreement, the fee is fixed or determinable and collection of the related receivable is probable.

The Company retains substantially all of the benefits and risks of ownership of its income properties and therefore accounts for leases with its tenants as operating leases.

7

EUGENE SCIENCE, INC.

Notes to Consolidated Financial Statements

March 31, 2006 and 2005

(Unaudited)

e)Government Grants

Government grants are recognized as income over the periods necessary to match them with the related costs that they are intended to compensate.

f)Currency Translation

The Company's functional currency is Korean won. Adjustments to translate those statements into U.S. dollars at the balance sheet date are recorded in other comprehensive income.

Foreign currency transactions of the Korean operation have been translated to Korean Won at the rate prevailing at the time of the transaction. Realized foreign exchange gains and losses have been charged to income in the year.

g)Cash and Equivalents

Highly liquid investments with maturities of three months or less when purchased are considered cash equivalents and recorded at cost, which approximates fair value.

h)Properties and Equipment

Properties and equipment are stated at cost. Major renewals and betterments are capitalized and expenditures for repairs and maintenance are charges to expense as incurred. Depreciation is computed using the straight-line method over the following periods:

Buildings	20-40 years
Machinery	10 years
Vehicles	5 years
Furniture and equipment	3-5 years

i)Intangible Assets

Intangible assets such as cost of obtaining industrial rights and patents are stated at cost, net of depreciation computed using the straight-line method over 5 to 10 years.

j)Inventories

Inventories are stated at the lower of cost or net realizable value. Net realizable value is determined by deducting selling expenses from selling price.

The cost of inventories is determined on the first-in first-out method, except for materials-intransit for which the specific identification method is used.

k)Investments

Investments in available-for-sale securities are being recorded in accordance with FAS-115 "Accounting for Certain Investments in Debt and Equity Securities". Equity securities that are not held principally for the purpose of selling in the near term are reported at fair market value with unrealized holding gains and losses excluded from earnings and reported as a separate component of stockholders' equity.

l)Financial Instruments

Fair values of cash equivalents, short-term and long-term investments and short-term debt approximate cost. The estimated fair values of other financial instruments, including debt, equity and risk management instruments, have been determined using market information and valuation methodologies, primarily discounted cash flow analysis. These estimates require considerable judgment in interpreting market data, and changes in assumptions or estimation methods could significantly affect the fair value estimates.

8

EUGENE SCIENCE, INC.

Notes to Consolidated Financial Statements

March 31, 2006 and 2005

(Unaudited)

m)Recent Accounting Pronouncements

In December 2004, the FASB issued a revision to SFAS No. 123, "Share-Based Payment" (Statement 123R). This Statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which the employee is required to provide service in exchange for the award requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Employee share purchase plans will not result in recognition of compensation cost if certain conditions are met; those conditions are much the same as the related conditions in Statement 123. This Statement is effective for public entities that do not file as a small business issuers as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. This Statement applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date. The cumulative effect of initially applying this Statement, if any, is recognized as of the required effective date and is not expected to have a material impact on the Company's consolidated financial statements.

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections" ("SFAS 154"), which replaces Accounting Principles Board ("APB") Opinion No. 20, "Accounting Changes", and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements An Amendment of APB Opinion No. 28". SFAS No. 154 provides guidance on the accounting for and reporting of changes in accounting principles and error corrections. SFAS No. 154 requires retrospective application to prior period financial statements of voluntary changes in accounting principle and changes required by new accounting standards when the standard does not include specific transition provisions, unless it is impracticable to do so. SFAS No. 154 also requires certain disclosures for restatements due to correction of an error. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, and is required to be adopted by the Company as of January 1, 2006. The impact that the adoption of SFAS No. 154 will have on the Company's results of operations and financial condition will depend on the nature of future accounting changes adopted by the Company and the nature of transitional guidance provided in future accounting pronouncements.

3.Cash and Cash Equivalents

Included in cash and cash equivalents is a bond in the amount of $10,283 (2005 - $9,846) pledged as security for payment on future purchases from a vendor. The bond is restricted for use.

4.Inventory

Inventory includes $68,627 (2005 - $10,060) of finished goods, $42,738 (2005 -$2,719) of raw materials.

5.Advances to a Related Company

Advances to a related company which has the same major shareholder and chief executive officer bear interest at 9% per annum and are due on demand. The Company is in financial difficulty and collectability of the advances is uncertain. There is an agreement with the related party to sell its investments in the Company to repay the advances as described in note 16. As of March 31, 2006, the value of the shares held approximates the carrying value of the loan.

9

EUGENE SCIENCE, INC.

Notes to Consolidated Financial Statements

March 31, 2006 and 2005

(Unaudited)

6.Properties and Equipment

Properties and equipment are comprised as follows:

	Cost		2006 Accumulated Depreciation		Cost		2005 Accumulated Depreciation
Land	$	4,640,855	$	-	$	4,443,938	$	-
Buildings		3,554,256		885,440		3,403,445		697,183
Equipment		4,242,042		2,080,333		4,053,936		1,583,304
Furniture and fixtures		1,000,049		971,484		959,038		896,417
	$	13,437,202	$	3,937,257	$	12,860,357	$	3,176,904
Net carrying amount			$	9,499,945			$	9,683,453

Depreciation expense on buildings and equipment leased to a related company in the amount of $61,577 (2005 - $20,553) has been allocated to net rental income. In addition, depreciation on equipment used for research and development in the amount of $41,153 (2005 - $56,319) has been allocated to research and development expenses.

The land and buildings have been pledged as security for a bank loan as described in note 9 and a rental deposit as described in note 8. During the 2004 year, the Company defaulted on its payments of the loans and the bank with the first charge on the Company's properties attempted to auction off the Company's properties through court action. Also, various creditors of the Company have put a provisional seizure on the properties to protect their loans. The appraised value of the properties was $9,952,000. However, in July 2005, the bank cancelled the auction of the properties on the Company's payment of auction administrative cost of $173,000.

In January 2004, the Company entered into a commitment to sell its land and building. The transfer of title is to occur on January 31, 2009. In 2004 the Company received an advance payment of $1,768,344. Until legal transfer of the title in 2009, the Company is to pay $4,900 monthly in cash. On any initial public offering, the Company is also to provide shares based on initial public offering price and the number of months since the agreement at $9,900 per month. After the initial public offering, the Company is to pay $14,800 in cash monthly.

The Company cancelled the old sales agreement and entered into a new one with another purchaser in March 2006 as described in note 17. The sales agreement specifies that proceeds from the sale will be used to repay the bank loan.

7.Investments

			2006		2005
Private company	7.5	%	$	440,989	$	537,238
Company with same major shareholder and CEO	4.58	%		1		1
Other marketable securities				391		374
			$	441,381	$	537,613

The Company has pledged 4% of the investment in the private company with carrying value of $233,725 (2005 - $284,736) as security for a trade payable in the amount of $319,224 (2005 - $366,926).

8.Rental Deposits

A rental deposit of $61,695 (2005 - $59,077) is secured by a charge on the land and buildings as described in note 6. The charge is subordinate to the prior claim held by the bank as described in note 9.

10

EUGENE SCIENCE, INC.

Notes to Consolidated Financial Statements

March 31, 2006 and 2005

(Unaudited)

9.Loans Payable

	Current		Long-term		2006 Total		2005 Total
Bank loans	$	6,114,757	$	-	$	6,114,757	$	6,021,687
Bank loan #2		2,052,181		-		2,052,181		1,965,105
Note payable #1		2,056,500		-		2,056,500		1,969,240
Notes payable (#2, 3, 4 & 5)		429,962		-		429,962		180,471
Government loans (#1, 2 & 3)		322,709		41,644		364,353		381,649
	$	10,976,109	$	41,644	$	11,017,753	$	10,518,152

Bank Loans

The bank loans bear interest at 4.5% to 21% and are due on demand. A bank loan of $3,954,533 (2005 - $3,927,230) is secured by a first charge on the land and buildings as described in note 6. The Company is currently in default of these loans and, as such, the bank attempted to auction off the Company's properties through court action. However, in July 2005, the auction of the properties was cancelled by the bank as described in note 6. The loan will be repaid in accordance with a new sales agreement of the property as described in note 17.

In addition to the security mentioned above, a loan in the amount of $1,382,953 (2005 - $1,324,273) is guaranteed by Korea Technology Credit Guarantee Fund, a government operated fund. Additionally, another bank loan of $292,664 (2005 - $281,526) is guaranteed by the chief executive officer as at March 31, 2006.

Bank Loan #2

The bank loan bears interest at 4.95% per annum is secured by land and buildings as described in note 6 and is due on demand. As of March 31, 2006, the Company is in default of its payment. The loan will be repaid in accordance with a new sales agreement of the property as described in note 17.

Note Payable #1

The note payable to Korea Technology Credit Guarantee Fund, a government operated fund, bears interest at 21% per annum, is guaranteed by the chief executive officer, and is due on demand. As of the year end, the Company is in default of its payment.

Notes Payable #2, 3, 4 and 5

The notes payable bear interest at 9% to 10% are unsecured, and due on demand.

Government Loan #1

The loan is non-interest bearing, unsecured, repayable in three annual payments of $21,798 and matured in February 2006. The Company is in arrears on the 2004, 2005 and 2006 annual payments .

Government Loan #2

The loan amount of $41,644 is non-interest bearing, unsecured, and is repayable when the projects related to the loan have been completed.

Government Loan #3

Loan in the amount of $269,902 is non-interest bearing, unsecured, and is repayable on demand as the Company completed the contract in 2005.

11

EUGENE SCIENCE, INC.

Notes to Consolidated Financial Statements

March 31, 2006 and 2005

(Unaudited)

10.Advances from Related Company

The advances from a company controlled by a person related to the chief executive officer bears interest at 9%, and is due on demand.

11.Advances from Shareholder

The advances from the chief executive officer, who is also a 32% shareholder, bears interest at 9% per annum and is repayable on demand.

12.Deposit

The Company received a refundable deposit on the sale of its land and buildings as described in notes 6 and 17.

13.Capital Stock

Authorized:

480,000,000 common shares, par value $0.0001 (2005 - $0.0001)

20,000,000 preferred shares, par value $0.0001 (2005 - $0.0001)

	2006		2005
Issued:
311,659,748 (2005 - 35,368,800) common shares	$	31,166	$	3,537

On March 3, 2005, the Korean subsidiary issued 2,500,000 shares, a 8% ownership to an investor for $993,000.

On September 30, 2005, in accordance with a Share Exchange Agreement dated September 1, 2005, the Company entered into a reverse-takeover transaction with Eugene Science, Inc. (Korea), whereby 89.5% of all the outstanding shares of the Korean subsidiary were exchanged for 272,790,948 shares of the Company. As a result of the transaction, the shareholders of Eugene Science, Inc. (Korea) will control 88.5% of the Company. While the Company is the legal parent, Eugene Science, Inc. (Korea), as a result of the reverse-takeover, became the parent company for accounting purposes.

The financial statements have been retroactively adjusted to reflect the reverse-takeover transaction.

On October 12, 2005, the Company issued 3.5 million common shares, at par value $0.0001 per share for consulting services provided.

Stock Warrants and Options of the Korean Subsidiary

The Company has accounted for its stock options and warrants in accordance with SFAS 123 "Accounting for Stock - Based Compensation" and SFAS 148 "Accounting for Stock - Based compensation - Transition and Disclosure." Value of options granted has been estimated by the Black Scholes option pricing model. The assumptions are evaluated annually and revised as necessary to reflect market conditions and additional experience. The following assumptions were used:

	2006			2005
Interest rate		7.7	%		7.7	%
Expected volatility		80.0	%		80.0	%
Expected life in years		4			5

In 1999 the Board of Directors of the Korea subsidiary adopted an option plan to allow employees to purchase ordinary shares of the Company.

12

EUGENE SCIENCE, INC.

Notes to Consolidated Financial Statements

March 31, 2006 and 2005

(Unaudited)

In October 1999, the share option plan granted 928,350 stock options for the common stock of the Company having a $0.0869 nominal par value each and an exercise price of $0.12. In 2000, 236,240 stock options were cancelled. In 2005, the balance of the 692,110 options were exercised.

In December 1999, 659,169 stock options were granted having a $0.0869 nominal par value each and an exercise price of $0.26. In 2005, the balance of the 659,169 options were exercised.

In October 2000, 971,999 stock options were granted having a $0.0869 nominal par value each and an exercise price of $1.93. In 2000, 5,087, in 2001, 162,848, in 2002, 40,712, and in 2003, 244,272 stock options were cancelled. As at March 31, 2006, 519,080 options are still outstanding. In May 2001, 71,246 stock options were granted having a $0.0869 nominal par value each and an exercise price of $1.93. In 2002, 20,356 stock options were cancelled. As at March 31, 2006, 50,890 options are still outstanding.

In March 2002, 1,000,000 stock options were granted having a $0.0869 nominal par value each and exercise price of $1.96. 330,000, 110,000, 100,000 stock options were cancelled in 2002, 2003, and 2005 respectively. In addition, 31,190 options were granted in 2005. There was also a change in the exercise price to $1.84. As at March 31, 2006, 491,190 options are still outstanding. In September 2002, 220,000 stock options were granted having a $0.0869 nominal par value each and an exercise price of $1.96. During 2005, 14,916 options were granted. In addition, the exercise price of the options was reduced to $1.84.

In March 2003, 350,000 stock options were granted having a $0.0869 nominal par value each and an exercise price of $1.96. In 2003 and 2004, 180,000 and 20,000 stock options were cancelled respectively. During 2005, 10,170 options were granted and the exercise price was reduced to $1.84. As at March 31, 2006, 160,170 stock options are still outstanding.

The options vest gradually over a period of 2 to 3 years from the date of grant. The term of each option shall not be more than 7 years from the date of grant. 285,806 and 651,360 options have vested in 2004 and 2005 respectively. However, as the exercise price of the options was substantially higher than the fair market value, therefore the options have no value and no benefits have been recorded since the 2000 plan.

The stock options have not been included in the calculation of the diluted earnings per share as their inclusion would be antidilutive.

The following table summarizes the stock option activity during three months ended March 31, 2006 and 2005:

	2006		2005
Outstanding, beginning of year		1,456,246		2,851,249
Granted		-		-
Exercised		-		-
Cancelled		-		-
Outstanding, end of year		1,456,246		2,851,249
Weighted average fair value of options granted during the year	$	-	$	-
Weighted average exercise price of common stock options, beginning of year	$	1.12	$	0.97
Weighted average exercise price of common stock options granted in the year	$	1.84	$	-
Weighted average exercise price of common stock options, end of year	$	1.88	$	1.12
Weighted average remaining contractual life of common stock options		4 years		5 years

13

EUGENE SCIENCE, INC.

Notes to Consolidated Financial Statements

March 31, 2006 and 2005

(Unaudited)

14.Income Taxes

The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting for Income Taxes". This Standard prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates. The effects of future changes in tax laws or rates are not anticipated. Corporate income tax rates applicable to the Company in 2006 and 2005 are 16.5 percent of the first 100 million Korean Won ($84,000) of taxable income and 29.7 percent on the excess. For the United States operation, the corporate tax rate is approximately 34%. Tax losses from the Korean subsidiary can be carried forward for five years to offset future taxable income. The U.S. tax losses can be carried forward for fifteen years to offset future taxable income. The company has accumulated approximately $15,958,355 of taxable losses, which can be used to offset future taxable income. The utilization of the losses expires in years 2006 to 2010.

Under SFAS No. 109 income taxes are recognized for the following: a) amount of tax payable for the current year, and b) deferred tax liabilities and assets for future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. The Company has deferred income tax assets arising from research and development expenses. For accounting purposes, these amounts are expenses when incurred. Under Korean tax laws, these amounts are deferred and amortized on a straight-line basis over 5 years.

The Company has deferred income tax assets as follows:

	2006			2005
Deferred income tax assets
Research and development expenses amortized over 5 years for tax purposes	$	207,040		$	313,080
Other timing differences		10,397			64,895
Net operating loss carryforwards		2,633,129			2,641,295
Valuation allowance for deferred income tax assets		(2,850,566	)		(3,019,270	)
	$	-		$	-

The Company provided a valuation allowance equal to the deferred income tax assets because it is not presently more likely than not that they will be realized.

15.Major Customers

In 2006, the Company had three major customers which accounted for 85% of the total revenue, of which one single customer accounted for 46%. In 2005, sales to three of the major customers accounted for 88% of the total revenue, of which 22% was from a company with the same major shareholder and chief executive officer and 41% was from one major customer.

16.Related Party Transactions

	Finished Goods Sales		Net Rental/ Interest Income		Purchases		Accounts Receivable		Prepaid Assets		Accounts Payable		Rental Deposit
Company #1 - same major shareholder and chief executive officer
- 2005	$	92,892	$	190,258	$	137,127	$	2,709,496	$	25,898	$	429,496	$	98,462
- 2006	$	6,067	$	93,056	$	15,890	$	-	$	74,019	$	301,302	$	102,825
Company #2 - controlled by a relative of chief executive officer
- 2005	$	31,228	$	-	$	-	$	-	$	-	$	18,412	$	-
- 2006	$	-	$	-	$	-	$	2,868	$	-	$	19,228	$	-
Company #3 - controlled by a relative of chief executive officer
- 2005	$	-	$	440	$	20,165	$	2,599	$	-	$	98,487	$	-
- 2006	$	655	$	461	$	20,800	$	679	$	-	$	107,888	$	-

14

EUGENE SCIENCE, INC.

Notes to Consolidated Financial Statements

March 31, 2006 and 2005

(Unaudited)

The Company with the same major shareholder and chief executive officer has negative working capital of approximately $4 million and a loss of approximately $1 million in the year ended December 31, 2005. The related company has an agreement with the Company to sell its investment in the Korean subsidiary and use the proceeds to repay its loan and accounts payables. As a result, the company has written off the receivables to the extend of the expected proceeds from the sale of the shares.

These transactions were in the normal course of business and recorded at an exchange value established and agreed upon by the above mentioned parties, which approximates fair market value.

17.Subsequent Events

On March 3, 2006, the Company cancelled a sales agreement to sell the land and buildings (as described in note 6). In return, the company will pay the purchaser approximately $2,100,000 representing repayment of the deposit (as described in note 12) and a cancellation fee. On the same date, the Company signed a new agreement to sell the land and building to another purchaser for approximately $11,700,000. The title is to be transferred ten months after the contract date. The expected gain on the sale of the property is approximately $3,900,000. In accordance with the new agreement, the proceeds from the sale of the property will be applied to repay all the bank loans.

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Item 2. Management’s Discussion and Analysis or Plan of Operation.

This Quarterly Report on Form 10-QSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that concern matters that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Discussions containing forward-looking statements may be found in the material set forth under “Management’s Discussion and Analysis or Plan of Operation” and in other sections of this Quarterly Report on Form 10-QSB. Words such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue” or similar words are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Although we believe that our opinions and expectations reflected in the forward-looking statements are reasonable as of the date of this Quarterly Report on Form 10-QSB, we cannot guarantee future results, levels of activity, performance or achievements, and our actual results may differ substantially from the views and expectations set forth in this Quarterly Report on Form 10-QSB. We expressly disclaim any intent or obligation to update any forward-looking statements after the date hereof to conform such statements to actual results or to changes in our opinions or expectations. Readers are urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including, without limitation, the audited financial statements and the notes thereto and disclosures made under the captions “Management’s Discussion and Analysis or Plan of Operation,” “Consolidated Financial Statements” and “Notes to Consolidated Financial Statements” included in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005.

Overview

We were incorporated on August 26, 1998 as Orcas Ltd. under the laws of the State of Delaware. As Orcas Ltd., we were in the business of building and promoting arcade video games and vending machines. We underwent a reverse merger and abandoned this enterprise to develop a loyalty reward program based in Taipei, Taiwan, at which time we changed our name to Ezcomm, Inc. to reflect this change in our business model. We were unable to raise enough capital to finance the research and development of our proposed consumer incentive and loyalty program in Asia and, therefore, we abandoned all efforts to develop such business in January 2001. We remained inactive until July 2004, at which time we changed our name to Ezcomm Enterprises, Inc. and began to consider and investigate potential business opportunities, including an acquisition or merger. On September 30, 2005, we acquired Eugene Science, Inc. pursuant to the terms of an exchange agreement. The exchange transaction was accounted for as a reverse merger (recapitalization) with Eugene Science deemed to be the acquirer for accounting purposes. Accordingly, the historical financial information presented in our financial statements is that of Eugene Science as adjusted to give effect to any difference between the par value of our capital stock and Eugene Science capital stock with an offset to capital in excess of par value. The basis of the assets, liabilities and retained earnings of Eugene Science, the accounting acquirer, were carried over in the recapitalization. Upon the closing of the exchange transaction, we became a global biotechnology company that develops, manufactures and markets nutraceuticals, functional foods that offer health-promoting advantages beyond that of nutrition. Our primary products are our plant sterol products, including our CZ^TM Series of food additives, and our CholZero^TM branded beverages and capsules. On January 13, 2006, we changed our name from Ezcomm Enterprises to Eugene Science.

Going Concern

Our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern, in its report for the quarter ended March 31, 2006, based on significant operating losses that we incurred and the fact that we do not have adequate working capital to finance our day-to-day operations. The Company's continued existence depends upon the success of our efforts to raise additional capital necessary to meet our obligations as they become due and to obtain sufficient capital to execute our business plan. We intend to obtain capital primarily through issuances of debt or equity. There can be no degree of assurance that we will be successful in completing additional financing transactions.

If we cannot obtain adequate funding or achieve revenues from the sale of our products, we may be required to significantly curtail or even shut down our operations.

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Results of Operations

Revenues

Comparison of the Three Months Ended March 31, 2006 and 2005

We experienced a 58% decrease in our revenues for the three months ended March 31, 2006 as compared to the three months ended March 31, 2005. Such decrease is attributable primarily to poor progress in our sales activities and delayed schedules in the launch of our products.

In May 2005, an amendment to the South Korean Functional Health Food Law of 2005, or FHFL, was adopted. The amendment allows us to market our CholZero-branded products as a functional health food and to include claims of health benefits with respect to the product's plant sterol ingredients. Sales of our CholZero-branded products increased by 65.4% in our 2005 fiscal year due to both the amendment of the FHFL and our engagement of Nutra Nano Tech as our exclusive distributor of CholZero capsules throughout the United States. Nutra Nano Tech will primarily distribute our CholZero capsules through television infomercials. We anticipate that sales of CholZero capsules in the United States will begin in May 2006.

We anticipate that sales of our products during our 2006 fiscal year will continue to increase as a result of our ability to make health claims with respect to our CZ Series additives and CholZero products in South Korea following the enactment of the amendment to the FHFL and upon the anticipated approval of our "Generally Recognized as Safe" application with the FDA for our plant sterol additive in the United States. We have engaged Archer Daniels Midland Company as the exclusive distributor of our CZ Series additives in North America and Europe.

Operating Expenses

Comparison of the Three Months Ended March 31, 2006 and 2005

Cost of Sales

For the three months ended March 31, 2006, we had cost of sales of $83,500, which amount consisted of manufacturing and merchandising costs. Our gross margin for the three months ended March 31, 2006 was approximately 32% of our gross revenues, as compared to a gross margin of approximately 10% of our gross revenues for the three months ended March 31, 2005. The change in our gross margin is due primarily to increased sales of our CholZero capsules.

Expenses

We had a $31,407 decrease in expenses in the three months ended March 31, 2006 as compared to the three months ended March 31, 2005 due primarily to decreases in our research and development and travel expenses.

Other Income (Expense)

The increase in interest expense in the three months ended March 31, 2006 as compared to the three months ended March 31, 2005 is primarily attributable to an increase in interest due on loans in default. All of our bank loans were in default as of March 31, 2006. The interest rate on such loans ranges from 15% to 18%. We are currently in negotiations with our lenders to settle our outstanding debts and intend to enter into settlement agreements with such lenders during the second quarter of our 2006 fiscal year.

Liquidity and Capital Resources

Comparison of the Three Months Ended March 31, 2006 and 2005

As of March 31, 2006, we had cash and cash equivalents of approximately $23,834 and negative working capital of approximately $19,381,158. As of March 31, 2005, we had cash and cash equivalents of approximately $53,420 and negative working capital of approximately $12,515,851. The decrease in our cash and working capital during the three months ended March 31, 2006 was due primarily to poor progress in our sales activities and an accompanying decrease in our total sales.

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We currently satisfy our working capital requirements primarily through cash flows generated from operations, bank loans and sales of equity and debt securities. For the three months ended March 31, 2006, we had a net increase in cash of approximately $478, as compared with a net increase in cash of approximately $16,739 for the three months ended March 31, 2005.

Cash Used in Operating Activities

The net cash used in operating activities decreased 39% to $80,366 for the three months ended March 31, 2006, as compared to net cash of $131,509 used in operating activities during the three months ended March 31, 2005. This decrease of $51,143 resulted primarily from an increase in our accounts payable, due to a related decrease in accounts receivable from our related company, and an aggravation of our cash flow.

Cash Used in Investing Activities

The net cash used in investing activities was $3,942 for the three months ended March 31, 2006, as compared to zero net cash used in investing activities during the three months ended March 31, 2005. This increase of $3,942 resulted primarily from an increase in intangible assets.

Cash Used in Financing Activities

The net cash used in financing activities decreased 43% to $83,841 for the three months ended March 31, 2006, as compared to net cash of $147,932 used in financing activities during the three months ended March 31, 2005. This decrease of $64,091 resulted primarily from a decrease in advances to our related company and from an issuance of common stock in the quarter ended March 31, 2005 which did not occur in the quarter ended March 31, 2006.

Bank Loans

Since 1999, we have borrowed an aggregate principal amount of $3,889,259 from the Industrial Bank of Korea. These loans bear interest at rates of 4.5% to 18% per annum and are due and payable on demand. A portion of these loans was secured by our real property. Loans in the aggregate principal amount of $1,301,919 are guaranteed by the Korea Technology Credit Guarantee Fund, or KOTEC, a government-operated fund. At March 31, 2006, the aggregate principal balance and accrued and unpaid interest on these loans was approximately $4,908,954.

We were in default under these loans as of December 31, 2004 and, as such, the Industrial Bank of Korea requested that our real property be auctioned to repay the loan. The Industrial Bank of Korea later agreed to cancel the auction and released our property as security upon our payment of administrative costs in the amount of $173,000. The redemption period has been extended until the end of April 2006. We will use the proceeds from the sale of our real property in Bucheon, South Korea to repay the outstanding amount due to the Industrial Bank of Korea. In December 2004, we obtained a short-term loan from the National Agricultural Cooperative Federation, or NACF, in the principal amount of $1,946,105. This loan had an interest rate of 4.6% per annum and was due on December 22, 2005. This loan was guaranteed by KOTEC. At March 31, 2006, the loan has not been repaid to NACF and the aggregate principal balance and accrued and unpaid interest on such loan was approximately $1,999,247.

In September 2002, we obtained a short-term loan from ChoHeung Bank in the principal amount of $278,805. This loan has an interest rate of 9.5%, was due on August 1, 2004, and was personally guaranteed by Mr. Noh, our president, chief executive officer, board member and principal stockholder. At March 31, 2006, the aggregate principal balance and accrued and unpaid interest on such loan was approximately $377,311. In July 2001 and December 2002, we entered into loan arrangements with Kookmin Bank. Each loan was for $1,000,000, was unsecured, and had interest rates of 6.22% and 11.22%, respectively. Both loans were due and payable on November 15, 2004. At March 31, 2006, the aggregate principal balance and accrued and unpaid interest on such loans was approximately $2,415,665.

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Notes

On October 9, 2004, we issued KOTEC a note in connection with its payout as guarantor of a convertible debenture issued by us. The note bears interest at a rate of 21% per annum, is guaranteed by Mr. Noh, our president, chief executive officer, board member and significant stockholder, and is due on demand. To date, no demands for payment have been made. At March 31, 2006, the balance of the note was approximately $1,969,240. Interest payments on the note are classified in our financial statements as Accounts Payable.

In October 2003, we issued a note in the principal amount of $47,772, bearing interest at a rate of 9% per annum, to Jae Ho Lee, the president of UcoleBio Corp., a subsidiary in which we have a 73% ownership interest. The note is due and payable on demand and the unpaid balance of this note was $48,238 at March 31, 2006.

In February 2002, we issued a note in the principal amount of $100,000, bearing interest at a rate of 8% per annum, to Kyungioils Co., Ltd. The note is due and payable on demand and the unpaid balance on this note was $18,412 at March 31, 2006.

Government Loans

On March 2, 2003, we received a non-interest bearing, unsecured government loan in the principal amount of $61,779. The loan must be repaid in three annual installments of $20,593, beginning February 26, 2004. The loan matures in its entirety in February 2006. At March 31, 2006, we were $62,381 in arrears under this loan arrangement.

We received a $316,181 government loan in connection with certain research and development projects over the period from 1999 to 2002. The projects were not successful and, therefore, we are obligated to refund to the government the principal amount of the loan. We repaid $21,034 of the amount due under this loan in our 2004 fiscal year. At March 31, 2006, we were $301,972 in arrears under this loan arrangement.

Other Loans

In December 2004, we received a loan in the principal amount of $63,382 from our customer, Sim Chon, Co., Ltd. The loan is non-interest bearing and due and payable on demand. The principal amount of $49,450 was repaid during our 2005 fiscal year. We repaid the remaining outstanding principal amount due under this loan during our quarter ended March 31, 2006.

Critical Accounting Policies

Our financial position, results of operations and cash flows are impacted by the accounting policies we have adopted. In order to get a full understanding of our financial statements, one must have a clear understanding of the accounting policies employed. A summary of our critical accounting policies follows:

BASIS OF PRESENTATION. The consolidated financial statements include our accounts and the accounts of UcoleBio Corp, a company in which Eugene Science Korea holds a 74% ownership interest. Intercompany accounts and transactions have been eliminated on consolidation. These consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of the results for the year.

UNIT OF MEASUREMENT. The United States Dollar has been used as the unit of measurement in our consolidated financial statements.

USE OF ESTIMATES. The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires our management to make estimates and assumptions that affect the amounts reported in the financial statements and related notes to financial statements. These estimates are based on management's best knowledge of current events and actions we may undertake in the future. Actual results may ultimately differ from estimates, although management does not believe such changes will materially affect the financial statements in any individual year.

REVENUE RECOGNITION. We generate revenues from sales of manufactured goods and merchandise, as well as rental of the company's buildings. Revenues from products sales are recognized in accordance with Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," or SAB No. 101, when delivery has occurred provided there is persuasive evidence of an agreement, the fee is fixed or determinable and collection of the related receivable is probable.

19

GOVERNMENT GRANTS. Government grants are recognized as income over the periods necessary to match them with the related costs that they are intended to compensate.

CURRENCY TRANSLATION. Our functional currency is Korean Won. Adjustments to translate those statements into United States Dollars at the balance sheet date are recorded in other comprehensive income. Foreign currency transactions of the Korean operation have been translated to Korean Won at the rate prevailing at the time of the transaction. Realized foreign exchange gains and losses have been charged to income in the year.

CASH AND EQUIVALENTS. Highly liquid investments with maturities of three months or less when purchased are considered cash equivalents and recorded at cost, which approximates fair value.

PROPERTIES AND EQUIPMENT. Properties and equipment are stated at cost. Major renewals and betterments are capitalized and expenditures for repairs and maintenance are charges to expense as incurred. Depreciation is computed using the straight-line method over the following periods:

Building	20-40 years
Machinery	10 years
Vehicles	5 years
Furniture and equipment	3-5 years

INTANGIBLE ASSETS. Intangible assets such as costs of obtaining industrial rights and patents are stated at cost, net of depreciation computed using the straight-line method over 5 to 10 years.

INVENTORIES. Inventories are stated at the lower of cost or net realizable value. Net realizable value is determined by deducting selling expenses from selling price. The cost of inventories is determined on the first-in first-out method, except for materials-intransit for which the specific identification method is used.

INVESTMENTS. Investments in available-for-sale securities are being recorded in accordance with FAS-115, "Accounting for Certain Investments in Debt and Equity Securities." Equity securities that are not held principally for the purpose of selling in the near term are reported at fair market value with unrealized holding gains and losses excluded from earnings and reported as a separate component of stockholders' equity.

FINANCIAL INSTRUMENTS. Fair values of cash equivalents, short-term and long-term investments and short-term debt approximate cost. The estimated fair values of other financial instruments, including debt, equity and risk management instruments, have been determined using market information and valuation methodologies, primarily discounted cash flow analysis. These estimates require considerable judgment in interpreting market data, and changes in assumptions or estimation methods could significantly affect the fair value estimates.

Recent Accounting Pronouncements

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an amendment of ARB No. 43, Chapter 4," or SFAS 151. This statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). As currently worded in ARB 43, Chapter 4, the term "so abnormal" was not defined and its application could lead to unnecessary noncomparability of financial reporting. SFAS 151 eliminates that term and requires that those items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, SFAS 151 requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. We do not believe that the adoption of SFAS 151 will have a material impact on our consolidated financial statements.

20

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-monetary Assets - an amendment of APB Opinion No. 29," or SFAS 153. SFAS 153 amends Opinion 29 to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. We do not believe that the adoption of FAS 153 will have a material impact on our consolidated financial statements.

In December 2004, the FASB issued a revision to SFAS No. 123, “Share-Based Payment," or SFAS 123R. SFAS 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which the employee is required to provide service in exchange for the award (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Employee share purchase plans will not result in recognition of compensation cost if certain conditions are met. Such conditions are much the same as the related conditions in SFAS 123. SFAS 123R is effective for public entities that do not file as small business issuers as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. SFAS 123R applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date. The cumulative effect of initially applying SFAS 123R, if any, is recognized as of the required effective date and we do not expect that it will have a material impact on our consolidated financial statements.

Risk Factors

The following risks could affect our business, financial results and results of operations. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Quarterly Report on Form 10-QSB because these factors could cause actual results and conditions to differ materially from those projected in the forward-looking statements.

Our independent registered public accounting firm has a going concern qualification in their opinion contained in our audited financial statements which raises substantial doubt about our ability to continue as a going concern.

As a result of our substantial historical operating losses, limited revenues and working capital and our capital needs, our auditors added a going concern qualification in their report contained in our reviewed consolidated financial statements for the quarter ended March 31, 2006 which raises substantial doubt about our ability to continue as a going concern. While we have relied principally in the past on external financing to provide liquidity and capital resources for our operations, we can provide no assurance that cash generated from our operations together with cash received in the future from external financing will be sufficient to enable us to continue as a going concern.

We will need to raise additional capital and it may not be available to us on favorable terms or at all. Our inability to obtain any needed additional capital on favorable terms could adversely affect our business, results of operations and financial condition.

We will need to raise additional capital over the next twelve months to support our operations, meet competitive pressures and respond to unanticipated requirements during and beyond that period. While there are no definitive arrangements with respect to sources of additional financing, management is optimistic that these funds can be raised through debt and/or equity offerings. However, our inability to obtain additional financing, when needed or on favorable terms, could materially adversely affect our business, results of operations and financial condition and could cause us to curtail or cease operations.

We may fail to establish or cultivate strategic relationships to expand our business.

We intend to develop our business model and build our business initially through strategic relationships with large manufacturers. We may not be able successfully to form or manage such relationships, and if not, our ability to execute our business plan will be at risk. Further, if these partnerships are formed but are not successful in their execution, further revenue derived from sales of patented products may not materialize.

21

Because we rely on a limited number of customers, any reduction in orders from any single customer would harm our business.

In the three months ended March 31, 2006, sales to four major customers accounted for 85% of our total revenue. We may fail to capture a share of the market for such products. Because we are dependent on a limited number of customers, any decrease or elimination of such customers’ purchases could materially harm our business.

We face product liability risks and may not be able to obtain adequate insurance to protect ourselves against losses.

We maintain liability insurance with policy limits generally of $200,000 per occurrence and $200,000 per year. Our insurance coverage includes property, casualty, comprehensive general liability, and products liability insurance. We believe that our insurance coverage is adequate. The testing, marketing, and sale of health care products, however, entail an inherent risk of product liability. We cannot assure you that product liability claims relating to dietary supplement products will not be asserted against us, our licensees, or third parties with whom we operate. Many claims related to dietary supplements have already been brought against businesses in our industry. Further, we cannot assure you that such insurance will provide adequate coverage against any potential claims. A product liability claim or product recall could have a material adverse effect on our business, financial condition, or results of operations.

We may experience difficulty in entering international markets.

The creation of strategic customer relationships and the marketing and sale of our functional nutrition technology and products could experience difficulty entering both the U.S. and additional international markets due to greater regulatory barriers, the necessity of adapting to new regulatory systems and problems related to entering new markets with different cultural bases and political systems. Operating in international markets exposes us to certain risks, including, among other things: (i) changes in or interpretations of foreign regulations that may limit our ability to sell certain products; (ii) exposure to currency fluctuations; (iii) the potential imposition of trade or foreign exchange restrictions or increased tariffs; and (iv) political instability. In addition, there can be no assurance that we will be able to enter into agreements with additional international marketing partners and thereby would limit the expansion of our revenue base.

We rely on patents, licenses and intellectual property rights to protect our proprietary interests.

Our success depends in part on our ability to obtain patents, licenses and other intellectual property rights covering its products. There can be no assurance that our licenses, patents and patent applications are sufficiently comprehensive to protect our products. The process of seeking further patent protection can be long and expensive, and there can be no assurance that we will have sufficient capital reserves to cover the expense of patent prosecution for their application or that all or even any patents will issue from currently pending or any future patent applications or that any of the patents when issued will be of sufficient scope or strength to provide meaningful protection or any commercial advantage to us. While we believe the bases on which patent applications were filed correspond to the patents that have been issued for composition and method of production and use and are reasonable given the issuance of the latter patents, there can be no assurance that the patents for which it has applied will be issued. We may be subject to or may be required to initiate interference proceedings with international patent and trademark authorities. Such proceedings could demand significant financial and management resources. We may receive communications alleging possible infringement of patents or other intellectual property rights of others. We believe that in most cases it could obtain necessary licenses or other rights on commercially reasonable terms, but it may be unable to do so. In addition, litigation could ensue or damages for any past infringements could be assessed. Litigation, which could result in substantial cost to and diversion of efforts by our management, may be necessary to enforce patents or our other intellectual property rights or to defend against claimed infringement of the rights of others. The failure to obtain necessary licenses or other rights or litigation arising out of infringement claims could have a material adverse effect on us.

Our success depends in part on our successful development and sale of products currently in the research and development stage.

Many of our product candidates are still in the research and development stage. The successful development of new products is uncertain and subject to a number of significant risks. Potential products that appear to be promising at early states of development may not reach the market for a number of reasons, including but not limited to, the cost and time of development. Potential products may be found to be ineffective or cause harmful side effects, fail to receive necessary regulatory approvals, be difficult to manufacture on a large scale or be uneconomical or fail to achieve market acceptance. Additionally, our proprietary products may not be commercially available for a number of years, if at all.

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There can be no assurance that any of our products in development will be successfully developed or that we will achieve significant revenues from such products even if they are successfully developed. Our success is dependent upon our ability to develop and market our products on a timely basis. There can be no assurance that we will be successful in developing or marketing such products, or taking advantage of the perceived demand for such products. In addition, there can be no assurance that products or technologies developed by others will not render our products or technologies non-competitive or obsolete.

We will rely in part on international sales, which are subject to additional risks.

International sales may account for a significant portion of our revenues. International sales can be subject to many inherent risks that are difficult or impossible for us to predict or control, including:

•expected changes in regulatory requirements and tariffs;

• difficulties and costs associated with staffing and managing foreign operations, including foreign distributor relationships;

•longer accounts receivable collection cycles in certain foreign countries;

•adverse economic or political changes;

•unexpected changes in regulatory requirements;

•more limited protection for intellectual property in some countries;

•changes in our international distribution network and direct sales force;

•potential trade restrictions, exchange controls and import and export licensing requirements;

•potentially adverse tax consequences of overlapping tax structure; and

•foreign currency fluctuations.

Failure to adequately expand to address expanding market opportunities could have a material adverse effect on our business and results of operations.

We anticipate that a significant expansion of operations will be required to address potential market opportunities. There can be no assurance that we will expand our operations in a timely or sufficiently large manner to capitalize on these market opportunities. The anticipated substantial growth is expected to place a significant strain on our managerial, operational and financial resources and systems. While management believes it must implement, improve and effectively use our operational, management, research and development, marketing, financial and employee training systems to manage anticipated substantial growth, there can be no assurance that these practices will be successful.

We do not have a separate standing audit committee, compensation committee or nominating and corporate governance committee, so the duties customarily delegated to those committees are performed by the board of directors as a whole, and no director is an "audit committee financial expert" as defined by the rules and regulations of the securities and exchange commission.

Our Board of Directors consists of four members. The Board of Directors as a whole performs the functions of an Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. None of the directors is considered "independent" under Rule 4200(a)(15) of the National Association of Securities Dealers listing standards, and neither qualifies as an audit committee financial expert as defined in Item 401 of Regulation S-B. Accordingly, we will not be able to list our common stock with a nationally recognized exchange until we recruit independent directors to the Board and restructure our Board to comply with various requirements currently in place by those self-regulating organizations, and as a result, it may be difficult for you to sell our common stock.

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Our business is subject to the potential adverse consequences of exchange rate fluctuations.

We expect to conduct business in various foreign currencies and will be exposed to market risk from changes in foreign currency exchange rates and interest rates. Fluctuations in exchange rates between the U.S. Dollar and such foreign currencies may have a material adverse effect on our business, results of operations, and financial condition and could specifically result in foreign exchange gains and losses. The impact of future exchange rate fluctuations on our operations cannot be accurately predicted. To the extent that the percentage of our non-U.S. Dollar revenue derived from international sales increases in the future, our exposure to risks associated with fluctuations in foreign exchange rates will increase further. Moreover, as a result of operating a manufacturing facility in South Korea, a substantial portion of our costs are and will continue to be denominated in the South Korean Won. Adverse changes in the exchange rates of the South Korean Won to the U.S. Dollar will affect our costs of goods sold and operating margins and could result in exchange losses.

The requirements of the Sarbanes-Oxley Act, including Section 404, are burdensome, and our failure to comply with them could have a material adverse affect on our business and stock price.

Except with respect to the adoption of our Code of Conduct and Ethics and our compliance with certain requirements specifically applicable to our Annual Report on Form 10-KSB and our other periodic reports, our management has not commenced any specific procedures to comply with the requirements of the Sarbanes Oxley Act of 2002, including, specifically, the process necessary to implement the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires our management to assess the effectiveness of our internal controls over financial reporting and include an assertion in our annual report as to the effectiveness of our controls. Beginning with our Annual Report on Form 10-KSB for the fiscal year ending December 31, 2007, unless otherwise amended by the Securities and Exchange Commission, our independent registered accounting firm will be required to attest to whether our assessment of the effectiveness of our internal control over financial reporting is fairly stated in all material respects and separately report on whether it believes we maintained, in all material respects, effective internal controls over financial reporting as of December 31, 2007. Because of our management's lack of resources, and our limited operations, we have not commenced the process of preparing the system and process documentation, performing an evaluation of our internal controls required for our management to make this assessment and for the auditors to provide their attestation report, and accordingly, have not begun testing the effectiveness of these internal controls. We expect that this process will require significant amounts of our management’s time and resources, as well as higher expenses in the form of higher audit and review fees, higher legal fees and higher internal costs to document, test and potentially remediate internal controls. Accordingly, with respect to Section 404 in particular, there exists a significant risk that we will not be able to meet all the requirements of Section 404 by the end of fiscal year 2007, when we are required to report on our internal controls and provide our auditor's opinion thereon. Additionally, even in the event we attempt to comply with Section 404, in the course of evaluation and testing, management may identify deficiencies that will need to be addressed and remediated, which could potentially have a material adverse effect on our stock price and could result in significant additional expenditures.

Risks related to our industry

Our failure to comply with current or future governmental regulations could adversely affect our business.

The formulation, manufacturing, packaging, labeling, advertising, distribution, and sale of functional foods and food additives, such as those sold by us, are subject to regulation by a number of federal, state and local agencies, including the United States Food and Drug Administration, or FDA, and the United States Federal Trade Commission, or FTC, as well as government agencies in other countries where we may operate. Among other matters, this regulation is concerned with product safety and claims made with respect to a product's ability to provide health-related benefits. These agencies have a variety of procedures and enforcement remedies available to them, including the following:

·   initiating investigations;

·   issuing warning letters and cease and desist orders;

·   requiring corrective labeling or advertising;

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·   requiring consumer redress, such as requiring that a Registrant offer to repurchase products previously sold to consumers;

·   seeking injunctive relief or product seizures; and

·   imposing civil penalties or commencing criminal prosecution.

United States federal and state agencies have in the past used these remedies in regulating participants in the dietary supplements industry, including the imposition by federal agencies of civil penalties in the millions of dollars against a few industry participants. In addition, publicity related to dietary supplements may result in increased regulatory scrutiny of the nutritional supplements industry.

Our failure to comply with applicable laws could subject us to severe legal sanctions, which could have a material adverse effect on our business and results of operations. We cannot assure you that the regulatory environment in which we operate will not change or that such regulatory environment, or any specific action taken against us, will not result in a material adverse effect on our business and operations. We cannot assure you that a state will not interpret claims presumptively valid under federal law as illegal under that state's regulations, or that future FDA regulations or FTC decisions will not restrict the permissible scope of such claims. Additionally, we cannot assure you that such proceedings or investigations or any future proceedings or investigations will not have a material adverse effect on our business or operations.

We may be unable to compete effectively with competitors of perceived competing technologies or direct competitors that may enter our market with new technologies.

The market for our products is relatively new. Our ability to increase revenues and generate profitability is directly related to our ability to maintain a competitive advantage. We face potential direct competition from companies that may enter this market with new competing technologies and with greater financial, marketing and distribution resources than us. These greater resources could permit our competitors to introduce new products and implement extensive advertising and promotional programs, with which we may not be able to compete. As a result, we can provide no assurances that we will be able to compete effectively in the future.

If our industry receives unfavorable publicity, our business could be harmed.

We believe the nutraceutical market is affected by media attention regarding the consumption of dietary supplements and functional goods. Future scientific research or publicity could be unfavorable to the functional nutrition market or any particular product, or inconsistent with earlier favorable research or publicity. Future reports of research that are perceived as less favorable or that question such earlier research could hurt our business. Because of our dependence upon consumer perceptions, adverse publicity associated with adverse effects resulting from the consumption of our products or any similar products distributed by other companies could also hurt our business. Such adverse publicity could arise even if the adverse effects associated with such products resulted from consumers' failure to consume such products as directed. In addition, we may not be able to counter the effects of negative publicity concerning the efficacy of our products.

Risks related to our common stock

We have a limited trading volume and shares eligible for future sale by our current stockholders may adversely affect our stock price.

To date, we have had a very limited trading volume in our common stock. As long as this condition continues, the sale of a significant number of shares of common stock at any particular time could be difficult to achieve at the market prices prevailing immediately before such shares are offered. In addition, sales of substantial amounts of common stock, including shares issued upon the exercise of outstanding options and warrants, under Rule 144 or otherwise could adversely affect the prevailing market price of our common stock and could impair our ability to raise capital at that time through the sale of our securities.

Our common stock price is highly volatile.

The market price of our common stock is likely to be highly volatile as the stock market in general has been highly volatile.

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Factors that could cause such volatility in our common stock may include, among other things:

·   actual or anticipated fluctuations in our quarterly operating results;

·   announcements of technological innovations;

·   changes in financial estimates by securities analysts;

·   conditions or trends in our industry; and

·   changes in the market valuations of other comparable companies.

The sale of our common stock on the over-the-counter bulletin board and the potential designation of our common stock as a "penny stock" could impact the trading market for our common stock.

Our securities, as traded on the Over-the-Counter Bulletin Board, are subject to Securities and Exchange Commission rules that impose special sales practice requirements upon broker-dealers who sell such securities to persons other than established customers or accredited investors. For purposes of the rule, the phrase "accredited investors" means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, when combined with a spouse's income, exceeds $300,000). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell our securities and also may affect the ability of purchasers to sell their securities in any market that might develop therefor.

In addition, the Securities and Exchange Commission has adopted a number of rules to regulate "penny stock." Because our securities may constitute "penny stock" within the meaning of the rules, the rules would apply to us and to our securities. The rules may further affect the ability of owners of our common stock to sell our securities in any market that might develop for them.

Stockholders should be aware that, according to Securities and Exchange Commission, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) "boiler room" practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor losses.

Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.

We do not foresee paying dividends in the near future.

We have not paid dividends on our common stock and do not anticipate paying such dividends in the foreseeable future.

Our officers and directors own a significant portion of our common stock, which could limit our stockholders' ability to influence the outcome of key transactions.

As of March 31, 2006, our officers and directors and their affiliates owned approximately 39.19% of our outstanding voting shares. As a result, our officers and directors are able to exert considerable influence over the outcome of any matters submitted to a vote of the holders of our common stock, including the election of our Board of Directors. The voting power of these stockholders could also discourage others from seeking to acquire control of us through the purchase of our common stock, which might depress the price of our common stock.

Item 3. Controls and Procedures.

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report, pursuant to Rules 13a-15(b) and 15d-15(b) under the Exchange Act. Based on that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures, as of the end of the period covered by this quarterly report, were effective in timely alerting them to material information relating to us required to be included in our periodic SEC filings.

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There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended March 31, 2006, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Section 404 of the Sarbanes-Oxley Act of 2002 requires management's review and evaluation of our internal controls, and an attestation of the effectiveness of these controls by our independent registered public accounting firm beginning with our Annual Report on Form 10-KSB for the fiscal year ending December 31, 2007. We plan to dedicate significant resources, including management time and effort, and to incur substantial costs in connection with our Section 404 assessment. The evaluation of our internal controls will be conducted under the direction of our principal executive officer and principal financial officer. We will continue to work to improve our controls and procedures, and to educate and train our employees on our existing controls and procedures in connection with our efforts to maintain an effective controls infrastructure.

PART II-OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K.

The exhibits set forth below are filed as part of this Quarterly Report on Form 10-QSB:

Exhibit Number	Description
31.1	Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934.
31.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934.
32.1	Certification of Principal Executive Officer Pursuant to Rule 13a-14(b)/15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
32.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14(b)/15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

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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.

	EUGENE SCIENCE, INC.
Date: May 22, 2006	By:	/s/ SEUNG KWON NOH
		Seung Kwon Noh President, Chief Executive Officer and Director (Principal Executive Officer)

Date: May 22, 2006	By:	/s/ JAE HONG YOO
		Jae Hong Yoo Chief Financial Officer (Principal Financial and Accounting Officer)

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Exhibit Index

Exhibit Number	Description
31.1	Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934.
31.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934.
32.1	Certification of Principal Executive Officer Pursuant to Rule 13a-14(b)/15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
32.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14(b)/15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.