UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): September 30, 2005
EZCOMM ENTERPRISES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 000-50601 33-0827004
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
16-7 SMJUNG-DONG, OJUNG-GU, BUCHEON, KYONGGI-DO KOREA
(Address of Principal Executive Offices/Zip Code)
82-32-676-6283
(Registrant's telephone number, including area code)
11789, 79A Avenue, Delta, British Columbia VC4 1V7 Canada
(Former Name or Former Address if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the Registrant under any of the
following provisions (SEE General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the
Securities Act (17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b)
under the Exchange ct (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c))
under the Exchange Act (17 CFR 240.13e-4c))
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Information included in this Form 8-K may contain forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
This information may involve known and unknown risks, uncertainties and other
factors which may cause our actual results, performance or achievements to be
materially different from future results, performance or achievements expressed
or implied by any forward-looking statements. Forward-looking statements, which
involve assumptions and describe our future plans, strategies and expectations,
are generally identifiable by use of the words "may," "will," "should,"
"expect," "anticipate," "estimate," "believe," "intend" or "project" or the
negative of these words or other variations on these words or comparable
terminology. Forward-looking statements are based on assumptions that may be
incorrect, and there can be no assurance that any projections or other
expectations included in any forward-looking statements will come to pass. Our
actual results could differ materially from those expressed or implied by the
forward-looking statements as a result of various factors. Except as required by
applicable laws, we undertake no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
SECTION 2 - FINANCIAL INFORMATION
ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.
CLOSING OF EXCHANGE TRANSACTION
On September 30, 2005, pursuant to an Exchange Agreement dated
September 1, 2005 (the "Exchange Agreement") by and among the Ezcomm
Enterprises, Inc., Eugene Science, Inc., a Korean corporation ("Eugene Science")
and certain shareholders of Eugene Science (the "Eugene Science Shareholders"),
we acquired approximately 89.5% of the issued and outstanding shares of Eugene
Science in exchange for an aggregate of 272,790,948 shares of our Common Stock
(the "Exchange Transaction"). We will continue to offer any remaining Eugene
Science shareholders the opportunity to exchange their shares for our common
stock on the same terms and conditions as provided in the Exchange Agreement,
which may result in the issuance of up to approximately 32,094,000 additional
shares of our Common Stock.
The issuance of the Common Stock to the Eugene Science shareholders was
exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to Regulation S under the Securities Act of 1933
(the "Securities Act") and/or Section 4(2) of the Securities Act. In addition,
and pursuant to the Exchange Agreement, we exchanged an equal amount of cash
with the Eugene Science Shareholders (an aggregate of $103,514.48) and we
assumed all of Eugene Science's outstanding options. As a result of the Exchange
Transaction, Eugene Science is now our subsidiary, and the Eugene Science
Shareholders hold approximately 89% of our voting stock on a fully-diluted
basis. Prior to the Exchange Transaction we were a "shell company" as defined in
Rule 12b-2 under the Exchange Act. Except for the Exchange Agreement and the
transactions contemplated by that agreement, neither we, nor our directors and
officers, had any material relationship with Eugene Science or any of Eugene
Science's directors and officers prior to entering into the Exchange Agreement.
In conjunction with the Exchange Transaction we also issued a warrant to
purchase 7,073,760 shares of our common stock to WestPark Capital, Inc., at
$0.17 per share as partial compensation for their investment banking services
with respect to the Exchange Transaction. The issuance of the warrant was exempt
from registration under Section 4(2) of the Securities Act.
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We are presently authorized under our Certificate of Incorporation to
issue 480,000,000 shares of common stock, par value $0.0001 per share, and
20,000,000 shares of preferred stock, par value $0.0001 per share. Immediately
prior to the Exchange Transaction we had 35,368,800 shares of common stock
issued and outstanding and no shares of preferred stock issued and outstanding.
Currently, after giving effect to the Exchange Transaction, we have 308,159,748
shares of common stock issued and outstanding and no shares of preferred stock
issued and outstanding. Our issued and outstanding common stock prior to the
Exchange Transaction currently represents approximately 11% of our total common
stock on a fully-diluted basis (assuming exercise of all Eugene Science stock
options outstanding immediately prior the Exchange Transaction).
Pursuant to the Exchange Agreement our former sole director, Dr. Peter
Braun, resigned effective as of the closing of the Exchange Transaction and the
following directors were appointed: Dr. Seung-Kwon Noh (Eugene's Chief Executive
Officer), Tae Hwan Lee (Eugene's Senior Vice President Marketing), Se Cheon Ahn
(Eugene's Senior Vice President Plant/Manufacturing), and Tony Kim. The size of
the board will initially be four members and may be increased by the board of
directors to five members.
Also effective as of the closing of the Exchange Transaction, our
existing officer resigned and the following officers were appointed by the Board
of Directors.
Dr. Seung Kwon Noh............ Chief Executive Officer and President
Jae Hong Yoo.................... Chief Financial Officer
Dr. Eun Young Lee............... Secretary
In our Current Report on Form 8-K dated September 1, 2005 (filed
September 7, 2005), we reported the execution of the Exchange Agreement and
included a copy of the Exchange Agreement as Exhibit 10.1 thereto. That Current
Report is hereby incorporated by reference. Additionally, on September 9, 2005,
we filed an Information Statement on Schedule 14f-1 reporting the proposed
Exchange Transaction with Eugene Science and the pending change of control at
the closing.
DESCRIPTION OF THE BUSINESS
REGISTRANT
We were incorporated on August 26, 1998 under the name 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, and changed our name to Ezcomm Inc. to reflect
this change in business. We were unable to raise enough capital to finance the
research and development of our proposed consumer incentive and loyalty program
in Asia and all efforts to develop the business were abandoned in January 2001.
We remained inactive until July 2004, when we changed our name to Ezcomm
Enterprises, Inc. and began to consider and investigate potential business
opportunities, including an acquisition by merger. On September 30, 2005, we
acquired Eugene Science pursuant to the terms of the Exchange Agreement. The
Exchange Transaction was accounted for as a reverse merger with Eugene Science
deemed to be the accounting acquirer, and us as the legal acquirer. The business
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combination is being recorded as a recapitalization of interest of Eugene
Science. Accordingly, the historical financial information presented in future
financial statements will be that of Eugene Science as adjusted to give effect
to any difference in the par value of ours and the accounting acquirer's 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,
have been carried over in the recapitalization.
EUGENE SCIENCE
Eugene Science, a company headquartered 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 develops,
manufactures and markets nutraceuticals, or functional foods that offer
health-promoting advantages beyond that of nutrition, including its series of
cholesterol-lowering functional food ingredients, beverages and capsules.
However, during its fiscal year ending December 31, 2004 Eugene Science did not
aggressively market its nutraceuticals and functional food products while
awaiting regulatory approval of health claims associated with the products in
Korea and the United States. Korean regulatory approval occurred in June 2005.
During such period, Eugene Science relied on revenue from the sale of
supplemental products including raw cooking oil (oils used in the manufacturing
of cooking oil). Eugene Science holds approximately 73% of the outstanding
interests in UcoleBio Corp., a company originally formed to provide sales and
distribution services for Eugene's products in Korea.
INDUSTRY OVERVIEW
The nutraceutical industry includes many small and medium-sized
companies that manufacture and distribute products intended to aid in the
maintenance of the body's health and general well being. Nutraceutical products
include the following categories of products manufactured and sold by us:
o Dietary Supplements--products, such as vitamins and minerals,
specialty supplements, herbs and botanicals, sports
performance enhancers, meal replacements, dietary supplements,
and compounds derived from these substances; and
o Functional Foods--products with added ingredients or
fortification specifically for health or performance purposes.
OUR PRODUCTS
PLANT STEROL AND CHOLESTEROL-REDUCTION PRODUCTS
It has been well established that blood cholesterol, particularly
low-density lipoprotein (LDL) cholesterol, should be controlled in the body in
order to minimize the risk of coronary heart disease. Excess LDL cholesterol can
be oxidized to ultimately form plaque that can build up on artery walls, thereby
restricting blood flow and elevating blood pressure. People with high blood
cholesterol levels are typically advised by health professionals to exercise and
consume a diet high in fiber and low in saturated fats and cholesterol. Although
these measures can reduce blood cholesterol, other cholesterol-lowering
interventions may be needed, including cholesterol-lowering medicines or adding
plant sterol to the diet.
Plant sterols are natural substances that are present as minor
components in seeds, legumes and vegetable oils. Plant sterols are essential
components of plant cell membranes and structurally resemble cholesterol. Plant
sterols have been approved by the U.S. Federal Drug Administration for their
cholesterol lowering health function in humans, and are recommended by the
National Institutes of Health to treat cholesterol problems. Although people
consume plant sterols every day in food, the amounts are
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often not great enough to have significant blood cholesterol-lowering effects.
Plant sterols are naturally insoluble in oil and water, making it difficult to
incorporate in foods as an additive. However, over the last few years, several
companies have developed plant sterol products that are oil-soluble by
esterifying plant sterols and adding them to dietary fat (in oils and spreads).
While this allows plant sterols to be incorporated in oil-based foods, this
delivery strategy requires the consumption of large amounts of fats (23-50 grams
of dietary triacylglyceride per day).
Eugene Science has developed and patented a series of
cholesterol-lowering food additives, consisting of specially formulated plant
sterols that are soluble in both oil and water. The key technology to produce
such plant sterols is a patented nanotechnology which allows plant sterols to be
added to a wide range of oil and water-based foods. Our nano-sized plant sterols
used as food additives are branded as "CZ(TM) Series" additives and our food and
consumable products containing CZ(TM) Series additives are being marketed under
the brand name of CholZero(TM). Our initial CholZero(TM) products include
CholZero(TM) capsules containing our CZ-S(TM) Series additive, and a
CholZero(TM) beverage.
We produce the following specific plant sterol food ingredients:
o CZ(TM)-L : Plant Sterol + Fatty Acid, Oil Soluble;
o CZ(TM)-S : Water Dispersible Natural Plant Sterol; and
o CZ(TM)-H : Water Soluble, Next Generation CZ(TM)
The plant sterol in the CZ(TM) Series additives reduces the absorption
of both dietary and biliary cholesterol into the body. Normally, approximately
30% of all cholesterol is supplied through food. When food is consumed along
with CZ(TM) Series additives, the absorption level of cholesterol is greatly
reduced. The plant sterol is not absorbed and is excreted from the body.
LIPHOPHILIC-QUALITY - CZ(TM)-L.
CZ(TM)-L is a plant sterol ester form which is soluble in oil and fat.
CZ(TM)-L may be added to foods with a significant fat content and does not
influence the taste or flavor of such foods.
WATER DISPERSIBLE PLANT STEROL - CZ(TM)-S.
CZ(TM)-S is a plant sterol ester form which is water dispersable. Prior
to the development of CZ(TM) -S products, only fat soluble plant sterol food
additives were available to consumers. Because such products were only fat
soluble, their application was limited to foods that are inherently high in fat
content. CZ(TM) -S can be used to integrate plant sterol into beverages, dairy
products, and other water-based foods. CZ(TM)-S comes in the form of a water
dispersible powder that makes very fine micelles (less than 1 micro meter) in an
aqueous solution. Like CZ(TM)-L, CZ(TM) -S does not influence the taste and
flavor of the food or beverage to which it is added. In November 2000, Eugene
Science produced its first CholZero(TM) branded beverage product with CZ(TM)-S.
NEXT GENERATION - CZ(TM)-H.
CZ(TM)-H is also a plant sterol ester form which is water soluble and
transparent in water. Like the other CZ(TM) Series ingredients, it has a
cholesterol-lowering effect upon ingestion by blocking the absorption of
cholesterol in the intestine, and can be added to water-based products.
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SUPPLEMENTAL PRODUCTS
In addition to our CZ(TM) Series and CholZero(TM) branded products, we
currently distribute "DG Oil" (a functional cooking oil with body fat lowering
effect manufactured by OnBio Corporation), animal feed, pet shampoo and
deodorant in Korea. From January 2004 through March 2005 the majority of our
revenue was from the sale of raw cooking oil to OnBio Corporation. We obtained
our raw cooking oil on favorable terms pursuant to a contract with a Korean
supplier. In March of 2005 we determined that it was in the Company's best
interest to cease its distribution of raw cooking oil and assigned its supply
contract to OnBio Corporation. Our Chief Executive Officer and significant
stockholder, Dr. Noh, is also the Chief Executive Officer and a significant
stockholder of OnBio Corporation. The distribution of the raw cooking oil and
supplemental products provided necessary cash flow during our development stage,
and the sale of our supplemental products continues to support the costs of the
research, development and marketing of our CZ(TM) Series ingredients and
nutraceuticals and CholZero branded products.
RESEARCH AND DEVELOPMENT
We invested approximately $1,059,064 and $401,599 in research and
development of new products during our fiscal years ending December 31, 2003 and
2004, respectively. In addition to refining the manufacturing processes for our
CZ(TM) series products, we continue to perform research and development on other
dietary supplements and nutraceuticals, including Steroid Hormone Intermediate
(AD/ADD)
Eugene Science has developed a microbial conversion technology for
steroid hormone intermediates called AD/ADD. The production of chemicals
utilizing microbial conversion technology is cost-effective (since it produces
less inactive isomers than the chemical synthesis and therefore entails less
purification costs.) and environment-friendly. AD/ADD is used as a raw material
in steroid hormones such as Androgen, Estrogen, gluco-corticoids and
mineral-corticoids. We have completed the development of the microbial strain
used to establish the AD/ADD manufacturing process which secures an economically
efficient level of production.
INTELLECTUAL PROPERTY PROTECTION
We regard our technology as proprietary and attempt to protect it by
relying on patent, trademark, service mark, copyright and trade secret laws and
restrictions on disclosure and transferring title and other methods. We
currently have thirty-one (31) patents or patents pending in the U.S., Japan,
Europe, China, Korea, Taiwan, Australia and Brazil, and anticipate that patents
will become a significant part of our intellectual property in the foreseeable
future. We currently have patents, or have applied for patents for for the
following CZ(TM) Series additives and manufacturing processes in the following
countries:
------------ ----------------------------------------------------------
CZ(TM)-L Korea
------------ ----------------------------------------------------------
CZ(TM)-S Korea, Japan, and an International Patent (application
only) (covering the United States, Europe, China,
Australia, Brazil, India and Singapore)
------------ ----------------------------------------------------------
CZ(TM)-H Korea (application only)
------------ ----------------------------------------------------------
We generally enter into confidentiality or license agreements with our
employees and consultants, and control access to and distribution of our
documentation and other proprietary information. Despite
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these precautions, it may be possible for a third party to copy or otherwise
obtain and use our proprietary information without authorization or to develop
similar technology independently. We intend to pursue the registration of our
trademarks, CZ(TM) and CholZero(TM) in the United States and internationally.
GOVERNMENT REGULATION
Our CZ(TM) Series additives, and CholZero(TM) branded products contain
additives that are generally regulated by governmental agencies of the countries
in which they are sold. To date, we have only distributed our products in Korea
and Japan. We intend to begin distribution of our CZ(TM)-S additive and
CholZero(TM) products containing our CZ(TM)-S additive in the United States
immediately upon the approval of the "Generally Recognized as Safe" FDA
application.
KOREA
In May 2005, plant sterols, the main ingredient of our CZ(TM) Series
additives were formally approved as a health function food ingredient by the
Korean Food & Drug Administration, making it possible for us to advertise the
cholesterol-lowering function of our CZ(TM) Series additives and food enriched
with CZ(TM) Series additives. Because plant sterol is registered as a health
functional food material, we do not have to apply for any additional approvals
for our plant sterol products if they comply with requirements of the Amendment
of Health Functional Food Standards.
JAPAN
In Japan the government allows "FOSHU" (Foods for Specified Health Use)
marks for products showing scientifically proven health functions. Marks are
authorized for use pursuant to the requirements of the Nutrition Improvement Act
of 1994 and Food Sanitation Act of 1991. Any plant sterol-containing food
showing more than 5% of cholesterol-lowering efficacy through its clinical test
is allowed to claim its health benefit of plant sterols in the food label
according to "FOSHU" law. None of our current products are permitted to be sold
with a FOSHU mark at this time. We anticipate beginning the process of applying
for the use of such mark for our CZ(TM) Series additives in the near future.
UNITED STATES
The United States Food and Drug Administration ("U.S. FDA") regulations
require that certain informational labeling be presented in a prescribed manner
on all foods, drugs, dietary supplements and cosmetics. Specifically, the Food,
Drug, and Cosmetic Act requires that food, including dietary supplements, drugs
and cosmetics, not be misbranded.
In 1994, the Dietary Supplement Health and Education Act ("DSHEA"),
which amended the Federal Food, Drug, and Cosmetic Act, created a new regulatory
framework for the safety and labeling of dietary supplements.
Under DSHEA, a manufacturer or distributor must notify the U.S. FDA if
it intends to market a dietary supplement in the United States that contains a
"new dietary ingredient." The manufacturer (and distributor) must demonstrate to
the U.S. FDA why the ingredient is reasonably expected to be safe for use in a
dietary supplement, unless it has been recognized as a food substance and is
present in the food supply. This type of demonstration is referred to as a
"Generally Recognized as Safe" or "GRAS" application.
In addition, the U.S. FDA has issued regulations that allow dietary
supplement manufacturers to make three types of claims: 1) nutrient-content
claims, 2) health claims, and 3) structure-function claims
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based upon DSHEA and specific food labeling laws. Under these laws, the U.S. FDA
has specifically approved the claims that link Plant sterol/stanol esters and
the reduced risk of coronary heart disease. In cooperation with our U.S.
distributor, Archer-Daniels-Midland Company ("ADM"), we submitted a GRAS
application to the U.S. FDA on July 14, 2005 for our CZ(TM)-S additive and
expect to receive FDA approval no later than the first quarter of 2006.
EUROPEAN MARKET
The European Parliament and the Council of the European Union has
approved plant sterols as cholesterol-lowering ingredients under the regulation
(EC) No. 258/97 of the European Parliament and of the Council of 27 January 1997
concerning novel foods and novel food ingredients. This approval allows us to
make claims that products containing our CZ(TM) Series additives aid in reducing
cholesterol in those markets.
REVENUES
During its fiscal year ending December 31, 2003, Eugene Science
generated revenues from sales of its CZ(TM) Series additives, CholZero(TM)
branded products, and other products, including cooking oil, pet shampoo and
deodorant in Korea and Japan. During its fiscal year ending December 31, 2004
and six months ended June 30, 2005, Eugene Science generated the large majority
of revenues from sales of raw cooking oil to its affiliate, OnBio Corporation,
and sales of pet shampoo and deodorant in Korea and Japan. In 2004, sales to
three major customer accounted for 87% of total revenue.
MANUFACTURING
We manufacture our own CZ(TM) Series additives, corn oil and animal
feed at our facility in Bucheon, Korea. Our CholZero(TM) branded products are
manufactured by third parties. We have several suppliers for our raw materials,
however, only ADM, who supplies our raw plant sterol, is not easily replaceable.
Pursuant to our strategic alliance agreement with ADM, we are obligated to use
ADM's plant sterols when manufacturing products for the North American and
European markets.
MARKET DEMOGRAPHIC
The primary consumers of our CholZero(TM) branded products are health
conscious individuals in their mid-30s and older. The same demographic is
generally the target market for the food and supplement manufacturers to whom we
market our CZ(TM) Series additives. Currently, we only sell our CholZero(TM)
products and CZ(TM) Series additives in Korea and Japan.
MARKETING AND DISTRIBUTION
Throughout our fiscal year ending December 31, 2004, and the six months
ended June 30, 2005, approximately 90% of our revenue was derived from
supplemental products, including the sale of raw cooking oil to our affiliate,
OnBio Corporation. As of March, 2005, we no longer distribute raw cooking oil.
To date, with respect to our nutraceutical and functional good
products, we have focused on developing strong partnerships with large food and
beverage manufacturers in Korea and Japan. We have engaged distributors familiar
with their domestic markets, in each of Japan, Taiwan, North America and Europe.
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In March 2002, Eugene Science entered into an exclusive distribution
agreement with Hokuyo Koeki Co. for the Japanese market. Currently, two products
containing CZ(TM) additives are being manufactured in Japan (fermented soy milk
and instant rice). We anticipate that three new products containing our CZ(TM)-S
additive, will be launched by Japanese food manufacturers during the first
quarter of 2006.
In June 2005, we entered into a strategic alliance agreement with ADM
for the exclusive marketing of CZ(TM) Series additives in North America and
Europe. ADM has been assisting us in developing the market for CZ(TM) Series
additives worldwide. ADM is one of the largest producers of plant sterol, which
is the raw material of our CZ(TM) Series additives, and the company has a strong
interest in increasing the value of plant sterol. Because we are obligated to
purchase ADM's plant sterol as a raw material in the production of our CZ(TM)
Series additives for use in North America and Europe, ADM will also benefit from
the development of a strong market for CZ(TM) Series additives. We have also
entered into an exclusive distribution agreement with Nutra Nanotech to
distribute our CholZero(TM) capsules in the United States, primarily via
television infomercials.
As our presence grows in Japan, the United States, Europe and Korea, we
expect to employ conventional methods of distribution to create awareness of our
products, including the following:
o Free samples: Our products will be available in the aisles of
grocery stores and through third-party service providers for
free sample testing.
o Co-marketing: We intend to market our products through a
combination of in-store and other form of advertising,
including in-store advertising on high traffic area and
traditional industry print, trade shows and targeted direct
mail.
o Viral Marketing: We intend to select distribution partners
based on the value of their existing brand. We expect to be
able to take advantage of the value of established brands by
associating our CZ(TM) Series with such branded products in
foreign markets and cooperating with our partners to establish
public relations campaigns that create a sense of growing
community and a grass-roots movement that promotes the use of
functional foods.
COMPETITION
Due to recently achieved commercial success of products such as Benecol
margarine, the use of plant sterols as food supplements to reduce cholesterol
has become an attractive and competitive market. We expect competition to
intensify in the future. A range of cholesterol-lowering foods and dietary
supplements are currently on the market, primarily in the United States and
Europe, but we are not aware of any competitor's products that are
water-soluble. However, the industry is characterized by intensive research and
development activity. Our present competitors include the following
nationally-known companies and smaller specialty manufacturers.
Functional Foods:
Benecol (Raisio's joint venture with Johnson & Johnson), Take
Control (Unilever), Aviva Heart Benefits (Novartis), Cheerios
(General Mills), Ensemble (Kellogg), Health Source (Ross
Products Division of Abbott Laboratories) and Quaker Oats
(Quaker Oat Company).
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Dietary supplements:
LO-CHOL (Applied Plant Pharmaceuticals Inc.), Cholestin
(Pharmanex), Kholestrol Blocker (Nutrition For Life
International), EvolvE (Bionutrics), Kwai (Lichtwer Pharma)
and Metamucil (Procter & Gamble).
While other major companies have the financial and technical ability
and greater resources than us to compete aggressively in the market for health
products, we believe that, at present, we may have a competitive advantage over
our competition because our plant sterol products have a wide variety of
applications (including in water-based products) and are more efficient than
many of our competitors' products at prohibiting cholesterol absorption due to
the nano-size of plant sterol in our CZ(TM) Series additives.
EMPLOYEES
As of August 31, 2005, we employed 26 people on a full-time basis. None
of our employees are covered by an ongoing collective bargaining agreement with
us and we believe that our relationship with our employees is good.
FILING STATUS
We file reports with the Securities and Exchange Commission the
("SEC"). We make available on our website (www.eugene21.com) free of charge our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to those reports as soon as reasonably practicable after
we electronically file such materials with or furnish them to the SEC. You can
also read and copy any materials we file with the Commission at its' Public
Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You can obtain
additional information about the operation of the Public Reference Room by
calling the Commission at 1-800-SEC-0330. In addition, the Commission maintains
an Internet site (www.sec.gov) that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the Commission, including us.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
OVERVIEW
We were incorporated on August 26, 1998 under the name 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, and changed our name to Ezcomm Inc. to reflect
this change in business. We were unable to raise enough capital to finance the
research and development of our proposed consumer incentive and loyalty program
in Asia and all efforts to develop the business were abandoned in January 2001.
We remained inactive until July 2004, when we changed our name to Ezcomm
Enterprises, Inc. and began to consider and investigate potential business
opportunities, including an acquisition by merger. On September 30, 2005, we
acquired Eugene Science pursuant to the terms of the Exchange Agreement. The
Exchange Transaction was accounted for as a reverse merger (recapitalization)
with Eugene Science deemed to be the accounting acquirer, and us as the legal
acquirer. Accordingly, the historical financial information presented in future
financial statements will be that of Eugene Science as adjusted to give effect
to any difference in the par value of ours and Eugene Science's 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, have been
carried over in the recapitalization. Upon the closing of the Exchange
Transaction we became a global biotechnology company that develops,
10
manufactures and markets nutraceuticals, or functional foods that offer
health-promoting advantages beyond that of nutrition. Our primary products are
our plant sterol products, including CZ(TM) Series of food additives, and our
CholZero(TM) branded beverages and capsules.
GOING CONCERN
Our independent auditor has expressed substantial doubt as to our
ability to continue as a going concern, in its report for the year ended
December 31, 2004, and the six months ended June 30, 2005, 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
management's efforts to raise additional capital necessary to meet the Company's
obligations as they come due and to obtain sufficient capital to execute its
business plan. The Company intends to obtain capital primarily through issuances
of debt or equity. There can be no degree of assurance that the Company will be
successful in completing additional financing transactions.
If we cannot obtain adequate funding or achieve revenues from the sale
of our products, we could be required to significantly curtail or even shutdown
our operations.
RESULTS OF OPERATIONS
Because Eugene Science's owners as a group retained or received the
larger portion of the voting rights in the Company after the Exchange
Transaction and Eugene Science's senior management represents a majority of the
senior management of the combined entity, Eugene Science was considered the
acquirer for accounting purposes. Therefore, the information set forth below has
been derived from Eugene Science's financial statements accompanying this
Report. This information should be read in conjunction with such financial
statements and the notes thereto.
REVENUES
TWELVE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------- -------------------------
2003 2004 2004 2005
---------- ---------- ---------- ----------
Manufacturing ...... $3,746,415 $2,328,320 $ 497,875 $ 50,593
Merchandise ........ 1,085,474 528,604 128,804 48,450
Total revenues .. $4,831,889 $2,856,924 $ 626,679 $ 99,043
FISCAL YEAR 2004 COMPARED TO FISCAL YEAR 2003
Our sales of raw cooking oil, CZ(TM) Series additives, animal feed, and
CholZero(TM) branded products, including beverages and capsules, are accounted
for as manufacturing revenues. Our sales of CholZero(TM) cooking oil (our
branded version of DG Oil), deodorants other non-functional food products are
accounted for as merchandise revenues.
We experienced a 41% decrease in our revenues for our fiscal year ended
December 31, 2004 ("Fiscal 2004") as compared to our fiscal year ended December
31, 2003 ("Fiscal 2003"). Such decrease is attributable primarily to the fact
that no sales of CZ(TM) Series additives were made in Japan in Fiscal 2004. Our
Japanese distributor purchased $1,317,247 of our CZ(TM)
11
Series additives in Fiscal 2003, and distributed from this stock throughout
2004. We project that our Japanese distributor's stock of CZ(TM) Series will
need to be replenished during late 2005 or early 2006 as a result of the
anticipated release of several new functional food products containing our
CZ(TM) Series additives in early 2006. Revenues from our CholZero(TM) branded
products were $64,766 for Fiscal 2004, which is a decrease of $1,106,488 from
Fiscal 2003. The decrease is primarily a result of the decreased sales of
CholZero(TM) beverages in 2004 in the Korean market, as described below. We also
experienced a decrease in sales in Korea due to a generally sluggish consumer
market. Approximately 90% of our revenues in 2004 were derived from the sale of
our supplemental products, including the sale of raw cooking oil to our
affiliate, OnBio Corporation.
In Fiscal 2003, we marketed our CholZero(TM) beverages as general
beverages, without any claims of functional health benefits related to the plant
sterol ingredients. When our sales began to decrease due to the sluggish Korean
market and decrease in general consumption, we decided to temporarily stop
marketing our CholZero(TM) beverages in the Korean market. We determined that it
would be beneficial to delay our investment in aggressive marketing activities
until the anticipated approval of an amendment to the Korean Functional Health
Food Law that would register plant sterol as functional health food. In May
2005, the Amendment Functional Health Food Law of 2005 was adopted. The
Amendment allows us to market our CholZero(TM) branded products as a functional
health food and to include claims of health benefits with respect to the
product's plant sterol ingredients. We anticipate that sales of our CholZero(TM)
branded products will increase in our fiscal year 2005 due to both the amendment
of the Korean Functional Health Food Law and our engagement of Nutra Nano Tech,
as our exclusive distributor of CholZero(TM) capsules throughout the United
States. Nutra Nano Tech will primarily distribute our CholZero(TM) capsules
through television infomercials. We anticipate that sales of CholZero(TM)
capsules in the United States will begin in February 2006.
We anticipate that sales of our products during the second half of 2005
and in 2006 will increase as a result of our ability to make health claims with
respect to our CZ(TM) Series additives and CholZero(TM) products in Korea after
enactment of the Amendment of Health Functional Food Standards, and upon the
anticipated approval of our "Generally Recognized as Safe" application with the
U.S. FDA for our CZ(TM)-S additive in the United States. We have engaged ADM as
our exclusive distributor of CZ(TM) Series additives in North America and Europe
and have authorized ADM to manage our U.S. FDA approval process in the United
States.
SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO SIX MONTHS ENDED JUNE 30,
2004
There was a 67% decrease in our revenues for our six months ended June
30, 2005 as compared to the comparable period in 2004. Such decrease is
attributable primarily to the assignment of our raw cooking oil supply contract
to our affiliate, OnBio Corporation in March 2005. During the six months ended
June 30, 2004, approximately 40% of our revenues were derived from the sale of
raw cooking oil to OnBio Corporation. In March 2004 we assigned our raw cooking
oil supply contract to OnBio Corporation as part of our plan to eliminate
businesses unrelated to our primary nutraceutical business. After such
assignment, our revenues were derived entirely from our remaining supplemental
products.
12
OPERATING EXPENSES
COST OF SALES
TWELVE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------- -------------------------
2003 2004 2004 2005
---------- ---------- ---------- ----------
Cost of Sales
Manufacturing . $3,515,733 $2,225,390 $1,152,737 $ 238,229
Merchandise ... $ 945,648 $ 806,040 $ 337,834 $ 175,741
For Fiscal 2004, our cost of sales consisted primarily of $1,419,128 of
corn oil production costs paid to a third party manufacturer. Our gross loss for
Fiscal 2004 was approximately 6.1% of the gross revenue, as compared to a gross
profit margin of 7.7% in Fiscal 2003. The decline in gross margin is due, in
part, to the partial return of the CZ(TM) Series additives from our Japanese
distributor due to the expiration of the additive's stated shelf life. The
returns were reflected as a cost of sales in Fiscal 2004.
Our gross profit margin for the six month period ended June 30, 2005
was approximately 19.9%, as compared to 5% for the comparable 2004 period. The
increase was due primarily to the write-off of the returns from our Japanese
distributor discussed above, which were recorded as a cost of sales in the first
half of 2004.
EXPENSES
We had a $1,245,906 decline in expenses in Fiscal 2004 as compared to
Fiscal 2003 due primarily to a decrease in salaries, benefits and retirement
allowance ($173,519), a decrease in investment in Research and Development
activities ($657,465), a decrease in bad debts ($169,228), a decrease in rent
expense ($64,995), and a decrease in office & general expenses ($131,564) after
moving our offices from Seoul to Bucheon, offset by an increase in our
depreciation expenses. The increase in depreciation expenses is due to the fact
that, because we did not produce our CZ(TM) Series additives or CholZero(TM)
products during 2005, depreciation of our manufacturing equipment was
categorized as a depreciation expenses instead of a cost of sales, as it was in
prior years when such equipment was actually used for production. The decrease
in our salaries, benefits and retirement allowance expense resulted, in part,
from the move of our headquarters office from Seoul to Bucheon. Several
employees left the company due to the resulting extended commute time and
environmental changes.
We had a $86,871 decline in expenses in the six month period ending
June 30, 2005 as compared to the comparable period in 2004. The decline resulted
in part from a decline in advertising, promotion and entertainment expenses
resulting from a decision to cease marketing our CholZero(TM) products until the
approval of plant sterols and stanols as a health function food ingredient by
the Korean Food & Drug Administration. The decline in expenses during our six
months ended June 30, 2005 is was also a result of a decline in office and
general expenses due to our move from Seoul and decrease in number of employees.
The decrease in expenses was offset by an increase in professional fees and
travel expenses in the amount of $51,985 and $57,552, respectively, as a result
of increased accounting fees and costs for travel to the United States in
connection with the Exchange Transaction.
Expenses for the balance of 2005 are expected to increase as a result
of an increase of sales and an increase in number of employees. Professional
fees are also expected to increase in the second half of
13
2005 due to the legal and accounting expenses involved with the Exchange
Transaction and our transition to reporting company status as a result of the
Exchange Transaction.
OTHER INCOME (EXPENSE)
TWELVE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------- ----------------------------
2003 2004 2004 2005
----------- ----------- ----------- -----------
Net rental income .............. $ 107,519 $ 142,178 $ 70,859 $ 72,505
Miscellaneous income (loss) .... 73,744 7,488 (54,807) 16,268
Financing fees ................. -- (57,731) -- --
Interest expense -net .......... (651,605) (1,229,901) (482,002) (835,351)
Interest - Other ............... -- (151,141) -- --
Loss of disposition of equipment (101,370) -- (902) (10,759)
Loss on write down of equipment -- (9,938) -- --
----------- ----------- ----------- -----------
Total other income (expense) $ (571,712) $(1,299,045) $ (466,852) $ (757,337)
The increase in interest expense-net, in Fiscal 2004 compared to Fiscal
2003 is primarily attributable to an increase in interest due on loans in
default, which also resulted in an increase in interest expense-net in the six
months ended June 30, 2005 as compared to the same period in 2004.
All of our bank loans, except for our loan from the National
Agricultural Cooperative Federation, were in default as of December 31, 2004 and
remained in default as of June 30, 2005. The interest rate on such loans ranges
from 15% to 18%. We are currently in negotiations with these lenders to settle
our outstanding debts.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2004, we had cash and cash equivalents of
approximately $36,681. As of December 31, 2004, we had negative working capital
of approximately $12,502,194. As of June 30, 2005, we had cash and cash
equivalents of approximately $58,018 and negative working capital of
approximately $13,133,204. We expect a significant use of cash during the
balance of fiscal year 2005 as we expand our marketing and distribution
operations.
CASH FLOWS
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 twelve months ended December 31, 2004, we had a net decrease
in cash of approximately $661,269. Cash flows from operating, financing and
investing activities for Fiscal 2003 and Fiscal 2004, and the six months ended
June 30, 2004 and 2005 are summarized in the following table:
14
TWELVE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------- -------------------------
2003 2004 2004 2005
---------- ---------- ---------- ----------
ACTIVITY
Operating activities ............... $(291,060) $ (61,638) $ 381,200 $(530,216)
Investing activities ............... 68,613 (299,498) (406,073) 30,913
Financing activities ............... (274,609) (339,392) (200,535) 521,292
Foreign Exchange on Cash and
Cash Equivalents ............. 2,942 39,259 21,070 (652)
Net increase (decrease) in cash . $(494,114) $(661,269) $(204,338) $ 21,337
OPERATING ACTIVITIES
FISCAL YEAR 2004 COMPARED TO FISCAL YEAR 2003
The net cash used in operating activities decreased 78.9% to $61,638 in
Fiscal 2004, compared to $291,060 in Fiscal 2003. This decrease of $877,832
resulted primarily from the receipt of an advance payment of $1,768,344 upon the
execution of an agreement in 2004 to sell our real property in Korea to Wando
Seafood Distribution Co. Ltd. in January, 2009, offset by an increase in our
accounts receivable during 2004 as a result of extension of payment terms for
our largest customers.
SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO SIX MONTHS ENDED
JUNE 30, 2004
The net cash used in operating activities was $530,216 in the six
months ended June 30, 2005, compared to net cash provided by operating
activities of $381,200 in the comparable period in 2004. This difference
primarily reflects the fact that we received a one-time advance payment of
$1,768,344 upon the execution of an agreement during the six months ended June
30, 2004 in conjunction with the sale of its real property in Korea to Wando
Seafood Distribution Co. Ltd. The impact of this one-time advance payment was
offset by a significant increase in accounts payable during the first six months
of 2005.
INVESTING ACTIVITIES
FISCAL YEAR 2004 COMPARED TO FISCAL YEAR 2003
The net cash used in investing activities was $299,498 in Fiscal 2004,
compared to net cash provided of $68,613 in Fiscal 2003. The increase in net
cash used reflects a decrease in cash flows from investments and an increase in
cash spent on property and equipment in 2004. The $299,498 of cash used in
investing activities during Fiscal 2004 was due primarily to the purchase of
$274,164 of property, plant and equipment, including manufacturing machinery.
SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO SIX MONTHS ENDED
JUNE 30, 2004
The net cash provided by investing activities was $30,913 in the six
months ended June 30, 2005, compared to net cash used of $406,073 during the
comparable period in 2004. The difference reflects an increase in cash flow from
investments and a decrease in cash spent on property and equipment in 2005.
15
FINANCING ACTIVITIES
FISCAL YEAR 2004 COMPARED TO FISCAL YEAR 2003
The net cash used in financing activities increased 24% to $339,932 in
Fiscal 2004, compared to $274,609 in Fiscal 2003. The increase in net cash used
in financing activities between the periods resulted primarily from the
elimination of our obligations under our convertible debentures and an increase
in advances made to one of our affiliates, offset by our default on our bank
loans.
SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO SIX MONTHS ENDED
JUNE 30, 2004
The net cash generated by financing activities was $521,293 in the six
months ended June 30, 2005, compared to net cash used of $200,535 for the
comparable period in 2004. This difference resulted primarily from the sale of
stock during 2005.
BANK LOANS
Since 1999 we have borrowed the principal amount of $3,889,259 from
Industrial Bank of Korea. These loans bear interest at 4.5% to 18% and are due
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, a government-operated fund. At June 30, 2005,
the principal balance and accrued interest on these loans was approximately
$4,944,312.
At December 2004, we were in default under these loans and, as such, at
December 31, 2004, the bank requested that our real property be auctioned to
repay the loan. Industrial Bank of Korea has since agreed to cancel the auction
and released our property as security upon the payment by us of administrative
costs of $173,000. We are currently in negotiations with Industrial Bank of
Korea to settle our outstanding debts. In December, 2004 we obtained a
short-term loan from the National Agricultural Cooperative Federation ("NACF")
in the principal amount of $1,946,105. This loan has an interest rate of 4.6%
and is due on December 22, 2005. This loan is guaranteed by Korea Technology
Credit Guarantee Fund ("KOTEC"). At June 30, 2005, the principal balance and
accrued interest on this loan was $1,967,859.
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 our Chief Executive
Officer. At June 30, 2005, we were in default under this loan and the principal
balance and accrued interest due was approximately $388,223. We are currently in
negotiations with ChoHueng Bank to settle our outstanding debts.
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 on November 15,
2004. At June 30, 2005 we were in default under both loans and the principal and
accrued interest due was approximately $1,758,129. We are currently in
negotiations with Kookmin Bank to settle our outstanding debts.
NOTES PAYABLE
On October 9, 2004, we issued to KOTEC a note in connection with its
payout as guarantor of our Convertible Debenture described above. The Note bears
interest at 21% per annum, is guaranteed by
16
our Chief Executive Officer, and is due on demand. To date, no demands for
payment have been made. At June 30, 2005, the balance of the note was
approximately $2,302,494. Interest payments on the note are classified in our
financial statements as Accounts Payable.
In April, 2002 we issued to Korean Institute of Industrial Technology
Evaluation and Planning a non-interest bearing note in the amount of $44,463.
The note was due on demand. The note was paid in full in January 2005.
In February 2004 we issued a note bearing 9% interest to Luxware Co.,
Ltd. in the principle amount of $68,257. The note was paid in full in March
2005.
In October, we issued a note bearing 9% interest to Jae Ho Lee, the
President of UcoleBio Corp., our 73% owned subsidiary. The note was due on
demand and the remaining balance of this loan was $47,772 at June 30, 2005.
In February, 2002, we issued a note of $100,000 bearing 8% interest to
Kyungioils.co, Ltd. The note was due on demand and the remaining balance of this
loan was $18,102 at June 30, 2005.
In January, 2002, we issued a note in the principal amount of $846,835
to KTB Network. The note bore interest at 10.2% percent, was due in full in
December 2004 and was guaranteed by the Industrial Bank of Korea. We defaulted
on periodic payments due under the note in June 2004 and the guarantor,
Industrial Bank of Korea agreed to assume the note and make payments thereunder.
CONVERTIBLE DEBENTURES
On October 9, 2001, we issued to KOTEC a convertible debenture in the
principal amount of $1,950,200. At December 31, 2003, the Convertible Debenture
had a face value of $1,666,791, a guarantee yield of 8.64% per annum on
maturity, and an annual coupon rate of 3% payable quarterly. The debenture was
convertible into a maximum of 1,538,460 shares of common stock at any time prior
to three business days before the maturity date of October 9, 2004. During 2004,
we defaulted on the repayment of the Convertible Debenture and its guarantor,
KOTEC repaid the balance on our behalf.
GOVERNMENT LOANS
On March 2, 2003, we received a non-interest bearing, unsecured
government loan from in the principal amount of $61,779. The loan must be repaid
in three annual installments of $20,593, beginning February 26, 2004 and matures
in its entirety in February 2006. At June 30, 2005, we were $41,186 in arrears
under this loan arrangement.
We received a $316,181 government loan in connection with a certain
research and development projects over the period from 1999 to 2002. The project
was not successful, and we are therefore obligated to refund to the government
the principal amount of the loan.
In 2001 we received a $225,984 loan and $12,676 loan, and in 2003 we
received a $77,520 loan, from the Ministry of Commerce, Industry and Energy in
connection with a research and development project related to the development of
a protein chip. At June 30, 2005, the loans remained outstanding and were not
due, pending conclusion of the funded research.
17
OTHER LOANS
We received a loan in the principal amount of $63,382 from our
customer, Sim chon, Co., Ltd, in December, 2004. The loan is non-interest
bearing and due on demand. The principal of $29,502 was repaid during the first
half of 2005. As of June 30, 2005, the balance of the loan was $33,880.
RELATED PARTY TRANSACTIONS
See "Certain Relationships and Related Party Transactions" included
elsewhere in this report for a full description of transactions to which we were
or will be a party, in which the amount involved exceeds $60,000, and in which
any director, executive officer, stockholder of more than 5% of our common stock
or any member of their immediate family had or will have a direct or indirect
material interest.
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
the accounts of Eugene Science, Inc. and our 74% owned subsidiary, UcoleBio
Corp. 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 U.S. Dollar has been used as the unit of
measurement in our consolidated financial statements.
USE OF ESTIMATES. 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 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" ("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.
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 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.
18
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 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.
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" (Statement 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. This Statement 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,
this Statement requires that allocation of fixed production overhead to the
costs of conversion be based on the normal capacity of the production
facilities. The adoption of Statement 151 will not have a material impact on our
consolidated financial statements.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Non-monetary Assets - an amendment of APB Opinion No. 29" (Statement 153). This
Statement amends Opinion 29 to eliminate the exception for non-monetary
exchanges of similar productive assets and replaces it with a general
19
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. The adoption of FAS 153 will not have a material impact on the our
consolidated financial statements.
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 our
consolidated financial statements.
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER
INFORMATION CONTAINED IN THIS REPORT BEFORE PURCHASING SHARES OF OUR COMMON
STOCK. INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IF ANY OF
THE FOLLOWING EVENTS OR OUTCOMES ACTUALLY OCCURS, OUR BUSINESS OPERATING RESULTS
AND FINANCIAL CONDITION WOULD LIKELY SUFFER. AS A RESULT, THE TRADING PRICE OF
OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF THE MONEY YOU
PAID TO PURCHASE OUR COMMON STOCK.
RISK FACTORS
RISKS RELATED TO OUR BUSINESS
OUR AUDITORS HAVE A GOING CONCERN QUALIFICATION IN THEIR OPINION CONTAINED IN
OUR AUDITED CONSOLIDATED 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 (explanatory paragraph) in their report contained in our
audited consolidated financial statements for the fiscal year ended December 31,
2004 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
assurances that cash generated from 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; 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/or respond to
unanticipated requirements during and beyond that period.
20
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.
BECAUSE WE RELY ON A LIMITED NUMBER CUSTOMERS, ANY REDUCTION IN ORDERS FROM ANY
SINGLE CUSTOMER WOULD HARM OUR BUSINESS.
In Fiscal 2004, sales to three major customers accounted for 87% 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 customer's 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/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.
21
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.
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:
o unexpected changes in regulatory requirements and tariffs;
o difficulties and costs associated with staffing and managing
foreign operations, including foreign distributor
relationships;
o longer accounts receivable collection cycles in certain
foreign countries;
o adverse economic or political changes;
22
o unexpected changes in regulatory requirements;
o more limited protection for intellectual property in some
countries;
o changes in our international distribution network and direct
sales force;
o potential trade restrictions, exchange controls and import and
export licensing requirements;
o potentially adverse tax consequences of overlapping tax
structure; and
o 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 assurances
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 assurances 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.
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.
23
Except with respect to the adoption of our Code of 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 year ended 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 of the
effectiveness of these internal controls. We expect that this process will
require significant amounts of management 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 U.S. FDA, and the U.S. Federal Trade Commission ("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:
o initiating investigations;
o issuing warning letters and cease and desist orders;
o requiring corrective labeling or advertising;
o requiring consumer redress, such as requiring that a
Registrant offer to repurchase products previously sold to
consumers;
o seeking injunctive relief or product seizures; and
o 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
24
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.
25
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.
Factors that could cause such volatility in our common stock may
include, among other things:
o actual or anticipated fluctuations in our quarterly operating
results;
o announcements of technological innovations;
o changes in financial estimates by securities analysts;
o conditions or trends in our industry; and
o 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, will
be 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.
Shareholders 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.
26
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 September 30, 2005, our officers and directors and their affiliates
owned approximately 41.8% 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.
DESCRIPTION OF PROPERTY.
Our executive offices, factory and research and development facility
are located in Bucheon South Korea, where we own 116,962 square feet of land and
63,142 square feet of building space. In January, 2004, we entered into a
Purchase Agreement to sell our land and building. The transfer of title pursuant
to the Purchase Agreement is scheduled to occur on January 31, 2009. During
Fiscal 2004, we received an advance payment of $1,768,344 on the property. Until
legal transfer of the title in 2009, we are obligated to pay $4,400 monthly in
cash to the purchaser. On any initial public offering, we are also required to
provide shares based on an initial public offering price and the number of
months since the agreement at $8,800 per month. After the initial public
offering, we would be required to pay $13,200 in cash monthly.
During Fiscal 2004 we defaulted on payments of certain bank loans
secured by our land and building. The bank attempted to auction off our
properties through court action. In addition, various creditors of the Company
put provisional seizures on the properties to protect their loans. On July 4,
2005, the bank cancelled the auction of properties in exchange for the payment
of its administrative costs in the amount of $173,000.
We also currently own office space of 19,978 square feet in Seoul,
Korea which we have leased to another party since moving our offices to Bucheon.
The lease expires in 2006.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding our common
stock beneficially owned on September 30, 2005 for (i) each stockholder known to
be the beneficial owner of 5% or more our outstanding common stock, (ii) each
executive officer and director, and (iii) all executive officers and directors
as a group. In general, a person is deemed to be a "beneficial owner" of a
security if that person has or shares the power to vote or direct the voting of
such security, or the power to dispose or to direct the disposition of such
security. A person is also deemed to be a beneficial owner of any securities of
which the person has the right to acquire beneficial ownership within 60 days.
At September 30, 2005, we had 308,159,748shares of common stock outstanding.
27
AMOUNT OF PERCENT OF
BENEFICIAL BENEFICIAL
NAME OF BENEFICIAL OWNER OWNERSHIP OWNERSHIP
- ------------------------------------------- ----------- -----------
DIRECTORS AND EXECUTIVE OFFICERS
Seung Kwon Noh (1)(2)...................... 102,990,183 33.4%
Tony Kim (1)(3)............................ 23,034,195 7.5%
Jae Hong Yoo (1)(4)........................ 2,396,023 0.8%
Se Cheon Ahn (1)(5)........................ 461,268 0.1%
Tae Hwan Lee (1)........................... 0 0.0%
OTHER 5% HOLDERS
H&Q Asia Pacific (1)(6).................... 27,641,034 9.0%
Telos, LLC (7)............................. 23,034,195 7.5%
MANAGEMENT AS A GROUP
All Executive Officers and Directors as a
group (5 persons) (2)(3)(4)(5).......... 128,592,385 41.6%
- ----------
(1) Address is c/o Eugene Science, Inc, 16-7 Samjung-dong, Ojung-ku,
Pucheon, Kyonggi.
(2) Includes (i) 7,274,535 shares beneficially owned by Dr. Noh's spouse,
and (ii) 9,213,678 shares held by OnBio Corporation, an entity of which
Dr. Noh is an executive officer and has an ownership interest.
(3) Consists of 23,034,195 shares of common stock held by Telos, LLC, an
entity of which Mr. Kim is a director and executive officer and has an
ownership interest. Mr. Kim may be deemed to beneficially own the
shares held by Telos, LLC, but disclaims beneficial ownership in such
shares except to the extent of his pecuniary interest therein.
(4) Includes 369,014 shares of common stock issuable upon exercise of
outstanding stock options.
(5) Consists of 461,268 shares of common stock issuable upon exercise of
outstanding stock options.
(6) Includes 1,500,000 shares held by APGF3 Korea Investment and 1,500,000
shares held by KGRF Korea Investment, both of which are affiliates of
H&Q Asia Pacific.
(7) Address is 6300 Wilshire Blvd., Suite 1730, Los Angeles, California
90048. Mr. Kim is a director and executive officer and has an ownership
interest in Telos, LLC.
28
DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Effective as of the Closing, Dr. Peter Braun resigned as our prior sole
officer, and the following officers were appointed by the newly constituted
Board of Directors:
NAME AGE
---- ---
Seung Kwon Noh.......... 44
Tae Hwan Lee............ 42
Se Cheon Ahn............ 43
Jae Hong Yoo............ 37
DR. SEUNG KWON NOH founded Eugene and served as President and as a
director of Eugene Science since its inception in July 1997 to present. Dr. Noh
is also President and Chief Executive Officer of On-bio Inc., a company that
manufactures functional cooking oil. Dr. Noh also serves a director of the Korea
Bio-venture Association. Dr. Noh received a Bachelors of Arts degree in
Microbiology from Seoul National University, a Masters of Science degree in
Biological Engineering from the Korea Advanced Institute of Science and
Technology and a Masters of Science degree in Bio-technology from Durham
University in the U.K.
TAE HWAN LEE has served as Vice Present of Sale & Marketing for Eugene
Sciences since March 2004. Prior to joining Eugene Science, Mr. Lee worked in
sales and marketing for EucholBio Inc. from April 2003 to March 2004. From
January 2002 to December 2002, Mr. Lee worked in marketing for IGM Inc. Prior to
that, he provided marketing consulting services to JTB Planning Inc. from
January 2000 through January 2002. Tae Hwan Lee received a Bachelors of Arts
degree in Liberal Arts from Korea University.
SE CHEON AHN served as Vice President of Production of Eugene Science
since March 2004. Prior to being appointed Vice President, Mr. Ahn was Director
of Production for Eugene Science from June 2001 through March 2004. Prior to
joining Eugene Science, Mr. Ahn was Director of Products for Sindongbang Co.,
Ltd. from January 2000 to March 2001. Se Cheon Ahn received a Bachelors of Arts
degree in Chemical Engineering from Hanyang University.
JAE HONG YOO Mr. Yoo joined Eugene Science in 2002 and served as Senior
Manager Human Resources and Finance Team. Prior to joining Eugene Science, Mr.
Yoo served as a Manager of Human Resources for Interpark Co., Ltd.
None of our newly appointed executive officers are party to any
employment agreement with us. Each of Mr. Lee, Mr. Ahn and Mr. Yoo are party to
employment agreements with Eugene Science, our majority-owned subsidiary.
At the Closing, the following new directors were appointed:
29
NAME AGE POSITION
---- --- --------
Seung Kwon Noh....... 44 Chief Executive Officer, President, and Director
Tae Hwan Lee......... 42 Senior Vice President - Marketing, and Director
Se Cheon Ahn......... 43 Senior Vice President - Plant/Manufacturing, and
Director
Tony Kim............. 32 Director
Please see the biographies of Dr. Noh and Messrs. Lee and Ahn set forth
above.
TONY KIM joined Eugene Sciences as a director in April 2005. Since
November 2004, Mr. Kim has been President and a member of the board of directors
of Telos, LLC, an investment company. Mr. Kim also serves on the board of
directors of Red Queen Entertainment, a multi-media entertainment company. From
February 1998 through April 2002, Mr. Kim was Vice President of Saymee K Inc.,
the parent company of several fashion brands: Drunknmunky Clothing, Hudson Jeans
and Protrend Limited. Tony graduated from University of California - Los
Angeles, with a Bachelor or Arts in Sociology.
None of the newly appointed officers and directors, nor any of their
affiliates, currently beneficially own any equity securities or rights to
acquire any of our securities except as otherwise described in this report, and
no such persons have been involved in any transaction with us or any of its
directors, executive officers or affiliates that is required to be disclosed
pursuant to the rules and regulations of the SEC, other than with respect to the
transactions that have been described in this report or in any prior reports
filed by us with the SEC. None of the newly appointed officers and directors
have been convicted in a criminal proceeding, excluding traffic violations or
similar misdemeanors, nor have they been a party to any judicial or
administrative proceeding during the past five years, except for matters that
were dismissed without sanction or settlement, that resulted in a judgment,
decree or final order enjoining the person from future violations of, or
prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
Until further determination by the Board, the full Board of Directors
will undertake the duties of the Audit Committee, Compensation Committee and
Nominating Committee of the Board of Directors.
EXECUTIVE COMPENSATION
EZCOMM ENTERPRISES, INC.
Ezcomm Enterprises, Inc. did not have a bonus, profit sharing, or
deferred compensation plan for the benefit of its employees, officers or
directors during any of three most recently completed fiscal years. Ezcomm
Enterprises, Inc. has not paid any other salaries or other compensation above
$100,000 to its officers, directors or employees since inception. Further,
Ezcomm Enterprises, Inc. has not entered into an employment agreement with any
of its officers, directors or any other persons. Ezcomm Enterprises, Inc. has
not accrued any officer compensation.
There were no option grants to any executive officers during Ezcomm
Enterprises, Inc.'s fiscal year ended May 31, 2005, and no options were
exercised by any executive officer during the fiscal year ended May 31, 2005.
30
Ezcomm Enterprises, Inc. did not pay any compensation to any director
in fiscal years 2003, 2004 or 2005.
EUGENE SCIENCE
EXECUTIVE OFFICER COMPENSATION. The following table sets forth the
compensation paid to the Eugene Science executive officers for services rendered
during the fiscal years ended December 2003 and 2004.
EUGENE SCIENCE SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM
COMPENSATION
------------------------------------ ---------------
COMMON SHARES
UNDERLYING
NAME AND POSITION OPTIONS GRANTED
YEAR SALARY OTHER ANNUAL (1)
COMPENSATION (# SHARES)
- ----------------- ---- --------- ------------ ---------------
Seung Kwon Noh 2003 $ 110,000 -- --
2004 110,000 -- --
Se Cheon Ahn 2003 50,000 -- 461,268
2004 50,000 -- --
Tae Hwan Lee 2003 63,600 -- --
2004 63,600 -- --
Jae Hong Yoo 2003 36,000 -- 369,014
2004 36,000 -- --
- ----------
(1) Reflects the number of our shares of common stock underlying such
options after the Exchange Transaction.
OPTION GRANTS IN 2004. None of the executive officers named in the
Eugene Science summary table above were granted options during the year ended
December 31, 2004
OPTION VALUES AT DECEMBER 31, 2004. None of the executive officers
named in the summary table above exercised options during 2004.
DIRECTOR COMPENSATION. We currently do not pay any fees to our
directors or any fees for each Board or Committee meeting which is attended in
person or telephonically. We do, however, reimburse directors for their
reasonable travel expenses to attend meetings.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Other than as described below, there are no proposed transactions or
series of related transactions, nor were there any transactions or series of
related transactions during Fiscal 2003 and 2004, to which the we or Eugene
Science was a party, in which the amount involved exceeded or will exceed
$60,000 and in which any director, executive officer, holder of more than 5% of
our common stock or any member of the immediate family of any of the foregoing
persons had or will have a direct or indirect material interest:
31
TRANSACTIONS WITH AFFILIATED COMPANIES
ONBIO CORPORATION
In March, 2005 we assigned our raw cooking oil supply contract to OnBio
Corporation. Our Chief Executive Officer and significant stockholder, Dr. Noh,
is also the Chief Executive Officer and a significant stockholder of OnBio
Corporation.
OnBio Corporation is one of our suppliers (for DG Oil) and was our
largest customer in 2004. At June 30, 2005, we had an account receivable from
OnBio Corporation in the amount of $2,359,804, resulting primarily from the
purchase of our raw cooking oil.
During the last two fiscal years we and Onbio Corporation have
periodically provided cash advances to each other. In Fiscal 2003 Onbio
Corporation advanced an aggregate of approximately $425,000 to us. In Fiscal
2005 and the six months ended June 30, 2005, we advanced an aggregate of
approximately $1.8 million to OnBio Corporation. All advances accrue interest at
a rate of 9% per annum and are due on demand. The current net principal and
interest owed to us by OnBio Corporation for advances made is $1,169,500. OnBio
Corporation is currently in financial difficulty, however we believe that the
advance will be repaid.
NUTRA NANOTECH
Our director, Tony Kim is the Chief Executive Officer of Nutra
Nanotech, an entity that the Company has contracted to market and distribute its
CholZero(TM) capsules in the United States.
TELOS, LLC
On March 1, 2005, Eugene Science issued 2,500,000 shares of its Common
Stock in a private placement transaction to Telos, LLC at a price of
approximately $0.40 per share. These shares were exchanged for 23,063,381 shares
of our common stock pursuant to the Exchange Agreement, and the exercise price
was adjusted accordingly. Our director, Mr. Kim, is also a director and
executive officer and has an ownership interest in Telos, LLC.
BOO WON SIL UP
During Fiscal 2004 and the six months ending June 30, 2005, we
purchased goods from Boo Won Sil Up, an entity controlled by the father of our
Chief Executive Officer and significant shareholder, Dr. Noh. At June 30, 2005,
we had an account payable of $99,089 owing to Boo Won Sil Up.
TRANSACTIONS WITH INDIVIDUAL OFFICERS AND DIRECTORS
On various dates through 2004 we received advances of an aggregate of
$6,169 from our Chief Executive Officer and major stockholder, Dr. Noh. The
advances accrued interest at 9% per annum and were due on demand. The advances
were repaid in their entirety during the six months ended June 30, 2005.
The Company provided a $418,600 term deposit at December 31, 2003 as
security for a loan incurred by our affiliate, OnBio Corporation. During 2004,
the term deposit cased and proceeds loaned to Onbio Corporation for repayment of
its bank loan.
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DESCRIPTION OF SECURITIES
The Company is presently authorized under its Certificate of
Incorporation to issue 480,000,000 shares of common stock, par value $0.0001 per
share, and 20,000,000 shares of preferred stock, par value $0.0001 per share. As
of September 30, 2005, the Company had 308,159,748 shares of common stock issued
and outstanding, held by 477 stockholders of record, and no shares of preferred
stock issued and outstanding. The holders of Common Stock are entitled to one
vote for each share held of record on all matters submitted to a vote of the
holders of Common Stock. Subject to preferences applicable to any outstanding
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefore. In the event of a liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably all
assets remaining after payment of liabilities and the liquidation preference of
any Preferred Stock. Holders of Common Stock have no preemptive or subscription
rights, and there are no redemption or conversion rights with respect to such
shares. All outstanding shares of Common Stock are fully paid and
non-assessable.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Our common stock currently trades on the OTCBB under the symbol EZMM.
The following sets forth the high and low trade prices for our common stock for
the periods indicated as reported by the OTCBB beginning in on July 8, 2004. The
quotations provided by the OTCBB reflect inter-dealer prices, without retail
mark-up, markdown or commission and may not represent actual transactions.
Trading in our common stock on the OTCBB did not begin until July 8, 2004.
2005 2004
-------------------- --------------------
HIGH LOW HIGH LOW
------- ------- ------- -------
First Quarter .......... $ 0.26 $ 0.18 N/A N/A
Second Quarter ......... $ 0.26 $ 0.17 N/A N/A
Third Quarter .......... N/A N/A $ 0.25 $ 0.17
Fourth Quarter ......... N/A N/A $ 0.22 $ 0.13
(a) On September 30, 2005, the closing trade price of our common stock, as
reported by the OTCBB, was $0.25.
(b) As of September 30, 2005, we had approximately 477 holders of record of
our common stock after giving effect to the Exchange Transaction.
We have never paid dividends on our common stock. Eugene Science never
paid dividends on its common stock. We intend to retain any future earnings for
use in our business.
RECENT SALES OF UNREGISTERED SECURITIES
Upon the closing of the Exchange Transaction we issued 272,790,924
shares of our common stock to certain former shareholders of Eugene Science and
assumed all of Eugene Science's options to
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purchase an additional 13,434,410 shares of our common stock pursuant to the
terms of the Exchange Agreement. The issuance of the shares of common stock and
assumption of the options were exempt from registration under Section 4(2) of
the Securities Act or Regulation S under the Securities Act.
In conjunction with the Exchange Transaction we also issued a warrant
to purchase 7,073,760 shares of our common stock to WestPark Capital, Inc., at
$0.17 per share as partial compensation for their investment banking services
with respect to the Exchange Transaction. The warrant was exempt from
registration under Section 4(2) of the Securities Act.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND LIMITATION OF LIABILITY
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our Certificate of Incorporation and Bylaws are silent as to
indemnification of our officers and directors. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except for:
o any breach of their duty of loyalty to the corporation or its
stockholders;
o acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
o unlawful payments of dividends or unlawful stock repurchases
or redemptions; or
o any transaction from which the director derived an improper
personal benefit.
A stockholder's investment may be adversely affected to the extent we
pay the costs of settlement and damage awards against directors and officers as
permitted under Delaware law. At present, there is no pending litigation or
proceeding involving any of our directors, officers or employees regarding which
indemnification by us is sought, nor are we aware of any threatened litigation
that may result in claims for indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling us pursuant
to the foregoing provisions, we have been informed that, in the opinion of the
SEC, this indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
SECTION 3- SECURITIES AND TRADING MARKETS
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES
Reference is made to the disclosure set forth under Item 2.01 of this
Current Report on Form 8-K, which disclosure is incorporated herein by
reference.
The issuance of our common stock to the Eugene Science Shareholders
pursuant to the Exchange Agreement was exempt from registration under the
Securities Act pursuant to Section 4(2) and/or Regulation S thereof. We made
this determination based on the representations of the Eugene Science
Shareholders which included, in pertinent part, that such shareholders were
either (a) "accredited investors" within the meaning of Rule 501 of Regulation D
promulgated under the Securities Act, or (b) not a "U.S. person" as that term is
defined in Rule 902(k) of Regulation S under the Act, and that such
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shareholders were acquiring our common stock, for investment purposes for their
own respective accounts and not as nominees or agents, and not with a view to
the resale or distribution thereof, and that each member understood that the
shares of our common stock may not be sold or otherwise disposed of without
registration under the Securities Act or an applicable exemption therefrom.
SECTION 4 - MATTERS RELATED TO ACCOUNTANTS AND FINANCIAL STATEMENTS
ITEM 4.01 CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
(a) On September 30, 2005, upon the closing of the Exchange Transaction, we
terminated Russell Bedford Stefanou Mirchandani LLP ("RBSM") as our independent
auditor. RBSM audited our financial statements for the fiscal years ended May
31, 2005 and 2004.
RBSM's reports on our financial statements for the fiscal years ended
May 31, 2005 and 2004 did not contain any adverse opinion or disclaimer of
opinion and were not qualified as audit scope or accounting principles. The
reports of RBSM for the fiscal years ended May 31, 2005 and 2004 were qualified
reports in that adverse financial conditions identified by the accountants
raised substantial doubt about our ability to continue as a going-concern.
During the two most recent fiscal years ended May 31, 2005 and 2004, (i) there
were no disagreements between us and RBSM on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure
which, if not resolved to the satisfaction of RBSM, would have caused RBSM to
make reference to the subject matter of the disagreement in connection with its
reports and (ii) there were no "reportable events," as defined in Item
304(a)(1)(iv) of Regulation S-B of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The decision to replace RBSM was not the result of
any disagreement between us and RBSM on any matter of accounting principle or
practice, financial statement disclosure or audit procedure. The Board of
Directors deemed it in our best interest to change independent auditors
following the closing of the Exchange Transaction (as described below).
We furnished RBSM with a copy of this Report on Form 8-K prior to
filing with the SEC. We also requested that RBSM furnish a letter addressed to
the SEC stating whether it agrees with the statements made in this Report. A
copy of RBSM's letter to the SEC is filed with this Report as Exhibit 16.1.
(b) On September 30, 2005, upon the closing of the Exchange Transaction,
our Board of Directors approved the appointment of SF Partnership, LLP, as its
new registered public accounting firm.
SECTION 5 - CORPORATE GOVERNANCE AND MANAGEMENT
ITEM 5.01 CHANGES IN CONTROL OF REGISTRANT.
Reference is made to the disclosure set forth under Item 2.01 of this
Current Report on Form 8-K, which disclosure is incorporated herein by
reference.
ITEM 5.02 DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF
DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS.
Reference is made to the disclosure set forth under Item 2.01 of this
Current Report on Form 8-K, which disclosure is incorporated herein by
reference.
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ITEM 5.03 AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN
FISCAL YEAR
In connection with the Exchange Transaction, our Board of Directors
approved a change in fiscal year end from May 31 to December 31. We will account
for the Exchange Transaction as a "reverse acquisition." Consequently, we will
not file a transition report reflecting the change of our fiscal year to that of
Eugene Science, given the fact that for accounting purposes, Eugene Science is
deemed to be the "accounting acquirer" in the "reverse acquisition."
ITEM 5.06 CHANGE IN SHELL COMPANY STATUS
Reference is made to the disclosure set forth under Item 2.01 and 5.01
of this Current Report on Form 8-K, which disclosure is incorporated herein by
reference.
SECTION 9 - FINANCIAL STATEMENTS AND EXHIBITS
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
The financial statements of the Eugene Science for the six months ended
June 30, 2005 and 2004 (unaudited) and for the years ended December 31, 2004 and
December 31, 2003 are incorporated herein by reference to Exhibits 99.2 and 99.3
to this Current Report.
(b) PRO FORMA FINANCIAL STATEMENTS
Our unaudited pro forma condensed financial statements as of and for
the six months ended June 30, 2005 and 2004, and for the year ended December 31,
2004 are incorporated herein by reference to Exhibit 99.1 to this Current
Report.
Our unaudited pro forma combined condensed balance sheet as of June 30,
2005 and our unaudited pro forma combined condensed statement of operations for
the six months ended June 30, 2005 and the years ended December 31, 2004 and
2003 are incorporated herein by reference to Exhibit 99.1 to this Current
Report, and are based on the historical financial statements of us and Eugene
Science after giving effect to the Exchange Transaction. In accordance with
Statement of Financial Accounting Standards No. 141, "Business Combinations"
(SFAS 141), and the assumptions and adjustments described in the accompanying
notes to the unaudited pro forma combined condensed financial statements, Eugene
Science is considered the accounting acquiror. The Exchange Transaction was
completed on September 30, 2005. Because Eugene Science's owners as a group
retained or received the larger portion of the voting rights in the combined
entity and Eugene Science's senior management represents a majority of the
senior management of the combined entity, Eugene Science was considered the
acquiror for accounting purposes and will account for the Exchange Transaction
as a reverse acquisition. The acquisition will be accounted for as the
recapitalization of Eugene Science since, at the time of the acquisition, we
were an inactive shell company. Our fiscal year will end on December 31.
The unaudited pro forma combined condensed balance sheet as of June 30,
2005 is presented to give effect to the Exchange Transaction as if it occurred
on January 1, 2005 and, due to different fiscal period-ends, combines the
historical balance sheet of Eugene Science at June 30, 2005 and the historical
balance sheet of Ezcomm Enterprises, Inc. at May 31, 2005. The unaudited pro
forma combined condensed statement of operations of Eugene Science and Ezcomm
Enterprises, Inc. for the six months ended June 30, 2005 and year ended December
31, 2004 are presented as if the combination had taken place on January 1, 2005.
Reclassifications have been made to Ezcomm's historical financial
statements to conform to Eugene Science's historical financial statement
presentation.
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The unaudited pro forma combined condensed financial statements should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical consolidated financial
statements and accompanying notes of Eugene Science and Ezcomm Enterprises, Inc.
The unaudited pro forma combined condensed financial statements are not intended
to represent or be indicative of our consolidated results of operations or
financial condition that would have been reported had the Exchange Transaction
been completed as of the dates presented, and should not be taken as
representative of the future consolidated results of operations or financial
condition of the Registrant.
(c) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------
2.1 Exchange Agreement by and among Ezcomm Enterprises, Inc., Eugene
Science, Inc., and certain shareholders of Eugene Science, Inc.,
dated September 1, 2005 (1)
2.2 Amendment to the Exchange Agreement.
3.1 Certificate of Incorporation, dated August 26, 1998. (2)
3.2 First Amendment to Certificate of Incorporation, dated January 1,
2000. (2)
3.3 Second Amendment to Certificate of Incorporation, dated July 22,
2004.
3.4 Ezcomm Enterprises, Inc. Bylaws. (2)
4.1 Warrant to Purchase Common Stock of Ezcomm Enterprises, Inc.
issued to Westpark Capital, Inc., dated September 30, 2005.
10.1 Agreement of Property Sales Contract between Eugene Science and
Wando Seafood Distributions Co., Ltd., dated January 16, 2004.
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10.2 Memorandum of Understanding between Korea Ginseng Corp. and Eugene
Science, dated March 12, 2004.
10.3 Agreement of Product Supply between Amway Korea, Ltd. and Eugene
Science, dated November 11, 2004.
10.4 Strategic Alliance Agreement between Archer-Daniels-Midland
Company and Eugene Science, dated April 8, 2004
10.5 Distribution Agreement by and between Toong Yeuan Enterprise Co.,
Ltd. and Eugene Science, dated February 18, 2003.
10.6 Distribution Agreement by and between Hokuyo Koeki Co., Ltd. and
Eugene Science, dated May 21, 2002.
10.7 License Agreement between Nutra-Nano Tech, Inc. and Eugene
Science, dated May 20, 2005.
10.8 Marketing Agreement between Hokuyo Koeki Co., Ltd. and Eugene
Science, dated March 8, 2001.
10.9 Material Transfer Agreement between Archer-Daniels-Midlans Company
and Eugene Science, dated November 19, 2001.
10.10 Investment Agreement by and between Hokuyo Koeki Co., Ltd and
Eugene Science, dated March 21, 2002.
10.11 Share Subscription Agreement by and between Telos, LLC and Eugene
Science, dated January 19, 2005.
10.12 Amendment to Subscription Agreement by and between Telos, LLC and
Eugene Science, dated February 2, 2005.
10.13 Form of Stock Option Agreement
10.14 Lease Agreement related to office in Seoul, Korea, between Bestian
Partners Co. Ltd. and Eugene Science, dated June 24, 2005.
10.15 Employment Agreement between Eugene Science and Jae Hong Yoo,
dated July 28, 2002.*
10.16 Employment Agreement between Eugene Science and Se Cheon Ahn,
dated January 4, 2003.*
10.17 Employment Agreement between Eugene Science and Tae Hwan Lee,
dated January 7, 2001.*
16.1 Letter from Russell Bedford Stefanou Mirchandani LLP
99.1 Unaudited pro forma condensed financial statements of Ezcomm
Enterprises, Inc., as of and for the six months ended June 30,
2005 and unaudited pro forma Statement of Operations for the six
months ended June 30, 2005.
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99.2 Consolidated Financial statements of Eugene Science, Inc. for the
years ended December 31, 2004 and December 31, 2003.
99.3 Consolidated Financial statements of Eugene Science, Inc. for the
six months ended June 30, 2005 and 2004 (unaudited).
(1) Incorporated by reference to our Current Report on Form 8-K filed
September 6, 2005.
(2) Incorporated by reference to our Registration Statement on Form 10-SB,
filed February 20, 2004.
* Indicates a management contract or compensatory plan.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EZCOMM ENTERPRISES, INC.
Date: October 6, 2005 By: /s/ Sueng-Kwon Noh
-----------------------------------
Sueng-Kwon Noh
Chief Executive Officer
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