UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
|X| Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended March 31, 2006
|_| Transition Report under Section 13 or 15(d) of the Exchange Act
For the transition period from __________ to __________
Commission File Number: 000-29803
EYI INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 88-0407078
------ ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7865 Edmonds Street
Burnaby, BC CANADA V3N 1B9
------------------ -------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (604) 759-5031
--------------
NOT APPLICABLE
--------------
(Former name, former address and former fiscal year end, if
changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days:
Yes |X| No |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 260,273,921 shares of common stock
issued and outstanding as of May 15, 2006. Transitional Small Business
Disclosure Format (check one): Yes |_| No |X|
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B, and,
therefore, do not include all information and footnotes necessary for a complete
presentation of financial position, results of operations, cash flows, and
stockholders' equity in conformity with accounting principles generally accepted
in the United States of America. In the opinion of management, all adjustments
considered necessary for a fair presentation of the results of operations and
financial position have been included and all such adjustments are of a normal
recurring nature. Operating results for the quarterly period ended March 31,
2006 are not necessarily indicative of the results that can be expected for the
year ending December 31, 2006.
As used in this quarterly report, the terms "we", "us", "our", "EYI" and "our
company" mean EYI Industries, Inc. and its subsidiaries unless otherwise
indicated. All dollar amounts in this quarterly report are in U.S. dollars
unless otherwise stated.
2
EYI INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
March 31, 2006 December 31,
(Unaudited) 2005
-------------- ------------
ASSETS
CURRENT ASSETS
Cash $ 190,837 $ 25,639
Accounts receivable, net of allowance 94,119 48,783
Prepaid expenses 18,485 12,387
Inventory 279,225 295,248
------------ ------------
TOTAL CURRENT ASSETS 582,666 382,057
------------ ------------
OTHER ASSETS
Property, plant and equipment, net 63,720 49,671
Deposits 62,336 67,603
------------ ------------
TOTAL OTHER ASSETS 126,056 117,274
------------ ------------
INTANGIBLE ASSETS 14,487 15,044
------------ ------------
TOTAL ASSETS $ 723,209 $ 514,375
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 1,427,120 $ 1,929,049
Accounts payable - related parties 643,622 328,038
Notes payable - related party 90,000 90,000
------------ ------------
TOTAL CURRENT LIABILITIES 2,160,742 2,347,087
------------ ------------
Net liabilities from discontinued operations 375,344 375,344
MINORITY INTEREST IN SUBSIDIARY 244,636 262,057
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.001 par value;
10,000,000 shares authorized, no shares
issued and outstanding -- --
Common stock, $0.001 par value; 1,000,000,000 shares
authorized, 260,273,922 and 217,600,875 shares
issued and outstanding, respectively 260,273 217,600
Additional paid-in capital 7,397,617 6,155,518
Stock options and warrants 2,702,734 2,698,984
Subscription receivable (195,000) (195,000)
Accumulated deficit (12,223,137) (11,347,215)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (2,057,513) (2,470,113)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 723,209 $ 514,375
============ ============
The accompanying condensed notes are an integral part of
these financial statements.
3
EYI INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
Three Months Ended Three Months Ended
March 31, 2006 March 31, 2005
(Unaudited) (Unaudited)
------------- -------------
REVENUE, NET OF RETURNS AND ALLOWANCES $ 1,108,759 $ 1,313,768
COST OF GOODS SOLD 287,952 251,148
------------- -------------
GROSS PROFIT BEFORE COMMISSION EXPENSE 820,807 1,062,620
COMMISSION EXPENSE 385,443 471,605
------------- -------------
GROSS PROFIT AFTER COST OF GOODS SOLD AND
COMMISSION EXPENSE 435,364 591,015
------------- -------------
OPERATING EXPENSES
Consulting fees 259,736 237,962
Legal and professional fees 74,482 69,125
Customer service 40,416 86,534
Finance and administration 499,973 208,080
Sales and marketing 78,624 3,718
Telecommunications 30,660 119,162
Wages and benefits 277,571 406,627
Warehouse expense 62,898 105,900
------------- -------------
TOTAL OPERATING EXPENSES 1,324,360 1,237,108
------------- -------------
LOSS FROM OPERATIONS (888,996) (646,093)
------------- -------------
OTHER INCOME (EXPENSES)
Interest and other income (8,565) 3,149
Interest expense (450) (20,136)
Foreign currency gain (discount) 4,669 (136,296)
------------- -------------
TOTAL OTHER INCOME (EXPENSES) (4,346) (153,283)
------------- -------------
NET LOSS BEFORE TAXES (893,342) (799,376)
PROVISION FOR INCOME TAXES -- --
------------- -------------
NET LOSS BEFORE ALLOCATION TO MINORITY INTEREST (893,342) (799,376)
ALLOCATION OF LOSS TO MINORITY INTEREST 17,420 15,588
------------- -------------
NET LOSS $ (875,922) $ (783,788)
============= =============
BASIC AND DILUTED
NET LOSS PER COMMON SHARE $ nil $ nil
============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK SHARES OUTSTANDING
FOR BASIC AND DILUTED CALCULATION 250,936,751 164,653,292
============= =============
The accompanying condensed notes are an integral part of
these financial statements.
4
EYI INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------------------------------
Common Stock
------------------------- Additional
Number of Paid-in Subscription Option/ Retained
Shares Amount Capital Receivable Warrants Earnings Total
------ ------ ------- ---------- -------- -------- -----
Balance December 31,
2004 162,753,292 $ 162,753 $ 3,048,606 $ (15,000) $ 2,563,044 $ (7,085,205) $ (1,325,802)
Stock issued at $0.06
per Share for
promissory note for
exercise of options 3,000,000 3,000 177,000 (180,000) -- -- --
Vested stock options
issued for consulting
at an average price of
$0.07 per share -- -- -- -- 35,250 -- 35,250
Vested stock options
issued for employee
compensation at an
average price of $0.07
per share -- -- -- -- 133,750 -- 133,750
Stock issued to
employee for financing
guaranty & pledge
valued at $0.05 per
share 800,000 800 39,200 -- -- -- 40,000
Consultant-options
exercised 250,000 250 14,750 -- (5,000) -- 10,000
Gladys Sargeant 506
Subscription Agreement 1,000,000 1,000 4,000 -- 15,000 -- 20,000
Vested stock option
issued for consulting
at an average price of
$0.03 per share -- -- -- -- 62,250 -- 62,250
Cancelled stock options
issued for compensation
and consulting at an
average price of $0.08
per option -- -- 425,300 -- (425,300) -- --
Cancelled stock options
issued for compensation
at $0.20 -- -- 2,400 -- (2,400) -- --
Stock issued to TAIB
Bank to retire $75,000
of $300,000 debenture 2,027,027 2,027 72,973 -- -- -- 75,000
Stock issued to TAIB
Bank to retire $170,000
of $300,000 debenture
plus interest of $10,830 4,487,096 4,487 176,343 -- -- -- 180,830
Stock issued to TAIB
Bank to retire $5,000
debenture plus interest
of $14,245 375,146 375 18,870 -- -- -- 19,245
Stock issued to Agora
as part of contract 250,000 250 12,250 -- -- -- 12,500
Stock issued to
Consultant as part of
contract 500,000 500 34,500 -- -- -- 35,000
Stock issued for
exercise of options at
$0.08 per share 100,000 100 7,900 -- -- -- 8,000
Stock issued to Cornell
to retire prom note 22,789,581 22,789 1,008,099 -- -- -- 1,030,888
Vested stock options
issued for consulting
at an average price of
$0.20 per share -- -- -- -- 33,500 -- 33,500
Vested stock options
issued for employee and
management compensation
at an average price of
$0.20 per share -- -- -- -- 27,840 -- 27,840
Stock issued to Cornell
in exchange for
$700,000 pursuant to
SEDA 19,268,733 19,269 680,731 -- -- -- 700,000
Cancelled stock options
issued for compensation -- -- 10,500 -- (10,500) -- --
Vested stock options
for consulting at an
average price of $0.20
per share -- -- -- -- 271,550 -- 271,550
Beneficial conversion
of convertible debt -- -- 422,096 -- -- -- 422,096
Net loss for period
ended December 31, 2005 -- -- -- -- -- (4,262,010) (4,262,010)
Balance, December 31,
2005 217,600,875 $ 217,600 $ 6,155,518 $ (195,000) $ 2,698,984 (11,347,215) $ (2,470,113)
Vested stock options
issued for consulting
at an average price of
$0.20 per share -- -- -- -- 3,750 -- 3,750
Stock issued to Cornell
in exchange for
$1,084,565 pursuant to
the SEDA 42,941,686 42,942 1,041,623 -- -- -- 1,084,565
Shares returned to
treasury (268,639) (269) 269 -- -- -- --
Beneficial conversion
of convertible debt -- -- 200,207 -- -- -- 200,207
Net loss for period
ended March 31, 2006 -- -- -- -- -- (875,922) (875,922)
Balance March 31, 2006
(Unaudited) 260,273,922 $ 260,273 $ 7,397,617 $ (195,000) $ 2,702,734 $(12,223,137) $ (2,057,513)
The accompanying condensed notes are an integral part of
these financial statements.
5
EYI INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
Three Months Ended
March 31, March 31,
2006 2005
(Unaudited) (Unaudited)
----------- -----------
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES
Net loss $ (875,922) $ (783,788)
Loss allocated to minority interest 17,420 15,588
(893,342) (799,376)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 4,648 16,949
Stock and warrants issued for employee
compensation and consulting 3,750 169,000
Stock issued for deferred financing costs -- 40,000
Discount recognized on convertible debt -- 38,162
Beneficial conversion of convertible debt 200,207 --
Decrease (increase) in:
Related party receivables -- 4,996
Accounts receivable (45,336) (16,634)
Prepaid expenses (6,098) 33,123
Inventory 16,023 44,570
Deposits 5,266 24,361
Increase (decrease) in:
Accounts payable and accrued
liabilities (501,929) 180,138
Accounts payable - related parties 315,584 101,327
Customer deposits -- 6,165
Net cash used by operating activities (901,226) (157,219)
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES
Decrease (increase) in restricted cash -- (122)
Decrease (increase) in property, plant, and equipment (18,140) (11,551)
Net cash provided by investing activities (18,140) (11,673)
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES
Net change in bank indebtedness -- (58,676)
Proceeds from Cornell SEDA 1,084,565 --
Proceeds from Cornell Promissory Note -- 200,000
Net cash provided by financing activities 1,084,565 141,324
Net increase in cash and cash equivalents 165,198 (27,568)
CASH - Beginning of Year 25,639 33,018
CASH - End of Period $ 190,837 $ 5,450
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest expense paid $ 450 $ 20,136
Income taxes paid $ -- $ --
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Beneficial conversion of convertible debt $ 200,207 $ --
Stock options vested for employee compensation
and consulting $ 3,750 $ 169,000
Stock issued for financing guaranty & pledge $ -- $ 40,000
Discount recognized on convertible debt $ -- $ 38,162
The accompanying condensed notes are an integral part of
these financial statements.
6
EYI INDUSTRIES, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006
--------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF BUSINESS
Essentially Yours Industries, Inc. (hereinafter "EYI") was incorporated on June
21, 2002 in the State of Nevada. The main business activities of Essentially
Yours Industries, Inc. were acquired through a merger with the former entity,
Burrard Capital, Inc., and other entities concerning EYI's reorganization. On
December 31, 2003, EYI entered into a share exchange agreement of its stock with
Safe ID Corporation ("Safe ID"). This transaction was accounted for as a share
exchange and recapitalization. As a result of this transaction, Safe ID has
changed its name to EYI Industries, Inc. ("the Company") and is acting as the
parent holding company for the operating subsidiaries.
The principal business of the Company is the marketing of health and wellness
care products. The Company sells its products primarily through network
marketing distributors, which in turn sell the products to the end customers.
The Company also sells product directly and through affiliates. The Company
maintains its principal business office in Burnaby, British Columbia. Effective
for the period ended December 31, 2003, the Company elected to change its
year-end from June 30 to December 31.
The Company has six wholly owned subsidiaries. The first subsidiary is Halo
Distribution LLC (hereinafter "Halo"), which was organized on January 15, 1999
in the State of Kentucky. Halo was the distribution center for the Company's
product, in addition to other products, until April 30, 2005 at which time the
Company made the decision to discontinue its operations. Halo was dissolved on
November 1, 2005. The second subsidiary is RGM International Inc., which was
incorporated on July 3, 1997, in the State of Nevada. RGM International Inc. is
a dormant investment company which owns one percent of Halo. The third
subsidiary is Essentially Yours Industries (Canada) Inc. (hereinafter "EYI
Canada"), which was incorporated on September 13, 2002 under the Canada Business
Corporations Act. EYI Canada markets health and wellness care products for use
in Canada. The fourth subsidiary is 642706 B.C. Ltd., doing business as EYI
Management, which was organized on February 22, 2002 in the province of British
Columbia, Canada. EYI Management provides accounting, customer service and
marketing services to the consolidated entity. The fifth subsidiary is
Essentially Yours Industries (Hong Kong) Limited ("EYI HK"). EYI HK was
organized on August 23, 2005 in Hong Kong. EYI HK markets health and wellness
care products for use in Hong Kong and China. The sixth subsidiary is
Essentially Yours Industries (International) Limited ("EYI INTL"). EYI INTL was
organized on December 6, 2005 to facilitate our expansion throughout other
Southeast Asian countries.
In addition, the Company owns approximately 98% of Essentially Yours Industries,
Inc. ("EYII"), incorporated on June 21, 2002 in the State of Nevada. EYII
markets health and wellness care products for use in USA. The Company also owns
51% of World Wide Buyers' Club Inc. ("WWBC"), a Nevada corporation, which was
organized by a joint venture agreement effective May 6, 2004.
7
Basis of Presentation
The accompanying interim condensed financial statements are prepared in
accordance with rules set forth in Regulation SB of the Securities and Exchange
Commission. As said, these statements do not include all disclosures required
under generally accepted principles and should be read in conjunction with the
audited financial statements for the year ended December 31, 2005. In the
opinion of management, all required adjustments which consist of normal
re-occurring accruals have been made to the financial statements.
The preparation of financial statements in accordance with generally accepted
accounting principles requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities known to exist as of the date the financial statements are
published, and the reported amounts of revenues and expenses during the
reporting period. Uncertainties with respect to such estimates and assumptions
are inherent in the preparation of the Company's financial statements.
Accordingly, it is possible that the actual results could differ from these
estimates and assumptions that could have a material effect on the reported
amounts of the Company's financial position and results of operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
This summary of significant accounting policies of EYI Industries, Inc., is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management,
which is responsible for their integrity and objectivity. These accounting
policies conform to accounting principles generally accepted in the United
States of America, and have been consistently applied in the preparation of the
financial statements.
Inventory
The Company records inventories at the lower of cost or market on a first-in,
first-out basis. Our product inventory is reviewed each month and also when the
re-order of the product is necessary. On a monthly basis, our inventory is
reviewed based on the expiration of our existing inventory. Product that has a
shelf-life of less than 60 days is written off or discounted.
A re-order review consists of an evaluation of our current monthly sales volume
of the product, cost of product, shelf-life of the product, and the
manufacturers minimum purchase requirement which all determine the overall
potential profitability or loss of re-ordering. If the re-order of the product
has an assessed loss, then the recommendation to management is to remove the
product from the product line.
Revenue Recognition
The Company is in the business of selling nutritional products in three
categories: dietary supplements, personal care products, and water filtration
systems. Sales of personal care products and water filtration systems represent
less than 5% of the overall revenue and therefore are not classified separately
in the financial statements. The Company recognized revenue from product sales
when the products are shipped and title passes to the customer. Administrative
fees charged to the Independent Business Associates are included in the gross
sales and amounted to $39,990 and $41,096 for the three months ended March 31,
2006 and March 31, 2005 respectively.
8
Stock Options and Warrants Granted to Employees and Non-Employees
Statement of Financial Accounting Standards No. 123R, "Accounting for
Stock-Based Compensation" ("SFAS No. 123R"), defines a fair value-based method
of accounting for stock options and other equity instruments. The Company has
adopted this method, which measures compensation costs based on the estimated
fair value of the award and recognizes that cost over the service period.
Going Concern
As shown in the accompanying financial statements, the Company had negative
working capital of approximately $1,578,000 and an accumulated deficit at March
31, 2006. The Company also has limited cash resources and a history of recurring
losses. These factors raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classification of liabilities that might be necessary
in the event the Company cannot continue in existence.
Management has established plans designed to increase the sales of the Company's
products, and decrease debt. The Company plans on continuing to reduce expenses,
and with small gains in any combination of network sales, direct sales,
international sales, and warehouse sales, believe that they will eventually be
able to reverse the present deficit. Management intends to seek additional
capital from new equity securities offerings that will provide funds needed to
increase liquidity, fund internal growth and fully implement its business plan.
Management plans include negotiations to convert significant portions of
existing debt into equity.
The timing and amount of capital requirements will depend on a number of
factors, including demand for products and services and the availability of
opportunities for international expansion through affiliations and other
business relationships.
NOTE 3 - ACCOUNTS RECEIVABLE AND CREDIT RISK
Accounts receivable at March 31, 2006 and December 31, 2005 consist primarily of
amounts due from direct retail clients of EYI.
NOTE 4 - PROPERTY AND EQUIPMENT
Capital assets are recorded at cost. Depreciation is calculated using the
straight line method over three to seven years.
9
NOTE 5 - INTANGIBLE ASSETS
Intangible assets consist of rights, title, and interest in and to the contracts
with the Company's independent business associates, as well as the rights and
licenses to trademarks and formula for the Company's primary products. These
rights and licenses were obtained from the Company's former parent, pursuant to
a transfer agreement, as well as from the Company's primary shareholder.
Trademarks and Formulas
Costs relating to the purchase of trademarks and formulas were capitalized and
amortized using the straight-line method over ten years, representing the
estimated life of the assets.
NOTE 6 - CAPITAL STOCK
Preferred Stock
The Company is authorized to issue 10,000,000 shares of preferred stock with a
par value of $0.001. As of March 31, 2006 and December 31, 2005 the Company has
not issued any preferred stock.
Common Stock
The Company is authorized to issue 1,000,000,000 shares of common stock. All
shares have equal voting rights, are non-assessable and have one vote per share.
Voting rights are not cumulative and, therefore, the holders of more than 50% of
the common stock could, if they choose to do so, elect all of the directors of
the Company.
Between January 1, 2006 and March 31, 2006, the Company issued 42,941,686 shares
to Cornell Capital in exchange for $1,084,565.
On February 6, 2006 the Jay Sargeant Trust was dissolved and the related shares
were disbursed to the beneficiaries. In connection with this transaction,
268,639 common shares were returned to treasury at par value.
NOTE 7 - COMMON STOCK OPTIONS AND WARRANTS
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (hereinafter "SFAS No. 123"), defines a fair value-based method of
accounting for stock options and other equity instruments. The Company has
adopted this method, which measures compensation costs based on the estimated
fair value of the award and recognizes that cost over the service period.
In accordance with SFAS No. 123, the fair value of stock options and warrants
granted are estimated using the Black-Scholes Option Price Calculation. The
following assumptions were made to value the stock options and warrants for the
period ended December 31, 2005: estimated risk-free interest rate of 4%; no
dividends to be paid; estimated volatility of 144% and term of two years.
Stock Options
During the period ending December 31, 2004, the Company's board of directors
approved the Stock Compensation Program to allow up to 25,000,000 shares of
stock to be issued under the program. This plan enables the Company to grant
stock options to directors, officers, employees and eligible consultants of the
Company. There was no Company stock option plan in effect prior to 2004.
10
During the period ended March 31, 2006, the Company recognized an expense to
consulting of $3,750 for all vested options.
Following is a summary of the status of the stock options during the three
months:
Weighted
Average
Number of Exercise
Shares Price
---------- ----------
Outstanding at December 31, 2005 16,252,390 $ 0.14
Granted -- --
Exercised -- --
Forfeited -- --
---------- ----------
Options outstanding at March 31, 2006 16,252,390 $ 0.14
========== ==========
Options exercisable at March 31, 2006 15,862,390 $ 0.15
========== ==========
Weighted average fair value of options granted $ --
==========
Summarized information about stock options outstanding and exercisable at March
31, 2006 is as follows:
Options Outstanding
-----------------------------------------------------------------
Exercise Weighted Ave. Weighted Ave.
Price Number Remaining Exercise
Range of Shares Life Price
----------------------------- -------------------- ---------------------- ---------------------
$0.02 - $0.26 16,252,390 0.61 $ 0.14
Options Exercisable
------------------------------------------- ---------------------
Exercise Weighted Ave. Weighted Ave.
Price Number Remaining Exercise
Range of Shares Life Price
----------------------------- -------------------- ---------------------- ---------------------
$0.03 - $0.26 15,862,390 0.59 $ 0.15
Summarized information about unvested but granted stock options outstanding at
December 31, 2005 is as follows:
Unvested Granted Options Outstanding
-----------------------------------------------------------------
Exercise Weighted Ave. Weighted Ave.
Price Number Remaining Exercise
Range of Shares Life Price
----------------------------- -------------------- ---------------------- ---------------------
$0.02 - $0.10 390,000 1.35 $ 0.07
Number of Weighted Average Average Exercise Price
Warrants Remaining Life
------------------ -------------------------- -----------------------
Outstanding and
exercisable 11,516,621 3.50 $0.21
11
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Purchase Agreement
On June 30, 2002, the Company entered into a distribution and license agreement
with a company in which one of the Company's directors has an ownership
interest. The agreement gives the Company the exclusive right to market, sell
and distribute certain products for a five-year renewable term. Management
estimates that 87% of the Company's sales volume results from products supplied
under this licensing agreement.
Pursuant to the agreement, the Company is required to purchase a minimum amount
of $6,035,000 of product in each of the remaining years.
In the event that the Company is unable to meet the minimum purchase
requirements of the licensing agreement or the terms requiring it to pay 15% of
the difference between the minimum purchase amount referred to above and actual
purchases for that year in which there is a shortfall, then the licensor has
various remedies available to it including renegotiating the agreement, removing
exclusivity rights, or terminating the agreement.
As of the date of these financial statements, the purchase requirements have not
been made. The period for which the Licensor could request payment per the
penalty clause has expired for the year and therefore we have not made any
accrual to the Financial Statements. As well, we continue to purchase Nutri Diem
products.
Lease Payments
The Company has operating lease commitments for its premises, office equipment
and an automobile. The minimum annual lease commitments are as follows:
Year ended December 31, Minimum Amount
----------------------- --------------
2006 $218,469
2007 163,285
2008 141,841
2009 147,013
2010 and thereafter 309,544
Regulatory Risks and Claims
The Company's products are subject to regulation by a number of federal and
state entities, as well as those of foreign countries in which the Company's
products are sold. These regulatory entities may prohibit or restrict the sale,
distribution, or advertising of the Company's products for legal, health or
safety related reasons. In addition to the potential risk of adverse regulatory
actions, the Company is subject to the risk of potential product liability
claims.
Standby Equity Distribution Agreement
On May 13, 2005 the Company entered into a Standby Equity Distribution Agreement
with Cornell Capital Partners, LP ("Cornell") pursuant to which we entered into
the following agreements: a Registration Rights Agreement, an Escrow Agreement,
and a Placement Agent Agreement. Pursuant to the terms of the new Standby Equity
Distribution Agreement, we may, at our discretion, periodically issue and sell
shares of our common stock for a total purchase price of $10 million. If we
request advances under the Standby Equity Distribution Agreement, Cornell will
purchase shares of our common stock for 98% of the lowest volume weighted
average price on the Over-the-Counter Bulletin Board or other principal market
on which our common stock is traded for the 5 days immediately following the
advance notice date. Cornell will retain 5% of each advance under the new
Standby Equity Distribution Agreement. We may not request advances in excess of
a total of $10 million. Pursuant to the terms of our Registration Rights
Agreement and the Standby Equity Agreement with Cornell, we agreed to register
and qualify, among other things, the additional shares due to Cornell under the
Standby Equity Agreement under a registration statement filed with the SEC.
12
Other Matters
The Company's predecessor organization, Essentially Yours Industries Corp.
("EYIC"), a British Columbia corporation, has outstanding claims from the
Internal Revenue Service for penalties and interest of approximately $2,000,000.
Furthermore, one or more states may have claims against EYIC for unpaid state
income taxes. Management believes that these claims are limited solely to EYIC
and that any prospective unpaid tax claims against the Company are remote and
unable to be estimated.
NOTE 9 - DISCONTINUED OPERATIONS
During the period ended December 31, 2005, the Company elected to discontinue
the operations of Halo Distribution LLC (hereinafter "Halo"), a subsidiary of
the Company. The Company's balance sheet reports net liabilities from
discontinued operations of $375,344 as at March 31, 2006 and December 31, 2005.
In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities" (hereinafter "SFAS No. 146"). SFAS No. 146
addresses significant issues regarding the recognition, measurement, and
reporting of costs associated with exit and disposal activities, including
restructuring activities. SFAS No. 146 also addresses recognition of certain
costs related to terminating a contract that is not a capital lease, costs to
consolidate facilities or relocate employees, and termination benefits provided
to employees that are involuntarily terminated under the terms of a one-time
benefit arrangement that is not an ongoing benefit arrangement or an individual
deferred-compensation contract. SFAS No. 146 was issued in June 2002, effective
December 31, 2002. The Company's financial position and results of operations
have not been affected by adopting SFAS No. 146.
NOTE 10 - RELATED PARTY NOTE PAYABLE
The Company issued two promissory notes for a total of $90,000 in December 2003.
The notes are unsecured, non-interest bearing and are payable upon demand.
13
NOTE 11 - CONCENTRATIONS
Bank Accounts
The Company maintains its cash accounts in one commercial bank. During the year,
the Company may maintain balances in excess of the federally insured amounts in
the accounts that are maintained in the United States. The Company also
maintains funds in commercial banks in Vancouver, British Columbia, in which
funds in U.S. dollars are not insured or in Hong Kong where none of the funds
are insured. At March 31, 2006 and December 31, 2005, a total of $59,016 and
$56,088 respectively, was not insured.
Economic Dependence
During the year, the Company purchased approximately 90% of its products for
resale from one company, Nutri-Diem Inc., which is the sole supplier of the
Company's flagship product Calorad. Pursuant to a purchase agreement, the
Company is subject to minimum purchases per annum. (See Note 8.)
NOTE 12 - RELATED PARTY TRANSACTIONS
On May 27, 2002, Mr. Jay Sargeant, a shareholder of Essentially Yours
Industries, Corp. ("EYI Corp.") agreed to acquire all of the shares of the
Essentially Yours Industries, Inc. ("EYII"), along with the transfer agreement,
license agreement, and agency appointment agreement, in settlement of amounts
owed to him. As part of this transaction, EYI Corp. agreed to provide to EYII
the services outlined in a management agreement. The Company acquired, through
agreements with Essentially Yours Industries, Corp. ("EYI Corp"), the rights,
title, and interest in and to the contracts with the Company's Independent
Business Associates as well as the rights and licenses to trademarks and formula
for the Company's primary products.
Accounts payable to related parties represents amounts due to the President and
Chief Executive Officer and to the Chief Operations Officer for services
preformed during the last year, as well as to other related parties and the
company with which they have a signed management agreement. These payables are
non-interest bearing and non-collateralized.
The Company purchases approximately 90% of its products for resale from one
company, Nutri-Diem Inc., which is owned in part by a director of the Company.
14
NOTE 13 - SUBSEQUENT EVENTS
On April 3, 2006 we signed a Termination Agreement with Cornell Capital
Partners, L.P for the purpose of terminating our Standby Equity Distribution
Agreement, Registration Rights Agreement and Escrow Agreement all of which are
dated as of May 13, 2005.
On April 24, 2006 the Company entered into a Securities Purchase Agreement with
the Cornell, TAIB Bank, and Certain Wealth (collectively the "Buyers" and
together with the Company, the "Parties"). Pursuant to the Securities Purchase
Agreement, the Company shall sell to the Buyers, and the Buyers shall purchase
from the Company, convertible debentures in the aggregate principal amount of
Four Million Five Hundred Thousand Dollars ($4,500,000), plus accrued interest,
which are convertible into shares of the Company's common stock, par value
$0.001 per, at the Buyers discretion. Of this aggregate amount, (a) One Million
Five Hundred Thousand Dollars ($1,500,000) was funded on April 28, 2006, (b) One
Million Five Hundred Thousand Dollars ($1,500,000) shall be funded two (2)
business days prior to the date a registration statement ("Registration
Statement") is filed with the U.S. Securities and Exchange Commission ("SEC")
and (c) One Million Five Hundred Thousand Dollars ($1,500,000) shall be funded
two (2) business days prior to the date that such Registration Statement is
declared effective by the SEC. The Debentures mature on April 24, 2009, accrue
interest at an annual rate of ten percent (10%) and shall be convertible into
shares of the Company's common stock at the option of the holder, in whole or in
part at any time and from time to time, at a conversion price equal to (a) $0.06
or (b) eighty percent (80%) of the lowest Volume Weighted Average Price of the
Company's common stock during the five (5) trading days immediately preceding
the date of conversion as quoted by Bloomberg, LP.
The Company also executed a registration rights agreement pursuant to which the
Company agreed to provide certain registration rights to the Investors. The
Parties have also executed a Security Agreement, pursuant to which the Company
has agreed to provide to the Buyers, a security interest in Pledged Collateral
to secure the Company's obligations under the Debentures, the Securities
Purchase Agreement, the Investor Registration Rights Agreement, the Irrevocable
Transfer Agent Instructions, the Security Agreement, or any other obligations of
the Company to the Buyer.
On April 24, 2006 the Company issued to Cornell pursuant to the above mentioned
debentures, seventeen (17) warrants to purchase up to an aggregate 124,062,678
shares of the Company's common stock at $0.02 and $0.40 per share. Each Warrant
has "piggy back" registration rights and shall expire five (5) years from the
date of issuance, on or about April 24, 2011.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD LOOKING STATEMENTS
The information in this discussion contains forward-looking statements. These
forward-looking statements involve risks and uncertainties, including statements
regarding EYI's capital needs, business strategy and expectations. Any
statements contained herein that are not statements of historical facts may be
deemed to be forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may", "should", "expect",
"plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or
"continue", the negative of such terms or other comparable terminology. Actual
events or results may differ materially. In evaluating these statements, you
should consider various factors, including the risks outlined in the Risk
Factors section below, and, from time to time, in other reports we file with the
Securities and Exchange Commission (the "SEC"). These factors may cause our
actual results to differ materially from any forward-looking statement.
OVERVIEW
We are in the business of selling, marketing, and distributing a product line
consisting of approximately 27 nutritional products in three categories, dietary
supplements, personal care products and water filtration systems. Our most
successful product is Calorad, a liquid collagen-based dietary supplement
presently available on the market. These products are marketed through a network
marketing program in which IBAs (Independent Business Associates) purchase
products for resale to retail customers as well as for their own personal use.
We have a list of over 380,000 IBAs, of which approximately 8,500 we consider
"active". An "active" IBA is one who purchased our products within the preceding
12 months. Over 1,200 of these IBAs are considered "very active". A "very
active" IBA is one who is on our automatic Auto-ship Program and is current with
their annual administration fee. Our Auto-ship Program allows our IBAs to set up
a reoccurring order that is automatically shipped to them each month.
15
The IBAs in our network are encouraged to recruit interested people to become
new distributors of our products. New IBAs are placed beneath the recruiting IBA
in the "network" and are referred to as being in that IBA's "down-line"
organization. Our marketing plan is designed to provide incentives for IBAs to
build, maintain and motivate an organization of recruited distributors in their
down-line organization to maximize their earning potential. IBAs generate income
by purchasing our products at wholesale prices and reselling them at retail
prices. IBAs also earn commissions on product purchases generated by their
down-line organization.
On an ongoing basis we review our product line for duplication and sales trends
and make adjustments accordingly. As of March 31, 2006, our product line
consisted of: (i) 18 dietary supplement products; (ii) 7 personal care products
consisting primarily of cosmetic and skin care products and (iii) 2 water
filtration systems. Our products are primarily manufactured by Nutri-Diem, Inc.,
a related party, and sold by us under a license and distribution agreement with
Nutri-Diem. Certain of our own products are manufactured for us by third party
manufacturers pursuant to formulations developed for us. Our products are sold
to our IBAs located in the United States, Canada and Asia.
We believe that our network marketing system is suited to marketing dietary
supplements, personal care products and water filtration systems, because sales
of such products are strengthened by ongoing personal contact between IBAs and
their customers. We also believe that our network marketing system appeals to a
broad cross-section of people, particularly those looking to supplement family
income or who are seeking part-time work. IBAs are given the opportunity,
through our sponsored events and training sessions, to network with other
distributors, develop selling skills and establish personal goals. We supplement
monetary incentives with other forms of recognition, in order to motivate IBAs.
Recent Corporate Developments
We experienced the following significant developments through the date of this
filing and during fiscal 2006:
o On April 24, 2006 we entered a Securities Purchase Agreement with Cornell
Capital Partners, LP ("Cornell") pursuant to which we entered into the
following agreements: an Investor Registration Rights Agreement,
Irrevocable Transfer Agent Instructions and a Security Agreement. Pursuant
to the terms of the Share Purchase Agreement, we may sell convertible
debentures to Cornell in the amount of $4,500,000 plus accrued interest
which are convertible into shares of our common stock. Of this amount
$1,500,000 must be paid five days after April 24, 2006, $1,500,000 must be
paid two (2) business days prior to the date a registration statement is
filed with the SEC and $1,500,000 shall be paid two (2) business days
prior to the date that such registration statement is declared effective
by the SEC. We received proceeds of $1,305,000 (net of fees associated
with the issuance of the convertible debentures) on April 27, 2006 in
connection with the issuance of $1,500,000 of convertible debentures in
the following amounts: $750,000 to Cornell, $416,667 to Taib Bank, B.S.C.,
and $333,333 to Certain Wealth, Ltd. pursuant to the terms of the
Securities Purchase Agreement.
o Pursuant to the terms of the Securities Purchase Agreement and the
issuance of our convertible debentures, on April 24, 2006 we issued to
Cornell seventeen warrants to purchase up to an aggregate 124,062,678
shares of our common stock at the discretion of Cornell (collectively, the
"Warrants") each for good and valuable consideration. Cornell is entitled
to purchase from us: (1) 10,416,650 shares of our common stock at $0.02
per share, (2) 13,888,866 shares of our common stock at $0.03 per share,
(3) 10,416,650 shares of our common stock at $0.04 per share, (4)
8,333,320 shares of our common stock at $0.05 per share, (5) 6,944,433
shares of our common stock at $0.06 per share, (6) 5,952,371 shares of our
common stock at $0.07 per share, (7) 11,250,000 shares of our common stock
at $0.08 per share, (8) 10,000,000 shares of our common stock at $0.09 per
share, (9) 19,000,000 shares of our common stock at $0.10 per share, (10)
8,181,818 shares of our common stock at $0.11 per share, (11) 7,500,000
shares of our common stock at $0.12 per share, (12) 3,333,333 shares of
our common stock at $0.15 per share, (13) 2,500,000 shares of our common
stock at $0.20 per share, (14) 2,000,000 shares of our common stock at
$0.25 per share, (15) 1,666,666 shares of our common stock at $0.30 per
share, (16) 1,428,571 shares of our common stock at $0.35 per share and
(17) 1,250,000 shares of our common stock at $0.40 per share upon
surrender of the Warrants (or as subsequently adjusted pursuant to the
terms of each Warrant) . Each Warrant has "piggy back" registration rights
and shall expire five (5) years from the date of issuance, on or about
April 24, 2011..
16
o On April 6, 2006 Essentially Yours Industries (International) Limited
("EYIINT"), our wholly owned subsidiary, signed a Letter of Intent and
Good Faith Commitment ("LOI") with Raul Bautista and Rommel Panganiban to
act as managing partners and distributors for the Philippines. The LOI is
subject to the entry into a definitive agreement between the parties on or
before July 1, 2006.
o On April 3, 2006 we signed a termination agreement ("Termination
Agreement") with Cornell terminating our Standby Equity Distribution
Agreement, Registration Rights Agreement and Escrow Agreement previously
entered into with Cornell on May 13, 2005.
o On March 14, 2006 we entered into an agreement with Porter Public
Relations, Inc. ("Porter") pursuant to which Porter will provide us with
certain public relations services to promote the launch of the Code Blue
water filtration system and the Longevity Series consisting of Calorad(R),
Prosoteine(R) and Calorad(R) Cream. In consideration of which we agreed to
pay Porter a fee of $5,000 per month for up to 40 hours per month. The
agreement is on a month to month term.
o On February 6, 2006 the Jay Sargeant Trust was dissolved and the related
shares were disbursed to the beneficiaries. In connection with this
transaction, 268,639 common shares were returned to treasury at par value.
o On January 27, 2006 we entered into a Consulting Agreement with Mr. Lou
Prescott, for a period of six (6) months and US$5,000 per month to provide
EYI with assistance in developing Mr. Prescott's business to business
marketing model for EYI. Pursuant to the terms of the agreement we also
agreed to purchase Mr. Prescott's gold lead system and during the term of
the agreement, to provide Mr. Prescott with 100% of the leads generated by
the system.
o On January 19, 2006, we entered into an agreement with Global Consulting
Group Inc. ("Global") on a month to month basis. Global provided investor
relations services and created investor awareness for a fee of $15,000.00
USD per month. This agreement was terminated on April 17, 2006.
2006 Growth Strategy
New Product Introduction. During 2005, we introduced our new product, Code
Blue(TM). The initial shipment of Code Blue Filters did not meet EYI product
specifications. However, in January of 2006, we received a revised version of
the Code Blue filter called the G-4 which we believe, meets our product
specifications.
We intend to aggressively promote Code Blue systems through a year long
promotional tour campaign ("North American Tour" or "Tour"). Our intent is to
host approximately 120 regional training meetings with audiences of up to 100
people and 30 larger conferences in targeted cities where we can train and
market to larger audiences of 150 to 300. We have selected cities to host these
events where we believe there is a greater interest in the product and a
concentration of our active IBAs. We intend to use a group of 5 to 6 veteran
IBA's to act as our Regional Trainers and to work in concert with our management
team to promote, coordinate, and host these events. We anticipate that the total
cost of the North American Tour campaign will be approximately $240,000. We
anticipate an offset to this cost by way of sales that occur at these events and
through ongoing residual sales generated by the new IBAs enrolled in our system
as a result of this Tour.
17
International Expansion. We opened our Hong Kong office in September 2005. The
office is intended to be used to service distributors and provide a product pick
up depot for Code Blue(TM), Calorad(R), Prosoteine(R), Agrisept-L(R) and
Definition(R) drops and cream, and the newest EYI product, Calorad Cream. The
new office will also play a role in supporting the sales, distribution and
logistics of the CEIEC agency agreement.
In January 2006, we relocated our Executive Vice President and COO, Dori O'Neill
to Hong Kong for six months after which, Mr. O'Neill will continue his work in
Asia from his office in Burnaby, BC and through periodic trips to Asia. Mr.
O'Neill is expected to play a key role in our Asian market initiative. His
initial focus will be to introduce and train our unified global binary program
to new Asian IBAs. In addition, Mr. O'Neill will also focus on researching and
reviewing other locations and markets for expansion.
In April 2006, our subsidiary, Essentially Yours Industries (International)
Limited, signed a Letter of Intent and Good Faith Commitment with Raul Bautista
and Rommel Panganiban to act as managing partners and distributors for the
Philippines. Once a definitive agreement is reached, EYI will work with this
group to get them operational within one to two months.
RESULTS OF OPERATIONS
First Quarter Summary
Three months Three months
March 31, 2006 March 31, 2005 Variance
--------------------------------------------------------------
Revenue $1,108,759 $1,313,768 -$205,010 -15.60%
Cost of goods sold $ 287,952 $ 251,149 $ 36,803 14.65%
--------------- ---------------- ---------- ---------
Gross profit before commissions expense $ 820,807 $1,062,619 $241,813 22.76%
Commission expense $ 385,443 $ 471,605 -$ 86,162 -18.27%
--------------- ---------------- ---------- ---------
Gross profit after cost of goods sold and $ 435,364 $ 591,015 $155,651 26.34%
commissions
Operating expenses $1,324,361 $1,237,108 $ 87,253 7.05%
--------------- ---------------- ---------- ---------
Operating loss -$888,996 -$646,093 $242,903 -37.60%
Revenues
During the three months ended March 31, 2006 we had total revenues of $1,108,759
as compared to revenues of $1,313,768 for the same period in 2005 which
represents a decline of $205,010 or 15.6%. The decrease in our revenues can be
primarily attributed to the following factors:
o Our inability to attract new IBA's
o Lack of IBA participation in our auto-ship program
o our inability to fund marketing initiatives and programs that may promote
growth within new markets and existing ones
Gross Profit
During the three months ended March 31, 2006 as compared to the same period in
2005, we had gross profits of $820,807 and $1,062,620 respectively. This
represents a decline of $241,813 or 22.76%. The decline in our gross profit is
primarily attributed to our decreased binary sales in relation to other revenue
segments that have a higher percentage of cost-of-goods.
18
Revenue by Segments
The following table summarizes our four revenue segments as a percentage of
total revenue, respectively, for the periods indicated:
Revenue by Segments
Three months Three months
March 31, 2006 March 31, 2005 Variance
-----------------------------------------------------------------
Administration fees $ 39,990 $ 41,096 $ 1,106 -2.69%
Binary Sales $ 762,195 $ 948,422 $ 186,227 -19.64%
Direct sales $ 201,677 $ 212,741 $ 11,064 -5.20%
Affiliate sales $ 100,612 $ 82,745 $ 17,867 21.59%
Warehouse $ -- $ 24,700 $ -24,700 -100.00%
Sales Aids $ 4,285 $ 4,065 $ 220 5.41%
----------- ----------- ----------- -----------
$ 1,108,759 $ 1,313,768 -$205,010 -15.60%
Details of the most significant changes from the quarter ended March 31, 2006 to
the year ended March 31, 2005 are detailed below:
Binary sales - The binary sales segment represents $762,195 or 69% of the total
revenue earned during the quarter ended March 31, 2006, as compared to $948,422
or 74% of the total revenues earned during the quarter ended March 31, 2005.
Management believes that our inability to properly fund our marketing
initiatives hindered growth and retention in this segment. EYI pays out a
maximum of 50% commission on binary sales.
Direct sales - The direct sales segment represents $201,677 or 18% of the total
revenue earned during the quarter ended March 31, 2006, as compared to $212,741
or 17% of the total revenues earned during the quarter ended March 31, 2005. No
commissions are paid out on direct sales.
Affiliate sales - The affiliate sales segment represents $100,612 or 9% of the
total revenue earned during the quarter ended March 31, 2006, as compared to
$82,745 or 6% of the total revenues earned during the quarter ended March 31,
2005. EYI pays approximately 31% commissions on direct sales.
Expenses
Operating expenses:
The following table summarizes operating expenditures for the periods indicated:
Operating Expenses
Three months Three months
March 31, 2006 March 31, 2005 Variance
-------------- -------------- -------------------------------
Consulting fees $ 259,736 $ 237,962 $ 21,774 9.15%
Legal and professional fees $ 74,482 $ 69,125 $ 5,357 7.75%
Customer service $ 40,416 $ 86,534 $ 46,118 53.29%
Finance and administration $ 499,973 $ 208,080 $ 291,893 140.28%
Sales and marketing $ 78,624 $ 3,718 $ 74,906 2014.68%
Telecommunications $ 30,660 $ 119,162 $ 88,502 74.27%
Wages and benefits $ 277,571 $ 406,627 $ 129,056 31.74%
Warehouse expense $ 62,898 $ 105,900 $ 43,002 40.61%
-------------- -------------- -------------- --------------
$ 1,324,360 $ 1,237,108 $ 87,252 7.05%
19
We incurred operating expenses in the amount of $1,324,361 during the three
months ended March 31, 2006, compared to $1,237,108 for the three months ended
March 31, 2005. The following explains the most significant changes for the
periods presented:
Consulting fees - For the three months ended March 31, 2006, consulting fees
totaled $259,736 as compared to $237,962 for the three months ended March 31,
2005. The net difference of $21,774 or 9.15% is attributed to additional fees
paid to consultants to assist in Sales & Marketing, Operations and Investor
Relations
Customer Service - For the three months ended March 31, 2006, customer services
fees totaled $40,416 and represented 3% of our total operating expenditures, as
compared to $86,534 or 7% of the total operating expenditures for the three
months ended March 31, 2005. These expenditures represent the services provided
by EYI Corp. pursuant to the terms of their management agreement with our
subsidiary Essentially Yours Industries, Inc. ("EYII"). The reduction of
expenditures is related to EYII utilizing other service providers to provide the
services that were previously provided by EYI Corp.
Finance and administration - For the three months ended March 31, 2006, finance
and administration fees totaled $499,973 and represented 38% of our total
operating expenditures, as compared to $208,080 or 17% of the total operating
expenditures for the three months ended March 31, 2005. The net increase of
$291,893 or 140.28% is primarily attributed to three main factors:
o Additional finance charges of approximately $165,000
o Expenditures relating to Hong Kong operations of $67,000
o Investor relations fees of $58,000
Sales & Marketing The Sales and Marketing expenses for the three months ended
March 31, 2006 were $78,624 as compared to $3,718 for the three months ended
March 31, 2005. We expensed approximately $28,000 for cost associated with the
registration of Code Blue in China. In addition, we expensed approximately
$40,000 for the Hong Kong Grand Opening event.
Wages and benefits - For the three months ended March 31, 2006, wages and
benefits totaled $277,571 and represented 21% of our total operating
expenditures, as compared to $406,627 or 33% of the total operating expenditures
for the three months ended March 31, 2005. During the quarter ended March 31,
2005, we expensed approximate $134,000 for vested employee stock options whereas
for the same quarter in the 2006, no employee stock options vested.
Warehouse expenses - For the three months ended March 31, 2006,
warehouse expense totaled $62,898 and represented 5% of our total operating
expenditures, as compared to $105,900 or 9% of the total operating expenditures
for the three months ended March 31, 2005. The decline in attributed primarily
to our decision to close our fulfillment center, Halo Distribution LLC in April
2005 and outsource this service to a third party provider.
FINANCIAL CONDITION
Cash and Working Capital
As at As at
March 31, 2006 December 31, 2005 Variance
----------------------------------------------------------------------
Current assets $ 582,666 382,057 $200,609 52.51%
Current Liabilities 2,160,742 2,347,087 -$186,345 -7.94%
----------------- --------------------- ----------- ---------
Working Capital (deficit) -$1,578,077 -$1,965,030 $386,953 -19.69%
20
We had cash of $190,837 as at March 31, 2006, compared with cash of $25,639 as
at December 31, 2005. We had a working capital deficit at March 31, 2006 and
December 31, 2005 of $1,578,077 and $1,965,030 respectively.
Liabilities
As at As at
March 31, 2006 December 31, 2005 Variance
--------------- -------------------- ---------------------------------
Accounts payable and accrued liabilities $ 1,427,120 1,929,049 $ 501,929 -26.02%
Accounts payable - related parties $ 643,622 328,038 $ 315,584 96.20%
Notes payable - related party $ 90,000 90,000 $ 0 0.00%
--------------- -------------------- -------------------- ----------
$ 2,160,742 $ 2,347,087 -$186,345 -7.94%
We had a decrease of 26.02% in Accounts Payable and Accrued Liabilities during
the three months ended March 31, 2006. We also experienced an increase of 96.20%
in Accounts Payable-Related Parties during this same period. In both cases, the
majority of the variance is due to a reclassification of debt owed to two of our
officers in the amount of $334,175. This amount was reclassified from Accounts
Payable and Accrued Liabilities to Accounts Payable - Related Parties.
Cash Used in Operating Activities
Cash used in operating activities for the three months ended March 31, 2006 was
$901,226 compared to $157,219 for the comparative period in 2005, representing
an increase of $743,707 or 472%.
Cash Provided by Financing Activities
Cash provided by financing activities for the three months ended March 31, 2006
was $1,084,565, compared to $157,219 for the three months ended March 31, 2005.
Our financing activities are primarily through our financing agreements with
Cornell Capital LLC.
Financing Requirements
Our consolidated interim financial statements included with this Quarterly
Report on Form 10-QSB have been prepared assuming that we will continue as a
going concern. As shown in the accompanying financial statements, we had
negative working capital of approximately $1,578,000 and an accumulated deficit
of approximately $12,223,137 incurred through March 31, 2006.
Our current sources of working capital are sufficient to satisfy our anticipated
current working capital needs. On April 24, 2006 we entered into a Securities
Purchase Agreement with the Cornell, TAIB Bank, and Certain Wealth (the
"Buyers"). Pursuant to this agreement, we agreed to sell to the Buyers
convertible debentures in the aggregate principal amount of $4,500,000. We
believe that this financing arrangement will provide the necessary cash flow to
meet our operational needs.
In the event that this financing does not support our operational cash flow
requirements, then we may have to scale back our plan of operations and
operating expenditures. We anticipate that we will continue to incur losses
until such time as the revenues we are able to generate from sales and licensing
of our products exceed our increased operating expenses. We base this
expectation in part on the expectation that we will incur increased operating
expenses in completing our stated plan of operations and there is no assurance
that we will generate revenues that exceed these expenses.
21
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires our management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results may differ from those estimates.
Our management routinely makes judgments and estimates about the effects of
matters that are inherently uncertain. As the number of variables and
assumptions affecting the probable future resolution of the uncertainties
increase, these judgments become even more subjective and complex. We have
identified certain accounting policies, described below, that are the most
important to the portrayal of our current financial condition and results of
operations.
Inventory
We record inventories at the lower of cost or market on a first-in, first-out
basis. Our product inventory is reviewed each month and also when the re-order
of the product is necessary. On a monthly basis, our inventory is reviewed based
on the expiration of our existing inventory. Product that has a shelf-life of
less than 60 days is written off or discounted.
A re-order review consists of an evaluation of our current monthly sales volume
of the product, cost of product, shelf-life of the product, and the
manufacturers minimum purchase requirement which all determine the overall
potential profitability or loss of re-ordering. If the re-order of the product
has an assessed loss, then the recommendation to management is to remove the
product from the product line.
Revenue Recognition
We are in the business of selling nutritional products in three categories:
dietary supplements, personal care products, and water filtration systems. Sales
of personal care products and water filtration systems represent less than 5% of
the overall revenue and therefore are not classified separately in the financial
statements. We recognized revenue from product sales when the products are
shipped and title passes to the customer. Administrative fees charged to the
Independent Business Associates are included in the gross sales and amounted to
$39,990 and $41,096 for the three months ended March 31, 2006 and March 31, 2005
respectively.
Stock Options and Warrants Granted to Employees and Non-Employees
Statement of Financial Accounting Standards No. 123R, "Accounting for
Stock-Based Compensation" ("SFAS No. 123R"), defines a fair value-based method
of accounting for stock options and other equity instruments. We have adopted
this method, which measures compensation costs based on the estimated fair value
of the award and recognizes that cost over the service period.
Recent Accounting Pronouncements
New accounting pronouncements that have a current or future potential impact on
our financial statements are as follows:
In December 2004, the Financial Accounting Standards Board issued a revision to
Statement of Financial Accounting Standards No. 123R, "Accounting for Stock
Based Compensation." This statement supercedes APB Opinion No. 25, "Accounting
for Stock Issued to Employees," and its related implementation guidance. This
statement establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services. It also addresses
transactions in which an entity incurs liabilities in exchange for goods or
services that are based on the fair value of the entity's equity instruments or
that may be settled by the issuance of those equity instruments. This statement
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. This statement does not
change the accounting guidance for share based payment transactions with parties
other than employees provided in Statement of Financial Accounting Standards No.
123. This statement does not address the accounting for employee share ownership
plans, which are subject to AICPA Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans." We have previously adopted SFAS
123 and the fair value of accounting for stock options and other equity
instruments. We have determined that there was no impact to its financial
statements from the adoption of this new statement.
22
RISKS AND UNCERTAINTIES
We have an accumulated deficit and may have continued losses for the foreseeable
future with no assurance of profitability.
As of March 31, 2006, we had an accumulated deficit of $12,223,137. We will need
to generate significant revenues to achieve profitability, which may not occur.
We expect operating expenses to increase as a result of the further
implementation of our business plan. Even if we achieve profitability, we may be
unable to sustain or increase profitability on a quarterly or annual basis in
the future. It is possible that we will never achieve profitability.
Management has established plans designed to attempt to increase the sales of
our products, and decrease debt. We plan on continuing to reduce expenses, and
with small gains in any combination of network sales, direct sales, and
international sales, believe that we will eventually be able to reverse the
present deficit. Management intends to utilize the cash proceeds from the
Securities Purchase Agreement with the Cornell, TAIB Bank, and Certain Wealth to
assist in its operating cash flow shortages.
We have been subject to a going concern opinion from our independent auditors
Our independent auditors have added an explanatory paragraph to their audit
issued in connection with the financial statements for the period ended December
31, 2005, relative to our ability to continue as a going concern. We have
negative working capital of approximately $1,578,077 and an accumulated deficit
incurred through March 31, 2006, which raises substantial doubt about our
ability to continue as a going concern. Accordingly, there is substantial doubt
about our ability to continue as a going concern. Our financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
We are dependent on our IBAs for our product marketing efforts, the loss of a
significant number of IBAs or the loss of a key IBA could adversely affect our
sales.
Our success and growth depend upon our ability to attract, retain and motivate
our network of IBAs who market our products. IBAs are independent contractors
who purchase products directly from us for resale and their own use. IBAs
typically offer and sell our products on a part-time basis and may engage in
other business activities, possibly including the sale of products offered by
our competitors. Typically, we have non-exclusive arrangements with our IBAs
which may be canceled on short notice and contain no minimum purchase
requirements. While we encourage IBAs to focus on the purchase and sale of our
products, they may give higher priority to other products, reducing their
efforts devoted to marketing our products. Also, our ability to attract and
retain IBAs could be negatively affected by adverse publicity relating to us,
our products or our operations. In addition, as a result of our network
marketing program, the down-line organizations headed by a relatively small
number of key IBAs are responsible for a significant percentage of total sales.
The loss of a significant number of IBAs, including any key IBA, for any reason,
could adversely affect our sales and operating results, and could impair our
ability to attract new IBAs. There is no assurance that our network marketing
program will continue to be successful or that we will be able to retain or
expand our current network of IBAs. Also, if our IBAs do not accept recent
changes to our commission plan, our business may be adversely affected.
Government regulation by the Food and Drug Administration and other federal and
state entities of our products can impact our ability to market products.
The manufacturing, processing, formulation, packaging, labeling and advertising
of nutritional products are subject to regulation by one or more federal
agencies, including the Food and Drug Administration, the Federal Trade
Commission, the Consumer Product Safety Commission, the United States Department
of Agriculture, the United States Postal Service, the United States
Environmental Protection Agency and the Occupational Safety and Health
Administration. These activities are also regulated by various agencies of the
states and localities, as well as of foreign countries, in which our products
may be sold. We may incur significant costs in complying with these regulations.
In the event we cannot comply with government regulations affecting our business
and products, we may be forced to curtail or cease our business operations.
23
On March 7, 2003, the FDA proposed a new regulation to require current good
manufacturing practices, or cGMPs, affecting the manufacturing, packing and
holding of dietary supplements. The proposed regulation would establish
standards to ensure that dietary supplements and dietary ingredients are not
adulterated with contaminants or impurities and are labeled to accurately
reflect the active ingredients and other ingredients in the products. It also
includes proposed requirements for designing and constructing physical plants,
establishing quality control procedures, and testing manufactured dietary
ingredients and dietary supplements, as well as proposed requirements for
maintaining records for handling consumer complaints related to current good
manufacturing practices. The final rule resulting from this rulemaking process
is currently undergoing review by the Office of Management and Budget.
Publication of the final rule is expected in the next several weeks. Because of
the long delay in issuing the final rule, there is considerable uncertainty as
to the provisions of the final rule, and as to how large an impact the rule will
have on the dietary supplement industry.
We market products that fall under two types of Food and Drug Administration
regulations: dietary supplements and personal care products. In general, a
dietary supplement:
o is a product (other than tobacco) that is intended to supplement the diet
that bears or contains one or more of the following dietary ingredients: a
vitamin, a mineral, a herb or other botanical, an amino acid, a dietary
substance for use by man to supplement the diet by increasing the total
daily intake, or a concentrate, metabolite, constituent, extract, or
combinations of these ingredients.
o is intended for ingestion in pill, capsule, tablet, or liquid form.
o is not represented for use as a conventional food or as the sole item of a
meal or diet.
o is labeled as a "dietary supplement" .
Personal care products are intended to be applied to the human body for
cleansing, beautifying, promoting attractiveness, or altering the appearance
without affecting the body's structure or functions. Included in this definition
are products such as skin creams, lotions, perfumes, lipsticks, fingernail
polishes, eye and facial make-up preparations, shampoos, permanent waves, hair
colors, toothpastes, deodorants, and any material intended for use as a
component of a cosmetic product. The Food & Drug Administration has a limited
ability to regulate personal care products.
Dietary supplements must follow labeling guidelines outlined by the FDA. Neither
dietary supplements nor personal care products require FDA or other government
approval or notification to market in the United States.
Under the Dietary Supplement Health and Education Act of 1994, companies that
manufacture and distribute dietary supplements are limited in the statements
that they are permitted to make about nutritional support on the product label
without FDA approval. In addition, a manufacturer of a dietary supplement must
have substantiation for any such statement made and must not claim to diagnose,
mitigate, treat, cure or prevent a specific disease or class of disease. The
product label must also contain a prominent disclaimer. These restrictions may
restrict our flexibility in marketing our product.
We believe that all of our existing and proposed products that are dietary
supplements or personal care products do not require governmental approvals to
market in the United States. Our key products are classified as follows:
Dietary Supplements
o Calorad(R)
o Agrisept-L(R)
o Oxy-Up(R)
o Triomin
24
o Noni Plus(R)
o Iso-Greens(R)
o Definition (R) (drops)
o Prosoteine(R)
Personal Care Products
o Definition(R) (cream)
Calorad (R) (cream)
Water Filtration Products
o Code Blue(TM)
o Code Blue(TM) Filter
The processing, formulation, packaging, labeling and advertising of such
products, however, are subject to regulation by one or more federal agencies,
including the FDA, the Federal Trade Commission, the Consumer Products Safety
Commission, the Department of Agriculture and the Environmental Protection
Agency. Our activities also are subject to regulation by various agencies of the
states and localities in which our products are sold. Among other things, such
regulation puts a burden on our ability to bring products to market. Any changes
in the current regulatory environment could impose requirements that would make
bringing new products to market more expensive or restrict the ways we can
market our products.
No governmental agency or other third party makes a determination as to whether
our products qualify as dietary supplements, personal care products or neither.
We make this determination based on the ingredients contained in the products
and the claims we make for the products.
If the Federal Trade Commission or certain states object to our product claims
and advertising we may be forced to give refunds, pay damages, stop marketing
certain products or change our business methods.
The Federal Trade Commission and certain states regulate advertising, product
claims, and other consumer matters, including advertising of our products. In
the past several years the Federal Trade Commission has instituted enforcement
actions against several dietary supplement companies for false or deceptive
advertising of certain products. We provide no assurance that:
o the Federal Trade Commission will not question our past or future
advertising or other operations; or
o a state will not interpret product claims presumptively valid under
federal law as illegal under that state's regulations.
Also, our IBAs and their customers may file actions on their own behalf, as a
class or otherwise, and may file complaints with the Federal Trade Commission or
state or local consumer affairs offices. These agencies may take action on their
own initiative or on a referral from IBAs, consumers or others. If taken, such
actions may result in:
o entries of consent decrees;
o refunds of amounts paid by the complaining IBA or consumer;
o refunds to an entire class of IBAs or customers;
o other damages; and
o changes in our method of doing business.
25
A complaint based on the activities of one IBA, whether or not such activities
were authorized by us, could result in an order affecting some or all IBAs in a
particular state, and an order in one state could influence courts or government
agencies in other States.
Our IBAs act as independent sales people and are not closely supervised by EYI
or supervised by us at all. We have little or no control or knowledge of our
IBAs' actual sales activities and therefore, we have little or no ability to
ensure that our IBAs comply with regulations and rules regarding how they market
and sell our products. It is possible that we may be held liable for the actions
of our IBAs. Proceedings resulting from any complaints in connection with our
IBAs' marketing and sales activities may result in significant defense costs,
settlement payments or judgments and could force to curtail or cease our
business operations.
If our network marketing program is shown to violate federal or state
regulations, we may be unable to market our products. Our network marketing
program is subject to a number of federal and state laws and regulations
administered by the Federal Trade Commission and various state agencies. These
laws and regulations include securities, franchise investment, business
opportunity and criminal laws prohibiting the use of "pyramid" or "endless
chain" types of selling organizations. These regulations are generally directed
at ensuring that product sales are ultimately made to consumers (as opposed to
other IBAs) and that advancement within the network marketing program is based
on sales of products, rather than investment in the company or other non-retail
sales related criteria.
The compensation structure of a network marketing organization is very complex.
Compliance with all of the applicable regulations and laws is uncertain because
of:
o the evolving interpretations of existing laws and regulations, and
o the enactment of new laws and regulations pertaining in general to network
marketing organizations and product distribution.
We have not obtained any no-action letters or advance rulings from any federal
or state securities regulator or other governmental agency concerning the
legality of our operations. Also, we are not relying on a formal opinion of
counsel to such effect. Accordingly there is the risk that our network marketing
system could be found to be in noncompliance with applicable laws and
regulations, which could have a material adverse effect on us. Such a decision
could require modification of our network marketing program, result in negative
publicity, or have a negative effect on IBA morale and loyalty. In addition, our
network marketing system will be subject to regulations in foreign markets
administered by foreign agencies should we expand our network marketing
organization into such markets.
The legality of our network marketing program is subject to challenge by our
IBAs.
We are subject to the risk of challenges to the legality of our network
marketing organization by our IBAs, both individually and as a class. Generally,
such challenges would be based on claims that our network marketing program was
operated as an illegal "pyramid scheme" in violation of federal securities laws,
state unfair practice and fraud laws and the Racketeer Influenced and Corrupt
Organizations Act. An illegal pyramid scheme is generally a marketing scheme
that promotes "inventory loading" and does not encourage retail sales of the
products and services to ultimate consumers. Inventory loading occurs when
distributors purchase large quantities of non-returnable inventory to obtain the
full amount of compensation available under the network marketing program. In
the event of challenges to the legality of our network marketing organization by
our IBAs, there is no assurance that we will be able to demonstrate that:
o our network marketing policies were enforced, and
o the network marketing program and IBAs' compensation thereunder serve as
safeguards to deter inventory loading and encourage retail sales to the
ultimate consumers.
Proceedings resulting from these claims could result in significant defense
costs, settlement payments or judgments, and could have a material adverse
effect on us.
One of our competitors, Nutrition for Life International, Inc., a multi-level
seller of personal care and nutritional supplements, announced in 1999 that it
had settled class action litigation brought by distributors alleging fraud in
connection with the operation of a pyramid scheme. Nutrition for Life
International agreed to pay in excess of $3 million to settle claims brought on
behalf of its distributors and certain purchasers of its stock.
26
We believe that our marketing program is significantly different from the
program allegedly promoted by Nutrition for Life International and that our
marketing program is not in violation of anti-pyramid laws or regulations.
However, there can be no assurance that claims similar to the claims brought
against Nutrition for Life International and other multi-level marketing
organizations will not be made against us, or that we would prevail in the event
any such claims were made. Furthermore, even if we were successful in defending
against any such claims, the costs of conducting such a defense, both in dollars
spent and in management time, could be material and adversely affect our
operating results and financial condition. In addition, the negative publicity
of such a suit could adversely affect our sales and ability to attract and
retain IBAs.
A large portion of our sales is attributable to Calorad, if Calorad loses market
share or loses favor in the marketplace, our financial results will suffer
A significant portion of our net sales is expected to be dependent upon our
Calorad product. Calorad has traditionally represented more than 65% of our net
sales and, although we hope to expand and diversify our product offerings,
Calorad is expected to provide a large portion of our net sales in the
foreseeable future. If Calorad loses market share or loses favor in the
marketplace, our financial results will suffer.
Our products are subject to obsolescence, which could reduce our sales
significantly
The introduction by us or our competitors of new dietary supplement or personal
care products offering increased functionality or enhanced results may render
our existing products obsolete and unmarketable. Therefore, our ability to
successfully introduce new products into the market on a timely basis and
achieve acceptable levels of sales has and will continue to be a significant
factor in our ability to grow and remain competitive and profitable. In
addition, the nature and mix of our products are important factors in attracting
and maintaining our network of IBAs, which consequently affects demand for our
products. Although we seek to introduce additional products, the success of new
products is subject to a number of conditions, including customer acceptance.
There can be no assurance that our efforts to develop innovative new products
will be successful, or customers will accept new products.
In addition, no assurance can be given that new products currently experiencing
strong popularity will maintain their sales over time. In the event we are
unable to successfully increase the product mix and maintain competitive product
replacements or enhancements in a timely manner in response to the introduction
of new products, competitive or otherwise, our sales and earnings will be
materially and adversely affected.
We have no manufacturing capabilities and we are dependent upon Nutri-Diem, Inc.
and other companies to manufacture our products.
We have no manufacturing facilities and have no present intention to manufacture
any of our dietary supplement and personal care products. We are dependent upon
relationships with independent manufacturers to fulfill our product needs.
Nutri-Diem, Inc., a related party, manufactures and supplies more than 70% of
our products. We have contracts with Nutri-Diem that require us to purchase set
amounts of its manufactured products for at least the next five years and
possibly the next ten years. It is possible that these contracts with
Nutri-Diem, Inc. could become unfavorable, and we may not be able to use other
manufacturers to provide us with these services if our terms with Nutri-Diem,
Inc. become unfavorable. In addition, we must be able to obtain our dietary
supplement and personal care products at a cost that permits us to charge a
price acceptable to the customer, while also accommodating distribution costs
and third party sales compensation. Competitors who do own their own
manufacturing may have an advantage over us with respect to pricing,
availability of product and in other areas through their control of the
manufacturing process. In addition, if we are forced to hold longer quantities
of inventory, we face the risk that our inventory becomes obsolete with the
passage of large amounts of time.
We may not be able to deliver various products to our customers if third party
providers fail to provide necessary ingredients to us. We are dependent on
various third parties for various ingredients for our products. Some of the
third parties that provide ingredients to us have a limited operating history
and are themselves dependent on reliable delivery of products from others. As a
result, our ability to deliver various products to our users may be adversely
affected by the failure of these third parties to provide reliable various
ingredients for our products.
27
We are materially dependent upon our key personnel and the loss of such key
consultants could result in delays in the implementation of our business plan or
business failure.
We depend upon the continued involvement of Jay Sargeant, our President, Chief
Executive Officer and Director, and Dori O'Neill, our Executive Vice President,
Chief Operations Officer, Secretary, Treasurer and Director. As we are a
developing company, the further implementation of our business plan is dependent
on the entrepreneurial skills and direction of management. Mr. Sargeant and Mr.
O'Neill guide and direct our activity and vision. This direction requires an
awareness of the market, the competition, current and future markets and
technologies that would allow us to continue our operations. The loss or lack of
availability of these individuals could materially adversely affect our business
and operations. We do not carry "key person" life insurance for these officers
and directors, and we would be adversely affected by the loss of these two key
consultants.
We face substantial competition in the dietary supplement and personal care
industry, including products that compete directly with Calorad.
The dietary supplement and personal care industry is highly competitive. It is
relatively easy for new companies to enter the industry due to the availability
of numerous contract manufacturers, a ready availability of natural ingredients
and a relatively relaxed regulatory environment. Numerous companies compete with
us in the development, manufacture and marketing of supplements as their sole or
principal business. Generally, these companies are well funded and sophisticated
in their marketing approaches.
Depending on the product category, our competition varies.
Calorad competes directly with Colvera, a product with different ingredients but
a similar concept. Additionally, Calorad competes indirectly with food plans
such as Weight Watchers and meal replacement products such as Slim Fast. Our
Noni Plus product competes with Tahitian International and others. Our other
products have similar well-funded and sophisticated competitors. Increased
competitive activity from such companies could make it more difficult for us to
increase or keep market share, since such companies have greater financial and
other resources available to them and possess far more extensive manufacturing,
distribution and marketing capabilities.
We may be subject to products liability claims and may not have adequate
insurance to cover such claims. As with other retailers, distributors and
manufacturers of products that are designed to be ingested, we face an inherent
risk of exposure to product liability claims in the event that the use of our
products results in injury.
We, like any other retailers and distributors of products that are designed to
be ingested, face an inherent risk of exposure to product liability claims in
the event that the use of products contain contaminants or include inadequate
instructions with other substances. With respect to product liability claims, we
have coverage of $2,000,000 per occurrence and $2,000,000 in the aggregate.
Because our policies are purchased on a year to year basis, industry conditions
or our own claims experience could make it difficult for us to secure the
necessary insurance at a reasonable cost. In addition, we may not be able to
secure insurance that will be adequate to cover liabilities. We generally do not
obtain contractual indemnification from parties supplying raw materials or
marketing our products. In any event, any such indemnification is limited by its
terms and, as a practical matter, to the creditworthiness of the other party. In
the event that we do not have adequate insurance or contractual indemnification,
liabilities relating to defective products could require us to pay the injured
parties' damages which are significant compared to our net worth or revenues.
We may be adversely affected by unfavorable publicity relating to our products
or similar products manufactured by our competitors.
We believe that the dietary supplement products market is affected by national
media attention regarding the consumption of these products. Future scientific
research or publicity may be unfavorable to the dietary supplement products
market generally or to any particular product and may be inconsistent with
earlier favorable research or publicity. Adverse publicity associated with
illness or other adverse effects resulting from the consumption of products
distributed by other companies, which are similar to our products, could reduce
consumer demand for our products and consequently our revenues. This may occur
even if the publicity did not relate to our products. Adverse publicity directly
concerning our products could be expected to have an immediate negative effect
on the market for that product.
28
Because we have few proprietary rights, others can provide products and services
substantially equivalent to ours.
We hold no patents. We believe that most of the technology used by us in the
design and implementation of our products may be known and available to others.
Consequently, others may be able to formulate products equivalent to ours. We
rely on confidentiality agreements and trade secret laws to protect our
confidential information. In addition, we restrict access to confidential
information on a "need to know" basis. However, there can be no assurance that
we will be able to maintain the confidentiality of our proprietary information.
If our pending trademark or other proprietary rights are violated, or if a third
party claims that we violate its trademark or other proprietary rights, we may
be required to engage in litigation. Proprietary rights litigation tends to be
costly and time consuming. Bringing or defending claims related to our
proprietary rights may require us to redirect our human and monetary resources
to address those claims.
Our common stock is "penny stock", which may make it more difficult for
investors to sell their shares due to suitability requirements
Our common stock is deemed to be a "penny stock" as that term is defined in Rule
3a51-1 promulgated under the Securities Exchange Act of 1934. Penny stocks are
stock:
o With a price of less than $5.00 per share;
o That are not traded on a "recognized" national exchange;
o Whose prices are not quoted on the Nasdaq automated quotation system
(Nasdaq listed stock must still have a price of not less than $5.00 per
share; or
o In issuers with net tangible assets less than $2.0 million (if the issuer
has been in continuous operation for at least three years) or $5.0 million
(if in continuous operation for the last three years.
Broker/dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor. These requirements may
reduce the potential market for our common stock to sell shares to third parties
or to otherwise dispose of them. This could cause our stock price to decline.
ITEM 3. CONTROLS AND PROCEDURES.
Evaluation Of Disclosure Controls And Procedures
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our Principal
Executive Officer and Principal Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. Our disclosure
controls and procedures are designed to provide a reasonable level of assurance
of achieving our disclosure control objectives. Our Principal Executive Officer
and Principal Accounting Officer have concluded that our disclosure controls and
procedures are, in fact, effective at this reasonable assurance level as of the
period covered.
Changes In Internal Controls Over Financial Reporting
In connection with the evaluation of our internal controls during our last
fiscal quarter, our Principal Executive Officer and Principal Financial Officer
have determined that there are no changes to our internal controls over
financial reporting that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Other than as described below, we are not a party to any material legal
proceedings and to our knowledge, no such proceedings are threatened or
contemplated.
29
1. Oppression Action by Lavorato/Heyman
In 2002, an oppression action was commenced in the Supreme Court of British
Columbia by the plaintiffs Brian Lavorato, Geraldine Heyman and their respective
holding companies, alleging that Essentially Yours Industries Corp., our
affiliate, had improperly vended assets into Essentially Yours Industries, Inc.,
our wholly owned subsidiary, as part of a corporate restructuring alleged to be
oppressive to the plaintiffs. As of April 4, 2003, the lawsuit has been settled
and was subsequently dismissed by the plaintiffs by consent, with the exception
of claims asserted by the plaintiffs against Thomas K. Viccars, a former
in-house counsel of Essentially Yours Industries, Corp., who may potentially
assert a third party claim against Essentially Yours Industries, Inc. On May 1,
2006 we entered into a settlement agreement with Thomas Viccars, pursuant to
which we will pay $60,000 to Mr. Viccars in full and final settlement of all
claims against EYI.
2. Action By Suhl, Harris and Babich
In 2003 a consolidated action was brought by the plaintiffs Wolf Suhl, Christine
Harris and Edward Babich in the Supreme Court of British Columbia pursuant to an
order pronounced in the New Westminster Registry under Action No. S061589 on May
7, 2003, which allowed the plaintiffs to proceed with an action against
Essentially Yours Industries, Inc. The plaintiffs allege that Essentially Yours
Industries, Inc. holds certain of its products or revenues derived therefrom as
trust property for the benefit of the plaintiffs.
The claim is for an aggregate of 4.9% of the wholesale volume of sales generated
by Essentially Yours Industries, Inc. from the alleged trust property, and for
damages and costs. A consolidated statement of defense has been filed by
Essentially Yours Industries, Inc., and interrogatories have been responded to.
Management believes this claim to be without merit and intends to vigorously
defend against this claim. In February 2006, the Supreme Court of British
Columbia made an order that EYI and Mr. Jay Sargeant be added to the lawsuit,
and the Writ of Summons and Statement of Claim be amended to add the following
claims: (a) against EYI, damages for unjust enrichment and breach of trust for
any amount found to be owing by Essentially Yours Industries, Inc. plus interest
and costs; and (b) against Jay Sargeant, damages for unjust enrichment and
breach of trust for any amount found to be owing by Essentially Yours
Industries, Inc. or Barry La Rose, plus interest and costs. The Plaintiffs'
total claim is approximately $478,000. On April 13, 2006, the plaintiffs amended
their pleadings to assert claims against EYI and Jay Sargeant. EYI has entered
an Appearance to the action and plans to file a Defence. Jay Sargeant has not
been served with process. This matter is set for trial commencing September 11,
2006. The parties are presently negotiating to settle these claims.
3. Lease Agreement with Business Centers, LLC
In February 1999 our subsidiary, Halo Distribution, LLC entered into a Lease
Agreement with Business Centers, LLC (the "Landlord"). This Lease Agreement was
extended for a period of three years on January 5, 2004. We received a letter
dated August 2, 2005 notifying us of a default by Halo under the lease agreement
and notice that the landlord intends to commence legal proceedings against Halo
and EYI for the sum of $150,000 for defaulted lease payments. We received a
statement of claim from the landlord in November, 2005 naming Halo and us as
defendants and requesting payment of the defaulted lease payments. On December
21, 2005 we entered into a written Settlement Agreement and Release with Halo
Distribution, LLC and Business Centers, LLC agreeing to the terms and conditions
of the settlement set forth in the agreement. Pursuant to the terms of the
settlement agreement we agreed to transfer property with a value of $46,875 to
the Landlord in exchange for a release of all claims against EYI or its
subsidiaries.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the three months ended March 31, 2006, other than as disclosed below, we
did not complete any sales of securities that were not registered pursuant to
the Securities Act of 1933 (the "Securities Act") and have not been reported on
our previous Quarterly Reports on Form 10-QSB during the year.
1. On April 24, 2006 we entered a Securities Purchase Agreement with Cornell
Capital Partners, LP ("Cornell") pursuant to which we entered into the
following agreements: an Investor Registration Rights Agreement,
Irrevocable Transfer Agent Instructions and a Security Agreement. Pursuant
to the terms of the Share Purchase Agreement, we may sell convertible
debentures to Cornell in the amount of $4,500,000 plus accrued interest
which are convertible into shares of our common stock. Of this amount
$1,500,000 must be paid five days after April 24, 2006, $1,500,000 must be
paid two (2) business days prior to the date a registration statement is
filed with the SEC and $1,500,000 shall be paid two (2) business days
prior to the date that such registration statement is declared effective
by the SEC. We received proceeds of $1,305,000 (net of fees associated
with the issuance of the convertible debentures) on April 27, 2006 in
connection with the issuance of $1,500,000 of convertible debentures in
the following amounts: $750,000 to Cornell, $416,667 to Taib Bank, B.S.C.,
and $333,333 to Certain Wealth, Ltd. pursuant to the terms of the
Securities Purchase Agreement. Each of the convertible debentures was
issued pursuant to section 4(2) and Rule 506 of Regulation D of the
Securities Act.
30
2. Pursuant to the terms of the Securities Purchase Agreement and the
issuance of our convertible debentures, on April 24, 2006 we issued to
Cornell seventeen warrants to purchase up to an aggregate 124,062,678
shares of our common stock at the discretion of Cornell (collectively, the
"Warrants") each for good and valuable consideration. Cornell is entitled
to purchase from us: (1) 10,416,650 shares of our common stock at $0.02
per share, (2) 13,888,866 shares of our common stock at $0.03 per share,
(3) 10,416,650 shares of our common stock at $0.04 per share, (4)
8,333,320 shares of our common stock at $0.05 per share, (5) 6,944,433
shares of our common stock at $0.06 per share, (6) 5,952,371 shares of our
common stock at $0.07 per share, (7) 11,250,000 shares of our common stock
at $0.08 per share, (8) 10,000,000 shares of our common stock at $0.09 per
share, (9) 19,000,000 shares of our common stock at $0.10 per share, (10)
8,181,818 shares of our common stock at $0.11 per share, (11) 7,500,000
shares of our common stock at $0.12 per share, (12) 3,333,333 shares of
our common stock at $0.15 per share, (13) 2,500,000 shares of our common
stock at $0.20 per share, (14) 2,000,000 shares of our common stock at
$0.25 per share, (15) 1,666,666 shares of our common stock at $0.30 per
share, (16) 1,428,571 shares of our common stock at $0.35 per share and
(17) 1,250,000 shares of our common stock at $0.40 per share upon
surrender of the Warrants (or as subsequently adjusted pursuant to the
terms of each Warrant) . Each Warrant has "piggy back" registration rights
and shall expire five (5) years from the date of issuance, on or about
April 24, 2011.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit
Number Description of Exhibit
------ -------------------------------------------------------------------------------------------------------
3.1 Articles of Incorporation.(1)
3.2 Certificate of Amendment to Articles of Incorporation dated December 29, 2003.(11)
3.3 Certificate of Amendment to Articles of Incorporation dated December 31, 2003.(11)
3.4 Bylaws.(1)
3.5 Amended Bylaws. (12)
3.6 Certificate of Amendment to Articles of Incorporation dated March 30, 2006(23)
5.1 Opinion re: legality (24)
10.1 Consulting Agreement, dated as of November 5, 2002, between Essentially Yours Industries, Inc., a Nevada
corporation, and Flaming Gorge, Inc.(1)
31
Exhibit
Number Description of Exhibit
------ -------------------------------------------------------------------------------------------------------
10.2 Consulting Agreement, dated as of November 5, 2002, between Essentially Yours Industries, Inc., a Nevada
corporation, and O'Neill Enterprises, Inc.(1)
10.3 Registration Rights Agreement, dated December 31, 2003, by and among Safe ID Corporation, A Nevada
corporation, and certain shareholders of EYI Industries, Inc., A Nevada corporation.(5)
10.4 Stock Compensation Program(4)
10.5 Consulting Agreement dated December 27, 2003 between Rajesh Raniga Inc. and Safe ID Corporation.(6)
10.6 Consulting Agreement dated January 1, 2004 between EYI Industries, Inc. and O'Neill Enterprises Inc.(6)
10.7 Consulting Agreement dated January 1, 2004 between EYI Industries, Inc. and Flaming Gorge, Inc. (6)
10.8 Addendum to the Distribution and License Agreement between Essentially Yours Industries, Inc. and
Nutri-Diem Inc. dated April 30, 2004.(6)
10.9 Letter Agreement dated May 4, 2004 between Eye Wonder, Inc. and EYI Industries, Inc.(6)
10.10 Standby Equity Distribution Agreement, dated June 22, 2004 by and between EYI Industries, Inc. and
Cornell Capital Partners, LP(6)
10.11 Registration Rights Agreement, dated June 22, 2004 by and between EYI Industries, Inc. and Cornell
Capital Partners, LP(6)
10.12 Escrow Agreement, dated June 22, 2004 by and between EYI Industries, Inc. and Cornell Capital Partners,
LP(6)
10.13 Placement Agent Agreement, dated June 22, 2004 by and between EYI Industries, Inc. and Cornell Capital
Partners, LP(6)
10.14 Compensation Debenture, dated June 22, 2004(7)
10.15 Securities Purchase Agreement, dated June 22, 2004 by and between EYI Industries, Inc. and Cornell
Capital Partners, LP(6)
10.16 Investor Registration Rights Agreement, dated June 22, 2004 by and between EYI Industries, Inc. and
Cornell Capital Partners, LP(6)
10.17 Security Agreement, dated June 22, 2004 by and between EYI Industries, Inc. and Cornell Capital
Partners, LP(6)
10.18 Irrevocable Transfer Agent Instructions, dated June 22, 2004, by and among EYI Industries, Inc., Cornell
Capital Partners, LP and Corporate Stock Transfer(6)
10.19 Escrow Agreement, dated June 22, 2004 by and among EYI Industries, Inc., Cornell Capital Partners, L.P.
and Butler Gonzalez, LLP(6)
10.20 Form of Secured Convertible Debenture(6)
10.21 Form of Warrant(7)
10.22 Letter Agreement dated May 25, 2004 between EYI Industries, Inc. and Source Capital Group, Inc.(8)
10.23 Lease Agreement dated May 1, 2003 among 468058 B.C. Ltd., 642706 B.C. Ltd., Essentially Yours Industries
Corp., and Essentially Yours Industries, Inc. (8)
10.24 5% Secured Convertible Debenture dated September 24, 2004 between EYI Industries, Inc. and Cornell
Capital Partners, LP(8)
10.25 5% Secured Convertible Debenture dated September 27, 2004 between EYI Industries, Inc. and Kent Chou(8)
10.26 5% Secured Convertible Debenture dated September 27, 2004 between EYI Industries, Inc. Taib Bank, E.C.(8)
10.27 Assignment Agreement dated September 27, 2004 between Cornell Capital Partners, LP and Taib Bank, E.C.
(8)
10.28 Assignment Agreement dated September 27, 2004 between Cornell Capital Partners, LP and Kent Chou(8)
10.29 Joint Venture Agreement dated May 28, 2004 between EYI Industries, Inc., World Wide Buyer's Club Inc.
and Supra Group, Inc.(9)
10.30 Indenture of Lease Agreement dated January 3, 2005 between Golden Plaza Company Ltd., 681563 B.C. Ltd.,
and 642706 B.C. Ltd.(10)
32
Exhibit
Number Description of Exhibit
------ -------------------------------------------------------------------------------------------------------
10.31 Consulting Services Agreement dated March 5, 2004 between EYI Industries, Inc. and EQUIS Capital
Corp.(13)
10.32 Letter dated May 25, 2004 between Source Capital Group, Inc. and EYI Industries, Inc.(14)
10.33 Loan Agreement between Janet Carpenter and EYI Industries, Inc., dated February 10, 2005(15)
10.34 Promissory Note dated February 10, 2005 between Janet Carpenter and EYI Industries(15)
10.35 Bonus Share Agreement between Janet Carpenter and EYI Industries, Inc. dated February 14, 2005(15)
10.36 Pledge and Escrow Agreement dated February 24, 2005 between Janet Carpenter, Cornell Capital Partners,
LP and David Gonzalez. (15)
10.37 Guaranty Agreement dated February 24, 2005 between Janet Carpenter, Cornell Capital Partners, LP(15)
10.37 Secured Promissory Note dated February 24, 2005 between EYI Industries, Inc. and Cornell Capital
Partners, LP(15)
10.39 Agreement dated April 22, 2005 between Essentially Yours Industries Inc. and Source 1 Fulfillment(17)
10.40 Reseller Agreement dated May 11, 2005 between Essentially Yours Industries Inc. and Metals & Arsenic
Removal Technology, Inc. (16)
10.41 Termination Agreement dated May 13, 2005 between EYI Industries Inc. and Cornell Capital Partners, LP(17)
10.42 Standby Equity Distribution Agreement dated May 13, 2005 between EYI Industries Inc. and Cornell Capital
Partners, LP(17)
10.43 Registration Rights Agreement dated May 13, 2005 between EYI Industries Inc. and Cornell Capital
Partners, LP(17)
10.44 Escrow Agreement dated May 13, 2005 between EYI Industries Inc. and Cornell Capital Partners, LP(17)
10.45 Placement Agent Agreement dated May 13, 2005 between EYI Industries Inc. and Cornell Capital Partners,
LP(17)
10.46 Consulting Agreement dated June 1, 2005 between EYI Industries, Inc. and Eliza Fung(18)
10.47 Addendum to the Reseller Agreement dated June 1, 2005 between Essentially Yours Industries Inc. and
Metals & Arsenic Removal Technology, Inc. (18)
10.48 Non-Circumvention and Non-Disclosure Agreement dated July 14, 2005 between Essentially Yours Industries
Inc. and Metals & Arsenic Removal Technology, Inc. (18)
10.49 Promissory Note dated August 1, 2005 between EYI Industries Inc. and Cornell capital Partners, LP(18)
10.50 Investor Relations Agreement dated July 28, 2005 between EYI Industries, Inc. and Agora Investor
Relations Corp. (18)
10.51 China Agency Agreement entered into with Guanghzhou Zhongdian Enterprises (Group) Co. Ltd. and China
Electronics Import and Export South China Corporation. Dated September 15, 2005(19)
10.52 Logistics Management Agreement dated September 1, 2005 between Essentially Yours Industries (Hong Kong)
Limited and All In One Global Logistics Ltd. (20)
10.53 Contract for Legal Services dated September 1, 2005 between EYI Industries Inc. and M. Ali Lakhani Law
Corporation(21)
10.54 Amended Investor Relations Agreement dated October 5, 2005 between EYI Industries, Inc. and Agora
Investor Relations Corp. (22)
10.55 Settlement Agreement dated December 21, 2005 between EYI Industries, Inc., Halo Distribution, LLC and
Business Centers, LLC. (23)
10.56 Global Consulting Group Agreement dated January 19, 2006 entered into with Global Consulting Group Inc.
and EYI Industries Inc. (23)
10.57 Consulting Agreement dated January 27, 2006 entered into with Lou Prescott and Essentially Yours
Industries, Inc. (23)
10.58 Termination Agreement dated April 3, 2006 between EYI Industries Inc. and Cornell Capital Partners, LP
10.59 Letter of Intent dated April 6, 2006 between Essentially Yours Industries (International) Limited and
Rommel Panganiban and Raul Batista
10.60 Securities Purchase Agreement, dated as of April 24, 2006, by and between EYI Industries, Inc. and the
Buyers listed therein(24)
33
Exhibit
Number Description of Exhibit
------ -------------------------------------------------------------------------------------------------------
10.61 Registration Rights Agreement, dated as of April 24, 2006, by and between EYI Industries, Inc. and the
Buyers listed therein(24)
10.62 $750,000 Secured Convertible Debenture No. CCP-1, dated as of April 24, 2006, issued to Cornell Capital
Partners, LP(24)
10.63 $333,333 Secured Convertible Debenture CW-1, dated as of April 24, 2006, issued to Cornell Capital
Partners, LP(24)
10.64 $416,667 Secured Convertible Debenture TAIB-1, dated as of April 24, 2006, issued to Cornell Capital
Partners, LP(24)
10.65 Security Agreement, dated as of April 24, 2006, issued to Cornell Capital Partners, LP(24)
10.66 Warrant No. CCP-001, dated April 24, 2006, issued by the Company to Cornell Capital Partners, LP(24)
10.67 Warrant No. CCP-002, dated April 24, 2006, issued by the Company to Cornell Capital Partners, LP(24)
10.68 Warrant No. CCP-003, dated April 24, 2006, issued by the Company to Cornell Capital Partners, LP(24)
10.69 Warrant No. CCP-004, dated April 24, 2006, issued by the Company to Cornell Capital Partners, LP(24)
10.70 Warrant No. CCP-005, dated April 24, 2006, issued by the Company to Cornell Capital Partners, LP(24)
10.71 Warrant No. CCP-006, dated April 24, 2006, issued by the Company to Cornell Capital Partners, LP(24)
10.72 Warrant No. CCP-007, dated April 24, 2006, issued by the Company to Cornell Capital Partners, LP(24)
10.73 Warrant, No. CCP-008, dated April 24, 2006, issued by the Company to Cornell Capital Partners, LP(24)
10.74 Warrant No. CCP-009, dated April 24, 2006, issued by the Company to Cornell Capital Partners, LP(24)
10.75 Warrant No. CCP-010, dated April 24, 2006, issued by the Company to Cornell Capital Partners, LP(24)
10.76 Warrant No. CCP-011, dated April 24, 2006, issued by the Company to Cornell Capital Partners, LP(24)
10.77 Warrant No. CCP-012, dated April 24, 2006, issued by the Company to Cornell Capital Partners, LP(24)
10.78 Warrant No. CCP-013, dated April 24, 2006, issued by the Company to Cornell Capital Partners, LP(24)
10.79 Warrant No. CCP-014, dated April 24, 2006, issued by the Company to Cornell Capital Partners, LP(24)
10.80 Warrant No. CCP-015, dated April 24, 2006, issued by the Company to Cornell Capital Partners, LP(24)
10.81 Warrant No. CCP-016, dated April 24, 2006, issued by the Company to Cornell Capital Partners, LP(24)
10.82 Warrant No. CCP-017, dated April 24, 2006, issued by the Company to Cornell Capital Partners, LP(24)
10.83 Irrevocable Transfer Agent Instructions, dated April 24, 2006, by and among the Company, the Buyers
listed therein and Corporate Stock Transfer, Inc. (24)
10.84 Consulting Agreement dated May 1, 2006 between Essentially Yours Industries (Hong Kong) Limited and Siu
Chung (Freeda) Chan
14.1 Code of Ethics(5)
21.1 List of Subsidiaries(23)
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
34
--------------
(1) Filed as an exhibit to the registration statement on Form 10-SB/A of Safe ID Corporation, filed with the SEC on
September 21, 2000.
(2) Filed as an exhibit to the registration statement on Form SB-2 of
Essentially Yours Industries, Inc., filed with the SEC on November 12,
2002.
(3) Filed as an exhibit to our Current Report on Form 8-K, filed with the SEC on January 8, 2004.
(4) Filed as an exhibit to our Registration Statement on Form S-8, filed with the SEC on March 30, 2004.
(5) Filed as an exhibit to our annual report on Form 10-KSB for the year ended December 31, 2003, filed with the SEC
on April 14, 2004.
(6) Filed as an exhibit to our quarterly report on Form 10-QSB for the period ended March 31, 2004, filed with the
SEC on May 24, 2004.
(7) Filed as an exhibit to our registration statement on Form SB-2, filed
with the SEC on September 17, 2004. (8) Filed as an exhibit to our
quarterly report on Form 10-QSB for the period ended September 30,
2004, filed with
the SEC on November 22, 2004.
(9) Filed as an exhibit to our Amendment No. 1 to our registration statement on Form SB-2 on December 23, 2004.
(10) Filed as an exhibit to our Current Report on Form 8-K, filed with the SEC on January 12, 2005.
(11) Filed as an exhibit to our quarterly report on Form 10-QSB for the period ended September 30, 2004, filed with
the SEC on November 22, 2004.
(12) Filed as an exhibit to our Current Report on Form 8-K, filed with the SEC on March 10, 2005.
(13) Filed as an exhibit to our quarterly report on Form 10-QSB/A for the period ended March 31, 2004, filed with the
SEC on December 15, 2004.
(14) Filed as an exhibit to our quarterly report on Form 10-QSB/A for the period ended June 30, 2004, filed with the
SEC on December 15, 2004.
(15) Filed as an exhibit to our annual report on Form 10-KSB for the period ended December 31, 2004, filed with the
SEC on April 18, 2005.
(16) Filed as an exhibit to our Current Report on Form 8-K, filed with the SEC on May 17, 2005.
(17) Filed as an exhibit to our Quarterly Report on Form 10-QSB for the period ended March 31, 2005, filed with the
SEC on May 23, 2005.
(18) Filed as an exhibit to our Quarterly Report on Form 10-QSB for the period ended June 30, 2005, filed with the SEC on
August 19, 2005
(19) Filed as an exhibit to our Current Report on Form 8-K, filed with the SEC on September 27, 2005
(20) Filed as an exhibit to our quarterly report on Form 10-QSB for the period ended September 30, 2005, filed with the SEC on
November 21, 2005
(21) Filed as an exhibit to our quarterly report on Form 10-QSB for the period ended September 30, 2005, filed with the SEC on
November 21, 2005
(22) Filed as an exhibit to our quarterly report on Form 10-QSB for the period ended September 30, 2005, filed with the SEC on
November 21, 2005
(23) Filed as an exhibit to our annual report on Form 10-KSB for the period ended December 31, 2005, filed with the SEC on
March 31, 2006
(24) Filed as an exhibit to our Current Report on Form 8-K, filed with the SEC on April 28, 2006
(b) Reports on Form 8-K:
Date of SEC filing of Form 8-K Description of the Form 8-K
---------------------------------- --------------------------------------------------------------------------
May 11, 2006 Amendment No. 1 to Form 8-K filed on April 28, 2006
---------------------------------- --------------------------------------------------------------------------
April 28, 2006 Disclosure of Entry into Material Definitive Agreements with Cornell
Capital Partners
April 3, 2006 Disclosure of Termination Agreement with Cornell Capital Partners
35
SIGNATURES
In accordance with requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EYI INDUSTRIES, INC.
By: /s/ Jay Sargeant
----------------------------------------------
Jay Sargeant
President, Chief Executive Officer,
and Director
(Principal Executive Officer)
Date: May 15, 2006
By: /s/ Rajesh Raniga
----------------------------------------------
Rajesh Raniga
Chief Financial Officer
(Principal Accounting Officer)
Date: May 15, 2006
36