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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington , D.C.20549

 

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AMENDMENT 3 TO

FORM 10-SB

 

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GENERAL FORM FOR REGISTRATION OF SECURITIES

OF SMALL BUSINESS ISSUERS

 

Under Section 12(b) or (g) of

 

The Securities Exchange Act of 1934  

 

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450 Fairway Drive, #103

Deerfield Beach , FL  33441

(Address of principal executive offices)

 

954-725-9475

(Issuer's telephone number, including area code)

 

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Copies to:

Greentree Financial Group, Inc.

7951 SW 6 ^th ST Suite 216

Plantation, FL  33324

(954) 424-2345 Tel

(954) 424-2230 Fax

 

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Securities to be registered pursuant to Section 12(b) of the Act:

 

Title of each class	Name of each exchange on
to be so registered	which each class is to be
	registered
None	N/A

 

  Securities to be registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 par value

(Title of Class)

 

 

 

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Red Reef Laboratories International, Inc.
TABLE OF CONTENTS
PART I
Item 1. Description of Business	3
Item 2. Management's Discussion and Analysis of Financial Condition	16
Item 3. Description of Property	20
Item 4. Security Ownership of Certain Beneficial Owners and Management	20
Item 5. Directors and Executive Officers, Promoters and Control Persons	21
Item 6. Executive Compensation	23
Item 7. Certain Relationships and Related Transactions	23
Item 8. Description of Securities	24
PART II
Item 1. Market Price and Dividends on the Registrant’s Common Equity and Related Stockholder Matters	24
Item 2. Legal Proceedings	25
Item 3. Changes in and Disagreements with Accountants	25
Item 4. Recent Sales of Unregistered Securities	25
Item 5. Indemnification of Directors and Officers	25
PART F/S	29
PART III
Item 1. Index to Exhibits	69
Signatures	70

 

 

PART I

 

ITEM 1. DESCRIPTION OF BUS INESS

 

Red Reef Laboratories International, Inc. (the "Company," “we”, “our”, “RRLB”) is a highly specialized company focusing on providing superior surface decontamination products and specialized services in the fight against bacteria, viruses and fungi (mold) infestations of our living environment.

 

We were founded to develop, manufacture, distribute and sell surface disinfectants, which are inherently non-toxic, posing no hazard to people who use them and which are environmentally friendly, decomposing into harmless naturally occurring organic molecules. In 2003, the United States Marine Corps authorized and funded the testing of one of our proprietary formulations against weaponized Anthrax on two occasions at separate government laboratory facilities. Each test indicated our formula achieved a 99.999999% kill rate in less than thirty minutes. To this end, we have developed several products that have been registered with the Environmental Protection Agency (EPA) as well as proprietary formulas used for odor and stain removal caused by mold, mildew and algae.  The company also performs the service of mold remediation in South Florida employing the use of the chemicals during the remediation process. The company is in the process of applying for import and distribution clearance in China for its BioClear FF product used in the cleaning and sanitizing of surfaces and equipment found on poultry farms. The company is investigating ways to expand distribution of TKO, one of its leading products currently being sold to the hospitality industry in Southeast Florida. Research and development work for specially formulated products for use in cleaning and sanitizing automobile interiors is underway.

 

INTRODUCTION

 

Health risks linked to mold exposure and its resultant toxins are driving an enormous industry of testing, identification, remediation, and repair of infected buildings. There currently exists a huge backlog of demand for effective solutions to this mold "crisis" that is forecasted to continue unabated for years to come. The Red Reef BioClear System focuses on water intrusion and the resultant damage to building structures, including single-family residential, multi-unit residential, commercial, retail, hotel, office, industrial, institutional, and healthcare facilities. Clients will either pay for our services directly, or through settled insurance claims. Direct pay clients will be building owners and managers. Insurance clients will be attorneys, adjusters and their superiors.

 

Most data available describing the mold remediation industry is almost exclusively supplied by the insurance industry, and does not document activity by segments (i.e. residential, commercial, industrial, and institutional). The industry trade associations provide little credible guidance other than to promote their owners' agendas. Though accurate data about total dollars and share of the mold remediation market is scarce, we can provide substantial anecdotal evidence and information from various sources, as well as examples of activities, which will impact the market and contribute to its continued growth.

 

OBJECTIVES

 

The objective of RRLB is to become the premier company for mold remediation in Florida and beyond.  We will utilize a unique "streamlined" decontamination process enabled by new state-of-the-art mold-killing products that create exceptional profit potential. Our streamlined, step-by-step, decontamination process concentrates on identifying the contamination problem and having moisture intrusion problems corrected which have principally caused the mold infestation to take hold. Once the problem is identified and corrected, our approach and process is to eradicate the mold infestation through application of several chemical means (fogging and spraying of effective specially developed chemical solutions) as opposed to physical (structural removal) means. This results in a drastic minimization of the deconstruction/reconstruction effort, thereby saving time, labor and material costs needed to perform the mold remediation, which in turn leads to greater profit potential. Our products allow for applications in areas such as animal husbandry, hospitality, medical and nursing home facilities, and in any area where the proliferation of bacteria, virus and fungi pose threats to the inhabitants of these facilities. Leveraging our exclusive proprietary technology to these products, we will develop additional applications in other industries creating new revenue opportunities, such as specially formulated products for use in cleaning and sanitizing automobile interiors. We intend to use infusions of capital and/or debt to launch operations, secure or develop exclusive synergetic product rights, establish a market position, and achieve significant financial goals.

 

 

PRODUCTS

 

Our family of proprietary products, specifically designed to control and eliminate the presence and growth of mold and mildew on all surfaces, significantly changes for all time the way we address the presence of mold spores. Our aqueous surfactant may be applied by spraying, misting wiping or soaking. In the process of decontamination, the use of Red Reef products, in most cases, eliminates the need for tearing down walls or removing and encapsulating mold-bearing materials. As long as the building materials are not compromised to the extent that they are no longer serviceable, the mere presence of mold or mildew does not necessitate their replacement. Red Reef technology will, in all cases, destroy the spores’ protective shells and expose and kill the germ within. This is accomplished in most cases with little or no scrubbing. Of course, there are different products for hard surfaces, carpeting, drapes and all soft material and of significant importance, HVAC systems. A typical building envelope, commercial or residential, normally evacuated under current practices for the removal and encapsulation of mold and mildew, can be completely remediated in hours rather than days or weeks and may safely be occupied immediately upon completion. One very important reason this is so is because Red Reef products are environmentally safe and human friendly. Only our hard surface cleaner, TKO, requires special handling, but is quickly neutralized once it has accomplished its task.

 

Our hard surface decontaminant contains 5% Sodium Hypochlorite (the same ingredient found in common household bleach products) in a unique, proprietary surfactant blend. All other products in our library are non-toxic, non-corrosive, environmentally benign and human friendly and are formulated with the same proprietary surfactant blend.

 

One of RRLB’s lead products is EPA registered as a multipurpose, broad-spectrum antimicrobial and biocide.   The formulais based on non-ionic surface active agents; benzalkonium chlorides that are field-tested as fast-acting germicides, algaecides, fungicides, and even in medical applications as a disinfecting wound irrigant and antiseptic.

 

This formula comprises of a blend of proprietary components which provides an advanced sanitizing, disinfecting, deodorizing and cleaning tool for general use in demanding decontamination applications, for healthier environments in homes, hospitals, nursing homes, schools, food processing plants and other facilities where controlling biological hazards is of prime importance.

 

EPA APPROVED PRODUCTS

 

Advanced Mold Remediation Products

 

Red Reef’s Protocol for mold remediation enables simplified and truly effective maintenance. Any site where mold of any description is present can be restored without tearing down of walls or dissecting A/C ducts. The active products can be applied by misting into ducts, wall cavities and rooms and are harmless to the integrity of exposed surfaces. The same delivery system tested by the US Marines and found effective against live and weaponized anthrax spores has been commercialized and destroys mold and fungal spores in homes and commercial buildings, providing healthier living environments.

 

BioClear® TKO is registered to us and is produced by us at our facility in Deerfield Beach, Florida.  We maintain a small inventory of BioClear® TKO at our facility for sale to the Seminole Hard Rock Hotel and Casino in Hollywood, Florida, which purchases the product on a regular basis throughout the year.

 

Our three other EPA approved products are licensed from Stepan Company in Northfield, Illinois (see Exhibit 10.12).  We do not pay a fee to license these products from Stepan but must certify to them that we comply with the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) regulations as they apply to the quality control, record keeping, labeling, distribution, and sale of each product.  In addition, all of our initial product labels must be approved by Stepan prior to use by us. (See Government Regulation Issues on page 12 for a more detailed explanation of FIFRA.)

 

The three products licensed from Stepan are produced by GLH Chemical in Bethlehem, Georgia on a per order basis when we receive an order from a customer.  We do not have a contract with GLH Chemical to blend our products; GLH is paid on a per order basis.

 

 

BioClear® TKO Heavy Duty Cleaner for Mold – Mildew – Algae

 

(Healthy Solutions 6000)

 

Mold, Mildew and Algae odor and stain remover

 

BioClear® TKO, which contains our proprietary blend of surfactants, acts by eradicating mold and algae growth to the roots. In doing so, it significantly delays re-growth of mold and algae on affected and vulnerable areas.

 

As a professional bioactive remedy, BioClear® TKO is categorized as a Dangerous Good (Corrosive 8), with bleach (Sodium Hypochlorite) as one of the active components. It must be handled carefully in its concentrated form. However, as soon as it is diluted 1:1 with water, it becomes harmless to the environment.

 

BioClear® TKO has been designed for indoor and outdoor use.

 

It has been carefully tested and successfully used on the following areas:

 

·         Concrete areas, including driveways

·         Terracotta tiles and roof tiles.

·         Sandstone surfaces.

·         Residential and public bathrooms and washrooms.

·         Outside walls (including painted walls).

·         Residential house remediation.

·         Building framework anti-mold treatment.

·         Wallboards.

·         Ceilings.

·         Basements

·         Canvas, including tents, sails, and patio umbrellas

 

BioClear®2000 Advanced Detergent/Disinfectant*

 

A surface disinfecting product designed specifically as a general cleaner and disinfectant for use in food service establishments, transportation terminals, office buildings and manufacturing facilities.

 

The unique delivery system of BioClear®2000 has the ability to eliminate biological contamination (including offensive or foul odors) without destroying or corrupting the contact surfaces and materials it resides on. BioClear®2000 kills harmful biological matter on contact.

 

The BioClear®2000 technology allows for retention and restoration of most contaminated sites, without a "removal and replacement" strategy other decontamination technologies suggest as a remedy to a contaminated area.

 

BioClear®2000 is versatile - it can be wet fogged, sprayed, mopped, sponged or wiped on any surface or fabric. BioClear®2000 will decontaminate an area without danger to the technician applying the product, and to the environment or any surface, it comes in contact with, including delicate fabrics, metals or electronics.

 

In fact, wet fogging is highly recommended when addressing contaminated rooms, wall cavities, or hard to reach places, something a corrosive product can never be applied to.

 

BioClear®2000 is a sensible, environmentally friendly, responsible and effective solution to a great number of biological contaminations.

 

 

Cleaning and Disinfecting Products

 

BioClear® FF Poultry and Swine Premise Disinfectant Cleaner*

 

A phosphate free formulation designed to provide effective cleaning, deodorizing, and disinfection specifically for food processing plants, hog farms, poultry and turkey farms and egg processing plants, meat/poultry processing plants, meat/poultry producing establishments, veterinary clinics, animal life science laboratories, kennels, breeding and grooming establishments, pet animal quarters, zoos, pet shops, tack shops and other animal care facilities.

 

BioClear® MD Hospital Disinfectant/Cleaner*

 

Designed specifically as a general non-acid cleaner and disinfectant for use in homes, hospitals, nursing homes, patient rooms, operating rooms, and ICU areas where housekeeping is of prime importance in controlling the hazard of cross contamination.

 

* This product is licensed from and manufactured by a third-party supplier and does not contain RRLB's own proprietary blend of surfactants.

 

PRODUCTS CURRENTLY IN DEVELOPMENT

 

BioClear One features our core technology, our proprietary blend of surfactants, which is also a key component of the formula tested by two separate U.S. government laboratory facilities against weaponized anthrax with results of a 99.999999% kill rate in less than thirty minutes. Based on these successful test results, we believe that BioClear One is far superior to competitors’ products, including the BioClear®2000 Red Reef now markets. Similarly, it contains components that provide an advanced sanitizing, disinfecting, deodorizing and cleaning tool for general use in demanding decontamination applications. BioClear One is a safer, highly effective, easily applied product for a healthier environment in homes, hospitals, nursing homes, schools, food processing plants and other facilities where controlling biological hazards and cross-contamination is of prime importance; in addition to eliminating, not masking odors. What sets us apart is our ability to break surface tension on contact, spread and seek moisture, accomplishing any mission quickly and thoroughly. This activity allows us to use smaller concentrations of active ingredients without compromising effectiveness; hence, environment and human friendly.

 

When formulated as an “all in one” disinfectant, detergent, deodorizer, mildewstat, fungicide, sanitizer and virucide, it may be packaged and tailored for specific applications. Our goal is to produce a final product that will prove to be highly effective against a great number of harmful bacteria.

 

Red Reef Silver Bullet Technology® for Bio-Defense

 

A specifically designed bio-defense variation is Red Reef Silver Bullet Technology® using the same proprietary blend of surfactants and specific optimized active components that have been proven to be effective in killing hard to kill bacterial spores. In two separate military-sponsored and funded tests, Red Reef Silver Bullet Technology® achieved a 99.999999% kill rate against biological Anthrax surrogates and two strains of weaponized bacterium Anthrax in less than 30 minutes. It is easier and safer to use than known competitive products. The competitive product (Chlorine Dioxide Gas), most commonly used, requires 12 hours to achieve a similar result, yet is toxic and corrosive. Silver Bullet Technology® has broad military and homeland defense bio-defense applications.   

 

The uniqueness of our technology is the combination of active bacteria-killing components with “accelerator” factors, resulting in maximum sterilization and decontamination in the shortest period of time, using highly diluted, hence safer formulas.

 

SB4 Pet Habitat, for use in veterinary offices or hospitals, can be used to deodorize and clean public areas, waiting rooms, restrooms and other shared spaces. In addition, it can be used to clean pet and animal cages, feeding areas, dog runs and examination and operating rooms.

 

 

The Company has recently formulated a line of veterinarian products for horses to be marketed under the trade name Sound Equine. These independentfield-tested, highly effective formulas are designed to eliminate fungal infections commonly affecting horses’ shanks and hooves. Further tests are required.

 

PRODUCT PRODUCTION

 

We currently produce most of our products in-house. We also have a principal contract manufacturer, GLH Chemical in Bethlehem, Georgia, to help in manufacturing of our products, in the event we could not produce anticipated future needs.  In addition, other production facilities are available, if needed, to meet any demand for production. We believe sufficient quantities of raw materials for our products are readily available on the market such that production would not be unreasonably delayed, although we do not have any contracts for production of these raw materials.  We use the following companies as our principal suppliers of raw materials:

 

·         Acti-Chem Specialties, Inc., Trumbull, Connecticut

·         Andri Chemical of America, Inc., Hollywood, Florida

·         Win Manuco Ltd., BurlingtonOntario, Canada

 

SERVICES

 

Remediation

 

Our main office in Deerfield Beach, Florida provides the service of mold remediation.  The company has sold products to remediators outside of Florida for their use in mold remediation services.

 

Our exclusive, innovative anti-microbial product line enables a remediation protocol that is easily executed, cost effective and environmentally safe.  Ideally, it addresses the entire building and all its components.

 

Red Reef BioClear Remediation Procedures

 

1.  Identify and repair source of water intrusion

 

2. Confirm site is dry and ready to accept application

 

3. Decontaminate all occupied areas by wet fogging

 

4. Kill and clean visible mold by directly spraying and wiping

 

5. Kill non-visible mold (i.e. behind walls) by fogging

 

6. Air scrub entire house or building area by wet fogging

 

7. Arrange for Third Party Air Quality Specialist Clearance

 

8. Provide recommendation for repair and reconstruction in follow-up report

 

This unique state of the art process eliminates the need for time-consuming and costly containment barriers, negative-air machines, demolition, contaminated bagging & removal, off-site decontamination and disposal, and major reconstruction.  We can save thousands of dollars in client relocation costs and lost production expenses as well.  By consistently executing and our proven procedures from start to finish, we provide the highest quality and most effective remediation in the industry; and at a substantially lower cost.

 

 

SIGNIFICANT CUSTOMERS

 

Generally, we are not dependent on one or few major customers, as most of our revenue is generated by our mold remediation services.  The majority of the mold remediation business comes through referrals and limited advertising, not through repeat customers. However, for the nine months ended June 30, 2007, one major customer, Benchmark China Ltd., who paid us $440,000 as a one-time fee for a licensing agreement, generated 98% of our revenues. The $440,000 in revenues from Benchmark Chinaconsisted of a $300,000 initial non-refundable fee and a $140,000 one-time fee for a licensing agreement for the right of first refusal to market and distribute all other BioClear products. Our agreement with Benchmark China, entered into on October 30, 2006, is for a period of ten years and gives them exclusive rights to market and distribute BioClear® FFin China and the Far East, excluding Japan and South Korea. We will receive 50% of fees paid for all assignments of rights to third parties and 10% of gross sales from all sources, regardless of price, payable quarterly.  The loss of this major customer would have a negative impact on the future operations of our company.

 

DISTRIBUTION

 

We market our products using both current management personnel and outside independent sales and marketing companies.  We currently have sales and marketing arrangements in place with the following organizations:

 

Guangzhou Benchmark Consultant Services Limited – On March 9, 2007, we executed an Agency Contract with Benchmark, in which they agreed to be our agent in China to sell our products in Asia.  Benchmark will assist us with establishing an office in Guangzhou, China and obtaining the permits and licenses necessary to sell and distribute our products in the Chinese market.  In return for Benchmark's services, we agreed to pay them $9,000 to cover fees associated with obtaining sales permits and licenses and a service fee of $6,000 per month for the first six months of the contract.  After the initial six-month period, Benchmark will receive a 5% commission on wholesale revenue as a management fee.  Our contract with Benchmark is for a term of five years and expires on March 8, 2012.  A copy of our Agency Contract with Benchmark is attached as an exhibit to this filing.

 

Jennifer Fox and James V. Magrino – We entered into a Direct Marketing and Sales Agreement with Jennifer Fox and James V. Magrino on March 28, 2007.  Under the terms of the Agreement, Fox and Magrino have agreed to act as independent sales representatives to sell and promote our products and services in New York and New Jersey.  Upon execution of the four-year contract with Fox and Magrino, they received a signing bonus of 5,000,000 shares (2,500,000 shares each) of our restricted stock.  For each signed contract for the performance of our services, we agreed to pay Fox and Magrino a commission as follows:  (a) 3% of contract billing during the first year; (b) 2% of contract billing during the second year; and (c) 1% of contract billing during the third year, and for any year thereafter.

 

We currently sell BioClear® TKO directly to the end user.  Our end users are commercial customers, such as hotels, resorts and mold remediators, who use our products in services they provide to their own customers.  We get most of our new customers through direct solicitation by us or by word of mouth from other customers.  However, some customers have found us through our website and yellow page ads placed locally in Broward and Palm Beach counties in Florida.

 

We expect the growth in sales of all of our products to come primarily from marketing and distribution by others, such as independent manufacturer’s representatives and accessing existing distribution and fulfillment systems.  As we identify new markets, we intend to seek representatives in those markets to offer our products for specific applications such as hospitality, health care and animal husbandry.

 

Our goal is to continue to expand our product lines with other proprietary products that will be distributed directly to other businesses such as veterinary and animal husbandry facilities, medical facilities, HVAC and other commercial cleaning services, as well as local government organizations such as municipalities for the maintenance of public spaces and schools. We also anticipate sales of new products to end users through e-commerce and distribution by wholesalers to retail outlets, which will generate new revenue in future years.

 

 

In addition, we continue to pursue strategic alliances with other corporations that have existing distribution networks. Our goal for these alliances is to create immediate distribution and fulfillment avenues for our products, while focusing on our capital resources.

 

Services are currently being provided utilizing our proprietary formulas in the area of mold remediation. Red Reef will continue to develop business and awareness for the BioClear Brand. We will continue to develop business locally and gradually expanding the local presence to reach adjoining territories. We acquired real estate in Napoleonville, Louisiana for several reasons; as a launching site for our remediation business, we feel the region presents challenges in restoration and remediation since Katrina that we are able to address competitively, affording an opportunity for immediate recognition and growth. It is Red Reef’s intention to create a one stop emergency restoration and remediation company able to offer superior service in all areas of restoration. Napoleonville is strategically located midway between New Orleans and Baton Rouge, ideal for the remediation industry as well as future development of the land. The site consists of 70 plus acres of land and buildings.

 

ACQUISITION OF ENVIRONMENTALLY DISTRESSED PROPERTIES

 

Red Reef entered into a Joint Venture with JDM Capital Corporation in New York City on or about January 23, 2007. Both Red Reef and JDM Capital became members of the new joint venture entity, JDM Reef Capital Management, LLC, which was formed as a Delaware limited liability company.  Each member of JDM Reef Capital received a 50% interest in the company, consisting of 50 units, in exchange for an initial cash capital contribution of $50.

 

JDM Reef Capital will seek out environmentally distressed properties and evaluate the scope of remediation and restoration required to restore maximum value to the property. JDM Reef Capital Funding, LLC, independently owned by JDM Capital Corporation and its associates, will then arrange the funding for purchase and restoration of the property. Red Reef will perform the remediation and restoration, using Red Reef products and protocols, and once restoration is complete, the property will be offered for sale at full value. JDM Capital Corporation is an unrelated full-service real estate investment, asset management, and special servicing company headquartered in New York City. A copy of our joint venture agreement with JDM is attached as an exhibit to this filing.

 

ACQUISITION OF ASSETS AND LIABILITIES OF ALTFUELS CORPORATION

 

During the quarter ended December 31, 2006, we acquired the assets and assumed the liabilities of Altfuels Corporation and its related organization L‑1011, which included 80 acres in Napoleonville, Louisiana. We made this acquisition primarily to acquire the 80-acre site in Napoleonville as a launching site for our regional remediation business and for possible resale.  However, we subsequently decided to develop the property as a medical research facility.  We feel Louisiana and Mississippi present challenges in restoration and remediation, since Katrina and Rita, that we are able to address competitively, affording an opportunity for immediate recognition and growth. It is the our intention to create a mobile, one-stop emergency restoration and remediation company, able to offer superior service in all areas of restoration for the region, including neighboring states.

 

The aggregate purchase was $400,195, the amount of the assumed liabilities of the L-1011 Corporation, which were in default at the time of the acquisition, for which judgments exist. 

 

The value was determined by appraisal and written down to the amount of liabilities assumed.  We are currently attempting to refinance the debt and remove the judgments.

 

 

COMPETITIVE BUSINESS CONDITIONS

 

The healthy environment cleaning and sanitizing markets are dominated by larger and better‑financed companies with established distribution.  However, we believe that we can compete in the healthy environment products and services industry by supplementing our current mold remediation services with other environmental remediation and restoration services and expanding our service range throughout Florida, the GulfCoast and into other southeastern states.

 

We believe our unique approach at the way we deliver our chosen disinfecting agents at targeted bacteria, virus and fungi will help to give us a competitive edge over other companies in the same field.  Most competitive products use harsh chemicals that can kill bacteria, viruses and fungi ON CONTACT only. Our family of products utilize the concerted effort of reducing surface tension to easily penetrate and kill the targeted organisms but also to spread themselves through and into an infested area, thereby actively seeking out the location where spores of bacteria and fungi are growing and reproducing, thus eliminating the known ill-effects of potentially dangerous allergens and toxins. In addition, we will continue to increase the “green” components of our products, making them even more suitable for providing a healthy environment for humans and animals alike.

 

RRLB plans to enhance its competitive edge by combining innovative ideas for novel and superior products and formulations in the general field of healthy environments and quality of life. Unique, scientifically sound products designed by Red Reef Laboratories open attractive market niches that large and well-established companies neglect in spite of their obvious market dominance.  We are one of the few companies in this area of business that can make claim to having a surface decontaminant tested by the U.S. government against two strains of weaponized Anthrax with significant positive results. This same core technology used in the formula tested by the government is applied in our commercial products. Since, biological threats such as mold, mildew and fungi are generally much easier to eradicate than a bacterial spore such as Anthrax, our specially developed and proprietary products will have a competitive and superior edge to other products on the market.

 

The conservative approach for mold remediation for instance, continues to follow the guidelines set forth in protocols for asbestos removal. This practice involves the removal, encapsulation and replacement of building materials where toxic mold is evident. Red Reef BioClear protocol in this application is far more advanced and calls for the removal and replacement of building materials only when the materials are compromised by water or rot. After removal of apparent mold with BioClear products, wood structures, dry walls, and in many instances even carpeting are restored to serviceable condition. Red Reef BioClear protocol is far more economical, faster and more efficient than most competitors’ methods of tearing out and replacing building materials as the method prescribed and approved by most States. These competitors have a temporary advantage over a new and more sophisticated protocol since they are also well established as catastrophe water intrusion, fire and smoke remediators and are often licensed building contractors; the status quo feeds directly into their profit centers. The fact remains that no other protocol for toxic mold removal proves to be as cost effective, easy to apply, or provides healthy indoor air quality with minimal intrusion.

 

The obstacles we face in mold remediation exist in the specific markets in which we intend to increase our market share with our innovative and superior technology. Large, well-established financially strong companies dominate the product fields for animal husbandry, special veterinary applications, bio-defense in military and homeland defense applications, hospital and nursing home contamination problems, and for specific skin care and cosmetics; however, we have extrapolated our extremely positive field and test results with our scientifically formulated advanced products in these very fields and have identified a significant and realistic potential for us to expand in these multi-billion dollar markets. Red Reef will rely on advertising, public relations and market requirements to create and capitalize on market awareness, exploit identified niche markets and concentrate on those areas that indicate acceptance and approval and whenever possible fill vacuums that exist.

 

 

INTELLECTUAL PROPERTY

 

In the industry in which we are active there is no requirement to obtain EPA registration to allow for the sale of general commercial and household cleaning products. However, EPA registration is required for products with specific claims on the product label of effectiveness against particular organisms. EPA registration signifies that an extensive data set has been submitted for review and approval and the EPA has approved the detailed label language.

 

Trademarks

 

BioClear :   Environmental remediation, namely cleaning and disposal of mold from commercial buildings, homes and educational facilities and construction and repair of commercial buildings, homes and educational facilities in International Class 037.

 

Silver Bullet :  Preparations for decontamination of chemical agents, biological agents and industrial chemicals. International Class 001 .

 

EPA Registration

 

Healthy Solutions 6000 EPA Reg. No. 80434-1.

 

A Mold, Mildew and Algae Chlorinated Cleaner and Sanitizer for Hard Surfaces. Also for Water Treatment.

 

BioClear 2000   EPA Reg. No. 1839-81-80434 *

 

Advanced Detergent/Disinfectant/Cleaner/Mildewstat (on hard inanimate surfaces) /Fungicide(against pathogenic fungi)/Deodorizer/Disinfectant/Virucide.

 

BioClear FF Poultry and Swine Premise Disinfectant Cleaner EPA REG. NO. 1839-166-80434 *

 

A phosphate free formulation designed to provide effective cleaning, deodorizing, and disinfection specifically for food processing plant, hog farms, poultry and turkey farms and egg processing plants, meat/poultry processing plants, meat/poultry producing establishments, veterinary clinics, animal life science laboratories, kennels, breeding and grooming establishments, pet animal quarters, zoos, pet shops, tack shops and other animal care facilities.

 

BioClear® MD Hospital Disinfectant/Cleaner EPA REG. NO. 1839-83-80434 *

 

Designed specifically as a general non-acid cleaner and disinfectant for use in homes, hospitals, nursing homes, patient rooms, operating rooms, and ICU areas where housekeeping is of prime importance in controlling the hazard of cross contamination. 

 

* This product is registered by and licensed from Stepan Company.  We have a Licensing Agreement with Stepan to distribute and sell the product under our own brand name.  No licensing fee or other consideration was paid to Stepan to grant us the EPA subregistration for the product.

 

GOVERNMENT REGULATION ISSUES

 

Companies who develop products to control pests are subject to regulation under Federal Laws. The products that are manufactured and sold by Red Reef specifically come under the authority of the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA). FIFRA requires that before any person in any state or foreign country can sell or distribute any pesticide in the United States, they must obtain a registration from the U. S. Environmental Protection Agency (EPA). The term “pesticide,” as defined in FIFRA section 2(u), means any substance or mixture of substances intended for preventing, destroying, repelling, or mitigating any pest, virus, bacteria, or other micro-organism (except viruses, bacteria, or other micro-organism on or in living man or other living animals). Pesticides include fungicides, disinfectants, sanitizers, and germicides. After the registration process and submission of required data, an accepted label is stamped accepted and returned to the registrant for the registered product. Annual Pesticide Maintenance Fees are required for registered products. Anyone who sells/distributes a pesticide (including antimicrobial products such as disinfectants, sanitizers, and germicides) must (a) register that product in every state in which they intend to sell/distribute and (b) pay a registration fee. As of this date, only Alaska does not require a registration fee but does require registration.

 

 

In order to “produce”, defined to mean “to manufacture, prepare, propagate, compound, or process any pesticide . . . or to repackage or otherwise change the container of any pesticide . . .” the plant(s) and/or facility must be registered. Upon registration an establishment number is assigned. The label and/or container must bear the registration number as well as the establishment number. Annual reports are required to be submitted to the U.S. EPA indicating the amount produced, repackaged/relabeled for the past year, amount sold/distributed for the past year U.S. and Foreign, and amount to be produced/repackaged/ relabeled for the current year.

 

Red Reef is registered and has been assigned EPA Establishment No. 80434-FL-1. In addition, our contract manufacturers are registered EPA establishments.

 

 Regulation under FIFRA would only have a material effect on our business if we were unable to obtain approval from the EPA on registration applications submitted for any new products developed requiring such approval and registration. Otherwise, we do not foresee any substantial changes in government regulations that could adversely affect the production, sale and distribution of our products at this time.

 

COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS (FEDERAL, STATE, AND LOCAL)

 

The company is not producing any products that are hazardous to the environment and does not foresee any changes in the business line that could adversely affect the environment.  The company does not anticipate any material costs for environmental compliance for its business activities.

 

GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES

 

Products that are classified under the Federal Insecticide, Fungicide, Rodenticde Act as "pesticides" require that the manufacturer register each product and its label with the EPA before it can be manufactured for commercial use. At present, the company has finalized two formulations that fall into the "pesticide" category.  These products are production ready but we still have to submit data on six acute toxicity studies known as the EPA's "Six Pack," which include acute oral, acute dermal and acute inhalation toxicity texts, skin and eye irritation tests, and a dermal (skin) sensitization test. In addition to these toxicity studies, tests on the effectiveness of the products on specific organisms are required. After the required data is compiled, a label is created specifying the company’s requested site applications and uses for the product. We would then submit our proposed label, a statement of all claims to be made for the product, directions for its use, a confidential statement of the formula and a description of the tests which provide the basis for our claims to the EPA for their review and ruling.  If the registration application is approved, an accepted label is stamped "accepted" and returned to us for the registered product.

 

The first is a formula tested on behalf of the USMC against weaponized Anthrax and would be targeted initially as a surface disinfectant useable in animal husbandry applications such as disinfecting facilities and equipment used in livestock production, including poultry farms.

 

The second formula is a broad-use surface disinfectant that would include use for mold, mildew and fungi surface disinfection, as well as site uses in animal husbandry, veterinarian and medical facilities and certain pieces of equipment, food and non-food surfaces.

 

Once the company has submitted the data and has a final version label acceptable to the EPA, the products will be available to bring to market for the uses and site applications mentioned.

 

RESEARCH AND DEVELOPMENT

 

We spent a total of approximately $3,000 on research and development activities during the last two fiscal years.  All such costs were absorbed by the company and none were borne directly by customers.

 

EMPLOYEES

 

The Company currently has three (3) full time employees and one (1) part time employee. The Company has recently hired Nathan Evans as Chief Operating Officer with a start date and compensation to be determined. Mr. Evans has been appointed to the Advisory Board and will assist the company in that capacity until his services are needed full time to expand the remediation business.

 

 

RISK FACTORS

 

There are many factors that affect the Company’s business, operating results and financial conditions, many of which are beyond its control. The following is a description of the most significant factors that might cause the actual results of operations in future periods to differ materially from those currently expected or desired.

 

The Company’s limited operating history and near absence of revenues makes evaluation of our business and prospects difficult.

 

We have received a report from our independent auditors on our financial statements for fiscal years ended September 30, 2006 and 2005. The footnotes to our financial statements list factors, including limited revenues since incorporation that raise some doubt about our ability to continue as a going concern. We recorded revenues of $126,575 and $12,224 for the years ended September 30, 2006 and 2005, respectively. 

 

The Company does not expect to pay dividends on our common stock.

 

It is unlikely any dividends will be paid on the Shares in the near future; and there are no legal requirements or promise made by the Company to declare or pay dividends, and even if profitable, the Company may elect to use the profits for the business in lieu of declaring any dividends.

 

Natural disasters, including earthquakes, fires and floods, could severely damage or interrupt the Company’s systems and operations and result in an adverse effect on the Company’s business, financial condition or results of operations .

 

Natural disasters such as fire, flood, earthquake, tornado, power loss, break-in or similar event could severely damage or interrupt the Company’s systems and operations and/or result in temporary or permanent loss of manufacturing capability. Great delays could be experienced; power outages and communication blackouts could occur that would effectively halt, indefinitely, operations or that would cripple the Company at this critical growth stage.

 

Management, though experienced in this field, is small and may not be able to handle fast growth in time to train additional managers. This could bring to bear undue strain on the Company that could derail growth.

 

We may not be able to sell our products effectively if our management does not have adequate time and resources to conduct our distribution activities. Moreover, as our sales grow, the strain on our management to sell and distribute products may increase. In the event that we decide to retain distributors, we may not be able to establish relationships with distributors. In addition, we may incur additional costs and business delays and interruptions in sourcing distributors.

 

The revenue sources may take significantly longer to implement than planned. This could exhaust the Company’s revenues and bring operations to a halt.

 

The market for environmentally friendly sanitizing products is new and evolving. As a result, demand and market acceptance for our products is uncertain. If this new market fails to develop, develops more slowly than expected or becomes saturated with competitors, or if our products do not achieve or sustain market acceptance, our business could be harmed.

 

Extreme market conditions of high inflation, low inflation, easy access to financing or a tightening of the money supply could hamper the effects of the Company’s advertising, marketing and sales efforts.

 

The desire for our products is strongly influenced by the condition of the economy, access to credit and the condition of the financial markets.

 

 

The Company has substantial near-term capital needs; we may be unable to obtain the additional funding needed to enable us to operate profitably in the future.

 

We will require additional funding over the next twelve months to develop our business estimated to be equal to $100,000.  Presently, we have only $15,143 worth of liquid assets with which to pay our expenses.  Accordingly, we will seek outside sources of capital such as conventional bank financing; however, there can be no assurance that additional capital will be available on favorable terms to us. If adequate funds are not available, we may be required to curtail operations or to obtain funds by entering into collaboration agreements on unattractive terms.

 

In addition, we have no credit facility or other committed sources of capital sufficient to fund our business plan. We may be unable to establish credit arrangements on satisfactory terms. If capital resources are insufficient to meet our future capital requirements, we may have to raise funds to continue development of our operations. To the extent that additional capital is raised through the sale of equity and/or convertible debt securities, the issuance of such securities could result in dilution to our shareholders and/or increased debt service commitments. If adequate funds are not available, we may be unable to sufficiently develop our operations to become profitable.  

 

If the Company loses the services of its President, our business may be impaired.  

 

Our success is heavily dependent upon the continued and active participation of our president, Dr. Claus Wagner Bartak. The loss of Dr. Bartak’s services could have a severely detrimental effect upon the success and development of our business, inasmuch as he is the only officer with the experience to continue the operations of the company.

 

The Company does not have any plans to hire additional personnel for at least the next six months, which may cause substantial delays in our operations.

 

Although we plan to expand our business and operations, we have no plans to hire additional personnel for at least the next six months.  As we expand our business, there will be additional strains on our operations due to increased cost.  In addition, there may be additional demand for our services.  We now only have the services of our president to accomplish our current business and our planned expansion. If our growth outpaces his ability to provide services and we do not hire additional personnel, itmay cause substantial delays in our operations.

 

  The Company’s lack of an established nation-wide brand name could negatively impact our ability to effectively compete, which could prevent us from acquiring customers and increasing our revenues.

 

A significant element of our business strategy is to build market share by continuing to promote and establish the “Red Reef BioClear” brand. If we cannot establish our brand identity, we may fail to build the critical mass of customers required to substantially increase our revenues. Promoting and positioning our brand will depend largely on the success of our sales and marketing efforts and our ability to provide a consistent, high quality customer experience. To promote our brand, we expect that we will incur substantial expenses related to advertising and other marketing efforts. If our brand promotion activities fail, our ability to attract new customers and maintain customer relationships will be adversely affected, and, as a result, our financial condition and results of operations will suffer.

 

 

As public awareness of the health risks and economic costs of mold contamination grows, we expect competition to increase, which could make it more difficult for us to grow and achieve profitability.

 

We expect competition to increase as awareness of mold-related problems increases and as we demonstrate the success of mold prevention. A rapid increase in competition could negatively affect our ability to develop new and retain our existing clients and the prices that we can charge. Many of our competitors and potential competitors have substantially greater financial resources, customer support, technical and marketing resources, larger customer bases, longer operating histories, greater name recognition and more established relationships than we do. We cannot be sure that we will have the resources or expertise to compete successfully. Compared to us, our competitors may be able to:

 

	•	develop and expand their products and services more quickly;
	•	adapt faster to new or emerging technologies and changing customer needs and preferences;
	•	take advantage of acquisitions and other opportunities more readily;
	•	negotiate more favorable agreements with vendors and customers;
	•	devote greater resources to marketing and selling their products or services; and
	•	address customer service issues more effectively.

 

Some of our competitors may also be able to increase their market share by providing customers with additional benefits or by reducing their prices. We cannot be sure that we will be able to match price reductions by our competitors. In addition, our competitors may form strategic relationships to better compete with us. These relationships may take the form of strategic investments, joint-marketing agreements, licenses or other contractual arrangements that could increase our competitors’ ability to serve customers. If our competitors are successful in entering our market, our ability to grow or even sustain our current business could be adversely impacted.

 

Any failure of our products to fulfill their stated purpose could result in lawsuits for product liability or breach of contract, which could have a material adverse effect on our business.

 

Although we currently maintain product liability insurance, a successful claim against us in excess of our insurance coverage could have a material adverse effect on our results of operations, financial condition or business.  Even unsuccessful claims would result in expenditure of funds in litigation, as well as diversion of management time and resources.

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL COND ITION

 

With the exception of historical facts stated herein, the matters discussed in this report are "forward looking" statements that involve risks and uncertainties that could cause actual results to differ materially from projected results. Such "forward looking" statements include, but are not necessarily limited to, statements regarding anticipated levels of future revenues and earnings from our operations. Readers of this report are cautioned not to put undue reliance on "forward looking" statements, which are, by their nature, uncertain as reliable indicators of future performance. We disclaim any intent or obligation to publicly update these "forward looking" statements, whether because of new information, future events, or otherwise. In addition, the uncertainties include, but are not limited to, competitive conditions involving our markets.

 

Red Reef Laboratories International, Inc. (“We”/”Us”) was incorporated in the State of Florida on October 1, 2002 as GSC Global, Inc. We filed Articles of Amendment to the Articles of Incorporation on January 10, 2005 changing the corporate name to Red Reef Laboratories International, Inc. Our objective is to become the premier mold remediation company in Florida and beyond.

 

We will utilize a unique "streamlined" decontamination process enabled by new state-of-the-art mold-killing products that create exceptional profit potential. Leveraging our exclusive proprietary technology to these products, we will look to develop additional applications in other industries creating new revenue opportunities. We intend to use infusions of capital and/or debt to launch operations, secure or develop exclusive synergetic product rights, establish a market position, and achieve significant financial goals.

 

To inform the reader and provide more decision usefulness herein, the following paragraphs were written describing more of what we do, the services we provide and the products we offer.

 

Our company has, since inception, focused on providing the means (products) and eventual services for a "healthy environment" for humans and for animal husbandry. Based on an innovative formulation of chemical compounds suitable for our initial product introductions, RRLB has produced a product line for various applications of disinfection, sanitation, decontamination and mold remediation.

 

Some of our BioClear products are sold to the hospitality industry for cleaning and disinfecting purposes and are used by departments such as general housekeeping and facilities maintenance.

 

When providing mold remediation services, we also use our BioClear products if cleaning and sanitizing of surfaces is necessary during the process. Although we generally make use of these products only through our in-house mold remediation service; however, at times we will also sell to mold remediation companies outside of our service area.

 

RESULTS OF OPERATIONS

 

For the three and nine months ended June 30, 2007 and 2006 (unaudited)

 

Revenues

 

Net revenues were $1,703 and $450,900 for the three months and nine months ended June 30, 2007, respectively, compared to net revenues of $-0- and $73,332 for the three months and nine months ended June 30, 2006, respectively. The increase in revenues for the nine month period was attributable to a one-time fee of approximately $440,000 for a licensing agreement, paid to us by our largest customer, Benchmark China Ltd. and to our selling increased surface decontamination products and specialized services in the fight against bacteria, viruses and fungi (mold) infestations of our living environment.  The $440,000 in revenues from our largest customer consisted of a $300,000 initial non-refundable fee and a $140,000 one-time fee for a licensing agreement for the right of first refusal to market and distribute all other BioClear products.

 

 

Income / Loss

 

We had net (losses) of $(466,639) and $(570,020) for the three months and nine months ended June 30, 2007, respectively, compared to net (losses) of $(547,562) and $(720,897) for the three months and nine months ended June 30, 2006, respectively. The net losses in these periods were primarily due to depreciation expense, which were $16,722 and $3,448 in the nine months ended June 30, 2007 and 2006, respectively. We also had increases in expenses in the 2007 period versus the 2006 period as discussed in the next paragraph

 

Expenses

 

Operating expenses for the three months and nine months ended June 30, 2007 were $467,242 and $1,023,599, respectively, compared to operating expenses of $542,029 and $768,293 for the three months and nine months ended June 30, 2006, respectively. Depreciation expense fees as mentioned above and consulting fees expenses of $466,931 and $554,110 for the nine months ended June 30, 2007 and 2006, respectively, were the primary reasons for the changes in the respective periods. We issued $372,500 worth of common shares, comprised of 43,750,000 shares per the footnotes to our financial statements, during the nine months ended June 30, 2007 for services rendered by outside consultants. We issued $500,000 worth of common shares during the nine months ended June 30, 2006 for services rendered by outside consultants.  Our fees for consulting services in 2006, which consisted of legal and administrative services, advice on NASD filings and overall planning, coordination and direction of our research and development activities, were higher because we required more assistance from consultants to complete the process of becoming a publicly traded company.

 

Cost of Revenue

 

Cost of revenue primarily includes sales of our products. During the nine months ended June 30, 2007, we had a cost of revenues of $190, or less than one percent of revenues. We had a cost of revenues of $1,093 for the nine months ended June 30, 2006.

 

Impact of Inflation

 

We believe that inflation has had a negligible effect on operations during the three-month and nine-month periods ended June 30, 2007 and the comparative periods in the previous period. We believe that we can offset inflationary increases in the cost of revenue by increasing revenue and improving operating efficiencies.

 

Liquidity and Capital Resources

 

Net cash flows used in operating activities were $225,594 and $180,775 for the nine months ended June 30, 2007 and 2006, respectively, primarily attributable to a net loss, which were $570,020 and $720,897 for the nine months ended June 30, 2007 and 2006, offset by depreciation expense of $16,722 and $3,448 for the nine months ended June 30, 2007 and 2006, respectively, shares issued for consulting services during the nine months ended June 30, 2007 in the amount of $372,500, and shares issued for director’s compensation in the amount of $5,000 for the nine months ended June 30, 2007.

 

Net cash flows used in investing activities were $50,742 and $16,689 for the nine months ended June 30, 2007 and 2006, respectively, primarily attributable to a $50,000 expenditure made for an acquisition deposit during the nine months ended June 30, 2007. We also purchased property and equipment in the amounts of $742 and $16,689 during the nine months ended June 30, 2007 and 2006, respectively.

 

Net cash flows provided by financing activities were $265,757 and $205,227 for the nine months ended June 30, 2007 and 2006, attributable to sales of common stock which generated cash in the amounts of $497,250 and $100,000 during the nine months ended June 30, 2007 and 2006, respectively. We had an increase (decrease) loans and advances from stockholders, net during the nine months ended June 30, 2007 and 2006 in the amounts of $(231,493) and $105,227, respectively.

 

 

Overall, we have funded all of our cash needs from October 1, 2006 through June 30, 2007 with proceeds from issuance of our common stock.

 

On June 30, 2007, we had cash of $4,566 on hand. We do not presently generate sufficient revenue to fund our operations and the planned development of our business.  In order to sustain our current operations and develop our business plan, we will require funds for working capital.

 

We primarily depend on our mold remediation service operations for our working capital needs. Projected revenues from our mold remediation services are approximately $250,000 for the remainder of 2007. 

 

In addition, our intention is to negotiate product distribution agreements with foreign distributors abroad through our office and agent in Guangzhou, China and complete the approval process allowing the sale of our products in China. All of these activities are intended to generate additional capital.

 

We may also attempt to raise additional working capital through the sale of equity, debt or a combination of equity and debt.  We do not presently have any firm commitments for additional working capital and there are no assurances that such capital will be available to us when needed or upon terms and conditions which are acceptable to us. If we are able to secure additional working capital through the sale of equity securities, the ownership interests of our current stockholders will be diluted. If we raise additional working capital through the issuance of debt or additional dividend paying securities, our future interest and dividend expenses will increase. 

 

We did raise capital, complete acquisitions, and satisfy obligations recently through the use of our equity.  During the nine months ended June 30, 2007, 34,269,091 shares were issued for $497,250 in cash; 1,200,000 shares were issued to acquire the assets and liabilities of Altfuels Corporation and related organization’s assets and liabilities; 2,406,324 shares were issued to convert $40,000 in debt, including $2,115 in accrued interest; 43,750,000 shares were issued for consulting services; and 1,000,000 shares were issued for Board of Directors compensation. 

 

We estimate we will need $2,000,000 in the next 12 months to fulfill the requirements of our business plan, including completing our acquisition of Certified Environmental Services in the fourth calendar quarter of 2007. Currently, our available and anticipated capital from our business operations would be sufficient to sustain us for eight months but would be insufficient to complete the acquisition of Certified Environmental Services.  We are exploring public and private sector opportunities to finance the acquisition of Certified Environmental Services.

 

If we are unable to secure additional working capital as needed, our ability to increase sales, meet our operating and financing obligations as they become due or continue our business and operations could be in jeopardy.

 

No significant amount of our trade payables has been unpaid within the stated trade term. Other than the following judgment, we are not subject to any unsatisfied liens or settlement obligations. We have $400,195 in judgments payable on property as per our footnotes to the financial statements herein. This property is subject to seizure and sale under Louisiana state law for the non-payment of the Community Bank judgment. No writ of seizure has been issued, nor is any sheriff sale currently set by the Sheriff of Assumption Parish.

 

 

For the years ended September 30, 2006 and 2005 (audited)

 

Net Loss

 

We had a net loss of $2,132,643 and $596,752, for the years ended September 30, 2006 and 2005, respectively. The net losses in these periods were due primarily to general and administrative expenses, which were $2,208,002 and $608,976 for the years ended September 30, 2006 and 2005, respectively. 

 

Revenue

 

We recorded revenues of $76,575 and $12,224 for the years ended September 30, 2006 and 2005, respectively. The increase in revenues was attributable to our selling increased surface decontamination products and specialized services in the fight against bacteria, viruses and fungi (mold) infestations of our living environment. The majority of our revenues, $44,500 and $10,715, for the years ended September 30, 2006 and 2005, respectively, was primarily derived from services performed in the field of mold remediation, as compared to $32,075 and $1,509, respectively, for product sales for the same periods.

 

Expenses

 

Operating expenses for the years ended September 30, 2006 and 2005 were $2,208,002 and $608,976, respectively. Professional fees were the primary reason for the increases in the respective periods in that we issued $800,000 and $245,000 worth of our common shares for services rendered during the years ended September 30, 2006 and 2005, respectively. We recorded $1,200,000 in accrued expenses in our statement of operations for the year ended September 30, 2006 for consulting services, which consisted of legal and administrative services, advice on NASD filings and overall planning, coordination and direction of our research and development activities. Of our total revenues for the year ended September 30, 2006, approximately $32,000 was from the sale of products and our gross profit on the sale of products is approximately 96%.  The rest of our revenues came from providing services.  The majority of revenues for the year ended September 30, 2005 were from mold remediation services.

 

Liquidity and Capital Resources

 

Net cash flows used in operating activities were $34,611, $197,810 for the years ended September 30, 2006 and 2005, respectively, primarily attributable to a net loss, which were $2,132,643, and $596,752 for the years ended September 30, 2006 and 2005, offset by the increases in accounts payable in both periods.

 

Net cash flows from investing activities for the years ending September 30, 2006 and 2005 were $16,689 and $-0-, respectively. There was $16,689 in cash flows used in investing activities for the year ended September 30, 2006 that was used for the purchase of fixed assets.

 

Net cash flows provided by financing activities were $64,744, $185,250 for the years ended September 30, 2006 and 2005, mainly attributable to $138,196, and $253,828 proceeds from loans from minority stockholders in the years ended September 30, 2006 and 2005, respectively.

 

Overall, we have funded all of our cash needs from inception through September 30, 2006 with shareholder loans.

 

On September 30, 2006, we had cash of $15,144 on hand. We do not presently generate sufficient revenue to fund our operations and the planned development of our business.  In order to sustain our current operations and develop our business plan, we will require funds for working capital.

 

We are not in default or in breach of any note, loan, lease or other indebtedness or financing arrangement requiring us to make payments.

 

No significant amount of our trade payables has been unpaid within the stated trade term. We are not subject to any unsatisfied judgments, liens or settlement obligations.

 

 

ITEM 3. DESCRIPTION OF PROP ERTY

 

The company’s 3,000+ square foot office facility located in Deerfield Beach, Florida consists of four executive offices, one secretary/bookkeeping office, a copier/storage room, small lab space, warehouse and staging area.

 

The company leases its facility from the HillsboroughExecutiveCenter, whose property is managed by CF Property Management Services, Inc.

 

On March 25, 2003, the company entered into a forty-two month operating lease agreement for its office facilities.  In March 2004, the company extended its lease for another twelve months until September 2007.

 

ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGE MENT

 

The following tables set forth the ownership, as of October 16, 2007, of our common stock (a) by each person known by us to be the beneficial owner of more than 5% of our outstanding common stock, and (b) by each of our directors, by all executive officers and our directors as a group. To the best of our knowledge, all persons named have sole voting and investment power with respect to such shares, except as otherwise noted.

 

 

 

 

Notes to the table:

 

(1)

Pursuant to Rule 13-d-3 under the Securities Exchange Act of 1934, as amended, beneficial ownership of a security consists of sole or shared voting power (including the power to vote or direct the voting) and/or sole or shared investment power (including the power to dispose or direct the disposition) with respect to a security whether through a contract, arrangement, understanding, relationship or otherwise. Unless otherwise indicated, each person indicated above has sole power to vote, or dispose or direct the disposition of all shares beneficially owned.

 

(2)	This table is based upon information obtained from our stock records. We believe that each shareholder named in the above table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned.

 

ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PER SONS

 

The officers and directors of the Company are as follows:

 

 

Executive Officers of the Registrant

 

The following list describes our executive officers.  Officers are elected by and serve at the discretion of the Board of Directors.

 

Dr. Claus G. J. Wagner Bartak, President and Chairman of the Board

 

Listed in several International Who’s Who, Dr. Wagner Bartak is an accomplished, internationally recognized scientist and business executive.

 

The span of Dr. Wagner Bartak’s experience reaches from scientific, technical, business development and executive management of major multinational aerospace projects to the development of information technology systems and the founding of several successful business ventures, which are in the forefront of novel technological developments.

 

Dr. Wagner Bartak is the creative mind that pioneered research and development of the Internationally recognized 'Canadarm' utilized on NASA's Space Shuttle.  Dr. Wagner Bartak is renowned for his research in the field of robotics.

 

He received his basic university education in sciences at Ludwig-MaximilianUniversity, Munich, and in business administration and engineering management at TechnicalUniversity, Munich, Germany. He further studied and lectured in Business Management, Medicine, Pharmaceutical Developments and Robotics.

 

 

 

In industry, he has held the following major positions:

 

 

Dr Wagner Bartak is an expert consultant and advisor to government and industry in frontier technologies, innovations and business systems since 1982.

International Awards earned by Dr. Wagner Bartak:

 

 

Peter Versace, Executive Vice President, Secretary and Director

 

A corporate “Entrepreneur,” Peter Versace has honed his award winning management skills as an accomplished operations executive. A consummate business analyst, Mr. Versace has particular competence in management of logistics, supply chain management, patent and trademark registration and international licensing.

 

Highly experienced with governmental relations, Mr. Versace has led initiatives in government and military sales, regulatory processes for import/export, environmental and international standards.

 

Mr. Versace has broad Information Technology and Business Development expertise in multiple corporate positions, such as:

 

 

 

ITEM 6. EXECUTIVE COMPENSA TION

 

No compensation in excess of $100,000 was awarded to, earned by, or paid to any executive officer of Red Reef Laboratories International, Inc. during the years 2006, 2005, and 2004, except as described below. The following table and the accompanying notes provide summary information for each of the last three fiscal years concerning cash and non-cash compensation paid or accrued by our President and Vice President.

 

 

 

In 2006, another shareholder loaned an additional $25,000 to the Company.  The demand note carries 8% interest.

 

 

ITEM 8. DESCRIPTION OF SECUR ITIES

 

Common Stock

 

The Company is authorized to issue 3,000,000,000 shares of common stock, $.001 par value, of which 987,199,390 shares are currently issued and outstanding.  The holders of shares of common stock have one vote per share.  None of the shares have preemptive or cumulative voting rights, have any rights of redemption or are liable for assessments or further calls. The holders of common stock are entitled to dividends, when and as declared by the Board of Directors from funds legally available, and upon liquidation of the Company to share pro rata in any distribution to shareholders.

 

Preferred Stock

 

The Company is authorized to issue 10,000,000 shares of preferred stock, $.001 par value, of which none is issued and outstanding.  If issued, our preferred shares may include certain shareholder privileges to be determined by our board of directors such as cumulative dividend payments and conversion features.

 

PacWest Transfer, LLC, 360 Main Street, Washington, Virginia22747, is the transfer agent and registrar for the Company's common stock.

 

Shares Eligible for Future Sale 

 

The Company has 987,199,390 shares of Common Stock outstanding but of these shares, only 115,011,811 shares are freely tradeable. All of the remaining shares of Common Stock are "restricted securities" and in the future, may be sold only in compliance with Rule 144 or in an exempt transaction under the Securities Act of 1933 (the "Act"), unless registered under the Act (the "restricted shares").  The officers and directors of the Company directly own 425,250,000 shares.

 

In general, under Rule 144 as currently in effect, subject to the satisfaction of certain conditions, a person, including an affiliate of the Company (or persons whose shares are aggregated), who has owned restricted shares of Common Stock beneficially for at least one year is entitled to sell within any three month period, a number of shares that does not exceed the greater of 1% of the total number of outstanding shares of the same class or, if the common stock is quoted on a national quotation system, the average weekly trading volume during the four calendar weeks preceding the sale. A person who has not been an affiliate of the Company for at least the three months immediately preceding the sale and who has beneficially owned shares of Common Stock for at least two years is entitled to sell such shares under Rule 144 without regard to any of the limitations described above. Typically, Rule 144 transactions require a legal opinion that the conditions for a Rule 144 sale have been met.

 

Based on the foregoing, the Company estimates approximately 9,872,000 shares of common stock may be permitted to be sold every three month period under Rule 144.

 

 

 

Holders

 

As of October 16, 2007, the number of holders of record of shares of common stock, excluding the number of beneficial owners whose securities are held in street name was approximately 206.

 

Dividend Policy

 

The Company does not anticipate paying any cash dividends on its common stock in the foreseeable future because it intends to retain its earnings to finance the expansion of its business.  Thereafter, declaration of dividends will be determined by the Board of Directors in light of conditions then existing, including without limitation the Company's financial condition, capital requirements and business condition.

 

ITEM 2. LEGAL PROCEEDI NGS

 

We are not aware of any pending or threatened legal proceedings, in which we are involved. In addition, we are not aware of any pending or threatened legal proceedings in which entities affiliated with our officers, directors or beneficial owners are involved.

 

ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUN TANTS

 

Not Applicable.

 

ITEM 4. RECENT SALES OF UNREGISTERED SECU RITIES

 

On or about April 5, 2006, we increased our authorized common shares to 3,000,000,000.  In addition, we authorized 10,000,000 shares of convertible preferred stock to be issued, $.001 par value, with a conversion ratio to be set at a later date.  Our board of directors also enacted a 10 for 1 forward stock split on February 15, 2006 and a 6 for 1 forward split on January 5, 2007.

 

On or about October 1, 2003, we entered into a Financial Advisory Services Agreement with Greentree Financial Group, Inc.  Under the terms of the agreement, Greentree Financial Group, Inc. has agreed to provide the following services:

 

·	Assistance with the preparation of our Form SB-2 registration statement;
·	State Blue-Sky compliance;
·	Selection of an independent stock transfer agent; and
·	Edgar services.

 

In exchange for these services, we paid Greentree $15,000 and issued 4,500,000 shares (75,000 pre-split) of our common stock. The common shares issued were valued at the estimated value for the services received, or $75,000, or $.016 per share. We relied on exemptions provided by Section 4(2) of the Securities Act of 1933, as amended. We made this offering based on the following facts: (1) the issuance was an isolated private transaction which did not involve a public offering; (2) there was only one offeree, (3) the offeree has agreed to the imposition of a restrictive legend on the face of the stock certificate representing its shares, to the effect that it will not resell the stock unless its shares are registered or an exemption from registration is available; (4) the offeree was a sophisticated investor very familiar with our company and stock-based transactions; (5) there were no subsequent or contemporaneous public offerings of the stock; (6) the stock was not broken down into smaller denominations; and (7) the negotiations for the sale of the stock took place directly between the offeree and our management.

 

 

In June of 2005, we issued 1,500,000 shares of common stock to Margy La Fond and 3,000,000 shares of common stock to Joseph DeMatteo for consulting services. We relied on exemptions provided by Section 4(2) of the Securities Act of 1933, as amended. We made this offering based on the following facts: (1) the issuance was an isolated private transaction which did not involve a public offering; (2) there was only two offerees, (3) the offerees have agreed to the imposition of a restrictive legend on the face of the stock certificate representing its shares, to the effect that it will not resell the stock unless its shares are registered or an exemption from registration is available; (4) the offerees were sophisticated investors very familiar with our company and stock-based transactions; (5) there were no subsequent or contemporaneous public offerings of the stock; (6) the stock was not broken down into smaller denominations; and (7) the negotiations for the sale of the stock took place directly between the offeree and our management.

 

In June of 2006, we issued 600,000 shares of common stock to Melodee Martins for administrative services rendered and 3,000,000 shares of common stock to Al Mirman for services rendered as a consultant advising on NASD filings. We relied on exemptions provided by Section 4(2) of the Securities Act of 1933, as amended. We made this offering based on the following facts: (1) the issuance was an isolated private transaction which did not involve a public offering; (2) there was only two offerees, (3) the offerees have agreed to the imposition of a restrictive legend on the face of the stock certificate representing its shares, to the effect that it will not resell the stock unless its shares are registered or an exemption from registration is available; (4) the offerees were sophisticated investors very familiar with our company and stock-based transactions; (5) there were no subsequent or contemporaneous public offerings of the stock; (6) the stock was not broken down into smaller denominations; and (7) the negotiations for the sale of the stock took place directly between the offeree and our management.

 

On October 9, 2006, we issued 4,800,000 shares of common stock to Vernon R. Way for $36,000. We relied on exemptions provided by Section 4(2) of the Securities Act of 1933, as amended. We made this offering based on the following facts: (1) the issuance was an isolated private transaction which did not involve a public offering; (2) there was only one offeree, (3) the offeree has agreed to the imposition of a restrictive legend on the face of the stock certificate representing its shares, to the effect that it will not resell the stock unless its shares are registered or an exemption from registration is available; (4) the offeree was a sophisticated investor very familiar with our company and stock-based transactions; (5) there were no subsequent or contemporaneous public offerings of the stock; (6) the stock was not broken down into smaller denominations; and (7) the negotiations for the sale of the stock took place directly between the offeree and our management.

 

In October and November of 2006, we issued 1,910,000 shares of common stock to Mazuma Corp. of Bloomington, Minnesota at $.08 to $.35 per share pursuant to our Regulation D offering.

 

On or about January 12, 2007, we entered into a consulting agreement with I.R. International Consultants, Inc., for consulting services including:

 

·	Advise, consult and generally help the Company in executing their business plan
·	Consult on and assist with the drafting of press releases and public disclosures by the Company
·	Assist in introducing our Company to various funding sources

 

In exchange for these services, we issued I.R. International 3,000,000 shares of common stock. The common shares issued were valued at the estimated market value of the common stock issued, or $30,000, or $.01 per share. We relied on exemptions provided by Section 4(2) of the Securities Act of 1933, as amended. We made this offering based on the following facts: (1) the issuance was an isolated private transaction which did not involve a public offering; (2) there was only one offeree, (3) the offeree has agreed to the imposition of a restrictive legend on the face of the stock certificate representing its shares, to the effect that it will not resell the stock unless its shares are registered or an exemption from registration is available; (4) the offeree was a sophisticated investor very familiar with our company and stock-based transactions; (5) there were no subsequent or contemporaneous public offerings of the stock; (6) the stock was not broken down into smaller denominations; and (7) the negotiations for the sale of the stock took place directly between the offeree and our management.

 

 

In February and March, 2007, we issued 500,000 shares of common stock each to Jordan Serlin, Kurt Rahn and Nathan Evans for their participation on the Company's Advisory Board. We relied on exemptions provided by Section 4(2) of the Securities Act of 1933, as amended. We made this offering based on the following facts: (1) the issuance was an isolated private transaction which did not involve a public offering; (2) there was only three offerees, (3) the offerees have agreed to the imposition of a restrictive legend on the face of the stock certificate representing its shares, to the effect that it will not resell the stock unless its shares are registered or an exemption from registration is available; (4) the offerees were sophisticated investors very familiar with our company and stock-based transactions; (5) there were no subsequent or contemporaneous public offerings of the stock; (6) the stock was not broken down into smaller denominations; and (7) the negotiations for the sale of the stock took place directly between the offeree and our management.

 

On or about March 27, 2007, we entered into a service agreement with Mica Capital Partners LLC, for public relations services including:

 

·	Advise, consult and generally help the Company in executing their business plan
·	Consult on and assist with the drafting of press releases and public disclosures by the Company
·	Assist in introducing our Company to various funding sources

 

In exchange for these services, we paid Mica Capital $10,000 and issued 10,000,000 shares of our common stock. The common shares issued were valued at the estimated value for the services received, or $100,000, or $.01 per share. We relied on exemptions provided by Section 4(2) of the Securities Act of 1933, as amended. We made this offering based on the following facts: (1) the issuance was an isolated private transaction which did not involve a public offering; (2) there was only one offeree, (3) the offeree has agreed to the imposition of a restrictive legend on the face of the stock certificate representing its shares, to the effect that it will not resell the stock unless its shares are registered or an exemption from registration is available; (4) the offeree was a sophisticated investor very familiar with our company and stock-based transactions; (5) there were no subsequent or contemporaneous public offerings of the stock; (6) the stock was not broken down into smaller denominations; and (7) the negotiations for the sale of the stock took place directly between the offeree and our management.

 

On or about March 28, 2007, we entered into a direct marketing and sales agreement with Jennifer Fox and James V. Magrino to act as non-exclusive sales representatives for the non-exclusive territories of New York and New Jersey with the intent that they promote Red Reef products and services within those territories.

 

In exchange for these services, we issued Jennifer Fox and James V. Magrino 2,500,000 shares each of common stock. The common shares issued were valued at the estimated value of services rendered, or $50,000, or $.01 per share. We relied on exemptions provided by Section 4(2) of the Securities Act of 1933, as amended. We made this offering based on the following facts: (1) the issuance was an isolated private transaction which did not involve a public offering; (2) there was only two offerees, (3) the offerees have agreed to the imposition of a restrictive legend on the face of the stock certificate representing its shares, to the effect that it will not resell the stock unless its shares are registered or an exemption from registration is available; (4) the offerees were sophisticated investors very familiar with our company and stock-based transactions; (5) there were no subsequent or contemporaneous public offerings of the stock; (6) the stock was not broken down into smaller denominations; and (7) the negotiations for the sale of the stock took place directly between the offeree and our management.

 

On or about April 12, 2007, we entered into a legal services agreement with Jackson and Jackson for general legal services. In exchange for these services, we issued Jackson and Jackson 250,000 shares each of common stock.  The common shares issued were valued at the estimated value of services rendered, or $25,000, or $.10 per share. We relied on exemptions provided by Section 4(2) of the Securities Act of 1933, as amended. We made this offering based on the following facts: (1) the issuance was an isolated private transaction which did not involve a public offering; (2) there was only one offeree, (3) the offeree has agreed to the imposition of a restrictive legend on the face of the stock certificate representing its shares, to the effect that it will not resell the stock unless its shares are registered or an exemption from registration is available; (4) the offeree was a sophisticated investor very familiar with our company and stock-based transactions; (5) there were no subsequent or contemporaneous public offerings of the stock; (6) the stock was not broken down into smaller denominations; and (7) the negotiations for the sale of the stock took place directly between the offeree and our management.

 

 

During the first fiscal quarter of 2007, we also issued 18,000,000 shares of our common stock for $180,000. We relied on exemptions provided by Section 4(2) of the Securities Act of 1933, as amended. We made this offering based on the following facts: (1) the issuance was an isolated private transaction which did not involve a public offering; (2) there were only six offerees, (3) the offerees have agreed to the imposition of a restrictive legend on the face of the stock certificate representing its shares, to the effect that it will not resell the stock unless its shares are registered or an exemption from registration is available; (4) the offerees were sophisticated investors very familiar with our company and stock-based transactions; (5) there were no subsequent or contemporaneous public offerings of the stock; (6) the stock was not broken down into smaller denominations; and (7) the negotiations for the sale of the stock took place directly between the offeree and our management.

 

ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

 

Under Florida law, a corporation may indemnify its officers, directors, employees and agents under certain circumstances, including indemnification of such persons against liability under the Securities Act of 1933, as amended. Those circumstances include that an officer, director, employee or agent may be indemnified if the person acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. A true and correct copy of Section 850 (1) of Chapter 607 of the Florida Statutes that addresses indemnification of officers, directors, employees and agents is attached hereto as Exhibit 99.1.

 

Article 3, Section 11 of the By-Laws of Red Reef Laboratories International, Inc. provides that the Board of Directors shall have authority to fix the compensation of directors.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling an issuer pursuant to the foregoing provisions, the opinion of the Commission is that such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable.

 

The effect of indemnification may be to limit the rights of the Company and its stockholders (through stockholders’ derivative suits on behalf of Red Reef Laboratories International, Inc.) to recover monetary damages and expenses against a director for breach of fiduciary duty.