NEWS!
10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2009
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File No.: 333-137210
ZEVOTEK, INC.
(Exact name of registrant as specified in its charter)
Delaware 05-0630427
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer
Identification No.)
134 Cedar Street
Nutley, NJ 07110
(Address of principal executive offices)
Issuer’s telephone number: (201) 394-8684
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Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filter ¨ Accelerated filter ¨
Non-accelerated filter ¨ (Do not check if a smaller reporting company) Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes o No x
APPLICABLE ONLY TO CORPORATE ISSUERS
As of February 16, 2010, 2,168,557,653 shares of our common stock were outstanding.
Transitional Small Business Disclosure Format: Yes ¨ No x
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Quarterly Report on Form 10-Q for the
Quarterly Period Ended December 31, 2009
Table of Contents
Page
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
Item 4 Controls and Procedures 23
PART II. OTHER INFORMATION 23
Item 1. Legal Proceedings 23
Item 1A Risk Factor 23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
Item 3. Defaults upon Senior Securities 23
Item 4. Submission of matters to a vote of security holders 23
Item 5. Other information 24
Item 6. Exhibits 24
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
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PART 1: FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
ZEVOTEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
2009 2009
(unaudited)
ASSETS
Current assets:
Cash $ 122,000 $ —
Accounts receivable 6,485 —
Inventory 28,520 —
Prepayments and other current assets 47,694 17,000
Total current assets 204,698 17,000
Other assets:
Security deposit 5,000 —
Licensing agreement 40,000 40,000
Total assets $ 249,698 $ 57,000
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 818,399 $ 1,232,271
Advances payable 352,056 44,000
Convertible notes payable and demand notes (net of debt discount of $41,398 and $166,595 as of December 31, 2009 and June 30, 2009, respectively) 110,692 134,139
Customer deposits 24,351 24,351
Total current liabilities 1,305,498 1,434,761
Long term portion of convertible notes payable (net of debt discount of $147,151 and $167,232 as of December 31, 2009 and June 30, 2009, respectively) 101,095 39,664
Deficiency in stockholders' equity:
Series A Preferred stock, $0.00001 par value; 10,000,000 shares authorized; 50,000 shares issued and outstanding as of December 31, 2009 and June 30, 2009. 1 1
Series B Preferred stock, $0.00001 par value; 1,000,000 shares authorized; 1,000,000 shares issued and outstanding as of December 31, 2009 and June 30, 2009 10 10
Common stock, $0.00001 par value, 5,000,000,000 shares authorized; 1,838,739,471 and 176,092,373 shares issued and outstanding as of December 31, 2009 and June 30, 2009, respectively 18,388 1,761
Common stock to be issued — 30
Treasury stock, 40,000 shares as of December 31, 2009 and June 30, 2009 — —
Additional paid in capital 3,590,626 2,726,796
Accumulated deficit (4,765,920 ) (4,146,023 )
Total deficiency in stockholders' equity (1,156,895 ) (1,417,425 )
Total liabilities and deficiency in stockholders' equity $ 249,698 $ 57,000
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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ZEVOTEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended December 31, Six Months Ended December 31,
2009 2008 2009 2008
REVENUES:
Sales $ 5,077 $ — $ 5,077 $ —
Cost of sales 1,521 — 1,521 —
Gross profit 3,556 — 3,556 —
OPERATING EXPENSES:
Selling 86,571 — 86,571 3,800
General and administrative 121,246 159,164 323,031 316,266
Total operating expense 207,817 159,164 409,602 320,066
Loss from operations (204,261 ) (159,164 ) (406,046 ) (320,066 )
OTHER (EXPENSE):
Interest, net (10,827 ) (11,734 ) (24,572 ) (23,124 )
Amortization (110,548 ) (48,233 ) (189,279 ) (86,143 )
Total other expense (121,375 ) (59,967 ) (213,851 ) (109,267 )
Net loss before provision for income taxes (325,636 ) (219,131 ) (619,897 ) (429,333 )
Income taxes — — — —
NET LOSS $ (325,636 ) $ (219,131 ) $ (619,897 ) $ (429,333 )
Net loss per common share, basic and fully diluted $ (0.00 ) $ (0.01 ) $ (0.00 ) $ (0.03 )
Weighted average number of common shares outstanding, basic and fully diluted 670,885,307 15,540,950 500,533,096 12,525,678
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ZEVOTEK, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from June 30, 2008 to December 31, 2009
(UNAUDITED)
Preferred stock Common Additional
Series A Series B Common stock Stock To Treasury stock Paid in Accumulated
Shares Amount Shares Amount Shares Amount Be Issued Shares Amount Capital Deficit Total
Balance, June 30, 2008 50,000 $ 1 1,000,000 $ 10 3,784,920 $ 38 $ — — $ — $ 2,013,381 $ (3,324,225 ) $ (1,310,795 )
Common stock issued for services rendered — — — — 23,057,514 231 — — — 188,992 — 189,223
Common stock issued for previously incurred debt — — — — 1,553,939 15 — — — 6,135 — 6,150
Common stock issued for licensing agreement — — — — 50,000,000 500 — — — 39,500 — 40,000
Conversion of debt and accrued interest for common stock — — — — 97,696,000 977 30 — — 20,939 — 21,946
Common stock issued and held in treasury — — — — — — — 40,000 — — — —
Fair value of Beneficial conversion feature — — — — — — — — — 457,849 — 457,849
Net loss — — — — — — — — — — (821,798 ) (821,798 )
BALANCE, June 30, 2009 50,000 $ 1 1,000,000 $ 10 176,092,373 $ 1,761 $ 30 40,000 $ — $ 2,726,796 $ (4,146,023 ) $ (1,417,425 )
Common stock issued for services rendered — — — — 100,529,798 1,006 — — — 182,960 — 183,966
Common stock issued for accrued expenses — — — — 30,000,000 300 — — — 489,449 — 489,749
Conversion of debt and accrued interest for common stock — — — — 1,525,117,300 15,251 (30 ) — — 136,991 — 152,212
Common stock issued for officer’s compensation — — — — 7,000,000 70 — — — 10,430 — 10,500
Fair value of Beneficial conversion feature — — — — — — — — — 44,000 — 44,000
Net loss — — — — — — — — — — (619,897 ) (619,897 )
BALANCE, December 31, 2009 50,000 $ 1 1,000,000 $ 10 1,838,739,471 $ 18,388 $ — 40,000 $ — $ 3,590,626 $ (4,765,920 ) $ (1,156,895 )
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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ZEVOTEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 2009 and 2008
(UNAUDITED)
2009 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (619,897 ) $ (429,333 )
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for services rendered 183,966 80,000
Common stock issued for officer’s compensation 10,500 —
Amortization of beneficial conversion feature 189,279 86,143
(Increase) decrease in:
Accounts receivable (6,485 ) —
Inventory (28,520 ) —
Prepayments (30,694 ) —
Other assets (5,000 ) —
(Decrease) increase in:
Cash overdraft — 10
Accounts payable and accrued expenses 76,795 121,429
Net cash used in operating activities: (230,056 ) (141,751 )
CASH FLOWS FROM INVESTING ACTIVITIES: — —
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from advances payable 352,056 —
Proceeds from loans — 135,000
Net cash provided by financing activities 352,056 135,000
Net increase (decrease) in cash and cash equivalents 122,000 (6,751 )
Cash and cash equivalents, beginning of period — 6,755
Cash and cash equivalents, end of period $ 122,000 $ 4
SUPPLEMENTAL DISCLOSURE OF CASH FLOW:
Interest paid $ — $ —
Taxes paid $ — $ —
Common stock issued for services rendered $ 183,966 $ 80,000
Common stock issued for officer’s compensation $ 10,500 $ —
Common stock issued for settlement of accrued liabilities $ 489,749 $ —
Exchange of convertible debenture for advances payable $ 44,000 $ —
Debt and accrued interest converted for shares of common stock $ 152,212 $ 11,196
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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ZEVOTEK, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of the accompanying unaudited condensed consolidated financial statements follows.
Business and Basis of Presentation
ZEVOTEK, INC. (“Company” or “Registrant”) was organized on December 19, 2005 under the state laws of Delaware with an original name of “The Diet Coffee Company.” On March 1, 2006, the Company changed its name Diet Coffee Inc, and on June 25, 2008 to the current existing name.
The Company’s wholly-owned subsidiary is Ionic Bulb.com, Inc (Ionic Bulb) which was formerly named Zevotek, Inc. Through its subsidiary, it markets and sells a range of home care and household products. In May 2007, the Company entered into a license agreement to sell an energy saving compact fluorescent light bulb named the Ionic Bulb. The Company plans to market the Ionic Bulb through TV infomercials, catalogs, magazines and major U.S. retail and specialty stores and our websites www.ionic-bulb.com and www.zevo-tek.com.
General
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The consolidated financial statements include the accounts of the Registrant and its wholly-owned subsidiary, Ionic Bulb.com, Inc. The Registrant formed its Ionic Bulb.com, Inc. subsidiary on August 21, 2007 and started its operations during the fiscal year ending June 30, 2008. All significant inter-company transactions and balances have been eliminated in consolidation.
The company has adopted the fiscal year end of June 30.
Reverse Stock Split
Effective June 26, 2008, the Company authorized for its common stock a 50:1 reverse stock split Also, par value for the Preferred Stock and Common stock was changed to $.00001 per share All preferred and common stock and related information have been retroactively restated.
Revenue Recognition
The Company recognizes revenue from product sales based on four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectibility is reasonably assured. Determination of criteria (3) and (4) are based on management's judgment regarding the fixed nature of the selling prices of the products delivered and the collectibility of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product was not delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.
Consideration Paid to Customers
The Company offers our customers certain incentives in the form of cooperative advertising arrangements, product markdown allowances, trade discounts, cash discounts, and slotting fees. Markdown allowances, trade discounts, cooperative advertising program participation and cash discounts are all recorded as reductions of net sales. No customer incentives are included in sales for the three and six months ended December 31, 2009 and 2008.
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Use of Estimates
The preparation of the financial statement in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Foreign Currency Translation
The Company translates the foreign currency assets and liabilities at current exchange rates, and related revenue and expenses are translated at average exchange rates in effect during the period. Resulting translation adjustments are recorded as a separate component in stockholders' equity. Foreign currency translation gains and losses are included in the statement of operations.
Cash and Cash Equivalents
For the purpose of the accompanying financial statements, all highly liquid investments with a maturity of three months or less are considered to be cash equivalents.
Inventories / Cost of Goods Sold
The Company has adopted a policy to record inventory at the lower of cost or market determined by the first-in-first-out method. The elements of cost that comprise inventory and cost good sold are FOB shipping point costs, freight and destination charges, customs and importation fees and taxes, customer broker fees (if any) and other related costs. Warehousing costs are charged to cost of goods in the period the costs are incurred. The Company provides inventory allowances based on estimates of obsolete inventories.
Inventories consist of finished products available for sale to distributors and customers. At December 31, 2009 and June 30, 2009 Finished Goods inventory was $28,520 and 0, respectively.
Allowance for doubtful accounts
The Company maintains an allowance for doubtful accounts to reduce amounts to their estimated realizable value, including reserves for customer and other receivable allowances and incentives. In estimating the provision for doubtful accounts, the company considers a number of factors including age of the accounts receivable, trends and ratios involving the age of the accounts receivable and the customer mix of each aging categories. As of December 31, 2009 and June 30, 2009 the allowance for doubtful accounts was $0.
Property and Equipment
Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property and equipment would be recorded at cost and depreciated using the straight-line method over their estimated useful lives.
Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangibles held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted discounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less disposal costs.
Advertising
The Company charges the costs of advertising to expenses as incurred. The Company charged $69,331 and $0 to operations for the six months ended December 31, 2009 and 2008, respectively.
Research and Development
All research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. The Company had no expenditures on research and product development for three and six months ended December 31, 2009 and 2008, respectively.
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Stock Based Compensation
The Company made no employee stock-based compensation grants before June 30, 2007, during the years ended June 30, 2009 and 2008 and during the three and six months ended December 31, 2009; therefore has no unrecognized stock compensation related liabilities or expense unvested or vested.
Loss per Share
Basic and diluted earnings (loss) per share amounts are computed based on net income (loss) divided by the weighted average number of common shares outstanding. Potentially dilutive shares of common stock realizable from the conversion of our convertible debentures of 3,991,766,653 and 347,494,370, respectively at December 31, 2009 and 2008, are excluded from the computation of diluted net loss per share as their inclusion would be anti-dilutive.
Concentration of Credit Risk
Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and trade receivables. The Company places its cash and temporary cash investments with high credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit.
Liquidity
As shown in the accompanying unaudited condensed consolidated financial statements, the Company’s current liabilities exceed its current assets by $1,100,800 as of December 31, 2009. The Company has incurred a net loss of $619,897 and used $230,056 in cash flows for operations during the six months ended December 31, 2009.
Reclassifications
Certain reclassifications have been made in prior year's financial statements to conform to classifications used in the current year.
Recent accounting pronouncements
New Accounting Requirements and Disclosures
Accounting Standards Codification and GAAP Hierarchy — Effective for interim and annual periods ending after September 15, 2009, the Accounting Standards Codification and related disclosure requirements issued by the FASB became the single official source of authoritative, nongovernmental GAAP. The ASC simplifies GAAP, without change, by consolidating the numerous, predecessor accounting standards and requirements into logically organized topics. All other literature not included in the ASC is non-authoritative. We adopted the ASC as of September 30, 2009, which did not have any impact on our results of operations, financial condition or cash flows as it does not represent new accounting literature or requirements. All references to pre-codified U.S. GAAP have been removed from this Form 10Q.
Determining Fair Value in Inactive Markets — Effective for interim and annual periods beginning after June 15, 2009, GAAP established new accounting standards for determining fair value when the volume and level of activity for the asset or liability have significantly decreased and the identifying transactions are not orderly. The new standards apply to all fair value measurements when appropriate. Among other things, the new standards:
• affirm that the objective of fair value, when the market for an asset is not active, is the price that would be received in a sale of the asset in an orderly transaction;
• clarify certain factors and provide additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active;
• provide that a transaction for an asset or liability may not be presumed to be distressed (not orderly) simply because there has been a significant decrease in the volume and level of activity for the asset or liability, rather, a company must determine whether a transaction is not orderly based on the weight of the evidence, and provide a non-exclusive list of the evidence that may indicate that a transaction is not orderly; and
• require disclosure in interim and annual periods of the inputs and valuation techniques used to measure fair value and any change in valuation technique (and the related inputs) resulting from the application of the standard, including quantification of its effects, if practicable.
These new accounting standards must be applied prospectively and retrospective application is not permitted. See Note K for disclosure of our fair value measurements.
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Financial Instruments — Effective for interim and annual periods ending after June 15, 2009, GAAP established new disclosure requirements for the fair value of financial instruments in both interim and annual financial statements. Previously, the disclosure was only required annually. We adopted the new requirements as of September 30, 2009, which resulted in no change to our accounting policies, and had no effect on our results of operations, cash flows or financial position, but did result in the addition of interim disclosure of the fair values of our financial instruments. See Note 4 for disclosure of the fair value of our debt.
Subsequent Events — Effective for interim and annual periods ending after June 15, 2009, GAAP established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The new requirements do not change the accounting for subsequent events; however, they do require disclosure, on a prospective basis, of the date an entity has evaluated subsequent events. We adopted these new requirements as of September 30, 2009, which had no impact on our results of operations, financial condition or cash flows.
Consolidation— Effective for interim and annual periods beginning after November 15, 2009, with earlier application prohibited, GAAP amends the current accounting standards for determining which enterprise has a controlling financial interest in a VIE and amends guidance for determining whether an entity is a VIE. The new standards will also add reconsideration events for determining whether an entity is a VIE and will require ongoing reassessment of which entity is determined to be the VIE’s primary beneficiary as well as enhanced disclosures about the enterprise’s involvement with a VIE. We are currently assessing the future impact these new standards will have on our results of operations, financial position or cash flows.
Transfers and Servicing — Effective for interim and annual periods beginning after November 15, 2009, GAAP eliminates the concept of a qualifying special purpose entity, changes the requirements for derecognizing financial assets and requires additional disclosures. We are currently assessing the future impact these new standards will have on our results of operations, financial position or cash flows.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company’s present or future consolidated financial statements.
NOTE B - GOING CONCERN MATTERS
The accompanying unaudited condensed consolidated statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying unaudited condensed consolidated financial statements, for the six months ended December 31, 2009, the Company incurred a net loss of $619,897. At December 31, 2009, the Company had a working capital deficit of $1,100,800 and accumulated losses of $4,765,920. These factors among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of time.
The Company is actively pursuing additional equity financing through discussions with private investors. There can be no assurance the Company will be successful in its effort to secure additional equity financing. If operations and cash flows improve through these efforts, management believes that the Company can continue to operate. However, no assurance can be given that management's actions will result in profitable operations or the resolution of its liquidity problems.
The Company's existence is dependent upon management's ability to develop profitable operations and resolve its liquidity problems. Management anticipates the Company will attain profitable status and improve its liquidity through the continued developing, marketing and selling of its services and additional equity investment in the Company. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
NOTE C – LICENSING AGREEMENT AND DISTRIBUTION AGREEMENT
On February 24, 2009, the Company entered into an Exclusive License and Sales Agreement whereby the Company has worldwide exclusive rights to manufacture, market use, sell, distribute and advertise certain licensed products. The license is on a year to year basis with automatic renewal subject to the Company re-acquire listing on the OTC BB exchange by February 14, 2010 and files all quarterly and annual reports by due dates, inclusive of allowable extensions.
In exchange for the exclusive license, the Company issued 50,000,000 shares of its common stock. The license was valued at the market price of the underlying security.
In addition, the Agreement also provides for the retention of Ryu as a non-exclusive independent contractor sales representative to obtain purchase orders for the Licensed Products on our behalf In consideration for his consulting services, we agreed to issue Ryu 750,000 shares of Common Stock for each $100,000 in gross sales of the Licensed Product by Ryu (or any Sales Associate hired by him) on or before February 28, 2010 up to a maximum of 75,000,000 shares of Common Stock (collectively, the “Incentive Shares”). The Incentive Shares shall not vest unless Ryu (or any Sales Associate hired by him) shall have collectively procured gross sales of $5,000,000 for the Licensed Products on or before February 28, 2010 (the “Target”). If Ryu fails to achieve the Target, such Incentive Shares shall be null and void and of no further force and effect. In addition to the Incentive Shares, we also agreed to pay Ryu a commission at the rate 50% of all Net Profits (as defined on the Agreement) recognized by us on sales of the Licensed Products made by Ryu (or Sales Associates hired by Ryu) on our behalf during the period of this Agreement.
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On April 29, 2009 the Company entered into a Distribution Agreement with a German distributor pursuant to which the Company granted such distributor the exclusive right (subject to minimum sales in the first year) to advertise, market and sell our ionic bulb product in Germany, Austria, Switzerland, Liechtenstein, Czech Republic, Slovakia, Hungary, Romania and Poland (the “Territory”). Upon satisfactory sales of an initial order (in dealer’s reasonable discretion) of 5,000 units of the Company’s ionic bulb product, the distributor agreed to purchase 5,000 units of the Company’s ionic bulb product per month during the first year of the contact to maintain exclusive status in the Territory. The Company also granted distributor a license to use certain marketing material to advertise and sell the ionic bulb product. Such distributor also agreed to maintain general and product liability insurance in an amount of at least $1,000,000 and agreed to name us as an additional insured under such policy. The term of the agreement is for one year and will be automatically renewed for successive 1 year periods if the minimum quantities (5,000/month and 60,000/year) are met.
NOTE D- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued liabilities are as follows:
December 31,
2009 June 30,
2009
(unaudited)
Accounts payable $ 48,123 $ —
Accrued professional fees 100,000 100,000
Accrued payroll and payroll taxes 332,091 799,280
Old disputed accounts payable 136,405 195,181
Accrued interest 63,949 43,494
Other accrued liabilities 137,831 94,316
Total $ 818,399 $ 1,232,271
NOTE E - CONVERTIBLE NOTES PAYABLE AND DEMAND NOTES
December 31,
2009 June 30,
2009
(unaudited)
Notes Payable to Interstellar Holdings, LLC.
Convertible term note (a) $ 6,623 $ 87,013
Convertible term note ( b ) 87,535 155,789
Convertible term note (c) 50,000 50,000
Convertible term note (d) 90,274 92,924
Convertible term note (e) 113,972 113,972
Convertible term note (f) 7,932 7,932
Convertible term note (g) 44,000 —
Subtotal 400,336 507,630
Less: discount on debt (188,549 ) ( 333,827 )
211,787 173,803
Less: current portion (110,692 ) (134,139 )
Long term debt $ 101,095 $ 39,664
a) On May 14, 2008, the Company entered into a convertible term note bearing interest at 10% per annum with a maturity date of May 14, 2010. At any time at the option of the note holder, principal and interest payments may be paid in common stock at a conversion price of $0.0001 per share (see below).
b) On May 27, 2008, the Company entered into a convertible term note bearing interest at 10% per annum with a maturity date of May 27, 2010. At any time at the option of the note holder, principal and interest payments may be paid in common stock at a conversion price of $0.0001 per share (see below).
c) On January 1, 2008, Company entered into a convertible term note for the principal amount of $50,000 bearing interest at 7% per annum with a maturity date of June 30, 2008. This note is convertible into common stock at 90% of the common stock closing price at June 30, 2008, or approximately 370,000 shares of common stock. The Company is in default of payment of principal and interest on the note and the Company is in discussions with the note holder about amending the conversion terms to cure the default.
d) On January 8, 2009, the Company entered into a convertible term note bearing interest at 10% per annum with a maturity date of January 8, 2011. At any time at the option of the note holder, principal and interest payments may be paid in common stock at a conversion price of $0.0001 per share (see below).
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e) On March 9, 2009, the Company entered into a convertible term note bearing interest at 10% per annum with a maturity date of March 9, 2011. At any time at the option of the note holder, principal and interest payments may be paid in common stock at a conversion price of $0.0001 per share (see below).
f) Of the convertible term notes entered into on May 14, 2008, certain notes having a principal amount of $7,932 and $7,932 as of September 30, 2009 and June 30, 2009, respectively, were not amended with respect to their conversion price and, at any time at the option of the note holder, principal and interest payments may be paid in common stock at a conversion price of $0.001 per share (see below).
g) On July 28, 2009, the Company entered into a convertible term note bearing interest at 10% per annum with a maturity date of July 28, 2011. At any time at the option of the note holder, principal and interest payments may be paid in common stock at a conversion price of $0.0001 per share (see below).
In accordance with Emerging Issues Task Force Issue 98-5, Accounting for Convertible Securities with a Beneficial Conversion Features or Contingently Adjustable Conversion Ratios ("EITF 98-5"), the Company recognized an imbedded beneficial conversion feature present in the notes. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid in capital. The Company recognized and measured an aggregate of $314,049 of the proceeds, which was equal to the intrinsic value of the imbedded beneficial conversion feature at the time, to additional paid in capital and a discount against the Notes issued during the year ended June 30, 2008. The debt discount attributed to the beneficial conversion feature was originally amortized over the Notes maturity period (two years) as interest expense, adjusted for conversion of debt to common stock. In January 2009 through March 2009, the Company restructured certain Notes to a conversion rate of $0.0001 per share with a two year term and accordingly fully amortized the remaining debt discount of $206,160. In accordance with Emerging Issues Task Force Issue 98-5, Accounting for Convertible Securities with a Beneficial Conversion Features or Contingently Adjustable Conversion Ratios ("EITF 98-5"), the Company recognized an imbedded beneficial conversion feature present in the notes. The Company recognized and measured an aggregate of $457,849 of the proceeds, which is equal to the intrinsic value of the imbedded amended beneficial conversion feature, to additional paid in capital and a discount against the Notes issued during the year ended June 30, 2009. The remaining debt discount attributed to the original beneficial conversion feature was expensed at the time the Notes were amended and the $457,849 assigned to the amended beneficial conversion feature is being amortized over the Notes maturity period.
On July 28, 2009, the Company issued a $44,000 convertible note having the same terms as the amended outstanding convertible notes. The Company recognized and measured an aggregate of $44,000 of the proceeds, which is equal to the intrinsic value of the imbedded amended beneficial conversion feature, to additional paid in capital and a discount against the note issued, with the discount being amortized over the note’s two-year term. During the three and six months ended December 31, 2009, amortization related to the beneficial conversion feature on the convertible notes was $110,548 and $189,279, respectively. During the three and six months ended December 31, 2008, amortization related to the beneficial conversion feature on the convertible notes was $48,233 and $86,143, respectively.
During the three months ended December 31, 2009, two note holders submitted conversion notices to the Company seeking to convert outstanding note principal and interest on the notes they hold into Company common stock. As a result of not processing the conversion notices, the Company is in default of their notes and is required under the note terms to repay all principal and accrued interest upon the earlier of receipt of a request for repayment by the note holders or upon the maturity dates.
NOTE F – STOCKHOLDERS’ EQUITY
Preferred Stock
The Company has authorized 10,000,000 shares of Preferred Stock of which 50,000 shares have been designated as Series A Preferred stock, par value $0.00001, and 1,000,000 shares have been designated as Series B Preferred Stock, par value $0.00001 within the limitations and restrictions stated in the Certificate of Incorporation of the Company.
The Company issued of 50,000 shares of Series A - Preferred stock; non convertible. Each share of the Series A- Preferred stock is entitled to 10,000 votes on all matters submitted to the stockholders of the Company. The holders of the Series A-Preferred stock are not granted any preference upon the liquidation, dissolution or winding up of the business of the Company.
The Company designated and issued 1,000,000 shares of Series B Preferred Stock. On May 14, 2008 the Company and an unrelated third party entered into an exchange agreement under which the third party note holder exchanged a $21,026 promissory note for 1,000,000 shares of Series B Preferred Stock. Each share of Series B Preferred Stock is entitled to 5,000 votes on all matters submitted to the stockholders of the Company.
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Common stock
The Company effectuated a 1 for 50 reverse stock split on June 26, 2008. All common stock and related information has been retroactively restated. In addition, contemporaneously with the stock split the Company increased its authorized Common stock, par value $0.00001 to 1,000,000,000 shares. Prior to this date, the authorized shares were 200,000,000 shares. On October 14, 2009, the company authorized capital was increased to 5,000,000,000
At December 31, 2009 and June 30, 2009, common shares issued and outstanding were 1,838,739,471 and 176,092,373, respectively.
On September 11, 2007, the Company adopted its 2007 Stock Incentive Plan (the “2007 Plan”). The Company is permitted to issue up to 21,450,000 shares of common stock under the Plan in the form of stock options, restricted stock awards, and stock awards to employees, non-employee directors, and outside consultants. As of December 31, 2009, 14,429,000 shares have been issued under this 2007 Plan.
On December 13, 2007, the Company adopted its 2007 Stock Incentive Plan No. 2. (the “2007 Plan #2”). The Company is permitted to issue up to 17,994,000 shares of common stock under the Plan in the form of stock options, restricted stock awards, and stock awards to employees, non-employee directors, and outside consultants. As of December 31, 2009, 359,880 shares have been issued under this 2007 Plan #2.
On February 21, 2008 the Company adopted its 2008 Stock Incentive Plan. The Company is permitted to issue up to 33,000,000 shares of common stock under the Plan in the form of stock options, restricted stock awards, and stock awards to employees, non-employee directors, and outside consultants. As of December 31, 2009, 21,340,685 shares have been issued under this Plan.
On February 21, 2008 the Company adopted its 2008 California Stock Incentive Plan. The Company is permitted to issue up to 33,000,000 shares of common stock under the Plan in the form of stock options, restricted stock awards, and stock awards to employees, non-employee directors, and outside consultants. As of December 31, 2009, 32,925,190 shares have been issued under this Plan.
On September 15, 2009 the Company adopted its 2009 Stock Incentive Plan. The Company is permitted to issue up to 136,715,000 shares of common stock under the Plan in the form of stock options, restricted stock awards, and stock awards to employees, non-employee directors, and outside consultants. As of December 31, 2009, no shares have been issued under this Plan.
On September 15, 2009 the Company adopted its 2009 California Stock Incentive Plan. The Company is permitted to issue up to 136,715,000 shares of common stock under the Plan in the form of stock options, restricted stock awards, and stock awards to employees, non-employee directors, and outside consultants. As of December 31, 2009, 25,000,000 shares have been issued under this Plan.
During the six months ending December 31, 2009, the Company issued 130,529,728 shares of common stock, valued at $673,715 for services and accrued expenses.
During the six months ended December 31, 2009, the Company converted debt and accrued interest of $152,212 into 1,525,117,300 shares of common stock, excluding 3,000,000 shares the Company was committed to issue as of June 30, 3009.
During the six months ending December 31, 2009, the Company issued 7,000,000 shares of common stock as officer’s compensation, valued at $10,500
Treasury Stock
As of December 31, 2009 and June 30, 2009, the Company had 40,000 shares of common stock held in treasury that are carried at $0 based on a $0.00001 par value.
NOTE G - INCOME TAXES
The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns..
Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes are insignificant. A management estimate that at December 31, 2009, the Company has available for federal income tax purposes a net operating loss carry forward of approximately $2.5 million expiring by the year 2028, that may be used to offset future taxable income. Due to significant changes in the Company's ownership, the future use of its existing net operating losses may be limited.
The Company has provided a valuation reserve against the full amount of the net operating loss benefit, since in the opinion of management based upon the earnings history of the Company; it is more likely than not that the benefits will not be realized. Components of deferred tax assets as of December 31, 2009 are as follows:
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Net operating loss carry forward $ 1,800,000
Valuation allowance (1,800,000 )
Net $ 0
The Company has not filed their federal or state income tax returns for fiscal years ended June 30, 2006, 2007, 2008 and 2009.
NOTE H - STOCK OPTIONS AND WARRANTS
During the six months ended December 31, 2009, the Company did not issue any stock warrants. As of December 31, 2009, no warrants are outstanding.
On December 13, 2007, the Company agreed to grant Mr. Engel options to purchase 72,000 shares of common stock, which options would vest at a rate of 2,000 shares per month. These options have not yet been deemed granted.
NOTE I - COMMITMENTS AND CONTINGENCIES
Employment Agreement
On December 13, 2007, the Company entered into an employment agreement with Adam Engel pursuant to which the Company employs Mr. Engel as President, Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary. The agreement is for an initial term of three years and provides for an annual base salary during the term of the agreement of $120,000, payable either in cash or stock. The Company also agreed to grant Mr. Engel options to purchase 72,000 shares of Company common stock with an exercise price of $0.25 per share (which price shall not be less than 85% of the “fair market value” of the Company’s common stock on the date of grant), which options would vest at a rate of 2,000 shares per month. These options have not yet been granted. In addition to salary and benefit provisions, the agreements include defined commitments should we terminate his employment without cause and 24 month non-compete/non solicitation terms.
U.S. Federal Trade Commission Settlement
On March 26, 2007, the Company received a letter from the U.S. Federal Trade Commission (“FTC”) whereby the Company was informed that the FTC was conducting an investigation into advertising claims made for the Company’s weight loss product known as “Slim Coffee.” The purpose of the investigation was to determine whether the Company, in connection with its sales of Slim Coffee, engaged in unfair or deceptive acts or practices and false advertising. The FTC threatened to file a complaint in the United States District Court, Southern District of New York, alleging false advertising, unless the Company and the FTC could reach a satisfactory resolution to the matter. A negotiated settlement has been reached with the FTC under which the Company, its officers and directors did not admit any wrongdoing. On January 10, 2008, pursuant to a stipulated final judgment and order, the United States District Court, Southern District of New York, entered a final judgment and order against the Company in the amount of $923,910. The full amount of the judgment, and payment of any portion of it is suspended and cannot be reinstated so long as (a) the Company abides by the reporting and monitoring requirements of the judgment, (b) does not make false advertising claims in connection with any of its products in the future, and (c) its past financial disclosures to the FTC were materially accurate. Company to comply with terms of the stipulation and do not anticipate incurring a liability for the judgment, however there can be no assurance of compliance. Should Company fail to comply with the FTC’s final judgment, this could have a material adverse on Companies business, financial condition and results of operations.
Royalty commitment and Agreement Termination
On May 18, 2007, the Company entered into a Consulting, License and Supply Agreement with Jason Ryu, pursuant to which the Company licensed the right to market and sell a fluorescent light bulb that contains an air purifying microchip ion emitter from Mr. Ryu. In exchange for this license the Company agreed to pay Mr. Ryu a royalty of $0.20 per unit for the first 1.5 million units sold by the Company and the lesser of $0.15 per unit or 5% of manufacturing costs for all additional units. The initial term of this agreement was for two years and was to be automatically be renewed for subsequent two year periods if at least 5 million units are old by the Company during each period. Within ninety days from the date of this Agreement, the Company was required to place an order not less than 100,000 units and at least 600,000 units each quarter thereafter. Mr. Ryu sent notice to the Company that license agreement shall continue on a non-exclusive basis.
On February 24, 2009, the Company entered into an Exclusive License and Sales Agreement whereby the Company has worldwide exclusive rights to manufacture, market use, sell, distribute and advertise certain licensed products. The license is on a year to year basis with automatic renewal subject to the Company re-acquire listing on the OTC BB exchange by February 14, 2010 and files all quarterly and annual reports by due dates, inclusive of allowable extensions. In exchange for the exclusive license, the Company issued 50,000,000 shares of its common stock.
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In addition, the Agreement also provides for the retention of Ryu as a non-exclusive independent contractor sales representative to obtain purchase orders for the Licensed Products on companies behalf In consideration for his consulting services, Company agreed to issue Ryu 750,000 shares of Common Stock for each $100,000 in gross sales of the Licensed Product by Ryu (or any Sales Associate hired by him) on or before February 28, 2010 up to a maximum of 75,000,000 shares of Common Stock (collectively, the “Incentive Shares”). The Incentive Shares shall not vest unless Ryu (or any Sales Associate hired by him) shall have collectively procured gross sales of $5,000,000 for the Licensed Products on or before February 28, 2010 (the “Target”). If Ryu fails to achieve the Target, such Incentive Shares shall be null and void and of no further force and effect. In addition to the Incentive Shares, Company also agreed to pay Ryu a commission at the rate 50% of all Net Profits (as defined on the Agreement) recognized by Company on sales of the Licensed Products made by Ryu (or Sales Associates hired by Ryu) on Companies behalf during the period of this Agreement.
Distribution Agreement
On April 29, 2009 the Company entered into a Distribution Agreement with a German distributor pursuant to which the Company granted such distributor the exclusive right (subject to minimum sales in the first year) to advertise, market and sell our ionic bulb product in Germany, Austria, Switzerland, Liechtenstein, Czech Republic, Slovakia, Hungary, Romania and Poland (the “Territory”). Upon satisfactory sales of an initial order (in dealer’s reasonable discretion) of 5,000 units of the Company’s ionic bulb product, the distributor agreed to purchase 5,000 units of the Company’s ionic bulb product per month during the first year of the contact to maintain exclusive status in the Territory. The Company also granted distributor a license to use certain marketing material to advertise and sell the ionic bulb product. Such distributor also agreed to maintain general and product liability insurance in an amount of at least $1,000,000 and agreed to name us as an additional insured under such policy. The term of the agreement is for one year and will be automatically renewed for successive 1 year periods if the minimum quantities (5,000/month and 60,000/year) are met.
Payroll Taxes
At December 31, 2009, the Company is delinquent with filing and remitting payroll taxes of approximately $83,227 including estimated penalties and interest related to payroll taxes withheld since April 2007. The Company has recorded the delinquent payroll taxes, which are included in accrued expenses on the balance sheet. Although the Company has not entered into any formal repayment agreements with the respective tax authorities, management plans to make payment as funds become available. Penalties and interest amounts are subject to increase based on a number of factors that can cause the estimated liability to increase further. Interest and penalties were accrued in an amount estimated to cover the ultimate liability.
Sales Taxes
At December 31, 2009, the Company is delinquent with remitting sales taxes of approximately $16,000, including related estimated penalties and interest related to sales taxes withheld since 2006 in the state of New York. The Company has recorded the delinquent sales taxes, which are included in accrued expenses on the balance sheet. Although the Company has not entered into any formal repayment agreements with the respective tax authorities, management plans to make payment as funds become available. Penalties and interest amounts are subject to increase based on a number of factors that can cause the estimated liability to increase further. Interest and penalties were accrued in an amount estimated to cover the ultimate liability.
NOTE J - FAIR VALUE MEASUREMENT
Fair Value Measurements under GAAP clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements are separately disclosed by level within the fair value hierarchy. It only applies to accounting pronouncements that already require or permit fair value measures, except for standards that relate to share-based payments
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.
The carrying value of the Company’s cash and cash equivalents, accounts receivable, prepayments, accounts payable, short-term borrowings (including convertible notes payable), and other current assets and liabilities approximate fair value because of their short-term maturity. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the consolidated financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.
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The following table sets forth the Company’s short investments as of December 31, 2009, which are measured at fair value on a recurring basis by level within the fair value hierarchy. The table is classified based on the lowest level of input that is significant to the fair value measurement:
Quoted
Prices in
Active
Markets for
Identical
Instruments
Level 1 Significant
Other
Observable
Inputs
Level 2 Significant
Unobservable
Inputs
Level 3 Assets at
Fair Value
Assets:
Security deposit $ — $ — $ 5,000 $ 5,000
License agreement $ — $ — $ 40,000 $ 40,000
Liabilities:
Advances payable $ — $ (352,056 ) $ — $ (352,056 )
Convertible notes payable $ — $ (211,787 ) $ — $ (211,787 )
NOTE K – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date of this filing (February 19, 2010).
Since December 31, 2009, the Company issued an aggregate of 1,818,182 shares of common stock to consultants for services rendered.
Since December 31, 2009, the Company issued an aggregate of 328,000,000 shares of common stock upon conversion of convertible promissory notes.
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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related notes included in this report. This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The statements contained in this report that are not historic in nature, particularly those that utilize terminology such as “may,” “will,” “should,” “expects,” “anticipates,” “estimates,” “believes,” or “plans” or comparable terminology are forward-looking statements based on current expectations and assumptions. Various risks and uncertainties could cause actual results to differ materially from those expressed in forward-looking statements.
The forward-looking events discussed in this annual report, the documents to which we refer you and other statements made from time to time by us or our representatives, may not occur, and actual events and results may differ materially and are subject to risks, uncertainties and assumptions about us. For these statements, we claim the protection of the “bespeaks caution” doctrine. All forward-looking statements in this document are based on information currently available to us as of the date of this report, and we assume no obligation to update any forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.
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General
The following discussion and analysis is provided to increase the understanding of, and should be read in conjunction with, our unaudited financial statements and related notes included elsewhere in this Report. Historical results and percentage relationships among any amounts in these financial statements are not necessarily indicative of trends in operating results for any future period. This report contains “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The statements, which are not historical facts contained in this Report, including this Management’s discussion and analysis of financial condition and results of operation, and notes to our unaudited financial statements, particularly those that utilize terminology such as “may” “will,” “should,” “expects,” “anticipates,” “estimates,” “believes,” or “plans” or comparable terminology are forward-looking statements. Such statements are based on currently available operating, financial and competitive information, and are subject to various risks and uncertainties. Future events and our actual results may differ materially from the results reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, dependence on existing and future key strategic and strategic end-user customers, limited ability to establish new strategic relationships, ability to sustain and manage growth, variability of operating results, our expansion and development of new service lines, marketing and other business development initiatives, the commencement of new engagements, competition in the industry, general economic conditions, dependence on key personnel, the ability to attract, hire and retain personnel who possess the technical skills and experience necessary to meet the service requirements of our clients, the potential liability with respect to actions taken by our existing and past employees, risks associated with international sales, and other risks described herein and in our other filings with the Securities and Exchange Commission.
The safe harbor for forward-looking statements provided by Section 21E of the Securities Exchange Act of 1934 excludes issuers of “penny stock” (as defined under Rule 3a51-1 of the Securities Exchange Act of 1934). Our common stock currently falls within that definition
All forward-looking statements in this document are based on information currently available to us as of the date of this report, and we assume no obligation to update any forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from any future results, performance or achievements expressed or implied by such forward looking statements.
The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes appearing elsewhere in this report.
Company History
We were incorporated in the State of Delaware on December 19, 2005 and amended our Certificate of Incorporation on March 1, 2006. On March 1, 2006, we changed our name from The Diet Coffee Company, Inc. to Diet Coffee, Inc. and on June 26, 2008, we changed our name to Zevotek, Inc. Our principal executive offices are located at 134 Cedar Street, Nutley, NJ 07110. Our telephone number is (201) 394-8684.
We are engaged in the direct marketing and distribution of consumer products. Our first offering was the Slim Coffee product line, which featured coffee beverages. We no longer sell or market Slim Coffee products and do not anticipate selling Slim Coffee products in the fiscal year ended June 30, 2008. In May 2007, we entered into a license agreement to sell an energy saving compact fluorescent light bulb named the Ionic Bulb, which agreement was replaced by an Exclusive License and Sales Agreement dated February 24, 2009 under which we currently retain the exclusive worldwide rights to manufacture, market, use, sell, distribute and advertise the Ionic Bulb. We plan to market the Ionic Bulb through TV infomercials, catalogs, magazines and major U.S. retail and specialty stores and our websites www.zevo-tek.com and www.newionicbulb. com .
Recent Developments
In April 2009, we signed a Distribution Agreement with a German distributor pursuant to which we granted such distributor the exclusive right (subject to minimum sales in the first year) to advertise, market and sell our ionic bulb product in Germany, Austria, Switzerland, Liechtenstein, Czech Republic, Slovakia, Hungary, Romania and Poland.
On August 25, 2009 we announced that we had completed an extensive search in order to increase sales and presence in the retail markets and is close to completing a sales partnership with ELS Group LLC of Danbury, CT. Since that announcement, we have terminated negotiations with ELS Group due to disagreements which arose during negotiations of the definitive agreement. We are continuing our efforts to determine the most efficient and effective way to increase sales in our target markets.
In September 2009, we signed a media buying agreement with a Diray TV, a media buying agency, for buying TV airtime to advertise our ionic bulb product.
In October 2009, we signed a sales processing and warehousing agreement with Imagine Fulfillment Services to handle billing and shipping for orders of our ionic bulb product.
On October 30, 2009, we issued a press release announcing that an infomercial featuring our ionic bulb would start airing in Europe in the first week of November 2009. Due to the backlog with our media partner the airing has been delayed. We currently expect the infomercial to air in December 2009.
On December 21, 2009, we began selling the Ionic Bulb on our website www.newionicbulb.com and on December 28, 2009, we began airing our two-minute infomercial on U.S. television and accepting orders through a customized third party call center.
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Comparison of Three Months Ended December 31, 2009 To December 31, 2008
Results of Operations
Revenue
Our sales were $5,077 for the three months ended December 31, 2009 and $0 for the three months ended 2008. The increase of $5,077 or 100% was due to the start of our sales activities. In December, we began test marketing the Ionic Bulb in the U.S. Our test marketing consisted of airing our two-minute Ionic Bulb infomercial on a variety of U.S. cable television channels at different times of the day and days of the week. The television test marketing, which began on December 28, 2009, is designed to find viewing audiences more inclined to purchase Ionic Bulbs and to educate viewers on the Ionic Bulb's performance and money saving features which can be beneficial to promote planned retail sales of Ionic Bulbs. We also introduced the Ionic Bulb to journalists at magazines, newspapers, electronic journals and blogs to gain publicity and reviews for our product. Sales for the three months ended December 31, 2009 are comprised only of Ionic Bulbs ordered by visitors to our www.newionicbulb.com website and shipped on or before December 31, 2009. Sales for the three months ended December 31, 2009, exclude orders received from customers who viewed our television infomercials that started airing December 28, 2009, as a result of those orders still being compiled and transmitted by the call center to our sales order fulfillment center as of December 31, 2009, and therefore not eligible for revenue recognition until January 2010. Direct response sales to consumers will increase in future periods in connection with the increased frequency of airings of our TV infomercial and other Ionic Bulb promotional activities. Our sales plans include establishing a retail sales channel consisting of sales of Ionic Bulbs to U.S. retailers, speciality stores, and catalog and e-commerce merchants. We have started efforts to establish our retail sales channel and expect to begin seeing sales results after we have further developed market awareness for our Ionic Bulb, a needed prerequisite for successful relationships with retailers.
Gross Profit
Our gross profit was $3,556 for the three months ended December 31, 2009 and $0 for the three months ended December 31, 2008. The increase of $3,556 or 100% was due to the start of our sales activities in late December 2009. We realized gross profit in the three months ended December 31, 2009 entirely from sales of Ionic Bulbs. We had no sales for the three months ended December 31, 2008, and therefore had no gross profits. Gross profit will increase in connection with our expected sales in future periods.
Operating Expenses
Operating expenses were $207,817 for the three months ended December 31, 2009, as compared to $159,164 for the three months ended December 31, 2008. The increase of $48,653 or 31% was primarily due the increase in selling expenses related to the start of Ionic Bulb sales and marketing activities. We incurred $86,571 and $0 in selling expenses during the three months ended December 31, 2009 and 2008, respectively. Selling expenses were comprised of advertising and marketing costs in connection with starting a sales and marketing campaign the Ionic Bulb that began generating Ionic Bulb sales orders in late December. We incurred $121,246 and $159,164 in general and administrative expenses for the three months ended December 31, 2009 and 2008, respectively.
Net Loss
Our net loss was $325,636 for the quarter ended December 31, 2009 and our net loss was $219,131 for the quarter ended December 31, 2008.
Our net income per common share was $0.00 (basic and diluted) for three months ended December 31, 2009 as compared to our net loss per common share of $0.01 for the three months ended December 31, 2008.
The weighted average number of outstanding shares was 670,885,307 (basic and diluted) for three months ended December 31, 2009 as compared to 15,540,950 (basic and diluted) for the three months ended December 31, 2008.
Comparison of Six Months Ended December 31, 2009 To December 31, 2008
Results of Operations
Revenues
Our sales were $5,077 for the six months ended December 31, 2009 and $0 for the six months ended 2008. The increase of $5,077 or 100% was due to the start of our sales activities. In December, we began test marketing the Ionic Bulb in the U.S. Our test marketing consisted of airing our two-minute Ionic Bulb infomercial on a variety of U.S. cable television channels at different times of the day and days of the week. The television test marketing, which began on December 28, 2009, is designed to find viewing audiences more inclined to purchase Ionic Bulbs and to educate viewers on the Ionic Bulb's performance and money saving features which can be beneficial to promote planned retail sales of Ionic Bulbs. We also introduced the Ionic Bulb to journalists at magazines, newspapers, electronic journals and blogs to gain publicity and reviews for our product. Sales for the six months ended December 31, 2009 are comprised only of Ionic Bulbs ordered by visitors to our www.newionicbulb.com website and shipped on or before December 31, 2009. Sales for the six months ended December 31, 2009, exclude orders received from customers who viewed our infomercials that started airing December 28, 2009, as a result of those orders still being compiled and transmitted by the call center to our sales order fulfillment center as of December 31, 2009, and therefore not eligible for revenue recognition until January 2010. Direct response sales to consumers will increase in future periods in connection with the increased frequency of airings of our TV infomercial and other Ionic Bulb promotional activities. Our sales plans include establishing a retail sales channel consisting of sales of Ionic Bulbs to U.S. retailers, speciality stores, and catalog and e-commerce merchants. We have started efforts to establish our retail sales channel and expect to begin seeing sales results after we have further developed market awareness for our Ionic Bulb, a needed prerequisite for successful relationships with retailers.
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Gross Profit
Our gross profit was $3,556 for the six months ended December 31, 2009 and $0 for the six months ended December 31, 2008. The increase of $3,556 or 100% was due to the start of our sales activities in late December 2009. We realized gross profit in the six months ended December 31, 2009 entirely from sales of Ionic Bulbs. We had no sales for the six months ended December 31, 2008, and therefore had no gross profits. Gross profit will increase in connection with our expected sales in future periods.
Operating Expenses
Operating expenses were $409,602 for the six months ended December 31, 2009, as compared to $320,066 for the six months ended December 31, 2008. The increase of $89,536 or 28% was primarily due to the increase in selling expenses related to the start of Ionic Bulb sales and marketing activities. We incurred $86,571 and $3,800 in selling expenses during the six months ended December 31, 2009 and 2008, respectively. Selling expenses were comprised of advertising and marketing costs in connection with starting a Ionic Bulb product sales and marketing campaign that began generating Ionic Bulb sales orders in late December. We incurred $323,031 and $312,266 in general and administrative expenses for the six months ended December 31, 2009 and 2008, respectively.
Net Loss
Our net loss was $619,897 for the six months ended December 31, 2009 and our net loss was $429,333 for the six months ended December 31, 2008. We developed a sales and marketing campaign to sell the Ionic Bulb directly to consumers and to retailers, specialty stores, catalog sales companies, e-commerce companies and international distributors. We incurred the costs of developing campaign during the six months ended December 31, 2009 with the expectation that the campaign will generate significant sales in 2010. We plan to generate a higher sales volume that produces gross profits that more than offset our operating expenses. Unless and until such time as we generate substantially higher sales volume, we will continue realize net losses.
Our net loss per common share was $0.00 (basic and diluted) for the six months ended December 31, 2009 as compared to our net loss per common share of ($0.03) (basic and diluted) for the six months ended December 31, 2008.
The weighted average number of outstanding shares was 500,533,096 for the six months ended December 31, 2009 as compared to 12,525,678 (basic and diluted) for the six-month period ended December 31, 2008.
Liquidity and Capital Resources
Overview
As of December 31, 2009, we had a working capital deficit of $1,100,800. As of June 30, 2009, we had a working capital deficit of $1,417,761. Our cash position at December 31, 2009 was $122,000 as compared to $0 at June 30, 2009. We significantly lowered the working capital deficit by reducing current liabilities through settlement agreements and the elimination of accounts payables that were inactive for the past two years.
For six months ended December 31, 2009, net cash used in operating activities was $230,056, consisting primarily of a net loss of ($619,897), adjusted primarily for common stock issued for services of $183,966, amortization of debt discount of $189,279 and a $76,795 increase in accounts payable and accrued expenses.
Cash provided by financing activities totaled $352,056 for the six months ended December 31, 2009 consisting of proceeds from third party loans.
We expect capital expenditures to be nominal for the year ending June 30, 2010. These anticipated expenditures are for continued investments in property and equipment used in our business and software for our accounting and information systems.
Financing
As of December 31, 2008, we have raised an aggregate of $1,272,439 in financing through the issuance debt and equity securities.
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Star Funding Financing Facility
On October 23, 2007, Ionicbulb.com, Inc. (f/k/a Zevotek, Inc.), our wholly owned subsidiary, entered into a Supply Agreement with Star Funding, Inc. pursuant to which Star Funding will provide, on a discretionary basis, purchase order financing up to $2.5 million to facilitate Ionbulb.com Inc’s sale of its Ionic Bulb product. This purchase order financing may be made via direct payment to Ionbulb.com Inc’s suppliers, issue or cause the issuance of letters of credit, and/or advances to Ionicbulb.com. Ionicbulb.com will be required to pay Star Funding an amount equal to 2.5% of all “Expenses” (as defined) associated with the purchase of any Goods under the Agreement, including letter of credit fees, if any, which will equal 0.25% of the face amount of any letter of credit. As collateral security for all of Ionicbulb.com Inc.’s obligations under the Supply Agreement, Ionicbulb.com granted Star Funding a security interest in all of Ionicbulb.com’s personal property and fixtures. The Supply Agreement is for an initial term of two years, and will be automatically extended for additional 1 year terms unless terminated by either party with 60 days’ prior written notice before the end of the initial or any renewal period.
On October 23, 2007, Ionicbulb.com also entered into a Factoring Agreement with Star Funding pursuant to which Star Funding has agreed to purchase certain accounts receivables of Ionicbulb.com under the Supply Agreement. Ionicbulb.com has agreed to pay Star Funding a factoring commission of 1.5% of the gross amount of each receivable under the Factoring Agreement provided, however, that Ionicbulb.com has agreed that Star Funding will receive $15,000 in fees under the Supply Agreement and the Factoring Agreement in the first 12 months and Ionicbulb.com has agreed to pay Star Funding the shortfall by which all fees and commissions are less than $15,000. As collateral security for all of Ioncibulb.com’s obligations under the Supply Agreement, Ioncibulb.com granted Star Funding a security interest in all of Ionicbulb.com’s personal property and fixtures. The Supply Agreement is for an initial term of two years, and will be automatically extended for additional 1 year terms unless terminated by Ionicbulb.com upon 60 days’ prior written notice before the end of the initial or any renewal period, or by Star Funding upon 30 days prior written notice.
To further secure Ionicbulb.com’s obligations under the Supply Agreement and the Factoring Agreement (as discussed below), we have executed (i) a guarantee and (ii) an assignment of that certain License and Supply Agreement under which is obtained its distribution rights for the Ionic Bulb. In addition, Adam Engel, President of Zevotek and Ionicbulb.com, executed an Anti Fraud and Performance Agreement under which Mr. Engel guaranteed Ionicbulb.com’s representations and warranties under the Supply and Factoring Agreements. Mr. Engel explicitly agrees that if any receivable purchased by Star Funding is not paid when due (subject to certain exceptions), such non-payment shall be presumed to be the result of a breach of Ionicbulb.com’s representations and warranties under the Supply Agreement and/or the Factoring Agreement at which time Star Funding may be able to execute on the (i) collateral pledged under the Supply and Factoring Agreements and (ii) license for distribution of the Ionic bulb product.
Financing Needs
Since our inception on December 19, 2005 to December 31, 2009, we have generated revenues of $1,210,419 and have incurred an accumulated deficit of $4,225,556. It is hoped that we will begin to achieve sustainable revenues in 2010 from sales of our Ionic Bulb product. Our ability to achieve profitability is dependent on several factors, including but not limited to, our ability to: generate liquidity from operations and satisfy our ongoing operating costs on a timely basis. We still need additional investments in order to continue operations to cash flow break even. Additional investments are being sought, but we cannot guarantee that we will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and conditions in the U.S. stock and debt markets make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations again, attempt to further restructure financial obligations and/or seek a strategic merger, acquisition or a sale of assets.
The independent auditor's report on our June 30, 2009 financial statements states that our recurring losses raise substantial doubts about our ability to continue as a going concern.
The effect of inflation on our revenue and operating results was not significant. Our operations are located in North America and there are no seasonal aspects that would have a material effect on our financial condition or results of operations.
We do not maintain off-balance sheet arrangements nor do we participate in non-exchange traded contracts requiring fair value accounting treatment.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
Financial Reporting Release No. 60, recently released by the Securities and Exchange Commission, requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. The notes to the consolidated financial statements include a summary of significant accounting policies and methods used in the preparation of our Consolidated Financial Statements. In addition, Financial Reporting Release No. 61 was recently released by the SEC requires all companies to include a discussion which addresses, among other things, liquidity, off-balance sheet arrangements, contractual obligations and commercial commitments. The following is a brief discussion of the more significant accounting policies and methods used by us.
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The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in accordance with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including the recoverability of tangible and intangible assets, disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reported period.
On an on-going basis, we evaluate our estimates. The most significant estimates relate to our recognition of revenue, the allowance for doubtful accounts receivable and inventory valuation reserves.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:
Reverse Stock Split
The Company effectuated a 1 for 50 reverse stock split on June 26, 2008. In addition, contemporaneously with the reverse stock split, the par value for the Preferred Stock and Common stock was changed to $.00001 per share All preferred and common stock and related information have been retroactively restated.
Revenue Recognition
The Company recognizes revenue from product sales based on four basic criteria that must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectibility is reasonably assured. Determination of criteria (3) and (4) are based on management's judgment regarding the fixed nature of the selling prices of the products delivered and the collectibility of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product was not delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.
Valuation of Accounts Receivable
Our allowance for doubtful accounts reflects our best estimate of probable losses, determined principally on the basis of historical experience and specific allowances for known troubled accounts.
Inventories / Cost of Goods Sold
The Company has adopted a policy to record inventory at the lower of cost or market determined by the first-in-first-out method. The elements of cost that comprise inventory and cost good sold are FOB shipping point costs, freight and destination charges, customs and importation fees and taxes, customer broker fees (if any) and other related costs. Warehousing costs are charged to cost of goods in the period the costs are incurred. The Company provides inventory allowances based on estimates of obsolete inventories.
Allowance for doubtful accounts
The Company maintains an allowance for doubtful accounts to reduce amounts to their estimated realizable value, including reserves for customer and other receivable allowances and incentives. In estimating the provision for doubtful accounts, the company considers a number of factors including age of the accounts receivable, trends and ratios involving the age of the accounts receivable and the customer mix of each aging categories.
Advertising
The Company charges the costs of advertising to expenses as incurred.
Off Balance Sheet Arrangements
None
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide the information required by this item.
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ITEM 4 – CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.
The Company’s management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2009. Based upon that evaluation and the identification of the material weakness in the Company’s internal control over financial reporting as previously disclosed in our quarterly report for the period ended December 31, 2009, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the quarter ended December 31, 2009 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS
On March 26, 2007, Zevotek, Inc. f/k/a Diet Coffee, Inc. (the “Company”) received a letter from the U.S. Federal Trade Commission (“FTC”) whereby the Company was informed that the FTC is conducting an investigation into advertising claims made for the Company’s weight loss product known as “Slim Coffee”. The purpose of the investigation was to determine whether the Company, in connection with its sales of Slim Coffee, engaged in unfair or deceptive acts or practices and false advertising. The FTC threatened to file a complaint in the United States District Court, Southern District of New York, alleging False Advertising, unless the Company and the FTC could reach a satisfactory resolution to the matter. A negotiated settlement has been reached with the FTC under which the Company, its officers and directors did not admit any wrongdoing. On October 5, 2007, the Company executed a stipulation to a final order and judgment in the amount of $923,910. The full amount of the judgment, and payment of any portion of it is suspended and cannot be reinstated so long as the Company abides by the reporting and monitoring requirements of the judgment; does not make false advertising claims in connection with any of its products in the future; and its past financial disclosures to the FTC were materially accurate. The Company expects stipulation will be executed by the FTC and filed with the United States District Court, Southern District of New York. The Company expects to comply with terms of the stipulation and does not anticipate incurring a liability for the judgment.
ITEM 1A – RISK FACTORS
As a “small reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 – DEFAULT UPON SENIOR SECURITIES
During the three months ended December 31, 2009, two note holders submitted conversion notices to the Company seeking to convert outstanding note principal and interest on the notes they hold into Company common stock. As a result of not processing the conversion notices, the Company is in default of their notes and is required under the note terms to repay all principal and accrued interest upon the earlier of receipt of a request for repayment by the note holders or upon the maturity dates.
ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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ITEM 5 – OTHER INFORMATION
On October 14, 2009, we filed an amendment to our certificate of incorporation with the Delaware Secretary of State to: increase the Corporation’s authorized common stock from 1,000,000,000 shares to 5,000,000,000 shares. This amendment was unanimously approved by our board of directors and by a majority of our stockholders by written consent.
ITEM 6 - EXHIBITS
Item
No. Description
4.1 Certificate of Amendment to Certificate of Incorporation (Incorporated by reference to the Current Report on Form 8-K, filed with the SEC on October 19, 2009)
31.1 Certification of Adam J. Engel, Chief Executive Officer and Chief Financial Officer of Zevotek, Inc. pursuant to Rule 13a-14(a)
32.1 Certification of Adam J. Engel, Chief Executive Officer and Chief Financial Officer of Zevotek, Inc. pursuant to 18 U.S.C. § 1350 adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ZEVOTEK, INC.
February 22, 2010 /s/ Adam J. Engel
Adam J. Engel
President, Chief Executive Officer and Chief Financial Officer
(Principal Executive and Financial and Accounting Officer)
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EX-31.1
CERTIFICATION
I, Adam J. Engel, certify that:
1. I have reviewed this report on Form 10-Q of Zevotek, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: February 22, 2010
/s/ Adam J. Engel
Adam J. Engel, President,
Chief Executive Officer, Chief
Financial Officer and Director
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EX-32.1
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Zevotek, Inc., a Delaware corporation (the “Company”), on Form 10-Q for the period ended December 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Adam J. Engel, President, Chief Executive Officer, Chief Financial Officer and Director of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Dated: February 22, 2010
/s/ Adam J. Engel
Adam J. Engel, President, Chief Executive Officer,
Chief Financial Officer and Director
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