Attached files
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EX-31.1 - Zevotek, Inc | v162588_ex31-1.htm |
EX-23.1 - Zevotek, Inc | v162588_ex23-1.htm |
EX-32.1 - Zevotek, Inc | v162588_ex32-1.htm |
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
____________________________________________________
FORM
10-K
(Mark
One)
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
|
ACT OF
1934
For The Fiscal Year Ended June 30, 2009
o
|
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 issuer as specified in its charter)
DELAWARE
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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, including zip
code)
|
Registrant’s
telephone number, including area code:
|
(973)
667-4026
|
|
Securities
registered pursuant to Section 12(b) of the Act:
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None
|
|
Securities
registered pursuant to Section 12(g) of the Act:
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None
|
___________________
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes No x
Indicate by check mark if the registrant is not required
to file reports pursuant to Section 13 or 15(d) of the Act: o Yes No x
Indicate
by check mark whether the registrant(1) has filed all reports required by
Section 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 day. x
Yes o
No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulations S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy ir information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. 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 if the Exchange Act.
Large
accelerated filter o
|
Accelerated
filter o
|
Non-accelerated
filter o (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
As of
October 8, 2009, 703,885,307 shares of our common stock were issued and
outstanding.
Documents
Incorporated by Reference: None.
PART
I
ITEM
1. BUSINESS.
Our
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 (973) 667-4026.
Overview
of Business
We are
engaged in the direct marketing and distribution of consumer
products. Our first offering was the Slim Coffee product line, which
features coffee beverages. 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.ionicbulb.com.
Products
We currently have one product for
marketing and sale: the Ionic Bulb, which we began selling in fiscal
2008. During the fiscal year ended June 30, 2007, we offered and sold
coffee products under the Slim Coffee product line. Beginning in the
quarter ended June 30 2007, we stopped marketing and selling of coffee
products. However, certain minimal residual sales occurred during the
first quarter of fiscal 2008. We have no current intention to market
or sell coffee products in the future.
Ionic
Bulb
On May
18, 2007, we entered into a license and supply agreement with an owner of 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 intend to sell the Ionic Bulb through our wholly owned
subsidiary Ionicbulb.com, Inc. We seek to penetrate the $40
billion dollar global lighting industry through sales of the Ionic
Bulb. The Ionic Bulb combines the performance features of ionic air
cleaning technology with those of a 10,000 hour reduced energy use compact
fluorescent light bulb (CFL). The Ionic Bulb contains an air purifying microchip
ion emitter that is powered by the bulb's own energy. The Ionic Bulb is designed
for use in any U.S. home which we believe will not require any special
modifications. When illuminated, the Ionic Bulb via silent emission of negative
ions helps to eliminate smoke, dust, pollen, pet dander and odors from the air
within a surrounding 100 square foot area. The Ionic Bulb is designed for
consumer use. We believe the Ionic Bulb product to be a less
expensive and space saving alternative to air purifiers.
Industry
testing shows CFL bulbs, such as the Ionic Bulb use approximately 1/3 less
energy than ordinary incandescent light bulbs. CFL bulbs can be used nearly
anywhere that ordinary incandescent lights are used, including recessed
fixtures, table lamps, track lighting, ceiling fixtures and porch
lights.
Sales
and Marketing
We plan
to market the Ionic Bulb through TV Infomercials, catalogs, magazines and major
U.S. retail and specialty stores and our website www.ionicbulb.com. Our plans
can be further described as follows:
Infomercials
- We expect to develop and produce both long and short form (spot) direct
response television campaigns (infomercials) to be placed in major national
broadcast and cable networks. Spot infomercials run between 60 seconds and five
minutes and long form infomercials run for 28 minutes. These campaigns will be
conducted locally, nationally, or both, depending on the specific product and
anticipated demand. As of the date of this annual report, we are in the final
stages of production for a new Ionic Bulb infomercial.
2
Catalog
Advertising – Ionic Bulb products may be marketed by third parties that operate
catalog sales businesses. We would sell these
catalog companies our Ionic Bulb products for sale to their
customers. We believe that sales to catalogs are a source of revenue
and product exposure to potentially large audiences.
Retail -
We have also approached several major national chains and expect to have a
comprehensive network of major retailers selling our products. We plan to use
independent distributors to assist us with establishing retail sales of our
products.
Internet
- Our Ionic Bulb products are being made available for sale on our web sites
www.zevo-tek.com and
www.ionicbulb.com,
and are marketed using a streaming video presentation of the Ionic Bulb and its
features. We recently procured a merchant account enabling us to
accept payment card transactions from all major credit card companies thereby
facilitating the online purchase process through our corporate
website. We are currently working to establish a fulfillment center
and an inbound call center.
We may
create and distribute multimedia emails to selected individuals who purchase
products or express an interest in our product line.
Manufacturing
and Distribution
We
contract with unaffiliated manufacturers outside the U.S. to manufacture our
products. Our Ionic Bulb is manufactured in China and is subject to import
duties, which have the effect of increasing the amount we pay to obtain such
products. We are currently in negotiations for a formal manufacturing and
distribution agreement.
On April
29, 2009 we entered into 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 (the “Territory”). Upon
satisfactory sales of an initial order (in dealer’s reasonable discretion) of
5,000 units of our ionic bulb product, the distributor agreed to purchase 5,000
units of our ionic bulb product per month during the first year of the contact
to maintain exclusive status in the Territory. We 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.
License
Agreements, Trademarks and Patents
License
and Supply Agreement
On May
18, 2007, we entered into that certain License and Supply Agreement (the “Original Agreement”) with
Jason Ryu, the purported sole owner, pursuant to which Mr. Ryu granted us an
exclusive, commercial license to market, distribute, sell and manufacture the
Ionic Bulb Product and the patents underlying the Ionic Bulb Product set forth
under the term “Ionic Bulb Patents” on Exhibit A to the
Agreement (the “Ionic Bulb
Patents”) which Original Agreement was terminated in July 2008 yet
continued on an informal non-exclusive basis. On February 24, 2009,
we entered into an Exclusive License and Supply Agreement (the “Agreement”) with Jason Ryu
to, amongst other things, reclaim the license for the Ionic Bulb Products on an
exclusive basis. Under the Agreement, Mr. Ryu granted us a worldwide
exclusive license (the “License”) to manufacture,
have manufactured, market, use, sell distribute and advertise the Licensed
Products (as defined in the Agreement) which includes the Ionic Bulb
products. In consideration of the License, we agreed to issue Mr. Ryu
fifty million (50,000,000) shares of our common stock (the “License
Shares”). If either (a) we fail to file our quarterly
and annual reports by the due date for such report (including, if applicable,
any extensions permitted under Rule 12b-25 of the Securities Exchange Act of
1934, as amended) or (b) our Common Stock is not quoted on the OTCBB
on or before February 14, 2010, then the License shall (unless Licensee
exercises the Option set forth under Section 3.2 of the Agreement) continue on a
non-exclusive basis; provided, however, that in such
instance we can issue to Ryu an additional amount of shares of Common Stock
equal to $90,000 to maintain the License on an exclusive basis.
3
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.
Patents
and Trademarks
On April
2, 2005, Mr. Ryu (and Mr. Chang Min Lee the co-inventor) filed US Patent
Application No. 11/097,767 (Publication No. 20006/0078460) entitled “Anion
General for Incorporation into Lighting Apparatuses and Other Appliances” with
the US Patent and Trademark Office (“USPTO”). The initial application
was rejected on various grounds. Mr. Ryu filed a response and
amendment to the initial application with the USPTO on September 9,
2007. Mr. Ryu filed a continuation-in-part (CIP) application on
August 7, 2008, serial no. 12/221,908, which claims the benefit of no.
11/097,767, now abandoned. The CIP application adds some new enhancements to the
bulb design that further distinguish the invention over the prior
art. As of the date of this Annual Report, the CIP is pending and has
not yet been examined. We cannot offer any assurance that the
application will ultimately be approved by the USPTO. In addition, there is an
international patent application on file under the Patent Cooperation Treaty
(PCT), No PCT/KR2005/002997 (Publication No. WO/2006/031036) entitled Negative
Ion Emission Lamp. We intend to file additional applications, as
appropriate to protect our rights in the Ionic Bulb.
A
divisional application, serial no. 11/820,915, is pending. It is
directed to an ionic air purifying device in an appliance such as a fan (rather
than in a CFL light bulb). A response to an office action is
due October 28, 2009 with one
3 month extension of time. No further extensions are
available..
The initial application for trademark
protection for the “Ionic Bulb” brand name was rejected. There is no
assurance that trademark protection will ultimately be procured.
Notwithstanding, Mr. Ryu’s and our
efforts to protect proprietary rights in the Ionic Bulb, existing trade secret,
copyright, and trademark laws afford only limited
protection. Further, the assignment of the US Patent Application by
the co-inventor has not been perfected by filing with the
USPTO. Until such time as this filing is perfected, it is possible
that the co-inventor could license the Ionic Bulb to another
party. Despite our efforts to protect our proprietary rights and
other intellectual property, unauthorized parties may attempt to copy aspects of
our products, obtain and use information that we regard as proprietary or
misappropriate our copyrights, trademarks, trade dress, and similar proprietary
rights. In addition, the laws of some foreign countries do not protect
proprietary rights to as great an extent as do the laws of the United States.
Our means of protecting our proprietary rights may not be adequate. In addition,
our competitors might independently develop similar technology or duplicate our
products or circumvent any patents or our other intellectual property
rights.
Supply
and Factoring Agreement—To be terminated at the end of the Initial Term on
October 23, 2009
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.
4
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.
In
September 2009, Zevotek and Star Funding agreed to terminate these agreements,
effective at the end of the initial term on October 23, 2009. The
parties agreed to exchange mutual releases in connection with the
termination.
Competition
The CFL
bulb market is subject to intense competition since new products and sellers are
constantly entering the market and competing for consumer dollars. The ease of
entry into the market also adds to the highly competitive nature of the
industry. We have not yet achieved a market share, nor do we have a
long operating history, large customer base, or substantial financial,
development and marketing resources. Our products will compete with many other
CFL bulb products that are sold over the Internet and in mass market retail and
specialty stores. Maintaining and gaining market share depends heavily on the
differentiation of our product’s ionizing features, further product development
and enhancement, pricing, quality, performance, packaging and availability,
brand name recognition, patents, and marketing and distribution
approaches.
Regulation
The
formulation, manufacturing, packaging, labeling, advertising, distribution, and
sale (hereafter, collectively “sale” or “sold”) of CFL bulbs, such as those we
plan to sell, are subject to regulation by one or more federal agencies,
principally the Federal Trade Commission, or FTC, and to a lesser extent the
Consumer Product Safety Commission. Our activities are also regulated by various
governmental agencies for the states and localities in which our products are
sold, as well as by governmental agencies in certain countries outside the
United States. Among other matters, regulation by the FTC covers product safety
and claims made with respect to a product's ability to provide health-related
benefits.
Federal
agencies, primarily the FTC, have a variety of procedures and enforcement
remedies
available to them, including the following:
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initiating
investigations,
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·
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issuing
warning letters and cease and desist
orders,
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requiring
corrective labeling or advertising,
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·
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requiring
consumer redress, such as requiring that a company offer to repurchase
products
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previously
sold to consumers,
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seeking
injunctive relief or product
seizures,
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imposing
civil penalties, or
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·
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commencing
civil action and/or criminal
prosecution.
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5
In
addition, certain state agencies have similar authority. These federal and state
agencies have in the past used these remedies in regulating participants in the
industry, including the imposition by federal agencies of civil penalties. We
cannot assure you that the regulatory environment in which we operate will not
change or that such regulatory environment, or any specific action taken against
us, will not result in a material adverse effect on our operations. In addition,
increased sales of, and publicity about, CFL bulb may result in increased
regulatory scrutiny of the CFL bulb industry, including consumer compliance with
local regulations for properly disposing of used CFL bulbs which contain trace
amounts of mercury.
The sale
of our products in countries outside the United States is regulated by the
governments of those countries. We are currently attempting to market our
products outside of the United States. The Company plans to commence sales in
those countries may be prevented or delayed by such regulation. While compliance
with such regulation will generally be undertaken by international distributors,
we may assist with such compliance and in certain cases may be liable if a
distributor fails to comply.
We cannot
predict the nature of any future laws, regulations, interpretations, or
applications, nor can we determine what effect such additional regulation, when
and if it occurs, would have on our business in the future. Such additional
regulation could require, however, any or all of the actions listed below, which
could have a material adverse effect on our operations:
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the
reformulation of certain products to meet new
standards,
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the
recall or discontinuance of certain
products,
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additional
record keeping,
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expanded
documentation of the properties of certain
products,
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revised,
expanded or different labeling, or
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additional
scientific substantiation.
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Coffee
Products (Not currently being
marketed or sold)
During
the fiscal year ended June 30, 2007, we sold coffee products under the Slim
Coffee brand. Beginning in the quarter ended June 30 2007, we stopped marketing
and selling of coffee products. However, certain minimal residual
sales occurred during the first quarter of fiscal 2008. We have no
current intention to market or sell coffee products in the future.
Employees
As
of October 8, 2009 we had one full-time employee, who is our president,
chief executive officer and chief financial officer. We have not experienced any
work stoppages and we consider relations with our employee to be
good.
ITEM
1A. RISK FACTORS AND CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION
Risks Relating to Our
Business:
WE
HAVE A LIMITED OPERATING HISTORY UPON WHICH YOU CAN BASE AN INVESTMENT
DECISION.
Our
company was formed on December 19, 2005, therefore we have a limited operating
history upon which you can make an investment decision, or upon which we can
accurately forecast future sales. You should, therefore, consider us subject to
the business risks associated with a new business. The likelihood of our success
must be considered in light of the expenses, difficulties and delays frequently
encountered in connection with the formation and initial operations of a new
business.
6
WE
HAVE NO OPERATING HISTORY IN THE LIGHTING INDUSTRY, WHICH COULD RESULT IN ERRORS
IN MANAGEMENT AND OPERATIONS.
We
recently entered the lighting production and sale market and have no history of
operations. We may not be able to manage entry into this market
effectively or properly staff operations, and failure to manage our entry into
this market effectively could delay our ability to generate profitable
operations.
OUR
AUDITORS HAVE EXPRESSED SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A
GOING CONCERN.
In their
report dated October 13, 2009, RBSM LLP stated that our consolidated
financial statements for the year ended June 30, 2009, were prepared
assuming that we would continue as a going concern. Our ability to continue as a
going concern is an issue raised as a result of our recurring losses from
operations and our net capital deficiency. We continue to experience net
operating losses. Our ability to continue as a going concern is subject to our
ability to generate a profit. Our continued net operating losses and
stockholders' deficit increases the difficulty in meeting such goals and there
can be no assurances that such methods will prove successful.
OUR
FAILURE TO COMPLY WITH THE FINAL JUDGEMENT ISSUED BY THE FTC COULD ADVERSELY
AFFECT OUR BUSINESS.
On March
26, 2007, we received a letter from the U.S. Federal Trade Commission (“FTC”)
whereby we were informed that the FTC was conducting an investigation into
advertising claims made for our weight loss product known as “Slim Coffee.”
The purpose of the investigation was to determine whether we, 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) we abide 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. We
expect 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 we fail to comply with the FTC’s final judgment,
this could have a material adverse on our business, financial condition and
results of operations.
WE
COULD LOSE OUR EXCLUSIVE RIGHT TO MARKET AND SELL THE IONIC BULB
Under the
terms of our exclusive license and sales agreement dated February 24, 2009
relating to the Ionic Bulb, if either (a) we fail to file our quarterly and
annual reports by the due date for such report (including, if applicable, any
extensions permitted under Rule 12b-25 of the Securities Exchange Act of 1934,
as amended) or (b) our Common Stock is not quoted on the OTCBB on or
before February 14, 2010, then the License shall (unless Licensee exercises the
Option set forth under Section 3.2 below) continue on a non-exclusive basis;
provided, however, that in such
instance we can issue to Mr. Ryu an additional amount of shares of Common Stock
equal to $90,000 to maintain the License on an exclusive basis
WE
LACK PROPER INTERNAL CONTROLS AND PROCEDURES
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized, and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms, and that such information
is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based on the definition of “disclosure controls
and procedures” in Rule 13a-15(e). In designing and evaluating the disclosure
controls and procedures, our management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
7
During
the course of the preparation of our June 30, 2009 financial statements, we
identified certain material weaknesses relating to our internal controls and
procedures within the areas of revenue recognition and inventory accounting.
Some of these internal control deficiencies may also constitute deficiencies in
our disclosure and internal controls.
WE
ARE SEEKING ADDITIONAL FINANCING TO FUND OUR WHOLESALE AND DIRECT RESPONSE SALES
BUSINESS, AND IF WE ARE UNABLE TO OBTAIN FUNDING WHEN NEEDED, WE MAY NEED TO
SCALE BACK OUR OPERATIONS.
We have
been financing our operations since our inception in December 19, 2005 with
$1,319,801 in funds invested by our founders raised through a private placement
of our common stock and through the issuance of promissory notes to unaffiliated
third party investors. We have used the financing to start up our
direct response sales business. We need additional capital to continue our
operations and will endeavor to raise funds through the sale of equity shares
and revenues from operations.
Our
operating and capital requirements during the next fiscal year and thereafter
will vary based on a number of factors, including the level of sales and
marketing activities for our products. Accordingly, we expect to need to obtain
additional private or public financing including debt or equity financing and
there can be no assurance that such financing will be available as needed or, if
available, on terms favorable to us. Any additional equity financing may be
dilutive to stockholders and such additional equity securities may have rights,
preferences or privileges that are senior to those of our existing common
stock.
Furthermore,
debt financing, if available, will require payment of interest and may involve
restrictive covenants that could impose limitations on our operating
flexibility. Our failure to generate adequate revenues or successfully obtain
additional future funding may jeopardize our ability to continue our business
and operations.
FAILURE
TO PROTECT PROPRIETARY TECHNOLOGY COULD IMPAIR OUR COMPETITIVE
POSITION.
The
owners of the Ionic Bulb have filed U.S. and foreign patent applications for the
Ionic Bulb. Our success will depend in part on our ability to obtain
United States and foreign patent protection for the Ionic Bulb and operate
without infringing the proprietary rights of third parties. We place
considerable importance on obtaining patent protection for significant new
technologies, products and processes. Future enforcement of patents
and proprietary rights in many other countries may be problematic or
unpredictable. Moreover, the issuance of a patent in one country does
not assure the issuance of a similar patent in another country. Claim
interpretation and infringement laws vary by nation, so the extent of any patent
protection is uncertain and may vary in different jurisdictions. Our
domestic patent position is also highly uncertain and involves complex legal and
factual questions. In addition, the assignment by the co-inventor has
not yet been perfected in the US Patent and Trademark Office. Until
such time as this assignment is perfected, the co-inventor could license the
Ionic Bulb technology to another party. The applicant or inventors of
subject matter covered by patent applications or patents owned by us may not
have been the first to invent or the first to file patent applications for such
inventions. Due to uncertainties regarding patent law and the
circumstances surrounding our patent applications, the pending or future patent
applications we own may not result in the issuance of any
patents. Existing or future patents owned by to us may be challenged,
infringed upon, invalidated, found to be unenforceable or circumvented by
others. Further, any rights we may have under any issued patents may
not provide us with sufficient protection against competitive products or
otherwise cover commercially valuable products or processes.
LITIGATION
OR OTHER DISPUTES REGARDING PATENTS AND OTHER PROPRIETARY RIGHT MAY BE
EXPENSIVE AND HARM OUR ABILITY TO OPERATE.
The
manufacture, use or sale of the Ionic Bulb may infringe on the patent rights of
others. If we are unable to avoid infringement of the patent rights
of others, we may be required to seek a license, defend an infringement action
or challenge the validity of the patents in court. Litigation is
costly and time consuming. We may not have sufficient resources to
bring these actions to a successful conclusion. In addition, if we do
not obtain a license, develop or obtain non-infringing technology, or fail to
successfully defend an infringement action or have the patents we are alleged to
infringe declared invalid, we may:
• incur
substantial money damages;
• not
be able to obtain any required license on favorable terms, if at
all.
8
In
addition, if another party claims the same subject matter or subject matter
overlapping with the subject matter that we have claimed in a United States
patent application or patent, we may decide or be required to participate in
interference proceedings in the United States Patent and Trademark Office in
order to determine the priority of invention. Loss of such an
interference proceeding would deprive us of patent protection sought or
previously obtained and could prevent us from commercializing our
products. Participation in such proceedings could result in
substantial costs, whether or not the eventual outcome is
favorable. These additional costs could adversely affect our
financial results.
WE MAY
BE UNABLE TO MANAGE BUSINESS GROWTH OR IMPLEMENT OUR EXPANSION STRATEGY.
Our
executive officer has limited experience managing a publicly-traded company and
limited experience complying with the increasingly complex laws pertaining to
public companies. He may not successfully or efficiently manage our transition
into a public company that will be subject to significant regulatory oversight
and reporting obligations under federal securities laws. In particular, these
new obligations will require substantial attention from our management and
divert his attention away from the day-to-day management of our business, which
could materially and adversely impact our business operations.
Furthermore
we may not be able to establish markets for our products, or implement the other
features of our business strategy at the rate or to the extent presently planned
because we are a small company. Our projected growth will place a significant
strain on our administrative, operational and financial resources. If we are
unable to successfully manage our future growth, establish and continue to
upgrade our operating and financial control systems, recruit and hire necessary
personnel or effectively manage unexpected expansion difficulties, our financial
condition and results of operations could be materially and adversely
affected.
OUR
FUTURE OPERATIONS ARE CONTINGENT ON OUR ABILITY TO RECRUIT EMPLOYEES TO EXPAND
OUR DIRECT RESPONSE SALES BUSINESS.
In the
event we are able to obtain necessary funding to establish our wholesale and
direct response sales business, we expect to experience growth in the number of
employees and the scope of our operations. In particular, we may hire additional
sales, marketing and administrative personnel to advance our Ionic Bulb product
sales. Additionally, acquisitions could result in an increase in employee
headcount and business activity. Such activities could result in increased
responsibilities for management. We believe that our ability to increase our
customer support capability and to attract, train, and retain qualified
technical, sales, marketing, and management personnel, will be a critical factor
to our future success.
DUE
TO THE HIGH LEVEL OF COMPETITION IN THE MARKETING AND SALE OF CONSUMER PRODUCTS,
WE MIGHT FAIL TO COMPETE EFFECTIVELY, WHICH WOULD HARM OUR FINANCIAL CONDITION
AND OPERATING RESULTS.
The
business of marketing consumer products is highly competitive and sensitive to
the introduction of new products, which may rapidly capture a significant share
of the market. These market segments include numerous manufacturers,
distributors, marketers, retailers and physicians that actively compete for the
business of consumers both in the United States and abroad. In addition, we
anticipate that we will be subject to increasing competition in the future from
sellers that utilize electronic commerce for their direct response sales
business. Some of these competitors have longer operating histories, significantly greater financial, technical,
product development, marketing and sales resources, greater name recognition,
larger established customer bases and better-developed distribution channels
than we do. Our present or future competitors in these industries may be
able to develop new products that are comparable or superior to those we offer,
adapt more quickly than we do to new technologies, evolving industry trends and
standards or customer requirements, or devote greater resources to the
development, promotion and sale of their products than we do. For example, if
our competitors develop CFC light bulbs that prove to be more effective than our
products, demand for our Ionic Bulb products could be reduced. Accordingly, we
may not be able to compete effectively in our markets and competition may
intensify.
We are
also subject to significant competition for the recruitment of distributors from
other network marketing organizations, including those that market other types
of products. We compete for global customers and distributors with regard to
consumer products. In addition, because the industry in which we operate is not
particularly capital intensive or otherwise subject to high barriers to entry,
it is relatively easy for new competitors to emerge who will compete with us for
our distributors and customers.
We expect
that new competitors are likely to join existing competitors. Many of our
current competitors are significantly larger and have substantially greater
market presence as well as greater financial, technical, operational, marketing
and other resources and experience than we have. In the event that such a
competitor expends significant sales and marketing resources in one or several
markets we may not be able to compete successfully in such markets. We believe
that competition will continue to increase, placing downward pressure on prices.
Such pressure could adversely affect our gross margins if we are not able to
reduce costs commensurate with such price reductions. If our competitors were to
provide better and more cost effective products, our business initiatives could
be materially and adversely affected.
ADVERSE
PUBLICITY ASSOCIATED WITH OUR PRODUCTS, OR THOSE OF SIMILAR COMPANIES, COULD
HARM OUR FINANCIAL CONDITION AND OPERATING RESULTS.
The size
of our distribution force and the results of our operations may be significantly
affected by the public's perception of our Ionic Bulb product line, our Company,
similar products in the industry, similar companies in the industry. Adverse
publicity in the form of published scientific research or otherwise, whether or
not accurate, that associates consumption of our products or any other similar
products with illness or other adverse effects, that questions the benefits of
our or similar products, or that claims that such products are ineffective could
have a material adverse effect on our reputation, the demand for our products,
and our ability to generate revenues. This perception is dependent upon opinions
concerning:
|
·
|
the safety and quality of our
products and ingredients;
|
|
·
|
the
safety and quality of similar products and ingredients distributed by
other companies;
|
|
·
|
our distributors;
and
|
|
·
|
the direct selling business
generally.
|
Adverse
publicity concerning any actual or purported failure of us or our distributors
to comply with applicable laws and regulations regarding product claims and
advertising, good manufacturing practices, the regulation of our network
marketing program, the licensing of our products for sale in our target markets
or other aspects of our business, whether or not resulting in enforcement
actions or the imposition of penalties, could have an adverse effect on our
goodwill and could negatively affect our ability to attract, motivate and retain
distributors, which would negatively impact our ability to generate revenue. We
cannot ensure that all distributors will comply with applicable legal
requirements relating to the advertising, labeling, licensing or distribution of
our products.
In
addition, our distributors' and consumers' perception of the safety and quality
of our Ionic Bulb products as well as similar products distributed by other
companies can be significantly influenced by national media attention,
publicized scientific research or findings, widespread product liability claims
and other publicity concerning our products or ingredients or similar products
and ingredients distributed by other companies. Adverse publicity, whether or
not accurate or resulting from consumers' use or misuse of our products or our
direct response sales business, that associates consumption of our products or
ingredients or any similar products or ingredients with illness or other adverse
effects, questions the benefits of our or similar products or claims that any
such products are ineffective, inappropriately labeled or have inaccurate
instructions as to their use, could negatively impact our reputation or the
market demand for our products.
Adverse
publicity relating to us, our products, including our Ionic Bulb product line,
our direct response sales business or our operations, or the attractiveness or
viability of the financial opportunities provided thereby could have a negative
effect on our ability to attract, motivate and retain distributors. Adverse
publicity may cause a rapid, substantial loss of distributors, a decline in
consumer interest in our direct marketing campaigns and a corresponding
reduction in sales. We expect that negative publicity will, from time to time,
negatively impact our business in particular markets.
9
ADDITIONAL
FINANCING WILL BE NECESSARY FOR THE IMPLEMENTATION OF OUR MARKETING
STRATEGY FOR OUR IONIC BULB PRODUCTS.
In
developing and implementing our marketing strategy for our Ionic Bulb products,
we will need to create additional infomercials and print ad campaigns. Once the
marketing plans are implemented we will need to hire additional employees for
the operation of our business. Accordingly we expect to need to obtain
additional private or public financing including debt or equity financing and
there can be no assurance that such financing will be available as needed, or,
if available, on terms favorable to us. Any additional equity financing may be
dilutive to stockholders and such additional equity securities may have rights,
preferences or privileges that are senior to those of our existing common stock.
Furthermore, debt financing, if available, will require payment of interest,
fees and may involve restrictive covenants that could impose limitations on our
operating flexibility. Our failure to successfully obtain additional future
funding will jeopardize our ability to continue our business and
operations.
OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS WILL SUFFER IF WE DO NOT
ACCURATELY FORECAST CUSTOMERS' DEMANDS FOR OUR IONIC BULB
PRODUCTS.
Because
of our reliance on third-party manufacturers, the production lead times are
relatively long. Therefore, we must commit to production well in advance of
customer orders for our Ionic Bulb products. If we fail to forecast consumer
demands accurately, we may encounter difficulties in filling customer orders or
in liquidating excess inventories, or may find that customers are canceling
orders or returning products. Our relatively long production lead time may
increase the amount of inventory and the cost of storing inventory.
Additionally, changes in retailer inventory management strategies could make
inventory management more difficult. Any of these results could have a material
adverse effect on our business, financial condition and results of
operations.
OUR
DIRECT RESPONSE SALES OPERATION IS DEPENDENT ON HAVING ADEQUATE CREDIT CARD
ACTIVITY PROCESSING CAPACITY WITH THE MAJOR CREDIT CARD COMPANIES AND A CREDIT
CARD PROCESSOR.
A third
party credit card processor regulates our daily credit card sales order volume
and sets limits as to the maximum daily sales volume it will process. In
addition, credit card companies, such as Visa and MasterCard, and credit card
processors typically maintain a record of the level of customer requests to have
charges for our products reversed (chargebacks). The credit card companies and
processors may impose increased deposit requirements and fines for “high
chargeback levels”, may modify our daily sales volume limit, make a demand for
additional reserves or even discontinue doing business with us. The direct
response business is known for relatively high chargeback levels and we may
experience periods of higher than accepted levels of chargeback activity that
could lead to fines and disruptions in credit card processing of customer
orders. We endeavor to maintain reasonable business practices and customer
satisfaction, which in part, can contribute to lower levels of chargeback
activity. Nevertheless, excess chargeback activity could result in our being
unable to have customers pay us using credit cards.
WE
RELY ON OTHERS FOR PRODUCTION OF OUR IONIC BULB PRODUCTS, AND ANY INTERRUPTIONS
OF THESE ARRANGEMENTS COULD DISRUPT OUR ABILITY TO FILL CUSTOMERS' ORDERS AND
HAVE A MATERIAL IMPACT ON OUR ABILITY TO OPERATE.
We obtain
our products for our Ionic Bulb product line from third party suppliers. Any
increase in labor, equipment, or other production costs could adversely affect
our cost of sales. Qualifying new manufacturers is time-consuming and might
result in unforeseen manufacturing and operations problems. The loss of our
relationships with our manufacturers or our inability to conduct our
manufacturing services for us as anticipated in terms of cost, quality, and
timeliness could adversely affect our ability to fill customer orders in
accordance with required delivery, quality, and performance requirements. If
this were to occur, the resulting decline in revenue would harm the
business.
We depend
on manufacturers to maintain high levels of productivity and satisfactory
delivery schedules. Our manufacturers serve many other customers, a number of
which have greater production requirements than we do. As a result, our
manufacturers could determine to prioritize production capacity for other
customers or reduce or eliminate deliveries to us on short notice. We may
encounter manufacturing delays and longer delivery schedules in commencing
volume production of new products. Any of these problems could result in our
inability to deliver products in a timely manner and adversely affect our
operating results. We depend to a great extent on our manufacturers for the
safety, purity, and potency of our products.
10
We
currently outsource significant portions of our business functions, including,
but not limited to, warehousing, customer service, inbound call center functions
and payment processing for all direct response sales, customer order
fulfillment, and product returns processing and shipping. From time to time we
have experienced interruptions in these essential services for varying periods
of time and future interruptions can and will occur. If such interruptions occur
for extended periods of time, our operations may be materially adversely
affected.
ANY
MATERIAL INCREASE IN THE COST OF THE RAW MATERIALS USED TO MANUFACTURE OUR
PRODUCTS WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR COST OF SALES.
As a cost
efficiency measure and due to the relative size of our business, we do not
manufacture our own product line but contract and depend on such supply and
manufacture to third parties. We do not have contracts with our supplier of our
Ionic Bulb product. We are subject to variations in the prices of the raw
materials used in the manufacture of our products. We may not be able to pass
along any cost increases to our customers and in the event that we are unable to
raise prices, we would experience. As a result, any material increase in the
cost of raw materials used in the manufacture of our Ionic Bulb product could
have a material adverse effect on our cost of sales.
WE
ARE DEPENDENT UPON KEY PERSONNEL AND CONSULTANTS.
Our
success is heavily dependent on the continued active participation of our
current executive officer listed under “Management.” Loss of the services of
this officer could have a material adverse effect upon our business, financial
condition or results of operations. Further, our success and achievement of our
growth plans depends on our ability to recruit, hire, train and retain other
highly qualified technical and managerial personnel. Competition for qualified
employees among companies is intense, and the loss of any of such persons, or an
inability to attract, retain and motivate any additional highly skilled
employees required for the expansion of our activities, could have a materially
adverse effect on us. The inability of us to attract and retain the necessary
managerial personnel and consultants and advisors could have a material adverse
effect on our business, financial condition or results of operations.
WE
ARE CONTROLLED BY OUR PRINCIPAL STOCKHOLDER.
Our
series B stockholder holds approximately 81% of the outstanding votes entitled
to vote on any matter presented to out stockholders. Each share of
series B preferred stock is entitled to 5,000 votes per share and as of the date
hereof, all 1,000,000 shares of series B preferred stock issued are held by one
person. So long as this principal stockholder controls a majority of
our fully diluted equity, they will continue to have the ability to elect our
directors and determine the outcome of votes by our stockholders on corporate
matters, including mergers, sales of all or substantially all of our assets,
charter amendments and other matters requiring stockholder approval. This
controlling interest may have a negative impact on the market price of our
common stock by discouraging third-party investors.
THERE
IS PRESENTLY A LIMITED MARKET FOR OUR COMMON STOCK. ANY FAILURE TO DEVELOP OR
MAINTAIN A TRADING MARKET COULD NEGATIVELY AFFECT THE VALUE OF OUR SHARES AND
MAKE IT DIFFICULT OR IMPOSSIBLE FOR YOU TO SELL YOUR SHARES.
There is
a limited market for our common stock. Our common stock currently
trades on the “pink sheets” and accordingly we have to seek market-makers to
provide quotations for the common stock and it is possible that no market-maker
will want to provide such quotations. The market price of our common stock may
be highly volatile. In addition to the uncertainties relating to our future
operating performance and the profitability of our operations, factors such as
variations in our interim financial results, or various, as yet unpredictable
factors, many of which are beyond our control, may have a negative effect on the
market price of our common stock. Accordingly, there can be no
assurance as to the liquidity of any markets that may develop for our common
stock, the ability of holders of our common stock to sell our common stock, or
the prices at which holders may be able to sell our common stock.
11
OUR
COMMON STOCK IS SUBJECT TO THE “PENNY STOCK” RULES OF THE SEC.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a “penny stock,” for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules
require:
|
·
|
that
a broker or dealer approve a person's account for transactions in penny
stocks; and
|
|
·
|
the broker or dealer receive from
the investor a written agreement to the transaction, setting forth the
identity and quantity of the penny stock to be
purchased.
|
In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:
|
·
|
obtain
financial information and investment experience objectives of the person;
and
|
|
·
|
make a reasonable determination
that the transactions in penny stocks are suitable for that
person and the person has sufficient knowledge and experience in financial
matters
to be capable of evaluating the risks of transactions in penny
stocks.
|
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
|
·
|
sets
forth the basis on which the broker or dealer made the suitability
determination; and
|
|
·
|
that
the broker or dealer received a signed, written agreement from the
investor prior to the
transaction.
|
Generally,
brokers may be less willing to execute transactions in securities subject to the
“penny stock” rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our
stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
WE
CURRENTLY TRADE ON THE PINK SHEETS WHICH LIMITS THE ABILITY OF BROKER-DEALERS TO
SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR SECURITIES IN
THE SECONDARY MARKET.
Our
common stock currently trades on the Pink Sheets which limits the ability of
broker deals to sell our common stock and the ability of stockholders to sell
our securities in the secondary market. This limits the ability of
broker-dealers to sell our securities and the ability of stockholders to sell
their securities in the secondary market. In addition, we may be unable to get
re-listed on the OTC Bulletin Board, which may have an adverse material effect
on our Company.
12
WE
DO NOT INTEND TO PAY DIVIDENDS FOR THE FORSEEABLE FUTURE
We
currently intend to retain earnings, if any, to support our growth
strategy.
Cautionary
Statement Concerning
Forward-Looking
Information
This
annual report and the documents to which we refer you and incorporate into this
annual report by reference contain forward-looking statements. In
addition, from time to time, we, or our representatives, may make
forward-looking statements orally or in writing. These are statements
that relate to future periods and include statements regarding our future
strategic, operational and financial plans, potential acquisitions, anticipated
or projected revenues, expenses and operational growth, markets and potential
customers for our products and services, plans related to sales strategies and
efforts, the anticipated benefits of our relationships with strategic partners,
growth of our competition, our ability to compete, the adequacy of our current
facilities and our ability to obtain additional space, use of future earnings,
and the feature, benefits and performance of our current and future products and
services.
You can identify forward-looking
statements by those that are not historical in nature, particularly those that
use terminology such as “may,” “should,” “expects,” “anticipates,”
“contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,”
“potential,” “seek” or “continue” or the negative of these or similar
terms. In evaluating these forward-looking statements, you should
consider various factors, including those described in this annual report under
the heading “Risk Factors.” These and other factors may cause our
actual results to differ materially from any forward-looking
statement. We caution you not to place undue reliance on these
forward-looking statements.
We base
these forward-looking statements on our expectations and projections about
future events, which we derive from the information currently available to
us. Such forward-looking statements relate to future events or our
future performance. Forward-looking statements are only
predictions. 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. The forward-looking statements
speak only as of the date hereof, and we expressly disclaim any obligation to
publicly release the results of any revisions to these forward-looking
statements to reflect events or circumstances after the date of this filing.
ITEM 1B. UNRESOLVED STAFF
COMMENTS
None.
ITEM
2. DESCRIPTION OF PROPERTY.
Our
current executive office is located at 134 Cedar Street, Nutley,
NJ. This location is owned by our sole executive officer who does not
require that we pay rent. We do not own any
property.
13
ITEM
3. LEGAL PROCEEDINGS.
On March
26, 2007, we received a letter from the U.S. Federal Trade Commission (“FTC”)
whereby we were informed that the FTC was conducting an investigation into
advertising claims made for our weight loss product known as “Slim Coffee.”
The purpose of the investigation was to determine whether we, 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) we abide 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.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
No matters were submitted to a vote of
our security holders during the quarter ended June 30, 2009.
14
PART
II
ITEM
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Our
common stock trades on the Other-OTC (Pink Sheets) under the symbol
“ZVTK.PK.” The following table shows the high and low bid prices for
our common stock for each quarter since July 1, 2007 (the first day our stock
began trading on the OTC Bulletin Board) as reported by the OTC Bulletin Board
and the Other OTC (Pink Sheets). All share prices have been adjusted
to provide for the 1-50 reverse split effectuated on June 26,
2008. We consider our stock to be “thinly traded” and any reported
sale prices may not be a true market-based valuation of the
stock. Some of the bid quotations from set forth below may reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
July 1, 2007 to June 30,
2008
|
High Bid
|
Low Bid
|
||||||
First
quarter
|
$ | 62.50 | $ | 1.25 | ||||
Second
quarter
|
3.00 | 0.20 | ||||||
Third
quarter
|
0.45 | 0.05 | ||||||
Fourth
quarter
|
0.65 | 0.05 |
July 1, 2008 to June 30,
2009
|
High Bid
|
Low Bid
|
||||||
First
quarter
|
$ | 0.14 | $ | 0.02 | ||||
Second
quarter
|
0.07 | 0.001 | ||||||
Third
quarter
|
0.03 | 0.001 | ||||||
Fourth
quarter
|
0.023 | 0.002 |
As of
October 2, 2009 there were approximately 60 record holders of our common
stock.
We have
not paid any cash dividends since our inception and do not contemplate paying
dividends in the foreseeable future. It is anticipated that earnings,
if any, will be retained to retire debt and for the operation of the
business.
Shares
eligible for future sale could depress the price of our common stock, thus
lowering the value of a buyer’s investment. Sales of substantial
amounts of common stock, or the perception that such sales could occur, could
adversely affect prevailing market prices for shares of our common
stock.
Our
revenues and operating results may fluctuate significantly from quarter to
quarter, which can lead to significant volatility in the price and volume of our
stock. In addition, stock markets have experienced extreme price and
volume volatility in recent years. This volatility has had a
substantial effect on the market prices of securities of many smaller public
companies for reasons unrelated or disproportionate to the operating performance
of the specific companies. These broad market fluctuations may
adversely affect the market price of our common stock.
15
Securities Authorized for Issuance
Under Equity Compensation Plans. The
following provides information concerning compensation plans under which our
equity securities are authorized for issuance as of June 30,
2009:
(a)
|
(b)
|
(c)
|
||||||||||
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|||||||||
E
Equity compensation plans approved by security holders
|
— | $ | — | — | ||||||||
Equity
compensation plans not approved by security holders
|
— | — | 78,882,416 |
(1)(2)(3)(4)(5)
|
||||||||
Total
|
— | $ | — | 78,882,416 |
(1)(2)(3)(4)(5)
|
(1) 2007 Stock Incentive
Plan. The purpose of our
2007 Stock Incentive Plan is to advance the best interests of the company by
providing those persons who have a substantial responsibility for our management
and growth with additional incentive and by increasing their proprietary
interest in the success of the company, thereby encouraging them to maintain
their relationships with us. Further, the availability and offering of stock
options and common stock under the plan supports and increases our ability to
attract and retain individuals of exceptional talent upon whom, in large
measure, the sustained progress, growth and profitability which we depend. The
total number of shares available for the grant of either stock options or
compensation stock under the plan is 21,450,000 shares, subject to adjustment,
and as of June 30, 2009, we had issued 429,000 shares.
Our
compensation committee which is appointed by our board of directors administers
our plan and has full power to grant stock options and common stock, construe
and interpret the plan, establish rules and regulations and perform all other
acts, including the delegation of administrative responsibilities, it believes
reasonable an proper. Any decision made, or action taken, by the compensation
committee or our board of directors arising out of or in connection with the
interpretation and administration of the plan is final and
conclusive.
The
compensation committee or our board of directors, in its absolute discretion,
may award common stock to employees of, consultants to, and directors of the
company, and such other persons as the board of directors or compensation
committee may select, and permit holders of common stock options to exercise
such options prior to full vesting therein and hold the common stock issued upon
exercise of the option as common stock. Stock options may also be granted by our
board of directors or compensation committee to non-employee directors of the
company or other persons who are performing or who have been engaged to perform
services of special importance to the management, operation or development of
the company.
In the
event that our outstanding common stock is changed into or exchanged for a
different number or kind of shares or other securities of the company by reason
of merger, consolidation, other reorganization, recapitalization, combination of
shares, stock split-up or stock dividend, prompt, proportionate, equitable,
lawful and adequate adjustment shall be made of the aggregate number and kind of
shares subject to stock options which may be granted under the
plan.
Our board
of directors may at any time, and from time to time, suspend or terminate the
plan in whole or in part or amend it from time to time in such respects as our
board of directors may deem appropriate and in our best interest.
(2) 2007 Stock Incentive
Plan No. 2. The purpose of
our 2007 Stock Incentive Plan No. 2 is to advance the best interests of the
company by providing those persons who have a substantial responsibility for our
management and growth with additional incentive and by increasing their
proprietary interest in the success of the company, thereby encouraging them to
maintain their relationships with us. Further, the availability and offering of
stock options and common stock under the plan supports and increases our ability
to attract and retain individuals of exceptional talent upon whom, in large
measure, the sustained progress, growth and profitability which we depend. The
total number of shares available for the grant of either stock options or
compensation stock under the plan is 17,994,000 shares, subject to adjustment,
and as of June 30, 2009, we had issued 359,880 shares.
Our
compensation committee which is appointed by our board of directors administers
our plan and has full power to grant stock options and common stock, construe
and interpret the plan, establish rules and regulations and perform all other
acts, including the delegation of administrative responsibilities, it believes
reasonable an proper. Any decision made, or action taken, by the compensation
committee or our board of directors arising out of or in connection with the
interpretation and administration of the plan is final and
conclusive.
16
The
compensation committee or our board of directors, in its absolute discretion,
may award common stock to employees of, consultants to, and directors of the
company, and such other persons as the board of directors or compensation
committee may select, and permit holders of common stock options to exercise
such options prior to full vesting therein and hold the common stock issued upon
exercise of the option as common stock. Stock options may also be granted by our
board of directors or compensation committee to non-employee directors of the
company or other persons who are performing or who have been engaged to perform
services of special importance to the management, operation or development of
the company.
In the
event that our outstanding common stock is changed into or exchanged for a
different number or kind of shares or other securities of the company by reason
of merger, consolidation, other reorganization, recapitalization, combination of
shares, stock split-up or stock dividend, prompt, proportionate, equitable,
lawful and adequate adjustment shall be made of the aggregate number and kind of
shares subject to stock options which may be granted under the
plan.
Our board
of directors may at any time, and from time to time, suspend or terminate the
plan in whole or in part or amend it from time to time in such respects as our
board of directors may deem appropriate and in our best interest.
(3) 2008 Stock Incentive
Plan. The purpose of our
2008 Stock Incentive Plan is to advance the best interests of the company by
providing those persons who have a substantial responsibility for our management
and growth with additional incentive and by increasing their proprietary
interest in the success of the company, thereby encouraging them to maintain
their relationships with us. Further, the availability and offering of stock
options and common stock under the plan supports and increases our ability to
attract and retain individuals of exceptional talent upon whom, in large
measure, the sustained progress, growth and profitability which we depend. The
total number of shares available for the grant of either stock options or
compensation stock under the plan is 33,000,000 shares, subject to adjustment,
and as of June 30, 2009, we had issued 1,347,514 shares.
Our
compensation committee which is appointed by our board of directors administers
our plan and has full power to grant stock options and common stock, construe
and interpret the plan, establish rules and regulations and perform all other
acts, including the delegation of administrative responsibilities, it believes
reasonable an proper. Any decision made, or action taken, by the compensation
committee or our board of directors arising out of or in connection with the
interpretation and administration of the plan is final and
conclusive.
The
compensation committee or our board of directors, in its absolute discretion,
may award common stock to employees of, consultants to, and directors of the
company, and such other persons as the board of directors or compensation
committee may select, and permit holders of common stock options to exercise
such options prior to full vesting therein and hold the common stock issued upon
exercise of the option as common stock. Stock options may also be granted by our
board of directors or compensation committee to non-employee directors of the
company or other persons who are performing or who have been engaged to perform
services of special importance to the management, operation or development of
the company.
In the
event that our outstanding common stock is changed into or exchanged for a
different number or kind of shares or other securities of the company by reason
of merger, consolidation, other reorganization, recapitalization, combination of
shares, stock split-up or stock dividend, prompt, proportionate, equitable,
lawful and adequate adjustment shall be made of the aggregate number and kind of
shares subject to stock options which may be granted under the
plan.
Our board
of directors may at any time, and from time to time, suspend or terminate the
plan in whole or in part or amend it from time to time in such respects as our
board of directors may deem appropriate and in our best interest.
(4) 2008 California
Stock Incentive Plan. The
purpose of our 2008 California Stock Incentive Plan is to advance the best
interests of the company by providing those persons who are residents of
California and who have a substantial responsibility for our management and
growth with additional incentive and by increasing their proprietary interest in
the success of the company, thereby encouraging them to maintain their
relationships with us. Further, the availability and offering of stock options
and common stock under the plan supports and increases our ability to attract
and retain individuals of exceptional talent upon whom, in large measure, the
sustained progress, growth and profitability which we depend. The total number
of shares available for the grant of either stock options or compensation stock
under the plan is 33,000,000 shares, subject to adjustment, and as of June 30,
2009, we had issued 24,425,190 shares.
17
Our
compensation committee which is appointed by our board of directors administers
our plan and has full power to grant stock options and common stock, construe
and interpret the plan, establish rules and regulations and perform all other
acts, including the delegation of administrative responsibilities, it believes
reasonable an proper. Any decision made, or action taken, by the compensation
committee or our board of directors arising out of or in connection with the
interpretation and administration of the plan is final and
conclusive.
The
compensation committee or our board of directors, in its absolute discretion,
may award common stock to employees of, consultants to, and directors of the
company, and such other persons as the board of directors or compensation
committee may select, and permit holders of common stock options to exercise
such options prior to full vesting therein and hold the common stock issued upon
exercise of the option as common stock. Stock options may also be granted by our
board of directors or compensation committee to non-employee directors of the
company or other persons who are performing or who have been engaged to perform
services of special importance to the management, operation or development of
the company.
In the
event that our outstanding common stock is changed into or exchanged for a
different number or kind of shares or other securities of the company by reason
of merger, consolidation, other reorganization, recapitalization, combination of
shares, stock split-up or stock dividend, prompt, proportionate, equitable,
lawful and adequate adjustment shall be made of the aggregate number and kind of
shares subject to stock options which may be granted under the
plan.
Our board
of directors may at any time, and from time to time, suspend or terminate the
plan in whole or in part or amend it from time to time in such respects as our
board of directors may deem appropriate and in our best interest.
(5) Pursuant to each plan set
forth above, the Company’s board of directors determined that, in connection
with the June 2008 1 for 50 reverse stock split, the number of shares subject to
previously outstanding stock awards should be adjusted in proportion to the
respective reverse split. As a result, after such reverse split, the
number of shares subject to stock awards was reduced in proportion to the
reverse split. However, in accordance with each plan, the maximum number
of shares of common stock that may be issued and sold under any awards granted
under each plan was not reduced as a result of the reverse split and,
accordingly, the total number of shares available under the plan after each
reverse split remained the same as it was before such reverse
split. Pursuant the terms of each plan, the board of directors has
full authority to interpret the plans, and that interpretation is binding upon
all parties.
Equity
Compensation Plans Adopted Subsequent to June 30, 2009
2009 Stock Incentive Plan. On
September 15, 2009, our board of directors adopted the 2009 Stock Incentive
Plan. The
purpose of our 2009 Stock Incentive Plan is to advance the best interests of the
company by providing those persons who have a substantial responsibility for our
management and growth with additional incentive and by increasing their
proprietary interest in the success of the company, thereby encouraging them to
maintain their relationships with us. Further, the availability and offering of
stock options and common stock under the plan supports and increases our ability
to attract and retain individuals of exceptional talent upon whom, in large
measure, the sustained progress, growth and profitability which we depend. The
total number of shares available for the grant of either stock options or
compensation stock under the plan is 136,715,000 shares, subject to
adjustment.
Our
compensation committee which is appointed by our board of directors administers
our plan and has full power to grant stock options and common stock, construe
and interpret the plan, establish rules and regulations and perform all other
acts, including the delegation of administrative responsibilities, it believes
reasonable an proper. Any decision made, or action taken, by the compensation
committee or our board of directors arising out of or in connection with the
interpretation and administration of the plan is final and
conclusive.
The
compensation committee or our board of directors, in its absolute discretion,
may award common stock to employees of, consultants to, and directors of the
company, and such other persons as the board of directors or compensation
committee may select, and permit holders of common stock options to exercise
such options prior to full vesting therein and hold the common stock issued upon
exercise of the option as common stock. Stock options may also be granted by our
board of directors or compensation committee to non-employee directors of the
company or other persons who are performing or who have been engaged to perform
services of special importance to the management, operation or development of
the company.
18
In the
event that our outstanding common stock is changed into or exchanged for a
different number or kind of shares or other securities of the company by reason
of merger, consolidation, other reorganization, recapitalization, combination of
shares, stock split-up or stock dividend, prompt, proportionate, equitable,
lawful and adequate adjustment shall be made of the aggregate number and kind of
shares subject to stock options which may be granted under the
plan.
Our board
of directors may at any time, and from time to time, suspend or terminate the
plan in whole or in part or amend it from time to time in such respects as our
board of directors may deem appropriate and in our best interest.
2009 California Stock Incentive
Plan. On September 15, 2009, our board of directors adopted the 2009
California Stock Incentive Plan. The purpose of
our 2009 California Stock Incentive Plan is to advance the best interests of the
company by providing those persons who are residents of California and who have
a substantial responsibility for our management and growth with additional
incentive and by increasing their proprietary interest in the success of the
company, thereby encouraging them to maintain their relationships with us.
Further, the availability and offering of stock options and common stock under
the plan supports and increases our ability to attract and retain individuals of
exceptional talent upon whom, in large measure, the sustained progress, growth
and profitability which we depend. The total number of shares available for the
grant of either stock options or compensation stock under the plan is
136,715,000 shares, subject to adjustment.
Our
compensation committee which is appointed by our board of directors administers
our plan and has full power to grant stock options and common stock, construe
and interpret the plan, establish rules and regulations and perform all other
acts, including the delegation of administrative responsibilities, it believes
reasonable an proper. Any decision made, or action taken, by the compensation
committee or our board of directors arising out of or in connection with the
interpretation and administration of the plan is final and
conclusive.
The
compensation committee or our board of directors, in its absolute discretion,
may award common stock to employees of, consultants to, and directors of the
company, and such other persons as the board of directors or compensation
committee may select, and permit holders of common stock options to exercise
such options prior to full vesting therein and hold the common stock issued upon
exercise of the option as common stock. Stock options may also be granted by our
board of directors or compensation committee to non-employee directors of the
company or other persons who are performing or who have been engaged to perform
services of special importance to the management, operation or development of
the company.
In the
event that our outstanding common stock is changed into or exchanged for a
different number or kind of shares or other securities of the company by reason
of merger, consolidation, other reorganization, recapitalization, combination of
shares, stock split-up or stock dividend, prompt, proportionate, equitable,
lawful and adequate adjustment shall be made of the aggregate number and kind of
shares subject to stock options which may be granted under the
plan.
Our board
of directors may at any time, and from time to time, suspend or terminate the
plan in whole or in part or amend it from time to time in such respects as our
board of directors may deem appropriate and in our best interest.
RECENT
SALES OF UNREGISTERED SECURITIES
|
1.
|
During
the quarter ended June 30, 2009, we issued an aggregate of 78,500,000
shares of common stock upon conversions of 10% convertible promissory
notes. The aggregate principal and interest amount of these notes that
were converted was $7,850. The issuances were exempt pursuant to Section
3(a)(9) of the Securities Act as well as Section 4(2) of the Securities
Act.
|
2.
|
Since
June 30, 2009, we issued an aggregate of 420,299,500 shares of common
stock upon conversions of 10% convertible promissory notes. The aggregate
principal and interest amount of these notes that were converted was
$42,029.95. The issuances were exempt pursuant to Section 3(a)(9) of the
Securities Act as well as Section 4(2) of the Securities
Act.
|
19
ITEM 6. SELECTED FINANCIAL DATA
We are a
smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are
not required to provide the information required under this item.
ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
The
following discussion and analysis should be read in conjunction with our audited
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. Factors that could
cause actual results to differ from expectations include, but are not limited
to, those set forth under the section “Risk Factors” set forth in this
report.
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.
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
20
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 (973) 667-4026.
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.ionicbulb.com.
Comparison
of Fiscal Years Ended June 30, 2009 To June 30, 2008
Results
of Operations
Revenue
Our sales
were $0 for the year ended June 30, 2009 as compared to $272,926 for
the year ended June 30, 2008, consisting of Ionic Bulb sales. We
recently signed a distribution agreement with a European distributor and expect
our sales to increase in fiscal 2010 as a result.
Cost
of Sales
Our cost
of sales were $0 for the year ended June 30, 2009 as compared to $198,577 for
the year ended June 30, 2008. The decrease in cost of sales is
attributable to the fact that we had no sales of products in the year ended June
30, 2009.
Gross
Profit
Our gross
profit was $0 for the year ended June 30, 2009. Our gross profit was
$74,349 for the year ended June 30, 2008 and our gross profit percentage was
27.2% for the year then ended.
Operating
expenses
Operating
expenses for the fiscal year ended June 30, 2009 were $320,050, consisting
primarily of personnel costs and stock compensation costs. Operating
expenses for the fiscal year ended June 30, 2008 were $2,079,222.
Operating
expenses decreased to $320,050 in the year ended June 30, 2009, or approximately
84.6%, from $2,079,222 for the comparable period in 2008. This decrease in
primarily attributable to the closing of our New York office and decreased
payments to consultants in the year as compared the same period in
2008.
21
Net
Income and Loss
Our net
loss was $821,798 for the fiscal year ended June 30, 2009 and our net loss was
$2,025,809 for the fiscal year ended June 30, 2008. We recently began
operating our business, including efforts to market and sell our products, and
revenues generated were not sufficient to cover our operating costs. We are
continuing our efforts to market and sell our products in order to generate a
higher sales volume and 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 ($0.02) (basic and diluted) for fiscal year
ended June 30, 2009 as compared to our ($0.91) (basic and diluted) net loss per
common share for the fiscal year ended June 30, 2008.
The weighted average number of
outstanding shares was 45,456,522 (basic and diluted) for fiscal year ended
June 30, 2009 as compared to 2,235,822 (basic and diluted) for the fiscal year
ended June 30, 2008.
Liquidity
and Capital Resources
Overview
As of
June 30, 2009, we had a working capital deficit of $1,417,761. As of
June 30, 2008, we had a working capital deficit of $1,310,795. Our cash position
at June 30, 2009 was $0 as compared to $6,755 as of June 30, 2008.
For
fiscal year ended June 30, 2009, net cash used in operating activities was
$233,209, consisting primarily of a net loss of $821,798, adjusted primarily for
common stock issued for services of $189,223 and an amortization of beneficial
conversion feature related to our convertible promissory notes of
$424,985.
Cash
provided by financing activities totaled $226,454 consisting of $182,454 of
proceeds from third party loans and $44,000 from advances payable.
We expect
capital expenditures to be nominal for the year ending June 30, 2009. 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
June 30, 2009, we have raised an aggregate of $1,319,801 in financing through
the issuance debt and equity securities
Star
Funding Financing Facility—To be terminated at the end of the Initial Term on
October 23, 2009
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.
22
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.
In
September 2009, Zevotek and Star Funding agreed to terminate these agreements,
effective at the end of the initial term on October 23, 2009. The
parties agreed to exchange mutual releases in connection with the
termination.
Financing
Needs
Since our
inception on December 19, 2005 to June 30, 2009, we have generated revenues of
$1,205,342 and have incurred a net loss of $4,146,023. It is hoped that we will
begin to achieve sustainable revenues within the next 12 months, of which there
can be no guarantee. 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 included
in this Annual Report 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.
23
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.
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
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 in accordance with Staff
Accounting Bulletin No. 104, Revenue Recognition ("SAB104"), which superseded
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB101"). SAB 104 requires that 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.
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.
24
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 follows SOP 93-7 whereby charging the costs of advertising to expenses
as incurred.
Off Balance Sheet
Arrangements
None
ITEM
8. FINANCIAL STATEMENTS.
The financial statements and related
notes are included as part of this report as indexed in the appendix on page F-1
through F-16.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
ITEM
9A. 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 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.
Evaluation
of Disclosure Controls and Procedures
As of
June 30, 2009, our President, Chief Financial Officer and Director carried out
an evaluation, of the effectiveness of the design and operation of our system of
disclosure controls and procedures pursuant to Rule 13a-15(d) and 15d-15(d)
promulgated under the Exchange Act. Based on this evaluation, our
President, Chief Financial Officer and Director concluded that our controls and
procedures were not effective in ensuring that information required to be
disclosed by us in our periodic reports is recorded, processed, summarized and
reported, within the time periods specified for each report and that such
information is accumulated and communicated to our management, including our
principal executive and principal financial officer, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.
Management’s
Report on Internal Control Over Financial Reporting
Management
is responsible for the preparation of the Company’s financial statements and
related information. Management uses its best judgment to ensure that the
financial statements present fairly, in all material aspects, the Company’s
financial position and results in conformity with Generally Accepted Accounting
Principles (“GAAP”).
Internal
control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f)
promulgated under the Exchange Act as a process designed by, or under the
supervision of, Certifying Officers and effected by our board of directors,
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with GAAP.
Under the
supervision of management, we conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework in
“Internal Control – Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission published in 1992.
As a
result of this evaluation, we concluded that our internal control over financial
reporting was not effective as of June 30, 2009 due to the identification of a
material weakness. A material weakness is a control deficiency or combination of
control deficiencies such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented
or detected on a timely basis.
25
During
the course of the preparation of our June 30, 2009 financial statements, we
identified certain material weaknesses relating to our internal controls and
procedures within the areas of revenue recognition and inventory accounting.
Some of these internal control deficiencies may also constitute deficiencies in
our disclosure controls.
In
addition, we have a limited number of employees and is not able to have proper
segregation of duties based on the cost benefit of hiring additional employees
solely to address the segregation of duties issue. We determined the risks
associated with the lack of segregation of duties are insignificant based on the
close involvement of management in day-to-day operations (i.e. tone at the top,
corporate governance, officer oversight and involvement with daily activities,
and other company level controls). We limited resources available and the
limited amount of transactions and activities allow for compensating
controls.
It should
be noted that any system of controls, however well designed and operated, can
provide only reasonable, and not absolute, assurance that the objectives of the
system will be met. In addition, the design of any control system is based in
part upon certain assumptions about the likelihood of future
events.
Our
President, Chief Financial Officer and Director is in the process of
implementing a more effective system of controls, procedures and other changes
in the areas of revenue recognition and inventory accounting to insure that
information required to be disclosed in this annual report on Form 10-K has been
recorded, processed, summarized and reported accurately. Our management
acknowledges the existence of this problem, and intends to developed procedures
to address them to the extent possible given limitations in financial and
manpower resources.
Changes
in Internal Controls over Financial Reporting
Other
than the identification of the material weakness described above, there have not
been any other changes in our internal control over financial reporting that
occurred during the quarter ended June 30, 2009 that have materially affected or
are reasonably likely to affect our internal control over financial reporting.
ITEM
9B. OTHER INFORMATION.
None.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; CORPORATE
GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Directors
and Officers
The
following table shows the names and ages of our directors and executive officers
and the positions they hold as of the date of this Annual Report.
Name
|
Age
|
Position(s)
|
Adam
J. Engel
|
37
|
President,
Chief Executive Officer, Chief Financial
Officer,
Treasurer, Secretary and Director
|
Mr. Adam J. Engel, has been
our President, Chief Executive Officer, Chief Financial Officer, Treasurer,
Secretary and our sole director since October 12, 2007. From April 2002 to July
31, 2007, Mr. Engel was employed by Washington Mutual Bank, most recently in the
position of Account Executive. Mr. Engel received a B.S. Degree in
Political Science from SUNY, Oneonta.
During
the Fiscal year ended June 30, 2007, David Stocknoff and David Attarian served
as our sole executive officers and
directors. Messrs. Stocknoff and Attarian resigned their
positions as officers and directors of the Company effective October 12,
2007.
All of
our directors hold office until the next annual meeting of stockholders and the
election and qualification of their successors. Officers are appointed annually
by our board of directors and serve at the discretion of the board.
26
Board
of Directors, Board Meetings and Committees
Our board
of directors held no formal meetings during the most recently completed fiscal
year. All proceedings of the board of directors were conducted by resolutions
consented to in writing by all the directors and filed with the minutes of the
proceedings of the directors. Such resolutions consented to in writing by the
directors entitled to vote on that resolution at a meeting of the directors are,
according to the corporate laws of the State of New York and our bylaws, as
valid and effective as if they had been passed at a meeting of the directors
duly called and held.
Family
Relationships
There are
no family relationships between or among any of the current directors, executive
officers or persons nominated or charged by the Company to become directors or
executive officers.
Involvement
in Certain Legal Proceedings
None of
our directors or executive officers has, during the past five
years:
|
·
|
been
convicted in a criminal proceeding or been subject to a pending criminal
proceeding (excluding traffic violations and other minor
offences);
|
·
|
had
any bankruptcy petition filed by or against any business of which he was a
general partner or executive officer, either at the time of the bankruptcy
or within two years prior to that
time;
|
·
|
been
subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities, futures, commodities or
banking activities; or
|
·
|
been
found by a court of competent jurisdiction (in a civil action), the
Securities and Exchange Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or commodities
law, and the judgment has not been reversed, suspended, or
vacated.
|
Director
Independence
Our board
of directors has determined that currently none of it members qualify
as “independent” as the term is used in Item 407 of Regulation S-B as
promulgated by the SEC and in the listing standards of The Nasdaq Stock Market,
Inc. - Marketplace Rule 4200.
Section
16(a) Beneficial Ownership Reporting Compliance
Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires our directors,
executive officers, and stockholders holding more than 10% of our outstanding
common stock, to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in beneficial ownership of our
common stock. Executive officers, directors and greater-than-10% stockholders
are required by SEC regulations to furnish us with copies of all
Section 16(a) reports they file. To our knowledge, based solely on review
of the copies of such reports furnished to us for the period ended June 30,
2009, no Section 16(a) reports required to be filed by our executive
officers, directors and greater-than-10% stockholders were filed on a timely
basis.
Code
of Ethics
We have
adopted a code of ethics that applies to the principal executive officer and
principal financial and accounting officer. We will provide to any person
without charge, upon request, a copy of our code of ethics. Requests may be
directed to our principal executive offices at 134 Cedar Street, Nutley, NJ
07110.
27
ITEM
11. EXECUTIVE COMPENSATON
The
following table sets forth the compensation paid to the Chief Executive Officer
and our other executive officers for services rendered during the fiscal years
ended June 30, 2009, 2008 and 2007.
Summary
Compensation Table
|
Stock
|
Option
|
All
Other
|
|||||||||||||||||||||||
Name
and Position
|
Year
|
Salary
|
Bonus
|
Awards ($)
|
Awards ($)
|
Compensation
|
Total
($)
|
||||||||||||||||||
Adam
Engel
|
2009
|
120.000 | (1) | 11,123.97 | (2) | 131,123.97 | |||||||||||||||||||
Chairman,
President,
|
2008
|
$ | 120,000 | (3) | — | — | $ | 36,000 | (4) | $ | $ | 156,000 | |||||||||||||
Chief
Executive Officer,
|
2007
|
$ | -- | $ | --- | — | — | $ | - | $ | - | ||||||||||||||
CFO
and Secretary
(since
October 12, 2007)
|
|||||||||||||||||||||||||
David
Stocknoff
|
2009
|
||||||||||||||||||||||||
President,
Chief Executive Officer
|
2008
|
$ | -- | $ | --- | — | — | $ | - | $ | - | ||||||||||||||
CFO and
Director
(until
October 12, 2007)
|
2007
|
$ | 105,000 | (5) | $ | --- | — | — | $ | - | $ | - | |||||||||||||
David
Attarian
|
2009
|
||||||||||||||||||||||||
Secretary
and Director
|
2008
|
$ | -- | $ | --- | — | — | $ | - | $ | - | ||||||||||||||
(until
October 12, 2007)
|
2007
|
$ | 113,362 | (6) | $ | --- | — | — | $ | - | $ | - | |||||||||||||
(1)
$99,517 of this amount was accrued as salary and not paid.
(2) On
April 7, 2009, the board of directors granted Mr. Engel 674,180 shares of common
stock as a stock award for accrued salary.
(3) All
cash compensation due Mr. Engel for the year ended June 30, 2008 was accrued and
not paid.
(4) On
December 13, 2007, the Company agreed to grant Mr. Engel an option award of
3,600,000 shares at an exercise price of $0.01 per share, which option vests at
the rate of 100,000 shares per month. The amounts set forth in the table have
been adjusted to reflect the 1 for 50 reverse stock split effected June 26,
2008.
(5)
$48,190 of this amount was accrued as salary, but not paid. Pursuant
to the terms of Mr. Stocknoff’s separation agreement dated October 5, 2007, all
obligations under his June 14, 2006 employment agreement were waived, including
accrued salary.
(6) $49,101
of this amount was accrued as salary, but not paid. Pursuant to the
terms of Mr. Attarian’s separation agreement dated October 5, 2007, all
obligations under his June 14, 2006 employment agreement were waived, including
accrued salary.
Grants
of Plan-Based Awards
The following table sets forth
information concerning the number of shares of common stock underlying
restricted stock awards and stock options granted to the Named Executive
Officers in Fiscal 2009.
Name
|
Grant
Date
|
Approval
Date
|
Estimated
Future
Payouts
Under Non-
Equity
Incentive
Plan Awards
|
Estimated
Future
Payouts
Under
Equity
Incentive
Plan Awards
|
All
Other
Stock
Awards:
Number of
Shares
of
Stock
or
Units
(#)(1)
|
All
Other
Option
Awards:
Number
of
Securities
Underlying
Options
(#)
|
Exercise or
Base
Price
of
Option
Awards
($/Sh)(2)
|
Grant Date
Fair Value
of Stock and
Option
Awards(3)
|
||||||||||||
Adam
Engel
|
4/7/2009
|
4/7/2009
|
—
|
—
|
674,180
|
--
|
$
|
--
|
11,123.97
|
(1)
|
On
April 7, 2009, the Company granted Mr. Engel a stock award of 674,180
shares of common stock.
|
(2)
|
Represents
the grant date fair value of each equity award calculated in accordance
with FAS 123R.
|
28
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth all outstanding equity awards made to each of the
Named Executive Officers that are outstanding at the end of Fiscal
2009.
Option
Awards (1)
|
Stock
Awards
|
||||||||||||||||||||
Name
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Option Exercise
Price
($)
|
Option
Expiration Date
|
Number of
Shares
or Units
of Stock That
Have
Not
Vested
(#)
|
Market Value
of
Shares or
Units of Stock
That Have Not
Vested
|
|||||||||||||||
Adam
Engel
|
36,000 | 36,000 | $ | 0.01 |
12/13/2017
|
— | — |
(1)
|
On
December 13, 2007, the Company agreed to grant Mr. Engel an option award
of 3,600,000 shares of our common stock with exercise price $0.01, which
options would vest at a rate of 100,000 shares per month. The amounts set
forth in the table have been adjusted to reflect the 1 for 50 reverse
stock split effected June 26, 2008.
|
Option
Exercises and Stock Vested
Mr.
Engel’s option award vested as set forth in the above table. No stock
options were exercised by any Named Executive Officers in Fiscal
2009
Employment
Agreements
On
December 13, 2007, we entered into employment agreements with Adam Engel. A
description of the material terms of the agreement is set forth below and a copy
of each agreement is attached as an exhibit hereto.
Adam Engel. We entered into
an employment agreement with Adam Engel pursuant to which we employ Mr. Engel as
our 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 of stock. Mr. Engel has also been granted options to purchase
72,000 shares of our common stock with an exercise price of $0.01 per share,
which options will vest at a rate of 2,000 shares per month.
The
agreement also contains the following material provisions: (i) reimbursement for
all reasonable travel and other out-of-pocket expenses incurred in connection
with his employment; (ii) four (4) weeks paid vacation leave; (iii) medical,
dental and life insurance benefits; (iv) a severance payment of twelve (12)
month’s salary at the then-applicable base salary rate in the event that we
terminate Mr. Engel’s employment without cause or if Mr. Bennett’s employment is
terminated due to death or disability; and (v) 24 month non-compete/non
solicitation terms.
This
description of the above referenced agreement does not purport to be complete
and is qualified in its entirety by reference to such agreement attached hereto
as an exhibit, which is incorporated herein by reference.
29
Potential
Payments upon Termination
Mr. Engel
gas entered into an employment agreement. Under the terms of his employment
agreements, Mr. Engel is entitled to a severance payment of twelve (12) month’s
salary at the then-applicable base salary rate in the event that we terminate
their employment without cause or in the event that their employment is
terminated due to death or disability.
The
following table sets forth quantitative information with respect to potential
payments to be made to Mr. Engel upon termination in various circumstances. The
potential payments are based on the terms of Mr. Engel’s Employment Agreement
discussed above. For a more detailed description of the Employment Agreement,
see the “Employment Agreements” section above.
Name
|
Potential Payment upon Termination (1)
|
|||
Adam
Engel
|
$ | 120,000 | (2) |
(1)
|
Employee
entitled to twelve months severance at the then applicable base salary
rate.
|
(2)
|
Based
on Mr. Engel’s current annual base salary of
$120,000.
|
Compensation
of Directors
None of
our directors received any compensation for their services in the period ended
June 30, 2008. All directors are entitled to reimbursement for reasonable
out-of-pocket expenses in attending board of directors meetings and for
promoting our business.
Audit
Committee
We do not
have an audit committee at this time.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The
following table sets forth certain information regarding the beneficial
ownership of our common stock as of October 8, 2009 by the following
persons:
|
·
|
each
person who is known to be the beneficial owner of more than five percent
(5%) of our issued and outstanding shares of common
stock;
|
|
·
|
each
of our directors and executive officers;
and
|
|
·
|
all
of our directors and executive officers as a
group.
|
30
The following table assumes that there
are 703,885,307 common shares issued and outstanding on October 8,
2009. Except as set forth in the footnotes to the table, the persons
names in the table have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them, subject to community
property laws where applicable. A person is considered the beneficial
owner of any securities as of a given date that can be acquired within 60 days
of such date through the exercise of any option, warrant or
right. Shares of common stock subject to options, warrants or rights
which are currently exercisable or exercisable within 60 days are considered
outstanding for computing the ownership percentage of the person holding such
options, warrants or rights, but are not considered outstanding for computing
the ownership percentage of any other person.
Amount and Nature of Beneficial
Ownership
|
||||||||||||||||||||||||||||
Name And
Address (1)
|
Number
Of Common
Shares
Beneficially Owned
|
Percentage Owned (2)
|
Number
Of Series A Preferred
Shares
Beneficially Owned
|
Percentage Owned (2)
|
Number
Of Series B Preferred
Shares
Beneficially Owned
|
Percentage Owned (2)
|
Percentage of Total Voting Power
(3)
|
|||||||||||||||||||||
Adam
Engel
|
42,000 | (4) | * | -- | * | -- | * | * | % | |||||||||||||||||||
Sale-A-Vision,
Inc.
14
Bond Street,
Suite
296
Great
Neck, NY
|
38,198 | * | 50,000 | 100 | % | -- | * | 8.1 | % | |||||||||||||||||||
Anthony
Intrieri
60
Schofield Street
Bronx,
NY 10464
|
-- | * | -- | * | 1,000,000 | 100 | % | 80.6 | % | |||||||||||||||||||
Jason
Ryu
547A
Orchard Ave Palisades Park, NJ 07650
|
50,000,000 | 7.1 | % | -- | * | -- | * | * | ||||||||||||||||||||
All
directors and
officers
as a group
(1
person)
|
42,000 | * | -- | * | -- | * | * |
*Less
than 1%
|
(1)
|
Unless
otherwise noted, the address is 134 Cedar Street, Nutley, NJ
07110.
|
|
(2)
|
Based
on 703,885,307 common shares, 50,000 Series A Preferred Shares, and
1,000,000 Series B Preferred Shares issued and outstanding on October 8,
2009.
|
|
(3)
|
Holders
of our common stock are entitled to one vote per share, for a total of
703,885,307 votes. Holders of our Series A preferred stock are
entitled to 10,000 votes per share, for a total of 500,000,000
votes. Holders of our Series B preferred stock are entitled to
5,000 votes per share, for a total of 5,000,000,000 votes, or
approximately 80.6% of the outstanding votes on October 7,
2009.
|
|
(4)
|
On
December 13, 2007, the Company agreed to grant Mr. Engel an option award
of 3,600,000 shares of our common stock with exercise price $0.01, which
options would vest at a rate of 100,000 shares per month. The
amounts set forth in the table have been adjusted to reflect the 1 for 50
reverse stock split effected June 26,
2008.
|
There are no arrangements, known to us,
including any pledge by any person of our securities, the
operation of which may at a subsequent date result in a
change in control of Zevotek,
Inc. There are no arrangements or understandings among
members of both the former and the new control groups and their
associates with respect to election
of directors or other matters.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE.
In
December 2007, our President Mr. Engel loaned us $10,000 pursuant to a 0%
promissory note. This note has since been repaid in
full.
On
October 5, 2007, each of David Stocknoff and David Attarian resigned from all of
their respective employment positions with us, which resignations were to be
effective dated October 12, 2007. In connection with their
resignations, we entered into Separation and Consulting Agreements with each of
them.
Separation
Agreements
In
connection, with Messrs. Stocknoff and Attarian’s resignation from their officer
and director positions with us, we entered into a letter agreement dated October
5, 2007 with each of Messrs Stocknoff and Attarian setting forth the terms of
our mutual separation. Under the terms of these Agreements (which
contained the same terms), Each of Mr. Stocknoff and Mr. Attarian and the
Company agreed to waive any and all continuing rights and obligations under Mr.
Stocknoff’s and Mr. Attarian’s respective employment agreements dated June 14,
2006. In consideration thereof and to enter into the Letter
Agreements, we agreed to pay Messrs. Stocknoff and Attarian each $90,000 as
follows: $20,000 on the Effective Date (as defined) and thereafter in equal
semi-monthly installments of $2,500 until January 2008 at which time the
installment payments shall increase to $5,000. Beginning January
2008, we may pay all or part of the installments in share of our common
stock. In addition, we agreed to issue 5,000,000 shares of our common
stock on the Effective Date to each of Messrs. Stocknoff and
Attarian. Messrs. Stocknoff and Attarian also agreed to a 1 year
non-compete/non solicitation provisions as well as confidentiality and
non-disparagement clauses. Each party to this agreement granted
mutual releases.
31
Consulting
Agreements
Effective
October 12, 2007, we entered into Consulting Agreements with each of Messrs.
Stocknoff and Attarian pursuant to which they will provide sales and product
marketing services. The term of the agreement is for 1 month and
shall automatically renew on a month-to-month basis unless earlier terminated
pursuant to the terms thereof. As compensation for their services, we
agreed to pay them $8,000 per month. Beginning in January
2008, the compensation will increase to $12,000 per month at which
time we may pay all or part of such compensation in shares of our common stock
(on the terms provided therein).
In
connection with the founding and formation of the Company, our founders
contributed to us $107,500 in cash plus paid advertising expenses in the amount
of $10,250, for an aggregate amount of $117,750. In consideration for their
contribution to us, we issued to the founders a total of 67,750,000 shares of
our common stock and 50,000 shares of Series A Preferred Stock. The table below
sets forth the name of the founders and the amount of capital stock they
received for their investment.
Series
A Preferred Stock
|
||||
Name
|
Number
of Shares
|
|||
Sale-A-Vision,
Inc. (3)
|
50,000 | |||
Common
Stock
|
||||
Name
|
Number
of Shares
|
|||
David
Stocknoff
|
2,500,000 | |||
David
Attarian
|
2,500,000 | |||
EPTA,
LLC (1)
|
3,500,000 | |||
Juni,
LLC (2)
|
3,500,000 | |||
Avraham
Ovadia
|
3,500,000 | |||
Paul
Greenfield
|
1,500,000 | |||
Kurt
Streams
|
1,500,000 | |||
Moti
Ben Melech
|
500,000 | |||
Sale-A-Vision,
Inc. (3)
|
43,500,000 | |||
Todd
Fritzhand
|
10,000 | |||
Shazad
Mossanen
|
20,000 | |||
Nasser
Mohkhatzadeh
|
1,000,000 | |||
Tamir
Elimeleb
|
10,000 | |||
Sonia
Makiling
|
10,000 | |||
Pablo
Munoz de Cote
|
100,000 | |||
Jose
Pintado
|
100,000 | |||
Neil
Mizrahi
|
2,000,000 | |||
Emil
Mizrahi
|
2,000,000 |
(2) Moshe
Rahimi has voting and dispositive rights over the shares held by Juni,
LLC.
(3) Motti
Ben Melech has voting and dispositive rights over the shares held by
Sale-A-Vision Inc.
32
Other
than the above transactions, we have not entered into any material transactions
with any director, executive officer, and nominee for director, beneficial owner
of five percent or more of our common stock, or family members of such persons.
We are not a subsidiary of any company.
Conflicts
of Interest
Certain
potential conflicts of interest are inherent in the relationships between our
affiliates and us. From time to time, one or more of our affiliates may form or
hold an ownership interest in and/or manage other businesses both related and
unrelated to the type of business that we own and operate. These persons expect
to continue to form, hold an ownership interest in and/or manage additional
other businesses which may compete with ours with respect to operations,
including financing and marketing, management time and services and potential
customers. These activities may give rise to conflicts between or among the
interests of our Company and other businesses with which our affiliates are
associated. Our affiliates are in no way prohibited from undertaking such
activities, and neither we nor our shareholders will have any right to require
participation in such other activities.
Further,
because we intend to transact business with some of our officers, directors and
affiliates, as well as with firms in which some of our officers, directors or
affiliates have a material interest, potential conflicts may arise between the
respective interests of our Company and these related persons or entities. We
believe that such transactions will be effected on terms at least as favorable
to us as those available from unrelated third parties.
With
respect to transactions involving real or apparent conflicts of interest, we
have adopted policies and procedures which require that (1) the fact of the
relationship or interest giving rise to the potential conflict be disclosed or
known to the directors who authorize or approve the transaction prior to such
authorization or approval, (2) the transaction be approved by a majority of our
disinterested outside directors and (3) the transaction be fair and reasonable
to our Company at the time it is authorized or approved by our
directors.
Director
Independence
For our
description of director independence, see “Director Independence” under the
section entitled “Directors, Executive Officers, Promoters, Control Persons and
Corporate Governance; Compliance with Section 16(a) of the Exchange Act”
above.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT
FEES
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT
FEES
RBSM LLP,
billed us $25,000 in fees for our annual audit for the year ended June 30, 2009,
and $15,000 in fees for the review of our quarterly financial statements
for that year.
RBSM LLP,
billed us $25,000 in fees for our annual audit for the year ended June 30, 2008,
and $8,500 in fees for the review of our quarterly financial statements for
that year.
AUDIT-RELATED
FEES
We did
not pay any fees RBSM LLP for assurance and related services that are reasonably
related to the performance of the audit or review of our financial
statements for fiscal years 2009 and 2008.
TAX
FEES
We did not pay any fees to RBSM LLP for
tax compliance, tax advice, tax planning or other work during our
fiscal years 2009 and 2008.
ALL
OTHER FEES
There were no other fees billed
by RBSM LLP for professional services rendered, other than as
stated under the captions Audit Fees, Audit-Related Fees, and Tax
Fees.
33
With
respect to the audit of our financial statements as of December 31, 2009 and
2008 and for the years then ended, none of the hours expended on RBSM LLP
engagement to audit those financial statements were attributed to work by
persons other than RBSM LLP’s full-time, permanent employees.
ITEM
15. EXHIBITS.
Registrant’s
Certificate of Incorporation.(1)
|
|
3.2
|
Certificate
of Amendment to Registrant’s Certificate of
Incorporation.(1)
|
3.3
|
Certificate
of Designation, Powers, Preferences and Rights of Series A Preferred
Stock.(1)
|
3.4
|
Registrant’s
By-Laws.(1)
|
3.5
|
Certificate
of Designations, Powers, Preferences and Rights of Series B Preferred
Stock (11)
|
4.1
|
Form
of Warrant.(1)
|
4.2
|
2007
Stock Incentive Plan (2)
|
4.3
|
2007
Stock Incentive Plan No. 2 (7)
|
4.4
|
2008
Stock Incentive Plan (8)
|
4.5
|
2008
California Stock Incentive Plan (9)
|
4.6
|
Form
of Convertible Note (10)
|
4.7
|
2009
Stock Incentive Plan (14)
|
4.8
|
2009
California Stock Incentive Plan (15)
|
10.1
|
Employment
Agreement by and between David Stocknoff and Diet Coffee, Inc., dated as
of July 16, 2006.(1)
|
10.2
|
Employment
Agreement by and between David Attarian and Diet Coffee, Inc., dated as of
July 16, 2006.(1)
|
10.3
|
Form
of Subscription Agreement.(1)
|
10.4
|
License
and Supply Agreement dated as of May 18, 2007 by and among Diet Coffee,
Inc. and Jason Ryu. (3)
|
10.5
|
Letter
Agreement dated October 5, 2007 between Diet Coffee, Inc. and David
Stocknoff (4)
|
10.6
|
Letter
Agreement dated October 5, 2007 between Diet Coffee, Inc. and David
Attarian (4)
|
10.7
|
Consulting
Agreement dated October 12, 2007 between Diet Coffee, Inc. and David
Stocknoff (4)
|
10.8
|
Consulting
Agreement dated October 12, 2007 between Diet Coffee, Inc. and David
Attarian (4)
|
10.9
|
Employment
Agreement with Adam Engel (5)
|
10.10
|
Supply
Agreement (6)
|
10.11
|
Factoring
Agreement (6)
|
10.12
|
Assignment
of License and Supply Agreement (6)
|
10.13
|
Guarantee
(6)
|
10.14
|
Anti-Fraud
Agreement (6)
|
10.15
|
Exclusive
License and Sales Agreement (12)
|
10.16
|
Distribution
Agreement (13)
|
23.1
|
Consent
of Independent Public Accountants, RBSM, LLP (15)
|
31.1
|
Certification
of Adam J. Engel, President and Chief Financial Officer of Zevotek, Inc.,
pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to Sec.302 of the
Sarbanes-Oxley Act of 2002. (16)
|
32.1
|
Certification
of Adam J. Engel, President and Chief Financial Officer of Zevotek, Inc.,
pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to Sec.906 of the
Sarbanes-Oxley Act of 2002 (16)
|
(1)
|
Filed
as an exhibit to our Registration Statement on Form SB-2 (File No.
333-137210), as amended, originally filed with the SEC on September 8,
2006 and incorporated herein by reference.
|
(2)
|
Filed
as an exhibit to our Registration Statement on Form S-8 (File No.
333-145985) filed with the SEC on September 11, 2007 and incorporated
herein by reference.
|
(3)
|
Filed
as an exhibit to our Current Report on Form 8-K dated May 18, 2007and
incorporated herein by reference.
|
(4)
|
Filed
as an exhibit to our Annual Report on Form 10KSB for the year ended June
30, 2007 and incorporated herein by
reference.
|
(5)
|
Filed
as an exhibit to our Current Report on Form 8-K (filed with the SEC on
December 14, 2007 and incorporated herein by reference.
|
(6)
|
Filed
as an exhibit to our Current Report on Form 8-K filed with the SEC on
December 21, 2007 and incorporated herein by
reference.
|
(7)
|
Filed
as an exhibit to our Registration Statement on Form S-8 (File No.
333-148050) filed with the SEC on December 13, 2007 and incorporated
herein by reference.
|
34
(8)
|
Filed
as an exhibit to our Registration Statement on Form S-8 (File No.
333-149334) filed with the SEC on February 21, 2008 and incorporated
herein by reference
|
(9)
|
Filed
as an exhibit to our Registration Statement on Form S-8 (File No.
333-149335) filed with the SEC on February 21, 2008 and incorporated
herein by reference
|
(10)
|
Filed
as an exhibit to our Quarterly Report on Form 10-Q for the period ended
March 31, 2008 and incorporated herein by reference.
|
(11)
|
Filed
as an exhibit to our Annual Report on Form 10-KSB, as amended, for the
year ended June 30, 2008 and incorporated herein by
reference.
|
(12)
|
Filed
as an exhibit to our Current Report on Form 8-K filed with the SEC on
February 27, 2009 and incorporated herein by reference
|
(13)
|
Filed
as an exhibit to our Quarterly Report on Form 10-Q for the period ended
March 31, 2009 and incorporated herein by reference
|
(14)
|
Filed
as an exhibit to our Registration Statement on Form S-8 (File No.
333-162016) filed with the SEC on September 15, 2009 and incorporated
herein by reference.
|
(15)
|
Filed
as an exhibit to our Registration Statement on Form S-8 (File No.
333-162014) filed with the SEC on September 15, 2009 and incorporated
herein by reference.
|
(16)
|
Filed
herewith
|
35
SIGNATURES
In accordance with Section
13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant
has duly caused this Annual Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ZEVOTEK, INC. | |||
Date:
October 13, 2009
|
By:
|
/s/ Adam J. Engel | |
Adam J. Engel | |||
President, Chief Financial Officer and Director | |||
Pursuant to the requirements of
the Securities Exchange Act of 1934, as
amended, this Amendment No. 1 to Annual Report has been
signed by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
/s/ Adam J. Engel |
President
Chief Executive Officer
Chief
|
October 13, 2009
|
||
Adam J. Engel | Financial Officer, Secretary, Treasurer and director |
36
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors
Zevotek,
Inc.
Nutley,
NJ 07110
We have
audited the accompanying consolidated balance sheets of Zevotek, Inc. (the
"Company") as of June 30, 2009 and 2008 and the related consolidated statements
of operations, deficiency in stockholders' equity, and cash flows for each
of the two years in the period ended June 30, 2009. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based upon our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatements. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe our audits provide a reasonable basis for
our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Zevotek, Inc. as of June 30,
2009 and 2008, and the results of its operations and its cash flows
for each of the two years in the period ended June 30, 2009, in
conformity with accounting principles generally accepted in the United States of
America.
The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in the Note B to the
accompanying consolidated financial statements, the Company has suffered
recurring losses and is experiencing difficulty in generating sufficient cash
flow to meet its obligations and sustain its operations, which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to this matter are described in Note B. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/
RBSM LLP
|
||
Certified
Public Accountants
|
New York,
New York
October
13, 2009
PART
1: FINANCIAL
INFORMATION
ITEM
1 – FINANCIAL STATEMENTS
ZEVOTEK,
INC.
|
||||||||
CONSOLIDATED
BALANCE SHEETS
|
||||||||
June
30,
|
June
30,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
|
$ | - | $ | 6,755 | ||||
Prepayment
|
17,000 | - | ||||||
Other
receivable
|
- | 30,345 | ||||||
Total
current assets
|
17,000 | 37,100 | ||||||
Other
assets:
|
||||||||
Licensing
agreement
|
40,000 | - | ||||||
Total
assets
|
$ | 57,000 | $ | 37,100 | ||||
LIABILITIES
AND DEFICIENCY IN STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable and accrued expenses
|
$ | 1,232,271 | $ | 1,277,385 | ||||
Advances
payable
|
44,000 | - | ||||||
Convertible
notes payable and demand notes (net of debt discount of $166,595 and
$300,964 as of June 30, 2009 and 2008, respectively)
|
134,139 | 46,159 | ||||||
Customer
deposits
|
24,351 | 24,351 | ||||||
Total
current liabilities
|
1,434,761 | 1,347,895 | ||||||
Long
term portion of convertible notes payable (net of debt discount of
$167,232 and $0 as of June 30, 2009 and 2008,
respectively)
|
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 June 30, 2009 and
2008
|
1 | 1 | ||||||
Series
B Preferred stock, $0.00001 par value; 1,000,000 shares authorized;
1,000,000 shares issued and outstanding as of June 30, 2009 and
2008
|
10 | 10 | ||||||
Common
stock, $0.00001 par value, 1,000,000,000 shares authorized; 176,092,373
and 3,784,920 shares issued and outstanding as of June 30, 2009 and 2008,
respectively
|
1,761 | 38 | ||||||
Common
stock to be issued
|
30 | - | ||||||
Treasury
stock, 40,000 and 0 shares as of June 30, 2009 and 2008,
respectively
|
- | - | ||||||
Additional
paid in capital
|
2,726,796 | 2,013,381 | ||||||
Accumulated
deficit
|
(4,146,023 | ) | (3,324,225 | ) | ||||
Total
deficiency in stockholders' equity
|
(1,417,425 | ) | (1,310,795 | ) | ||||
Total
liabilities and deficiency in stockholders' equity
|
$ | 57,000 | $ | 37,100 | ||||
The
accompanying notes are an integral part of the consolidated financial
statements.
|
F-1
ZEVOTEK,
INC
|
||||||||
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
||||||||
Years
Ended June 30,
|
||||||||
2009
|
2008
|
|||||||
REVENUES:
|
||||||||
Sales
|
$ | - | $ | 272,926 | ||||
Cost
of sales
|
- | 198,577 | ||||||
Gross
profit
|
- | 74,349 | ||||||
OPERATING
EXPENSES:
|
||||||||
Selling,
general and administrative
|
320,050 | 2,079,222 | ||||||
Loss
from operations
|
(320,050 | ) | (2,004,873 | ) | ||||
OTHER
INCOME (EXPENSE):
|
||||||||
Interest,
net
|
(76,763 | ) | (20,936 | ) | ||||
Amortization
|
(424,985 | ) | - | |||||
Net
loss before provision for income taxes
|
(821,798 | ) | (2,025,809 | ) | ||||
Income
taxes
|
- | - | ||||||
NET
LOSS
|
$ | (821,798 | ) | $ | (2,025,809 | ) | ||
Net
loss per common share, basic and fully diluted
|
$ | (0.02 | ) | $ | (0.91 | ) | ||
Weighted
average number of common shares outstanding, basic and fully
diluted
|
45,456,522 | 2,235,822 | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
F-2
ZEVOTEK,
INC.
|
|||||||||||
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
|
|||||||||||
For
the Two Years Ended June 30, 2009
|
|||||||||||
Preferred
stock
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||
Series
A
|
Series
B
|
Common
stock
|
Common
Stock To
|
Treasury
stock
|
Additional
Paid in
|
Accumulated
|
|
|||||||||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Be
Issued
|
Shares
|
Amount
|
Capital
|
Deficit
|
Total
|
|||||||||||||||||||||||||||||||||||||
BALANCE,
June 30, 2007
|
50,000 | $ | 1 | - | $ | - | 1,430,260 | $ | 14 | $ | - | - | $ | - | $ | 814,834 | $ | (1,298,416 | ) | $ | (483,567 | ) | ||||||||||||||||||||||||||
Common
stock issued for services rendered
|
- | - | - | - | 1,994,780 | 20 | - | - | - | 845,540 | - | 845,560 | ||||||||||||||||||||||||||||||||||||
Fair
value of Beneficial conversion feature
|
- | - | - | - | - | - | - | - | - | 314,049 | 314,049 | |||||||||||||||||||||||||||||||||||||
Conversion
of debt for Series B Preferred stock
|
- | - | 1,000,000 | 10 | - | - | - | - | - | 21,018 | 21,028 | |||||||||||||||||||||||||||||||||||||
Conversion
of debt for common stock
|
- | - | - | - | 359,880 | 4 | - | - | - | 17,940 | 17,944 | |||||||||||||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | - | - | - | (2,025,809 | ) | (2,025,809 | ) | ||||||||||||||||||||||||||||||||||
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 | ) |
The
accompanying notes are an integral part of the consolidated financial
statements.
|
F-3
ZEVOTEK,
INC.
|
||||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||
Years
Ended June 30, 2008 and 2009
|
||||||||
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$ | (821,798 | ) | $ | (2,025,809 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Common
stock issued for services rendered
|
189,223 | 845,560 | ||||||
Amortization
of beneficial conversion feature
|
424,985 | 13,085 | ||||||
Bad
debt allowance
|
30,345 | (27,761 | ) | |||||
Note
issued to related party for services
|
- | 50,000 | ||||||
(Increase)
decrease in:
|
||||||||
Prepayments
|
(17,000 | ) | - | |||||
Accounts
receivable
|
- | 822 | ||||||
Other
assets
|
- | 10,789 | ||||||
(Decrease)
increase in:
|
||||||||
Accounts
payable and accrued expenses
|
(38,964 | ) | 807,024 | |||||
Customer
deposits
|
- | 10,456 | ||||||
Net
cash used in operating activities:
|
(233,209 | ) | (315,834 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
- | - | ||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds
from advances payable
|
44,000 | - | ||||||
Proceeds
from loans
|
182,454 | 322,500 | ||||||
Net
cash provided by financing activities
|
226,454 | 322,500 | ||||||
Net
(decrease) increase in cash and cash equivalents
|
(6,755 | ) | 6,666 | |||||
Cash
and cash equivalents, beginning of year
|
6,755 | 89 | ||||||
Cash
and cash equivalents, end of year
|
$ | - | $ | 6,755 | ||||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW:
|
||||||||
Interest
paid
|
$ | - | $ | 7,851 | ||||
Taxes
paid
|
$ | - | $ | - | ||||
Common
stock issued for services rendered
|
$ | 189,223 | $ | 845,560 | ||||
Common
stock issued in exchange for debt
|
$ | 28,096 | $ | 17,944 | ||||
Common
stock issued for licensing agreement
|
$ | 40,000 | $ | - | ||||
Debt
converted for 1,000,000 Series B preferred shares
|
$ | - | $ | 21,026 | ||||
The
accompanying notes are an integral part of the consolidated financial
statements.
|
F-4
ZEVOTEK,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
NOTE
A - SUMMARY OF ACCOUNTING POLICIES
A summary
of the significant accounting policies applied in the preparation of the
accompanying 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 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 in accordance with Staff
Accounting Bulletin No. 104, Revenue Recognition ("SAB 104"), which superseded
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB101"). SAB 104 requires that 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. We account for these incentives in accordance with
Emerging Issues Task Force Issue No. 0 1-9, Accounting for Consideration Given
by a Vendor to a Customer, ("EITF 0 1-9"). 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 years ended June 30, 2009 and 2008.
F-5
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 financial statements in accordance with
the requirements of Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation." Assets and liabilities are translated 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 June 30, 2009 and 2008 Finished Goods inventory was $0.
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 June 30, 2009 and 2008 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
The
Company has adopted Statement of Financial Accounting Standards No. 144 (SFAS
144). The Statement requires that long-lived assets and certain identifiable
intangibles held and used by the Company be 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. SFAS No. 144 also requires assets to be disposed of be reported at
the lower of the carrying amount or the fair value less disposal
costs.
Advertising
The
Company follows SOP 93-7 whereby charging the costs of advertising to expenses
as incurred. The Company charged $0 and $22,238 to operations for the years
ended June 30, 2009 and 2008, respectively.
Comprehensive
Income
Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income," establishes standards for reporting and displaying of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as financial statements.
The Company does not have any items of comprehensive income in the period
presented.
F-6
Income
Taxes
The
Company has adopted Financial Accounting Standards No. 109 ("SFAS 109") which
requires the recognition of 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 the 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.
In June
2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes-an interpretation of FASB Statement No. 109 ("FIN 48"). FIN
48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, treatment of interest and penalties, and
disclosure of such positions. Effective August 1, 2007, the Company adopted the
provisions of FIN 48, as required. As a result of implementing FIN 48, there has
been no adjustment to the Company’s financial statements and the adoption of FIN
48 did not have a material effect on the Company’s consolidated financial
statements for the year ended June 30, 2009.
Research and
Development
The
Company accounts for research and development costs in accordance with the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 2 ("SFAS 2"), "Accounting for Research and Development Costs."
Under SFAS 2, 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 years ended June 30, 2009
and 2008, respectively.
Segment
Information
The
Company has adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS 131")
in the years ended December 31, 2001 and subsequent years. SFAS 131 establishes
standards for reporting information regarding operating segments in annual
financial statements and requires selected information for those segments to be
presented in interim financial reports issued to stockholders. SFAS 131 also
establishes standards for related disclosures about products and services and
geographic areas. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision maker, or decision making group, in
making decisions on how to allocate resources and assess
performance.
Stock Based
Compensation
In
December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123.” This statement
amended SFAS 123, “Accounting for Stock-Based Compensation,” to provide
alternative methods of transition for a voluntary charge to the fair value based
method of accounting for stock-based employee compensation. In addition, this
statement amended the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. Effective for the period ended June 30, 2006
the Company has adopted SFAS 123 (R) which supersedes APB Opinion No. 25,
“Accounting for Stock Issued to Employees” and eliminates the intrinsic value
method that was provided in SFAS 123 for accounting of stock- based compensation
to employees. The Company made no employee stock-based compensation grants
before June 30, 2007 and during the years ended June 30, 2009 and 2008;
therefore has no unrecognized stock compensation related liabilities or expense
unvested or vested.
Loss per
Share
The
Company follows Statement of Financial Accounting Standards No. 128 (“SFAS No.
128”) “Earnings 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 4,876,529,035 and 347,494,370, respectively at June 30, 2009 and
2008, are excluded from the computation of diluted net loss per share as their
inclusion would be anti-dilutive.
F-7
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 financial statements, the Company’s current liabilities
exceed its current assets by $1,417,761 as of June 30, 2009. The Company has
incurred a net loss of $821,798 and used $233,209 in cash flows for operations
during the year ended June 30, 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
In
December 2007, the FASB issued SFAS No. 141(R), "Business Combinations"
("SFAS No. 141(R)"), which establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in an
acquiree, including the recognition and measurement of goodwill acquired in a
business combination. SFAS No. 141R is effective as of the beginning of the
first fiscal year beginning on or after December 15, 2008. Earlier adoption
is prohibited and the Company is currently evaluating the effect, if any that
the adoption will have on its consolidated financial position results of
operations or cash flows.
In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB No. 51”
(“SFAS No. 160”), which will change the accounting and reporting for
minority interests, which will be recharacterized as noncontrolling interests
and classified as a component of equity within the consolidated balance sheets.
SFAS No. 160 is effective as of the beginning of the first fiscal year beginning
on or after December 15, 2008. Earlier adoption is prohibited and the
Company is currently evaluating the effect, if any that the adoption will have
on its consolidated financial position results of operations or cash
flows.
In
December 2007, the FASB ratified the consensus in Emerging Issues Task Force
(EITF) Issue No. 07-1, “Accounting for Collaborative Arrangements”
(EITF 07-1). EITF 07-1 defines collaborative arrangements and requires
collaborators to present the result of activities for which they act as the
principal on a gross basis and report any payments received from (made to) the
other collaborators based on other applicable authoritative accounting
literature, and in the absence of other applicable authoritative literature, on
a reasonable, rational and consistent accounting policy is to be elected.
EITF 07-1 also provides for disclosures regarding the nature and purpose of
the arrangement, the entity’s rights and obligations, the accounting policy for
the arrangement and the income statement classification and amounts arising from
the agreement.
EITF 07-1
will be effective for fiscal years beginning after December 15, 2008, which
will be the Company’s fiscal year 2009, and will be applied as a change in
accounting principle retrospectively for all collaborative arrangements existing
as of the effective date. The Company is currently evaluating the impact, if any
on the adoption of EITF 07-1 on its consolidated financial position,
results of operations or cash flows.
In March
2008, the FASB” issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities - an amendment to FASB Statement No.
133” (“SFAS No. 161”). SFAS No. 161 is
intended to improve financial standards for derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity's financial position, financial
performance, and cash flows. Entities are required to provide
enhanced disclosures about: (a) how and why an entity uses derivative
instruments; (b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations; and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance and cash flows. It is effective for
financial statements issued for fiscal years beginning after November 15, 2008,
with early adoption encouraged. The Company is currently evaluating
the impact of SFAS No. 161, if any, will have on its consolidated financial
position, results of operations or cash flows.
In April
2008, the FASB issued FSP No. FAS 142-3,“Determination of the Useful Life of
Intangible Assets”. This FSP amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible
Assets”. The Company is required to adopt FSP 142-3 on
September 1, 2009, earlier adoption is prohibited. The guidance in
FSP 142-3 for determining the useful life of a recognized intangible asset shall
be applied prospectively to intangible assets acquired after adoption, and the
disclosure requirements shall be applied prospectively to all intangible assets
recognized as of, and subsequent to, adoption. The Company is
currently evaluating the impact of FSP 142-3 on its consolidated financial
position, results of operations or cash flows.
F-8
In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" ("SFAS No. 162"). SFAS No.
162 identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles (the GAAP hierarchy). SFAS No.
162 will become effective 60 days following the SEC's approval of the
Public Company Accounting Oversight Board amendments to
AU Section 411, "The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles." The Company does not
expect the adoption of SFAS No. 162 to have a material effect on its
consolidated financial position, results of operations or cash
flows.
In May
2008, the FASB issued FSP Accounting Principles Board ("APB") 14-1 "Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) " ("FSP APB 14-1"). FSP APB 14-1
requires the issuer of certain convertible debt instruments that may be settled
in cash (or other assets) on conversion to separately account for the liability
(debt) and equity (conversion option) components of the instrument in a manner
that reflects the issuer's non-convertible debt borrowing rate. FSP
APB 14-1 is effective for fiscal years beginning after December 15,
2008 on a retroactive basis. The Company is currently evaluating the
potential impact, if any, of the adoption of FSP APB 14-1 on its
consolidated financial position, results of operations or cash
flows.
In
June 2008, the FASB issued FSP Emerging Issues Task Force
(EITF) No. 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating
Securities.” Under the FSP, unvested share-based payment awards that
contain rights to receive non-forfeitable dividends (whether paid or unpaid) are
participating securities, and should be included in the two-class method of
computing EPS. The FSP is effective for fiscal years beginning after
December 15, 2008, and interim periods within those years. The Company does
not expect the adoption of FSP EITF No. 03-6-1 to have a material effect on
its consolidated financial position, results of operations or cash
flows.
In
June 2008, the FASB ratified the consensus on Emerging Issues Task Force
(EITF) Issue 07-5, “Determining whether an Instrument (or Embedded Feature)
is indexed to an Entity’s Own Stock.” This issue addresses whether an instrument
(or an embedded feature) is indexed to an entity’s own stock, which is the first
part of the scope exception in paragraph 11(a) of SFAS No. 133, for
purposes of determining whether the instrument should be classified as an equity
instrument or accounted for as a derivative instrument. The provisions of EITF
Issue No. 07-5 are effective for financial statements issued for fiscal
years beginning after December 15, 2008 and will be applied retrospectively
through a cumulative effect adjustment to retained earnings for outstanding
instruments as of that date. The Company is currently evaluating the impact, if
any, adopting EITF Issue No. 07-5 will have on its consolidated financial
condition or results of operations.
In
June 2008, the FASB ratified the consensus on EITF Issue No. 08-4,
“Transition Guidance for Conforming Changes to Issue No. 98-5.” The
objective of EITF Issue No.08-4 is to provide transition guidance for conforming
changes made to EITF Issue No. 98-5, “Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable Conversion
Ratios,” that result from EITF Issue No. 00-27 “Application of Issue
No. 98-5 to Certain Convertible Instruments,” and SFAS No. 150,
“Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity.” The guidance provided by EITF Issue No. 08-4 is
effective for financial statements issued for fiscal years ending after
December 15, 2008. The Company’s adoption of EITF Issue No. 08-4 is
not anticipated to have a material effect on its consolidated financial
condition or results of operations.
In
January 2009, the FASB issued Financial Statement of Position (“FSP”) Issue
No. EITF No. 99-20-1, “Amendments to the Impairment Guidance of EITF
Issue No. 99-20” (“FSP EITF No. 99-20-1”). FSP EITF No. 99-20-1
amends the impairment guidance in EITF Issue No. 99-20, “Recognition of
Interest Income and Impairment on Purchased Beneficial Interests and Beneficial
Interests that Continue to be Held by a Transferor in Securitized Financial
Assets” to achieve more consistent determination of whether an
other-than-temporary impairment has occurred. The Company adopted FSP EITF
No. 99-20-1 and it did not have a material impact on the consolidated
financial statements.
FSP FAS
157-4, Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly, provides guidelines for making fair value measurements
more consistent with the principles presented in FASB Statement No. 157
(“SFAS 157”), Fair Value Measurements. FSP FAS 157-4 reaffirms what SFAS 157
states is the objective of fair value measurement, to reflect how much an asset
would be sold for in an orderly transaction at the date of the financial
statements under current market conditions. Specifically, it reaffirms the need
to use judgment to ascertain if a formerly active market has become inactive and
in determining fair values when markets have become inactive. The Company does
not expect this pronouncement to have a material impact on its consolidated
results of operations, financial position, or cash flows
F-9
FSP FAS
107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments, enhances consistency in financial reporting by increasing the
frequency of fair value disclosures. This relates to fair value disclosures for
any financial instruments that are not currently reflected on the consolidated
balance sheet at fair value. FSP FAS 107-1 and APB 28-1 now require that fair
value disclosures be made on a quarterly basis, providing qualitative and
quantitative information about fair value estimates for all those financial
instruments not measured on the balance sheet at fair value. The Company does
not expect this pronouncement to have a material impact on its consolidated
results of operations, financial position, or cash flows.
FSP FAS
115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary
Impairments, provides additional guidance designed to create greater clarity and
consistency in accounting for and presenting impairment losses on securities.
This FSP is intended to bring greater consistency to the timing of impairment
recognition and to provide greater clarity to investors about the credit and
noncredit components of impaired debt securities that are not expected to be
sold. This FSP also requires increased and timelier disclosures sought by
investors regarding expected cash flows, credit losses, and an aging of
securities with unrealized losses. The Company does not expect this
pronouncement to have a material impact on its consolidated results of
operations, financial position, or cash flows.
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”), which
establishes 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 Company is required to adopt SFAS 165
prospectively to both interim and annual financial periods ending after
June 15, 2009. Adoption of SFAS 165 did not have a material impact on
the Company’s consolidated financial position, results of operations or cash
flows.
In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS
168”). SFAS 168 establishes the FASB Accounting Standards
Codification, (“Codification”) as the single source of
authoritative GAAP to be applied by nongovernmental entities, except for
the rules and interpretive releases of the SEC under authority of federal
securities laws, which are sources of authoritative GAAP for SEC
registrants. All guidance contained in the Codification carries an equal
level of authority. SFAS 168 is effective for interim and annual periods
ending after September 15, 2009. Adoption of SFAS 168 is not expected to have a
material impact on the Company’s consolidated financial position, results of
operations 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 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
consolidated financial statements, for the years ended June 30, 2009 and
2008, the Company had incurred losses of $821,798 and $2,025,809, respectively.
At June 30, 2009, the Company had a working capital deficit of $1,417,761 and
accumulated losses of $4,146,023. 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 consolidated financial
statements do not include any adjustments that might result should the Company
be unable to continue as a going concern.
NOTE
C- OTHER RECEIVABLES AND FINANCING AGREEMENT
On
October 23, 2007, Ionicbulb.com (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 Ionicbulb.com Inc.’s sale of its
Ionic Bulb product. This purchase order financing may be made via direct payment
to Ionicbulb.com’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’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
Ionicbulb.com’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
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.
F-10
To
further secure Ionicbulb.com’s obligations under the Supply Agreement and the
Factoring Agreement (as discussed below), Diet Coffee has 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,
Mr. Engel, President of Ionicbulb.com and Zevotek, Inc., 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.
Other
receivables of $0 and $30,345 at June 30, 2009 and 2008 consisted of Star
Funding’s holdbacks on product sales. The holdback is designed to allow the
Company to receive the holdback cash after customer refunds and charge-backs are
cleared.
NOTE
D – 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.
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
E- ACCOUNTS PAYABLE AND LIABILITIES
Accounts
payable and accrued liabilities are as follows:
June 30,
2009
|
June 30,
2008
|
|||||||
Accounts
payable
|
$
|
195,181
|
$
|
168,926
|
||||
Accrued
professional fees
|
100,000
|
373,186
|
||||||
Accrued
payroll and payroll taxes
|
799,280
|
630,340
|
||||||
Other
accrued liabilities
|
137,810
|
104,933
|
||||||
Total
|
$
|
1,232,271
|
$
|
1,277,385
|
F-11
NOTE
F - CONVERTIBLE NOTES PAYABLE AND DEMAND NOTES
|
June
30,
2009
|
June 30,
2008
|
||||||
Notes
Payable to Interstellar Holdings, LLC.
|
||||||||
Demand
promissory note (a)
|
$
|
-
|
$
|
24,569
|
||||
Convertible
term note (b)
|
87,013
|
116,765
|
||||||
Convertible
term note ( c )
|
155,789
|
155,789
|
||||||
Convertible
term note (d)
|
50,000
|
50,000
|
||||||
Convertible
term note (e)
|
92,924
|
-
|
||||||
Convertible
term note (f)
|
113,972
|
-
|
||||||
Convertible
term note (g)
|
7,932
|
-
|
||||||
Subtotal
|
507,630
|
347,123
|
||||||
Less:
Discount on Debt
|
(
333,827
|
)
|
(300,964
|
)
|
||||
173,803
|
46,159
|
|||||||
Less:
current portion
|
(134,139
|
)
|
|
(46,159
|
)
|
|||
Long
term debt
|
$
|
39,664
|
$
|
-
|
a)
|
On
November 10, 2008, the Company entered into a demand promissory note for
the principal amount of $24,569 bearing interest at 10% per
annum.
|
|
b)
|
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).
|
|
c)
|
On |