UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington D.C. 20549





FORM 10-Q





(Mark One)





x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended March 31, 2011





 ̈
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the transition period from _________________ to _________________





Commission File No.: 333-137210





ZEVOTEK, INC.


(Exact name of registrant as specified in its charter)





Delaware

05-0630427(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)





900 Southeast Ocean Blvd


Suite 130D


Stuart, FL 34994


(Address of principal executive offices)





Issuer’s telephone number:   (772) 600-2676








Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   x  No    ̈





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   ̈    No   ̈





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filter   ̈

Accelerated filter   ̈Non-accelerated filter   ̈
(Do not check if a smaller reporting company)
Smaller reporting company x





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.  Yes     ̈   No   x





APPLICABLE ONLY TO CORPORATE ISSUERS


As of May 16, 2011, there were 846,665,314 shares of our common stock outstanding.





Transitional Small Business Disclosure Format:    Yes    ̈   No   x








Quarterly Report on Form 10-Q for the





Quarterly Period Ended March 31, 2011





Table of Contents





PagePART I. FINANCIAL INFORMATION

3Item 1. Financial Statements

3Condensed Consolidated Balance Sheets as of March 31, 2011 (unaudited) and June 30, 2010

3Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2011 and 2010 (unaudited)

4Condensed Consolidated Statement of Stockholders’ Deficit for Period from June 30, 2009 to March 31, 2011 (unaudited)

5Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2011 and 2010 (unaudited)

6Notes to Unaudited Condensed Consolidated Financial Statements March 31, 2011

7Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

18Item 3. Quantitative and Qualitative Disclosures About Market Risk

23Item 4  Controls and Procedures

24PART II. OTHER INFORMATION

24Item 1. Legal Proceedings

24Item 1A Risk Factor

24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

24Item 3. Defaults upon Senior Securities

25Item 4. Removed and Reserved

25Item 5. Other Information

25Item 6. Exhibits

25CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


2




PART 1:                  FINANCIAL INFORMATION





ITEM 1 – FINANCIAL STATEMENTS


ZEVOTEK, INC.


CONDENSED CONSOLIDATED BALANCE SHEETS





March 31,


June 30,2011


2010(unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
1,804


$
132,517Accounts receivable


2,916



6,269Inventory


90,117



98,247Prepayments and other current assets


393



17,993Total current assets


95,230



255,026Other assets:Security deposit


5,000



5,000Licensing agreement


40,000



40,000Total assets

$
140,230


$
300,026LIABILITIES AND STOCKHOLDERS' DEFICITCurrent liabilities:Accounts payable and accrued expenses

$
772,207


$
705,855Advances payable


917,862



820,389Convertible notes payable and demand notes (net of debt discount of $6,217 and $53,692 as of March 31, 2011 and June 30, 2010, respectively)


201,896



182,557Customer deposits


24,351



24,351Total current liabilities


1,916,316



1,733,152Long term portion of convertible notes payable (net of debt discount of $130,042 and $22,916 as of March 31, 2011 and June 30, 2010, respectively)


62,388



21,084Stockholders' deficit:Series A Preferred stock, $0.00001 par value; 10,000,000 shares authorized; 50,000 shares issued and outstanding as of March 31, 2011 and June 30, 2010.


1



1Series B Preferred stock, $0.00001 par value; 1,000,000 shares authorized; 1,000,000 shares issued and outstanding as of March 31, 2011 and June 30, 2010


10



10Common stock, $0.00001 par value, 5,000,000,000 shares authorized; 695,833,865 and 173,596,998 shares issued and 695,831,865 and 173,594,998 shares outstanding as of March 31, 2011 and June 30, 2010, respectively


6,958



1,736Common stock to be issued


—



30,000Treasury stock, 2,000 shares as of March 31, 2011 and June 30, 2010


—



—Additional paid in capital


4,600,089



3,999,068Accumulated deficit


(6,445,532
)


(5,485,025
)Total stockholders' deficit


(1,838,474
)


(1,454,210
)Total liabilities and stockholders' deficit

$
140,230


$
300,026





The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.


3





ZEVOTEK, INC.


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)





Three Months Ended

March 31,


Nine Months Ended

March 31,2011


2010


2011


2010REVENUES:Sales

$
5,068


$
33,581


$
12,952


$
38,658Cost of sales


2,514



20,731



7,326



22,252Gross profit


2,554



12,850



5,626



16,406OPERATING EXPENSES:Selling


46,287



151,290



291,471



237,897General and administrative


124,319



143,257



456,674



466,252Total operating expense


170,606



294,547



748,145



704,149Loss from operations


(168,052
)


(281,697
)


(742,519
)


(687,743
)OTHER (EXPENSE):Interest, net


(29,875
)


(34,592
)


(85,208
)


(59,164
)Amortization of beneficial conversion feature


(37,544
)

(58,837
)


(132,780
)

(248,116)Total other expense


(67,419
)


(93,429
)


(217,988
)


(307,280
)Net loss before provision for income taxes


(235,471
)


(375,126
)


(960,507
)


(995,023
)Income taxes


—



—



—



—NET LOSS

$
(235,471
)

$
(375,126
)

$
(960,507
)

$
(995,023
)Net loss per common share, basic and fully diluted

$
(0.00
)

$
(0.00
)

$
(0.00
)

$
(0.02
)Weighted average number of common shares outstanding, basic and fully diluted


520,586,884



112,334,770



328,836,386



63,872,161





The accompanying notes are an integral part of these unaudited condensed consolidated financial statements


4




ZEVOTEK, INC.


CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT


For the Period from June 30, 2009 to March 31, 2011


(UNAUDITED)





Preferred stock





Common





AdditionalSeries A

Series B

Common stock

Stock To

Treasury stock

Paid in

AccumulatedShares

Amount

Shares

Amount

Shares

Amount

Be Issued

Shares

Amount

Capital

Deficit

TotalBALANCE, June 30, 2009


50,000

$
1


1,000,000

$
10


8,804,619

$
88

$
30


2,000

$
—

$
2,728,469

$
(4,146,023
)
$
(1,417,425
)Common stock issued for services rendered


—


—


—


—


6,670,600


66


—


—


—


276,230


—


276,296Common stock issued for accrued expenses


—


—


—


—


1,500,000


15


—


—


—


489,734


—


489,749Conversion of debt and accrued interest for common stock


—


—


—


—


155,698,350


1,557


(30
)

—


—


309,569


—


311,096Common stock issued for officer’s compensation


—


—


—


—


350,000


4


—


—


—


10,496


—


10,500Fair value of beneficial conversion feature


—


—


—


—


—


—


—


—


—


44,000


—


44,000Common stock to be issued to former officer for accrued compensation


—


—


—


—


571,429


6


30,000


—


—


140,570


—


170,576Net loss


—


—


—


—


—


—


—


—


—


—


(1,339,002
)

(1,339,002
)BALANCE, June 30, 2010


50,000

$
1


1,000,000

$
10


173,594,998

$
1,736

$
30,000


2,000

$
—

$
3,999,068

$
(5,485,025
)
$
(1,454,210
)Common stock issued for services rendered


—


—


—


—


66,028,670


660


—


—


—


188,526


—


189,186Common stock issued for accounts payable


—


—


—


—


4,428,572


44


—


—


—


79,956


—


80,000Conversion of debt and interest,for common stock


—


—


—


—


441,773,532


4,418


—


—


—


78,709


—


83,127Common stock issued to officer and board members


—


—


—


—


2,250,000


22


—


—


—


31,478


—


31,500Fair value of beneficial conversion feature


—


—


—


—


—


—


—


—


—


192,430


—


192,430Common stock issued to former officer for accrued compensation


—


—


—


—


7,755,952


78


(30,000
)

—


—


29,922


—


—Shares issued in satisfaction of fraction shares resulting from 1 for 20 reverse stock split


—


—


—


—


141


—


—


—


—


—


—


—Net loss


—


—


—


—


—


—


—


—


—


—


(960,507
)

(960,507
)BALANCE, March 31, 2011


50,000

$
1


1,000,000

$
10


695,831,865

$
6,958

$
—


2,000

$
—

$
4,600,089

$
(6,445,532
)
$
(1,838,474
)





The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.


5





ZEVOTEK, INC.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


Nine Months Ended March 31, 2011 and 2010


(UNAUDITED)





2011


2010CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(960,507
)

$
(995,023
)Adjustments to reconcile net loss to net cash used in operating activities:Common stock issued for services rendered


189,186



227,463Common stock issued for interest


4,050



—Common stock issued for officer’s compensation


—



10,500Common stock issued to officer and board members as remuneration


31,500



—Amortization of beneficial conversion feature


132,780



248,116Changes in operating assets and liabilities:Accounts receivable


3,353



(5,481
)Inventory


8,130



(115,547
)Prepayments and other current assets


17,600



(11,931
)Accounts payable and accrued expenses


153,292



70,485Net cash used in operating activities


(420,616
)


(571,418
)CASH FLOWS FROM INVESTING ACTIVITIES:


—



—CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from advances payable


289,903



597,289Net cash provided by financing activities


289,903



597,289Net (decrease) increase in cash and cash equivalents


(130,713
)


25,871Cash and cash equivalents, beginning of period


132,517



—Cash and cash equivalents, end of period

$
1,804


$
25,871SUPPLEMENTAL DISCLOSURE OF CASH FLOW:Interest paid

$
—


$
—Taxes paid

$
—


$
—NON CASH INVESTING AND FINANCING ACTIVITIES:Common stock issued for settlement of accrued liabilities

$
110,000


$
660,322Common stock issued for prior year interest

$
4,119


$
—Exchange of convertible debenture for advances payable

$
192,430


$
44,000Interest transfer to convertible note

$
2,821


$
—Debt and accrued interest converted for shares of common stock

$
79,077


$
242,822





The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.


6




ZEVOTEK, INC.


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2011





NOTE A - SUMMARY OF ACCOUNTING POLICIES





A summary of the significant accounting policies applied in the preparation of the accompanying unaudited condensed consolidated financial statements follows.





Business and Basis of Presentation





ZEVOTEK, INC. (“Company” or “Registrant”) was organized on March 19, 2005 under the state laws of Delaware with an original name of “The Diet Coffee Company.” On June 25, 2008, the Company changed its name to Zevotek, Inc.





The Company’s wholly owned subsidiary is Ionic Bulb.com, Inc., a Delaware corporation formed on August 21, 2007, through which we sell the Ionic Bulb, a patented air purifier that silently emits negative ions using a microchip placed inside a 10,000-hour energy saving compact fluorescent light bulb (CFL). The Ionic Bulb is an eco-easy maintenance-free inexpensive alternative that is designed to clean the air in a 100 square foot area of unpleasant odors and indoor air pollutants that you breathe. We sell the Ionic Bulb through specialty retail shops, TV commercials, websites Amazon.com and newionicbulb.com. We also market the Ionic Bulb to major U.S. retail stores. We acquired exclusive worldwide sales and manufacturing rights to a U.S. patented new product named “Gung H2O” that reduces water use in the home. We plan to sell Gung H20 to major U.S. retail stores and directly to American consumers using TV ads and Internet marketing.





General





The accompanying unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission and instructions to Form 10Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The consolidated balance sheet of the Company, as of June 30, 2010, was derived from the Company’s audited consolidated balance sheet as of that date. All other condensed consolidated financial statements contained herein are unaudited and reflect all adjustments which are, in the opinion of management, necessary to summarize fairly the financial position of the Company and the results of the Company’s operations and cash flows for the periods presented. All of these adjustments are of normal recurring nature. All intercompany balances and transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Form 10-K for the year ended June 30, 2010.





Reverse Stock Split





On September 24, 2010, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the State of Delaware in order to effectuate a reverse split on a 1 to 20 basis that Financial Industry Regulatory Authority (“FINRA”) approved on October 6, 2010.





Revenue Recognition





For revenue from product sales, the Company recognizes revenue in accordance with Accounting Standards Codification 605, “Revenue Recognition SEC Staff Accounting Bulletin Topic 13” (“ASC 605”). ASC 605 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence that an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability 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 has not been 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.


7





ASC 605 incorporates Accounting Standards Codification 605-25, “Revenue Recognition Multiple Element Arrangements”.  ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.  The Company does not have any multiple element arrangements.




Consideration Paid to Customers





The Company offers our customers certain incentives in the form of cooperative advertising arrangements, product markdown allowances, trade discounts, cash discounts, and slotting fees. Markdown allowances, trade discounts, cooperative advertising program participation and cash discounts are all recorded as reductions of net sales.  No customer incentives are included in sales for the three and nine months ended March 31, 2011 and 2010.




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.





Cash and Cash Equivalents





For the purpose of the accompanying unaudited condensed consolidated 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 of goods 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 March 31, 2011 and June 30, 2010, finished goods inventory was $90,117 and $98,247, respectively.





Allowance for doubtful accounts





The Company maintains an allowance for doubtful accounts to reduce amounts to their estimated realizable value, including reserves for customer and other receivable allowances and incentives. In estimating the provision for doubtful accounts, the company considers a number of factors including age of the accounts receivable, trends and ratios involving the age of the accounts receivable and the customer mix of each aging categories.  As of March 31, 2011 and June 30, 2010, the allowance for doubtful accounts was $0.





Impairment of long lived assets





The Company has adopted Accounting Standards Codification 360 "Property, Plant and Equipment" (“ASC 360”). 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 undercounted 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. ASC 360 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.


8





Advertising





The Company charges the costs of advertising to expenses as incurred.  The Company charged $10,842 and $55,904 to operations for the three months ended March 31, 2011 and 2010, respectively. The Company charged $141,895 and $183,563 to operations for the nine months ended March 31, 2011 and 2010, respectively.





Income Taxes




The Company has adopted Accounting Standards Codification 740, “Income Taxes” (“ASC 740”) 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, except basis difference related to certain debts.




Effective January 1, 2007 the Company adopted an amendment to the requirements of ASC 740. The amended standard 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.




ASC 740-10-25-5 “Income Taxes—Overall—Recognition—Basis Recognition Threshold”, (“Tax Position Topic”) provides guidance to address uncertainty in tax positions and clarifies the accounting for income taxes by prescribing a minimum recognition threshold, i.e. “more-likely-than-not”, that the income tax positions must achieve before being recognized in the financial statements. In addition, the Tax Position Topic requires expanded annual disclosures, including a roll forward of the beginning and ending aggregate unrecognized tax benefits as well as specific detail related to tax uncertainties for which it is reasonably possible the amount of unrecognized tax benefit will significantly increase or decrease within twelve months.




As a result of implementing ASC 740, there has been no adjustment to the Company’s financial statements and the adoption of ASC 740 did not have a material effect on the Company’s unaudited condensed consolidated financial statements for the three and nine months ended March 31, 2011.




Research and Development




The Company accounts for research and development costs in accordance with the Financial Accounting Standards Board's Accounting Standards Codification 730 "Research and Development" (“ASC 730”). Under ASC 730, all research and development costs must be charged to expense as incurred. Third-party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. The Company had no expenditures on research and product development for three and nine months ended March 31, 2011 and 2010, respectively.




Stock Based Compensation




Effective January 1, 2006, the Company adopted the requirements of ASC 505 “Equity” and ASC 718-10 “Stock Compensation”, under the modified prospective transition method. The standards require the measurement of compensation cost at the grant date, based upon the estimated fair value of the award, and requires amortization of the related expense over the employee’s requisite service period.




Under ASC 718-10, stock based compensation cost will be recognized over the period during which an employee is required to provide service in exchange for the award. ASC 718-10 also requires an entity to calculate the pool of excess tax benefits available to absorb tax deficiencies recognized subsequent to adoption of ASC 718-10 (the “APIC pool”). The Company has evaluated its APIC pool and has determined that it was immaterial as of January 1, 2006. ASC 718-10 also amends ASC 230 “Cash Flows”, to require that excess tax benefits that had been reflected as operating cash flows be reflected as financing cash flows.


9





Loss per Share




The Company has adopted Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”) specifying the computation, presentation and disclosure requirements of earnings per share information. Basic loss per share has been calculated based upon the weighted average number of common shares outstanding. Stock options and warrants would have been excluded as common stock equivalents in the diluted loss per share because their effect is anti-dilutive on the computation.




Potentially dilutive shares of common stock realizable from the conversion of our convertible debentures of 3,898,973,401 and 3,198,819,323 shares, respectively at March 31, 2011 and 2010, are excluded from the computation of diluted net loss per share as their inclusion would be anti-dilutive.




Concentration of Credit Risk




Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and trade receivables. The Company places its cash and temporary cash investments with high credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit.





Reclassifications




Certain reclassifications have been made in prior year's financial statements to conform to classifications used in the current year.





Recent Accounting Pronouncements





The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on its consolidated financial condition or the results of its operations.




NOTE B - GOING CONCERN MATTERS





The accompanying unaudited condensed consolidated statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying unaudited condensed consolidated financial statements for the three and nine months ended March 31, 2011, the Company incurred net losses of $235,471 and $960,507, respectively.  At March 31, 2011, the Company had a working capital deficit of $1,821,086 and accumulated losses of $6,445,532. The Company is in default of principal and accrued interest on certain convertible notes payable.





The Company is actively pursuing additional convertible debt financing through discussions with its current lenders.  The Company cannot predict whether the additional financing will be in the form of equity or debt, or be in another form.  The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all.  In any of these events, the Company may be unable to implement its current plans for expansion, repay its debt obligations as they become due, or respond to competitive pressures, any of which circumstances would have a material adverse effect on its business, prospects, financial conditions and result of operations. 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's existence is dependent upon management's ability to develop profitable operations. Management anticipates the Company may attain profitable status and improve its liquidity through the continued developing, marketing and selling of its products and additional investment in the Company. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.





NOTE C – LICENSING, DISTRIBUTION AND PURCHASING 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 a patented ionic bulb.





In exchange for the exclusive license, the Company issued 2,500,000 shares of its common stock.  The license was valued at the market price of the underlying security.


10




On March 2, 2011, the Company and the Ionic Bulb patent holder entered into a non-exclusive Purchasing Representative Agreement whereby the patent holder shall introduce the Company to a new third party manufacturer that will produce a next generation version of the Ionic Bulb with new features and improved manufacturing cost.  Additionally, the patent holder affirms his obligation to defend against patent infringement.  The Company shall pay patent holder a fixed amount per Ionic Bulb ordered from the new manufacturer.  The Company agreed to make an advance fee payment by issuance of 25,000,000 shares of the Company’s restricted stock.  The value of the restricted shares applied to payment of the fees is to be based upon the average closing price of the Company's common stock for the ten trading days preceding the date on which the restrictive stock legend may be removed. The term of the agreement is three years with one-year automatic renewals that are subject to minimum fee payments to the patent holder for the first and second renewal term, respectively.  As of March 31, 2011, no shares were issued, no value has been determined or assigned to the shares under this agreement and no amount has been recorded.




NOTE D- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES





Accounts payable and accrued liabilities are as follows:


March 31,

2011

(unaudited)


June 30,

2010Accounts payable

$
60,386


$
101,379Accrued professional fees


154,242



95,000Accrued payroll and payroll taxes


163,512



156,817Old disputed accounts payable


136,405



136,405Accrued interest


150,032



76,291Other accrued liabilities


107,630



139,963Total

$
772,207


$
705,855




NOTE E – ADVANCES PAYABLE




As of March 31, 2011 and June 30, 2010, the Company owed $917,862 and $820,389, respectively, to a note holder for cash advanced to the Company for operating purposes.  The advances accrue interest at 10% per annum and are repayable on demand.  On May 10, 2011, the Company converted $945,527 of advances, including $27,665 of additional advances received in April 2011, into a convertible term note as discussed in Note K.





NOTE F - CONVERTIBLE NOTES PAYABLE AND DEMAND NOTES





March 31,

2011

(unaudited)


June 30,

2010Notes Payable:Convertible term note (a)

$
923


$
3,423Convertible term note (b)


1,923



1,923Convertible term note (c)


50,000



50,000Convertible term note (d)


5,849



13,907Convertible term note (e)


38,225



65,225Convertible term note (f)


11,132



11,132Convertible term note (g)


39,420



44,000Convertible term note (h)


192,430



—Convertible term note (i)


34,141



49,140Convertible term note (j)


26,500



41,500400,543



280,250Less: discount on debt


(136,259
)


(76,608
)264,284



203,642Less: current portion


(201,896
)


(182,558
)Long term debt

$
62,388


$
21,084


11





a)
On May 14, 2008, the Company entered into convertible term notes 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). The Company is in default of payment of principal and interest on the note and the Company is in discussions with the note holders about amending the conversion terms to cure the default.


b)
On May 27, 2008, the Company entered into a convertible term note bearing interest at 10% per annum with a maturity date of May 27, 2010.   At any time at the option of the note holder, principal and interest payments may be paid in common stock at a conversion price of $0.0001 per share (see below).  The Company is in default of payment of principal and interest on the note and the Company is in discussions with the note holder about amending the conversion terms to cure the default.


c)
On January 1, 2008, the Company entered into a convertible term note for the principal amount of $50,000 bearing interest at 7% per annum with a maturity date of June 30, 2008.  This note is convertible into common stock at 90% of the common stock closing price at June 30, 2008, or approximately 18,500 shares of common stock.  The Company is in default of payment of principal and interest on the note and the Company is in discussions with the note holder about amending the conversion terms to cure the default.


d)
On January 8, 2009, the Company entered into convertible term notes bearing interest at 10% per annum with a maturity date of January 8, 2011.   The Company is in default of payment of principal and interest on the note and the Company is in discussions with the note holder about amending the conversion terms to cure the default. 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).


e)
On March 9, 2009, the Company entered into convertible term notes bearing interest at 10% per annum with a maturity date of March 9, 2011.   The notes were amended on January 8, 2011 to extend the maturity date to January 8, 2012. At any time at the option of the note holder, principal and interest payments may be paid in common stock at a conversion price of $0.0001 per share (see below).


f)
Of the convertible term notes entered into on May 14, 2008, certain notes having a principal amount of $11,132 as of March 31, 2011 and 2010 were not amended with respect to their conversion price and, at any time at the option of the note holder, principal and interest payments may be paid in common stock at a conversion price of $0.001 per share (see below). The Company is in default of payment of principal and interest on the note and the Company is in discussions with the note holder about amending the conversion terms to cure the default.


g)
On July 28, 2009, the Company entered into a convertible term note bearing interest at 10% per annum with a maturity date of July 28, 2011.   At any time at the option of the note holder, principal and interest payments may be paid in common stock at a conversion price of $0.0001 per share (see below).


h)
On August 6, 2010, the Company converted $192,430 of advances payable into a convertible term note bearing interest at 10% per annum with a maturity date of August 6, 2012.   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).


i)
On January 8, 2009, the Company entered into convertible term notes bearing interest at 10% per annum with a maturity date of January 8, 2011.   The notes were amended on January 8, 2011 to extend the maturity date to January 8, 2012. 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).


j)
On March 9, 2009, the Company entered into convertible term notes bearing interest at 10% per annum with a maturity date of March 9, 2011.   The Company is in default of payment of principal and interest on the note and the Company is in discussions with the note holder about amending the conversion terms to cure the default. At any time at the option of the note holder, principal and interest payments may be paid in common stock at a conversion price of $0.0001 per share (see below).





In accordance with Accounting Standards Codification 470-20-65, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios (“ASC 470-20-65”), the Company recognized an imbedded beneficial conversion feature present in the notes. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid in capital. The Company recognized and measured an aggregate of $314,049 of the proceeds, which was equal to the intrinsic value of the imbedded beneficial conversion feature at the time, to additional paid in capital and a debt discount against the Notes issued during the year ended June 30, 2008. The debt discount attributed to the beneficial conversion feature was originally amortized over the Notes maturity period (two years) as interest expense, adjusted for conversion of debt to common stock. In January 2009 through March 2009, the Company restructured certain Notes to a conversion rate of $0.0001 per share with a two year term and accordingly fully amortized the remaining debt discount of $206,160. In accordance with ASC 470-20-65, Accounting for Convertible Securities with Beneficial Conversion Features, the Company recognized an imbedded beneficial conversion feature present in the notes. The Company recognized and measured an aggregate of $457,849 of the proceeds, which is equal to the intrinsic value of the imbedded amended beneficial conversion feature, to additional paid in capital and a debt discount against the Notes issued during the year ended June 30, 2009. The remaining debt discount attributed to the original beneficial conversion feature was expensed at the time the Notes were amended and the $457,849 assigned to the amended beneficial conversion feature is being amortized over the Notes maturity period.


12





On July 28, 2009, the Company issued a $44,000 convertible note having the same terms as the amended outstanding convertible notes.  The Company recognized and measured an aggregate of $44,000 of the proceeds, which is equal to the intrinsic value of the imbedded amended beneficial conversion feature, to additional paid in capital and a debt discount against the note issued, with the discount being amortized over the note’s two-year term.





On August 6, 2010, the Company converted $192,430 of advances payable into a convertible note.  The Company recognized and measured an aggregate of $192,430 of the advances payable, which is equal to the intrinsic value of the imbedded amended beneficial conversion feature, to additional paid in capital and a debt discount against the note issued, with the discount being amortized over the note’s two-year term.





During the three and nine months ended March 31, 2011, amortization related to the beneficial conversion feature on the convertible notes was $37,544 and $132,780, respectively.





During the three and nine months ended March 31, 2010, amortization related to the beneficial conversion feature on the convertible notes was $58,837 and $248,116, respectively.





In or about May 2010, an alleged assignee (the “Assignee”) of certain convertible promissory notes commenced an action by the filing of a summons and complaint against the Company alleging a failure to comply with its demands to convert principal and interest under the Company’s promissory notes in Company common stock.  The Company served and filed its Answer on July 21, 2010, in which it denied the material allegations of the complaint and asserted numerous affirmative defenses.  The parties have entered into a stipulation of settlement resolving this action on November 4, 2010 and a final judgment and injunction were entered on November 12, 2010, pursuant to which the Company agreed to issue stock once a month to the Assignee until it has issued at total 182,000,000 shares of common stock. As of March 31, 2011, the Company has issued 108,781,832 shares of its common stock to the Assignee. See Note K for subsequent issuance.





NOTE G – STOCKHOLDERS EQUITY





Preferred Stock





The Company has authorized 10,000,000 shares of Preferred Stock of which 50,000 shares have been designated as Series A Preferred Stock, par value $0.00001, and 1,000,000 shares have been designated as Series B Preferred Stock, par value $0.00001 within the limitations and restrictions stated in the Certificate of Incorporation of the Company.





The Company issued 50,000 shares of Series A Preferred Stock. Each share of the Series A Preferred Stock is entitled to 10,000 votes on all matters submitted to the stockholders of the Company. The holders of the Series A Preferred Stock are not granted any preference upon the liquidation, dissolution or winding up of the business of the Company. The Series A Preferred Stock is not Convertible into Common Stock.





The Company designated and issued 1,000,000 shares of Series B Preferred Stock.  On May 14, 2008, the Company and an unrelated third party entered into an exchange agreement under which the third party note holder exchanged a $21,026 promissory note for 1,000,000 shares of Series B Preferred Stock.   Each share of Series B Preferred Stock is entitled to 5,000 votes on all matters submitted to the stockholders of the Company.





Common Stock





The Company effectuated a 1 for 50 reverse stock split on June 26, 2008. All common stock and related information has been retroactively restated. In addition, contemporaneously with the stock split the Company increased its authorized Common stock, par value $0.00001 to 1,000,000,000 shares. Prior to this date, the authorized shares were 200,000,000 shares. On October 14, 2009, the Company authorized capital was increased to 5,000,000,000.


13





On September 24, 2010, the Company filed a certificate of amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware in order to effectuate a reverse split on a 1 to 20 basis (the “Reverse Split”).  On October 6, 2010, Financial Industry Regulatory Authority (“FINRA”) approved the Reverse Split and each holder of common stock received 1 share of the Company’s common stock for each 20 shares of the Company’s common stock they owned. The Company did not issue fractional shares in connection with the foregoing stock split.  Fractional shares were rounded up to the nearest whole share.  All per share numbers reflected in this quarterly report on Form 10-Q are reflective of the Reverse Split. At March 31, 2011 and June 30, 2010, common shares issued were 695,833,865 and 173,596,998 and outstanding were 695,831,865 and 173,594,998, respectively.




On September 11, 2007, the Company adopted its 2007 Stock Incentive Plan (the “2007 Plan”). The Company is permitted to issue up to 1,072,500 shares of common stock under the Plan in the form of stock options, restricted stock awards, and stock awards to employees, non-employee directors, and outside consultants.  As of March 31, 2011, there were 1,072,500 shares issued under this 2007 Plan.





On March 13, 2007, the Company adopted its 2007 Stock Incentive Plan No. 2. (the “2007 Plan #2”). The Company is permitted to issue up to 1,099,700 shares of common stock under the Plan in the form of stock options, restricted stock awards, and stock awards to employees, non-employee directors, and outside consultants.  As of March 31, 2011, there were 1,099,700 shares issued under this 2007 Plan #2.





On February 21, 2008 the Company adopted its 2008 Stock Incentive Plan. The Company is permitted to issue up to 1,650,000 shares of common stock under the Plan in the form of stock options, restricted stock awards, and stock awards to employees, non-employee directors, and outside consultants.  As of March 31, 2011, there were 1,617,047 shares issued under this 2008 Plan.





On February 21, 2008 the Company adopted its 2008 California Stock Incentive Plan. The Company is permitted to issue up to 1,650,000 shares of common stock under the Plan in the form of stock options, restricted stock awards, and stock awards to employees, non-employee directors, and outside consultants.  As of March 31, 2011, there were 1,646,260 shares issued under this 2008 Plan.





On September 15, 2009 the Company adopted its 2009 Stock Incentive Plan. The Company is permitted to issue up to 6,835,750 shares of common stock under the Plan in the form of stock options, restricted stock awards, and stock awards to employees, non-employee directors, and outside consultants.  As of March 31, 2011, there were 4,470,000 shares issued under this 2009 Plan.





On September 15, 2009 the Company adopted its 2009 California Stock Incentive Plan. The Company is permitted to issue up to 6,835,750 shares of common stock under the Plan in the form of stock options, restricted stock awards, and stock awards to employees, non-employee directors, and outside consultants.  As of March 31, 2011, there were 5,260,552 shares issued under this 2009 Plan.





On August 17, 2010, the Company adopted its 2010 Equity Incentive Plan (“2010 Plan”). The Company is permitted to issue up to 17,500,000 shares of common stock under the Plan in the form of stock options, restricted stock awards, and stock awards to directors, officers, consultants, advisors and employees of the Company.  As of March 31, 2011, there were 17,500,000 shares issued under this 2010 Plan.





On November 17, 2010, the Company adopted its 2011 Equity Incentive Plan (“2011 Plan”). The Company is permitted to issue up to 60,000,000 shares of common stock under the Plan in the form of stock options, restricted stock awards, and stock awards to directors, officers, consultants, advisors and employees of the Company.  As of March 31, 2011, there were 60,000,000 shares issued under this 2011 Plan.




During the nine months ended March 31, 2011, the Company issued 70,457,242 shares of common stock, valued at $269,186 for services, accrued expenses and accounts payable.




During the nine months ended March 31, 2011, the Company converted debt and accrued interest of $83,127 into 441,773,532 shares of common stock.




14




During the nine months ended March 31, 2011, the Company issued 2,250,000 shares of its common stock, valued at $31,500, to its Chief Executive Officer and two of its directors as compensation.





During the nine months ended March 31, 2011, the Company issued 7,755,952 shares valued at $30,000 to a former officer to satisfy a claim included in common stock to be issued.





Treasury Stock





As of March 31, 2011 and June 30, 2010, the Company had 2,000 shares of common stock held in treasury, which carried at $0 based on a $0.00001 par value.





NOTE H - STOCK OPTIONS AND WARRANTS





During the nine months ended March 31, 2011 and 2010, the Company did not issue any stock warrants or options.  As of March 31, 2011, no warrants or options are outstanding.




NOTE I - COMMITMENTS AND CONTINGENCIES





Employment Agreement





On February 25, 2010, Adam Engel resigned from his positions as President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer. In connection with Mr. Engel’s resignation, the Company entered into a letter agreement dated February 24, 2010 setting forth the terms of the mutual separation. Under the terms, Mr. Engel and the Company agreed to waive any and all continuing rights, including payroll totaling $170,576 and obligations under Mr. Engel’s employment agreement dated March 13, 2007.  Mr. Engel agreed to a one-year non-compete/non solicitation provision as well as confidentiality and non-disparagement clauses.




On May 21, 2010, the Company entered into a consulting agreement with Mr. Engel for a period of five months at $10,000 per month, payable in Company common stock and Mr. Engel agreed that there were no claims arising from the earlier agreement as mentioned above. In June 2010, the Company issued common stock to Mr. Engel valued at $20,000 and recognized the remaining balance as common stock to be issued. The Company paid the consulting fees by issuing the remaining balance of common stock to Mr. Engel during the nine months ended March 31, 2011, along with a final issuance in January 2011, and charged additional paid in capital for the value of the issuances in settlement of remaining balance of $50,000 as per above agreement.





U.S. Federal Trade Commission Settlement





On March 26, 2007, the Company received a letter from the U.S. Federal Trade Commission (“FTC”) whereby former management was informed that the FTC was conducting an investigation into advertising claims made for weight loss product known as “Slim Coffee.”  The purpose of the investigation was to determine whether former management, in connection with its sales of Slim Coffee, engaged in unfair or deceptive acts or practices and false advertising.  A negotiated settlement was reached with the FTC under which the Company, its former management did not admit any wrongdoing.  On January 10, 2008, pursuant to a stipulated final judgment and order, the United States District Court, Southern District of New York, entered a final judgment and order against the Company in the amount of $923,910.  The full amount of the judgment, and payment of any portion of it is suspended and cannot be reinstated so long as (a) the Company abides by the reporting and monitoring requirements of the judgment, (b) does not make false advertising claims in connection with any of its products in the future, and (c) its past financial disclosures to the FTC were materially accurate. The Company plans to comply with the terms of the stipulation and do not anticipate incurring a liability for the judgment, however there can be no assurance of compliance.  Should the Company fail to comply with the FTC’s final judgment, this could have a material adverse effect on the Company’s business, financial condition and results of operations.





Ionic Bulb License





On February 24, 2009, the Company entered into an Exclusive License and Sales Agreement whereby the Company obtained 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 and is subject to becoming non-exclusive should the Company fail to files all quarterly and annual reports by due dates, inclusive of allowable extensions.  In exchange for the exclusive license, the Company issued 2,500,000 shares of its common stock.


15




On March 2, 2011, the Company and the Ionic Bulb patent holder entered into a non-exclusive Purchasing Representative Agreement whereby the patent holder shall introduce the Company to a new third party manufacturer that will produce a next generation version of the Ionic Bulb with new features and improved manufacturing cost.  Additionally, the patent holder affirms his obligation to defend against patent infringement.  The Company shall pay patent holder a fixed amount per Ionic Bulb ordered from the new manufacturer.  The Company agreed to make an advance fee payment by issuance of 25,000,000 shares of the Company’s restricted stock.  The value of the restricted shares applied to payment of the fees is to be based upon the average closing price of the Company's common stock for the ten trading days preceding the date on which the restrictive stock legend may be removed. The term of the agreement is three years with one-year automatic renewals that are subject to minimum fee payments to the patent holder for the first and second renewal term, respectively.  As of March 31, 2011, no shares were issued, no value has been determined or assigned to the shares under this agreement and no amount has been recorded.




Payroll Taxes





At March 31, 2011, the Company is delinquent with filing and remitting payroll taxes of approximately $83,000 including estimated penalties and interest related to payroll taxes withheld since April 2007. The Company has recorded the delinquent payroll taxes, which are included in accrued expenses on the balance sheet. Although the Company has not entered into any formal repayment agreements with the respective tax authorities, management plans to make payment as funds become available. Penalties and interest amounts are subject to increase based on a number of factors that can cause the estimated liability to increase further. Interest and penalties were accrued in an amount estimated to cover the ultimate liability.





Sales Taxes





At March 31, 2011, the Company is delinquent with remitting sales taxes of approximately $16,000, including related estimated penalties and interest related to sales taxes withheld since 2006 in the state of New York. The Company has recorded the delinquent sales taxes, which are included in accrued expenses on the balance sheet. Although the Company has not entered into any formal repayment agreements with the respective tax authorities, management plans to make payment as funds become available. Penalties and interest amounts are subject to increase based on a number of factors that can cause the estimated liability to increase further. Interest and penalties were accrued in an amount estimated to cover the ultimate liability.




Legal





In or about May 2010, an alleged assignee (the “Assignee”) of certain convertible promissory notes, commenced an action by the filing of a summons and complaint against the Company alleging a failure to comply with its demands to convert principal and interest under the Company’s promissory notes in Company common stock.  The Company served and filed its Answer on July 21, 2010, in which it denied the material allegations of the complaint and asserted numerous affirmative defenses.  The parties have entered into a stipulation of settlement resolving this action on November 4, 2010 and a final judgment and injunction were entered on November 12, 2010, pursuant to which the Company agreed to issue stock once a month to the Assignee until it has issued at total 182,000,000 shares of common stock.  As of March 31, 2011, the Company had issued 108,781,832 shares to the Assignee. See Note K for subsequent issuance.





Leases





The Company leases office space on a month to month basis in Stuart, Florida and Frisco, Texas.  Rent expense for the three and nine months ended March 31, 2011 was $1,072 and $3,617, respectively. Rent expense for the three and nine months ended March 31, 2010 was $1,638 and $1,638, respectively.


16





NOTE J - FAIR VALUE MEASUREMENT





Fair Value Measurements under GAAP clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements are separately disclosed by level within the fair value hierarchy.  It only applies to accounting pronouncements that already require or permit fair value measures, except for standards that relate to share-based payments





Level 1 - Quoted prices in active markets for identical assets or liabilities.





Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.





Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.





To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.  In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.





The carrying value of the Company’s cash, accounts receivable, prepayments, accounts payable, advances payable, convertible notes payable, and other current assets and liabilities approximate fair value because of their short-term maturity.  All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the unaudited condensed consolidated financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.





As of March 31, 2011, there were no financial assets or liabilities that were measured at fair value on a recurring basis.





NOTE K – SUBSEQUENT EVENTS





Since March 31, 2011, the Company issued an aggregate of 138,833,449 shares of common stock upon conversion of convertible promissory notes and interest, including 37,333,449 shares issued to the Assignee.





Since March 31, 2011, the Company issued an aggregate of 12,000,000 shares of restricted common stock in exchange for consulting services.





On May 5, 2011, the Company adopted its Fiscal 2012 Equity Incentive Plan (“2012 Plan”). The Company is permitted to issue up to 150,000,000 shares of common stock under the Plan in the form of stock options, restricted stock awards, and stock awards to directors, officers, consultants, advisors and employees of the Company. Concurrent with its adoption, the Company’s Board of Directors granted 7,500,000 shares of common stock to each of the Company’s Chief Executive Officer and two of its directors.





On May 10, 2011, the Company issued a convertible promissory note to a certain investor in the principal amount of $945,527 against its advances payable (Note E). The Note matures on the one-year anniversary of the date of issuance (the “Maturity Date”) and accrues interest at an annual rate of ten percent (10%).  The Note is payable in full on the Maturity Date unless previously converted into shares of the Company’s common stock at an initial conversion price of $0.0001 per share, as may be adjusted.




17





ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.





General





The following discussion and analysis is provided to increase the understanding of, and should be read in conjunction with, our unaudited condensed consolidated 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 condensed consolidated financial statements, particularly those that utilize terminology such as “may” “will,” “should,” “expects,” “anticipates,” “estimates,” “believes,” or “plans” or comparable terminology are forward-looking statements. Such statements are based on currently available operating, financial and competitive information, and are subject to various risks and uncertainties. Future events and our actual results may differ materially from the results reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, dependence on existing and future key strategic and strategic end-user customers, limited ability to establish new strategic relationships, ability to sustain and manage growth, variability of operating results, our expansion and development of new service lines, marketing and other business development initiatives, the commencement of new engagements, competition in the industry, general economic conditions, dependence on key personnel, the ability to attract, hire and retain personnel who possess the technical skills and experience necessary to meet the service requirements of our clients, the potential liability with respect to actions taken by our existing and past employees, risks associated with international sales, and other risks described herein and in our other filings with the Securities and Exchange Commission.





The safe harbor for forward-looking statements provided by Section 21E of the Securities Exchange Act of 1934 excludes issuers of “penny stock” (as defined under Rule 3a51-1 of the Securities Exchange Act of 1934). Our common stock currently falls within that definition.





All forward-looking statements in this document are based on information currently available to us as of the date of this report, and we assume no obligation to update any forward-looking statements.  Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.




Company History





We were organized on March 19, 2005 under the state laws of Delaware with an original name of “The Diet Coffee Company.” On June 25, 2008, we changed our name to Zevotek, Inc. We market and sell innovative personal and home care items.




Company Overview





We are engaged in the direct marketing and distribution of consumer products.    On February 24, 2009, we entered into an Exclusive License and Sales Agreement giving us the worldwide rights to manufacture, market, use, sell, distribute and advertise an air purifier that is contained in an energy saving compact fluorescent light bulb named the Ionic Bulb.  We market the Ionic Bulb through TV infomercials, our website newionicbulb.com and Amazon.com.  We plan to sell through catalogs and major U.S. retail and specialty stores.





On November 15, 2010, we entered into an Exclusive License and Sales Agreement giving us the worldwide rights to manufacture, market, use, sell, distribute and advertise a U.S. patented new product named “Gung H2O” that reduces water use in the home. We plan to sell Gung H20 to major U.S. retail stores and directly to American consumers using TV ads and Internet marketing.





We are currently seeking new products to sell.


18





Recent Developments




On March 2, 2011, the Company and the Ionic Bulb patent holder entered into a non-exclusive Purchasing Representative Agreement whereby the patent holder shall introduce the Company to a new third party manufacturer that will produce a next generation version of the Ionic Bulb with new features and improved manufacturing cost.  Additionally, the patent holder affirms his obligation to defend against patent infringement.  The Company shall pay patent holder a fixed amount per Ionic Bulb ordered from the new manufacturer.  The Company agreed to make an advance fee payment by issuance of 25,000,000 shares of the Company’s restricted stock.  The value of the restricted shares applied to payment of the fees is to be based upon the average closing price of the Company's common stock for the ten trading days preceding the date on which the restrictive stock legend may be removed. The term of the agreement is three years with one-year automatic renewals that are subject to minimum fee payments to the patent holder for the first and second renewal term, respectively.  As of March 31, 2011, no shares were issued, no value has been determined or assigned to the shares under this agreement and no amount has been recorded.




Products





Ionic Bulb





We sell the Ionic Bulb through our wholly owned subsidiary Ionicbulb.com, Inc.  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. 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.





Gung H2O





We plan to sell Gung H2O, a patented new product that reduces water use in the average American family home and reduces utility bill savings.  Our patented product design makes for easy installation in any standard toilet and delivers savings at a fraction of the cost of a low-flow toilet.





Comparison of Three Months Ended March 31, 2011 To March 31, 2010





Results of Operations





Revenue





Our sales were $5,068 for the three months ended March 31, 2011 and $33,581 for the three months ended March 31, 2010, a decrease of $28,513 or 84.9% which was primarily due to our airings of the one-minute versions of our Ionic Bulb ads in the three months ended March 31, 2011 rather than the two-minute versions that we aired in the three months ended March 31, 2010.  The one-minute ads are designed to create consumer awareness of the Ionic Bulb rather than to generate Ionic Bulb direct response sales.  The two-minute ads also create consumer awareness and the added length of the ad generates more direct response sales. We started test marketing the Ionic Bulb in December 2009 by airing a two-minute Ionic Bulb infomercial on a variety of U.S. cable television channels at different times of the day and days of the week.  Television test marketing helps us find viewing audiences more inclined to buy the Ionic Bulb, educate viewers on the Ionic Bulb's performance and money saving features and test different prices. In 2011, we hired three new sales agencies to solicit Ionic Bulb orders from their customer base that is comprised of major national retailers, specialty and regional retailers, a home shopping channel, catalog merchants, and ecommerce companies which we expect will result in increased sales of the Ionic Bulb in future periods resulting from orders they place with us. We also expect the next generation Ionic Bulb we plan to introduce in 2011, with its new more compact design for consumers’ smaller light fixtures and recessed ceiling lights and Energy Star qualification, to increase demand for the Ionic Bulb.


19


During the three months ended March 31, 2011, we began airing our Ionic Bulb one-minute ad and a new thirty-second ad to result in successful sales of the Ionic Bulb at retail outlets that we expect to carry our products. Sales for the three months ended March 31, 2011 are comprised of Ionic Bulb sold directly to individual consumers who called toll-free telephone numbers that appeared in our TV ads or who bought the Ionic Bulb on the Internet. Our revenues exclude shipping and handling fees, which we include as an offset to our shipping and handling costs.





Gross Profit





Our gross profit was $2,554 for the three months ended March 31, 2011 and $12,850 for the three months ended March 31, 2010. The decrease of $10,296 or 80.1% was due primarily to the decrease in revenue. We anticipate improving our gross profit margin through the introduction of a next generation Ionic Bulb manufactured by a factory in China at a lower cost than the cost of our current model of the Ionic Bulb.





Operating Expenses





Operating expenses were $170,606 for the three months ended March 31, 2011, as compared to $294,547 for the three months ended March 31, 2010.  The decrease of $123,941 or 42.1% was primarily due to the increase in selling expenses related to our advertising, promoting and marketing the Ionic Bulb for the placement of the Ionic Bulb on U.S. retail store shelves, which began during the quarter and to generate orders from major U.S. retailers, specialty stores, catalog companies and Internet sellers such as Amazon.com.  We incurred $46,287 and $151,290 in selling expenses during the three months ended March 31, 2011 and 2010, respectively.  Selling expenses for the three months ended March 31, 2011were comprised of advertising and marketing costs in connection with a sales and marketing campaign to generate Ionic Bulb retail orders in our fiscal year ending June 30, 2011.  Selling expenses for the three months ended March 31, 2010 were comprised of the Ionic Bulb test marketing that began in December 2009. We anticipate increased selling expenses in the future as we increase the frequency of Ionic Bulb TV ad airings, other Ionic Bulb promotional activities and plans to support sales growth. We incurred $124,319 and $143,257 in general and administrative expenses for the three months ended March 31, 2011and 2010, respectively.





Net Loss





Our net loss decreased by $139,655 or 37.2% to $235,471 for the three months ended March 31, 2011 as compared to our net loss of $375,126 for the three months ended March 31, 2010.  The decrease was primarily due to the decrease in our advertising, promoting and marketing expenses.





Our net loss per common share was $0.00 (basic and diluted) for three months ended March 31, 2011 as compared to our net loss per common share of $0.00 for the three months ended March 31, 2010.





The weighted average number of outstanding shares was 520,586,884 (basic and diluted) for three months ended March 31, 2011 as compared to 112,334,770 (basic and diluted) for the three months ended March 31, 2010.





Comparison of Nine Months Ended March 31, 2011 To March 31, 2010





Results of Operations





Revenue





Our sales were $12,952 for the nine months ended March 31, 2011and $38,658 for the nine months ended March 31, 2010, a decrease of $25,706 or 66.5% which was primarily due to our airings of the one-minute versions of our Ionic Bulb ads in the three months ended March 31, 2011 rather than the two-minute versions that we aired in the three months ended March 31, 2010.  The one-minute ads are designed to create consumer awareness of the Ionic Bulb rather than to generate Ionic Bulb direct response sales.  The two-minute ads also create consumer awareness and the added length of the ad generates more direct response sales.   We started test marketing the Ionic Bulb in December 2009 by airing a two-minute Ionic Bulb infomercial on a variety of U.S. cable television channels at different times of the day and days of the week.  Television test marketing helps us find viewing audiences more inclined to buy the Ionic Bulb, educate viewers on the Ionic Bulb's performance and money saving features and test different prices. In 2011, we hired three new sales agencies to solicit Ionic Bulb orders from their customer base that is comprised of major national retailers, specialty and regional retailers, a home shopping channel, catalog merchants, and ecommerce companies which we expect will result in increased sales of the Ionic Bulb in future periods resulting from orders they place with us. We also expect the next generation Ionic Bulb we plan to introduce in 2011, with its new more compact design for consumers’ smaller light fixtures and recessed ceiling lights and Energy Star qualification, to increase demand for the Ionic Bulb.


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During the nine months ended March 31, 2011, we began airing our Ionic Bulb one-minute ad and a new thirty-second ad, which began airing in January 2011, to result in successful sales of the Ionic Bulb at retail outlets that we expect to carry our products.  Sales for the nine months ended March 31, 2011 are comprised of Ionic Bulb sold directly to individual consumers who called toll-free telephone numbers that appeared in our TV ads or who bought the Ionic Bulb on the Internet either through our newionicbulb.com website or Amazon.com. We are treating as a consignment sale the shipments of the Ionic Bulb to retail stores of a new customer in the nine months ended March 31, 2011, and therefore excluding the shipments from our sales until revenue recognition criteria are satisfied. Sales for the nine months ended March 31, 2010 are comprised of Ionic Bulb sales to individual consumers who called toll-free telephone numbers that appeared in our TV ads that began airing in December 2009. Our revenues exclude shipping and handling fees, which we include as an offset to our shipping and handling costs.





Gross Profit





Our gross profit was $5,626 for the nine months ended March 31, 2011 and $16,406 for the nine months ended March 31, 2010. The decrease of $10,780 or 65.7% was due to increased sales order fulfillment costs. We anticipate improving our gross profit margin through the introduction of a next generation Ionic Bulb manufactured by a factory in China at a lower cost than the cost of our current model of the Ionic Bulb.





Operating Expenses





Operating expenses were $748,145 for the nine months ended March 31, 2011, as compared to $704,149 for the nine months ended March 31, 2010.  The increase of $43,996 or 6.2% was primarily due to the increase in selling expenses related to our advertising, promoting and marketing the Ionic Bulb for the placement of the Ionic Bulb on U.S. retail store shelves, which began during the quarter and to generate orders from major U.S. retailers, specialty stores, catalog companies and Internet sellers such as Amazon.com.  We incurred $291,471 and $237,897 in selling expenses during the nine months ended March 31, 2011 and 2010, respectively.  Selling expenses were comprised of advertising and marketing costs in connection with a sales and marketing campaign to generate Ionic Bulb retail orders in our fiscal year ending June 30, 2011.  We anticipate increased selling expenses in the future as we increase the frequency of Ionic Bulb TV ad airings, other Ionic Bulb promotional activities and plans to support sales growth. We incurred $456,674 and $466,252 in general and administrative expenses for the nine months ended March 31, 2011and 2010, respectively.





Net Loss





Our net loss was $960,507 for the nine months ended March 31, 2011 and our net loss was $995,023 for the nine months ended March 31, 2010.  The decrease of $34,516 or 3.5% was primarily due to increased selling expenses related to our advertising, promoting and marketing the Ionic Bulb for the placement of the Ionic Bulb on U.S. retail store shelves and to generate Ionic Bulb retail orders in our fiscal year ending June 30, 2011.





Our net loss per common share was $0.00 (basic and diluted) for nine months ended March 31, 2011 as compared to our net loss per common share of $0.02 for the nine months ended March 31, 2010.





The weighted average number of outstanding shares was 328,836,386 (basic and diluted) for nine months ended March 31, 2011 as compared to 63,872,161 (basic and diluted) for the nine months ended March 31, 2010.


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Liquidity and Capital Resources





Overview





As of March 31, 2011, we had a working capital deficit of $1,821,086.  As of June 30, 2010, we had a working capital deficit of $1,478,126.  Our cash position at March 31, 2011 was $1,804 as compared to $132,517 at June 30, 2010.  Our working capital deficit did not significantly change during the three months ended March 31, 2010.





Cash provided by financing activities for the nine months ended March 31, 2011 and 2010 totaled $289,903 and $597,289, respectively, consisting of advances from a note holder.





We expect capital expenditures to be nominal for the year ending June 30, 2011. These anticipated expenditures are for investments in property and equipment used in our business.





Financing Needs





Since our inception on March 19, 2005 to March 31, 2011, we have generated revenues of $1,403,213 and have incurred an accumulated deficit of $6,445,532.  We hope to begin achieving sustainable revenues in 2011 from sales of the Ionic Bulb and the introduction of our new Gung H20 product.  We are seeking additional products to market and sell, which we believe will allow us to make use of our existing operational structure to generate more sales and gross profits.  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 effect of inflation on our revenue and operating results was not significant. Our operations are located in North America and there are no seasonal aspects that would have a material effect on our financial condition or results of operations.





We do not maintain off-balance sheet arrangements nor do we participate in non-exchange traded contracts requiring fair value accounting treatment.





CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES





Financial Reporting Release No. 60, recently released by the Securities and Exchange Commission, requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. The notes to the consolidated financial statements include a summary of significant accounting policies and methods used in the preparation of our Consolidated Financial Statements. In addition, Financial Reporting Release No. 61 was recently released by the SEC requires all companies to include a discussion which addresses, among other things, liquidity, off-balance sheet arrangements, contractual obligations and commercial commitments. The following is a brief discussion of the more significant accounting policies and methods used by us.





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.


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On an on-going basis, we evaluate our estimates. The most significant estimates relate to our recognition of revenue, the allowance for doubtful accounts receivable and inventory valuation reserves.





We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.





Reverse Stock Split





The Company effectuated a 1 for 20 reverse stock split on September 24, 2010.   All common stock and related information have been retroactively restated.





Revenue Recognition





The Company recognizes revenue from product sales based on four basic criteria that must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability 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 collectability 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.  The Company does not have any multiple element arrangements.





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 of goods sold are FOB shipping point costs, freight and destination charges, customs and importation fees and taxes, customer broker fees (if any) and other related costs. Warehousing costs are charged to cost of goods in the period the costs are incurred. The Company provides inventory allowances based on estimates of obsolete inventories.





Allowance for doubtful accounts





The Company maintains an allowance for doubtful accounts to reduce amounts to their estimated realizable value, including reserves for customer and other receivable allowances and incentives. In estimating the provision for doubtful accounts, the company considers a number of factors including age of the accounts receivable, trends and ratios involving the age of the accounts receivable and the customer mix of each aging categories.





Advertising





The Company charges the costs of advertising to expenses as incurred.





Off Balance Sheet Arrangements





None





ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide the information required by this item.


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ITEM 4 – CONTROLS AND PROCEDURES





Evaluation of Disclosure Controls and Procedures





Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.





The Company’s management, under the supervision and with the participation of our Chief Executive Officer/Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of March 31, 2011.  Based upon that evaluation and the identification of the material weakness in the Company’s internal control over financial reporting, the Chief Executive Officer/Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report.





Changes in Internal Control over Financial Reporting





There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the quarter ended March 31, 2011 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.





PART II:  OTHER INFORMATION





ITEM 1 – LEGAL PROCEEDINGS





Metacomet Company, LLC v. Zevotek, Inc





Case No. 3:10CV1754 (MRK)





United States District Court, District of Connecticut





In or about May 2010, an alleged assignee (the “Assignee”) of certain convertible promissory notes commenced an action by the filing of a summons and complaint against us alleging a failure to comply with its demands to convert principal and interest under the promissory notes in our common stock.  We served and filed our Answer on July 21, 2010, in which we denied the material allegations of the complaint and asserted numerous affirmative defenses.  The parties have entered into a stipulation of settlement resolving this action on November 4, 2010 and a final judgment and injunction were entered on November 12, 2010, pursuant to which we agreed to issue stock once a month to the Assignee until we have issued at total 182,000,000 shares of our common stock.





ITEM 1A – RISK FACTORS





As a “small reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.





ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





During the three months ended March 31, 2011 and through the date of filing, the Company issued 430,644,279 shares of common stock in payment of principal and interest due on unregistered convertible promissory notes.




On March 2, 2011, the Company agreed to issue 25,000,000 shares of its restricted stock as an advance fee pursuant to a non-exclusive Purchasing Representative Agreement.  As of the date of this Quarterly Report, such shares have not been issued.


On April 25, 2011 the Company issued 12,000,000 shares of restricted common stock in exchange for consulting services.


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On May 10, 2011, the Company issued a convertible promissory note to a certain investor in the principal amount of $945,527 against its advances payable. The Note matures on the one-year anniversary of the date of issuance (the “Maturity Date”) and accrues interest at an annual rate of ten percent (10%).  The Note is payable in full on the Maturity Date unless previously converted into shares of the Company’s common stock at an initial conversion price of $0.0001 per share, as may be adjusted.




The notes and the shares were issued in a transaction that was exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act, which exempts transactions of an issuer not involving a public offering.





ITEM 3 – DEFAULT UPON SENIOR SECURITIES





None.





ITEM 4 – REMOVED AND RESERVED.





ITEM 5 – OTHER INFORMATION





On January 8, 2011, the Company and certain holders of its convertible promissory notes originally dated as of January 8, 2009 and March 9, 2009, entered into an amendment agreement (the “Amendment Agreement”) in order to extend the maturity date of an aggregate of $83,565 worth of the Company’s convertible promissory notes to January 8, 2012.  A form of the Amendment Agreement is attached to this Quarterly Report as Exhibit 10.2.




On March 2, 2011, the Company and certain holder of its convertible promissory note originally dated as of May 14, 2008 entered into an amendment agreement (the “Amendment Agreement”) in order to extend the maturity date of an aggregate of $2,500 worth of the Company’s convertible promissory notes to June 30, 2011.  A form of the Amendment Agreement is attached to this Quarterly Report as Exhibit 10.2.


On May 10, 2011, the Company issued a convertible promissory note to a certain investor in the principal amount of $945,527 against its advances payable. The Note matures on the one-year anniversary of the date of issuance (the “Maturity Date”) and accrues interest at an annual rate of ten percent (10%).  The Note is payable in full on the Maturity Date unless previously converted into shares of the Company’s common stock at an initial conversion price of $0.0001 per share, as may be adjusted.  A form of the note is attached to this Quarterly Report as Exhibit 10.1.


ITEM 6 – EXHIBITS





Item

No.

Description10.1

Form of Promissory Note10.2

Amendment Agreement31.1

Certification of  Robert Babkie, Chief Executive Officer and Chief Financial Officer of Zevotek, Inc. pursuant to Rule 13a-14(a)32.1

Certification of Robert Babkie, Chief Executive Officer and Chief Financial Officer of Zevotek, Inc. pursuant to 18 U.S.C. § 1350 adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002


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SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





ZEVOTEK, INC.May 16, 2011
/s/ Robert BabkieRobert BabkiePresident, Chief Executive Officer and Chief Financial Officer(Principal Executive and Principal Financial and Accounting Officer)


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