ITEM 1. BUSINESS
OVERVIEW
CoreStream Energy, Inc. ("the Company") formally known as Zealous, Inc, was originally incorporated under the laws of the state of Nevada on September 25, 1978 as Casino Consultants, Inc. Prior to September 1992, the Company had no operations. On September 15, 1992, the Company entered into an Agreement and Plan of Reorganization with Ad Show Network, Inc., a Nevada corporation, whereby the Company acquired the assets of Ad Show Network, Inc., subject to liabilities, for shares of the Company's common stock. On September 15, 1992, the Company changed its name to A.S. Network, Inc. On October 14, 1992, the Company changed its name to Ad Show Network, Inc. On August 17, 1995, the Company changed its name to Atlantic Syndication Network, Inc. On October 5, 2007, the Company filed an amendment to the Articles of Incorporation changing its name from Atlantic Syndication Network, Inc. to Zealous Trading Group, Inc.
On July 16, 2007, Zealous Trading Group. Inc. entered into an Agreement and Plan of Merger (the "Merger Agreement") with its wholly-owned subsidiary, ASNI II, INC., a Delaware corporation ("ASNI-II") and Zealous Holdings Inc., and subsidiaries ("Zealous Holdings"), which was consummated on May 9, 2008.
Pursuant to the Merger Agreement, Zealous Holdings merged with and into ASNI- II, with ASNI-II as the surviving corporation of the merger (the "Merger"). As a result of the Merger, Zealous Holdings became our wholly-owned subsidiary through which our operations are conducted.
On August 25, 2008, Zealous Trading Group, Inc., filed Articles of Merger with the Secretary of State of Nevada in order to effectuate a merger whereby Zealous Trading Group, Inc., would merge with its wholly-owned subsidiary, Adult Entertainment Capital, Inc., as a parent/ subsidiary merger with Zealous Trading Group, Inc., as the surviving corporation. Upon completion of this merger, the Zealous Trading Group, Inc's name was changed to "Adult Entertainment Capital, Inc.".
On December 11, 2008, Adult Entertainment Capital, Inc., filed Articles of Merger with the Secretary of State of Nevada in order to effectuate a merger whereby Adult Entertainment Capital, Inc., would merge with its wholly-owned subsidiary, Zealous, Inc., as a parent/ subsidiary merger with Adult Entertainment Capital, Inc., as the surviving corporation. Upon completion of this merger, Adult Entertainment Capital, Inc's name was changed to "Zealous, Inc." (the "Company").
On June 4, 2010, Zealous, Inc. changed its core business model and its name to CoreStream Energy, Inc. In conjunction with this event, Milton C. Ault III resigned as Chairman of the Board, President and Chief Executive Officer. Chris Kelley resigned as Corporate Secretary and Chris Rainbolt was appointed President, Chief Executive Officer and Chairman of the Board. The Company filed with the Secretary of State of Nevada in order to effectuate this name change and change of officers.
On July 22, 2010 all the assets and liabilities of the previous operations of Zealous, Inc. prior to July 22, 2010, have been placed in an escrow account where all distribution and resolution is proceeding.
The Company focuses on primarily two areas, pursuing opportunities to drill in areas with proven reserves and to purchase existing production with large geological offset opportunities. The Company also carries out its business through its operating subsidiaries, Health and Wellness Partners, Inc., a Nevada corporation ("Health"), Zealous Interactive, Inc., a California corporation ("Interactive"), Zealous Real Estate Consulting, a Nevada limited liability company ("Real Estate") and Zealous Holdings, Inc., a Delaware corporation ("Holdings"). Health was formed in February of 2009 and distributes an energy drink and non-prescription supplements designed to improve sexual performance for both men and women. Interactive was formed in February of 2009 and operates multiple media related business, including a print publication and Internet URLs. Real Estate was formed in December of 2008. It provided loan and mortgage modification services. On April 2, 2009, the Company's Board of Directors passed a resolution that all of Real Estate's business activities would cease as of March 31, 2009 and further that Real Estate would be dissolved as of April 30, 2009. Holdings was formed to provide asset management; it currently is in bankruptcy.
Holdings carries out its business through its operating subsidiaries, Zealous Asset Management, LLC, or ZAM and Zealous Capital Markets LLC, or ZCM. ZCM wholly-owns and operates Zealous ATS LLC, or ZATS. ZATS had planned to be a marketplace to offer an integrated electronic platform for the trading of alternative assets globally. Both ZAM and ZCM have closed their operations and are currently liquidating or transferring client accounts.
HEALTH AND WELLNESS PARTNERS, INC.
Health makes, markets, sells and distributes a brand of sexual performance and sexual enhancement products known as Surge{reg-trade-mark}, Surge for Women{reg-trade-mark} and Surge Together{reg-trade-mark}, a product for couples. In June of 2009 Health discontinued its marketing of RockHard Weekend{trademark}. The Company intends to sell or divest this business in the near future.
ZEALOUS INTERACTIVE, INC.
Interactive operates multiple media related businesses, including a web portal and social network, which includes a proprietary 3D world, a print publication, Internet URLs and a television show.
ZEALOUS REAL ESTATE HOLDINGS, LLC
Real Estate is a California based real estate services firm offering a variety of products to home owners across the country. Real Estate operated U S Loan Modification Agency, a wholly-owned company specializing in home loan modifications. The Board of the Company has passed a resolution to discontinue this business and the business is closed.
ZEALOUS HOLDINGS
Holdings is a Los Angeles, California-based financial services holding company that provides, through its wholly-owned operating subsidiaries, a broad range of securities, brokerage and trading, merchant and investment banking related services primarily to institutional clients and accredited individual investors, as well as an alternative trading system for illiquid and restricted securities.
On February 20, 2009, ASNI II (Zealous Holdings) filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Central District of California Santa Ana Division (the "Bankruptcy Court"), Case No. 09-11425 ES. On May 12, 2009 Zealous Holdings, filed a motion to dismiss/withdraw the bankruptcy action.
ZEALOUS ASSET MANAGEMENT LLC
Zealous Asset Management LLC, a Delaware limited liability company, is an investment adviser registered in the State of California that was responsible up until December 31, 2007, for providing asset management and advisory services to private investment funds and managed accounts for individual clients and institutional clients. The advisory services included, among others, providing advice regarding asset allocation and the selection of investments.
ZAM also provided advisory services on a discretionary basis to the following private investment funds: Zealous Partners, LLC, a Delaware limited liability company; and Ault Glazer Capital Partners, LLC (fka Ault Glazer Bodnar Acquisition Fund, LLC), a Delaware limited liability company, which commenced operations in July 2005. The funds operated as pooled investment vehicles intended to provide diversification, management expertise and other advantages to clients. ZAM may, in the future, provide investment advisory services to other pooled investment vehicles that may be similar to, or different from, the Funds.
ZAM's investors in the funds may have included any of the following: individuals, banks and thrift institutions; investment companies; private businesses; private and governmental retirement, pension and profit-sharing plans; trusts; estates; endowments, foundations, "Taft Hartley" Plans, charitable organizations and corporations as well as other business entities.
ZAM is no longer operating as of January 2009.
ZEALOUS CAPITAL MARKETS, LLC
Zealous Capital Markets, LLC, was a broker-dealer registered with the Financial Industry Regulatory Authority, Inc., or FINRA and Securities Investor Protection Corporation, or SIPC.
The recent economic turmoil, uncertain investment climate and the corresponding loss of revenue for Zealous Capital Markets, LLC, a broker dealer subsidiary of the Zealous Holdings, made it impossible for the Company to continue financing its broker dealer business. Loss of revenue, lack of sufficient working capital and inability to raise capital caused the company to shut down the operations of Zealous Capital Markets, LLC and file a Form BDW request to withdraw from the broker-dealer business in January 2009.
ZEALOUS ATS, LLC
ZCM wholly-owns and operates Zealous ATS, LLC, (alternative trading system), or ZATS, which had planned to be a global electronic marketplace used to support and execute trades for buyers and sellers of restricted and illiquid securities.
The Company also made an unsuccessful attempt to sell ZATS platform to an unrelated entity during the quarter ended December 31, 2008. This sale fell through. The Company has further determined that there is no market for the ZATS platform and has written off the asset of approximately $500,000 on its books under guidance from ASC Topic 820, "Fair Value Measurements and Disclosures" as on December 31, 2008.
OUR PRODUCTS
HEALTH AND WELLNESS PARTNERS, INC.
Surge is a nutraceutical product line of formulas dedicated individually to either men or women. Surge formulas contain proprietary herbal ingredients and provide both better sexual performance and sexual enhancement. Surge products are non-prescription and are targeted to be sold online as well as in storefronts.
RockHard Weekend is considered a nutraceutical product. Pharmaceuticals are typically drugs and medicines manufactured for the relief or cure of disease. Nutraceuticals are those products manufactured for the specific purpose of not curing illness but providing nutrition to a person's diet through a supplemental pill, powder or liquid. RockHard Weekend is a non-prescription supplement composed of 13 herbal ingredients. It is designed to improve sexual performance.
The Company intends to sell or divest this business in the near future.
ZEALOUS INTERACTIVE, INC.
Interactive operates its flagship enterprise, www.TheAdultSpot.com. TheAdultSpot.com is a social network and portal for activities and interests geared for adult audiences. It is the mission of TheAdultSpot.com to develop a place where it is safe for adults to be adults. TheAdultSpot.com also operates a 3D world. TheAdultSpot.com generates revenue through ad/affliate model and shares revenue from its monthly 3D world VIP memberships.
TheAdultSpot.com bases its business growth through a series of strategic partnerships to market and brand this business and drive traffic. TheAdultSpot.com also anticipates its growth from the continued incorporation of new technologies and systems that directly impact the delivery of content for its users and keep the site a premiere destination on the Internet.
The print publication business currently consists of Stiletto Magazine. Stiletto Magazine is an adult nightclub magazine that covers both the adult nightclub industry and events exclusively geared for adults. Our viewing audience is any adult who enjoys adult oriented material including fashion, erotic dance, burlesque, adult films, or is concerned with civil rights as it effects the rights of citizens to enjoy "adult oriented" content, products or services. Stiletto Magazine is also for those who want to find out about those places that feature live adult entertainment. The broadcast portion of the business currently consists of Stiletto TV.
Stiletto Magazine is an established magazine brand throughout California and Las Vegas. Our marketing strategy is to build off the current, established distribution network to increase circulation and take advantage of advertising sales opportunities from past advertisers. Additionally, we possess a lengthy list of businesses that have inquired about advertising in the past, but ultimately chose not to do so. We plan to contact these parties in hopes that they will now have decided to advertise with us.
Stiletto TV is utilizing the same client list from Stiletto Magazine to sell advertising on its broadcast show. Ad sales and other revenue streams will be built from those businesses that can best utilize the demographics provided by the channels that carry the show. Stiletto TV is also a marketing tool for Stiletto Magazine to increase its ad sales and to increase its readership.
COMPETITION
HEALTH AND WELLNESS PARTNERS, INC.
The "alternative" beverage and "nutri-pharmaceutical" industries are highly competitive. The principal areas of competition for the "alternative beverages" are pricing, packaging, development of new products and flavors and marketing campaigns. Our products compete with a wide range of drinks and nutri-pharmaceuticals produced by a relatively large number of manufacturers, most of which have substantially greater financial, marketing and distribution resources than we do. We compete not only for consumer preference, but also for maximum marketing efforts by multi-brand licensed bottlers, brokers and distributors, many of which have a principal affiliation with competing companies and brands.
The Surge brand of products compete directly with traditional pharmaceutical products including those marketed by Phizer (Viagra), Lilly USA (Cialis). and Bayer Pharmaceuticals (Levitra), as well as other nutriceutical male enhancement products marketed by smaller or primarily local companies such as Enzyte, Extenze, and with private label brands such as those carried by grocery store chains, convenience store chains, pharmacies, night clubs and club stores.
Our energy drinks compete with all liquid refreshments and with products of much larger and substantially better financed competitors, including the products of numerous nationally and internationally known producers such as TCCC, PepsiCo, Inc., Cadbury Schweppes plc, Red Bull Gmbh, Kraft Foods, Inc., Nestle Beverage Company, Tree Top and Monster Energy. We also compete with companies that are smaller or primarily local in operation. Our products also compete with private label brands such as those carried by grocery store chains, convenience store chains, night clubs, restaurants, and club stores.
ZEALOUS INTERACTIVE, INC.
There is significant competition within the print publication, Internet, social network and commercial broadcast industries. The economic downturn has resulted in fewer advertisers, and has intensified the competition to secure those advertisers and the revenue they generate. The companies we are competing with for advertisers are better funded and are more established in the marketplace, including: Ripe TV, G4, and Marva from Canada as well as Facebook, Myspace, Ning, Tweeter and others. With an emphasis on content and social networking built on themes exclusive to adults, the competition lessens and the potential for our products grow dramatically.
REGULATORY MATTERS
HEALTH AND WELLNESS PARTNERS, INC.
We are unaware of and do not anticipate having to expend significant resources to comply with any governmental regulations of the alternative drink or nutraceutical industry. We are subject to the laws and regulations of those jurisdictions in which we plan to sell our product, which are generally applicable to business operations, such as business licensing requirements, income taxes and payroll taxes. In general, the development, manufacture, and sale of our alternative beverages and nutraceuticals in the United States is not subject to special regulatory and/or supervisory requirements. All packaging and manufacturing practices follow all rules and regulations set forth by the Food and Drug Administration and Federal Trade Commission.
ZEALOUS INTERACTIVE, INC.
Each business we operate faces a variety of regulations by local, state and federal agencies. Government regulations could adversely affect our business, financial condition or results of operations. Regulation relates to, among other things, licensing, commercial advertising, subscription rates, Internet sales, use of confidential customer information and content, including standards of decency/obscenity. Changes in the regulation of our operations or changes in interpretations of existing regulations by courts or regulators or our inability to comply with current or future regulations could adversely affect us by reducing our revenues, increasing our operating expenses and/or exposing us to significant liabilities. While we are not able to reliably predict particular regulatory developments that could affect us adversely, those regulations related to adult content, the Internet, privacy and commercial advertising illustrate some of the potential difficulties we face.
The print publication businesses face on-going scrutiny at state and local levels. Increased local taxes and fees applicable in the distribution of publications via newsracks and newsstands may be incurred in the future impacting the profitability and operations of the business. Zoning restrictions as to the distribution of publications is pending and may negatively impact the business and the ability to maintain and attract new advertisers.
The Internet based businesses may be virtually unregulated now but there is continued legislation each year to regulate content and tax business done via the Internet. This potential for regulation may negatively impact our businesses and hamper our profitability and operations. Our gathering of subscriber information is regulated by privacy laws and requires due diligence to always maintain our systems and records with the utmost care. Changes in privacy laws and increases in fines for violations thereof may severely hamper our profitability and operations. Management must stay abreast of these changes to properly manage these dynamic aspects of the business.
Our broadcast businesses are under FCC regulation and must adhere to their guidelines for content while also adhering to state and local laws that may impact transmission of our programs into their communities. There is a constant series of legislative and bureaucratic efforts to further regulate and tax television and cable productions and to unionize these businesses as they grow in size. Furthermore, there are industry efforts to hinder entry into the broadcast business by some corporate members of the industry. Their lobbying efforts to stifle potential competition through regulatory requirements and legislative action must be monitored constantly.
EMPLOYEES
We had 5 full time employees as of August 16, 2010. We consider our relations with our employees to be good.
RESEARCH AND DEVELOPMENT EXPENDITURES
We have incurred $0 in research or development expenditures since our incorporation.
ITEM 1A.
ITEM 1A. RISK FACTORS.
The following are certain identifiable risk factors for CoreStream Energy, Inc., and its subsidiaries business operations. You should carefully consider the following risk factors and all other information contained herein in evaluating our business and prospects. You should also refer to the other information contained in the document, including our consolidated financial statements and the related notes in determining the viability of the business.
RISKS RELATED TO OUR BUSINESS
BECAUSE WE HAVE LIMITED OPERATING CAPITAL, AND IF WE ARE NOT SUCCESSFUL IN CONTINUING TO GROW OUR BUSINESS AND OBTAINING ADDITIONAL CAPITAL, THEN WE MAY HAVE TO SCALE BACK OR EVEN CEASE OUR ONGOING BUSINESS OPERATIONS.
We do not have sufficient capital for current operations through our cash position and current cash flow. We had a working capital deficit of $13,581,782 as of December 31, 2009. We will require additional financing to pay our debts, operate our business and to fund our growth plans. There can be no assurance that we will be able to obtain such financing on attractive terms, if at all. We have no firm commitments for additional cash. If we are not able to raise capital and operate profitably, we may have to scale back or cease operations and investors may lose some or all of their investment in our company.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDING OUR BUSINESS OPERATIONS WILL BE HARMED AND IF WE DO OBTAIN ADDITIONAL FINANCING OUR THEN EXISTING SHAREHOLDERS MAY SUFFER SUBSTANTIAL DILUTION.
We will require additional funds to develop our business plans for CoreStream Energy, Health and Zealous Interactive. Even if we do receive additional financing, it may not be sufficient to sustain or expand our research and development operations or continue our business operations.
OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM HAS EXPRESSED SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN WHICH MAY HINDER OUR ABILITY TO OBTAIN FUTURE FINANCING.
In their report dated August 16, 2010 our independent registered public accounting firm stated that our financial statements for the year ended December 31, 2009 were prepared assuming that we would continue as a going concern. Our ability to continue as a going concern is an issue raised due to our stock holders' deficit of $13,581,782 as on December 31, 2009 and a net loss of $5,994,582 for the year ended December 31, 2009. We continue to experience net operating losses. Our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, generating sales or obtaining loans and grants from various financial institutions where possible. Our continued net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.
HEALTH AND INTERACTIVE HAVE ONLY RECENTLY BEGUN IMPLEMENTING THEIR BUSINESS PLAN AND HAVE NO OPERATING HISTORY IN THIS AREA.
There is a substantial enhanced risk of failure associated with any new business as a result of problems encountered in connection with their commencement of new operations. These include, but are not limited to, the entry of new competition, unknown or unexpected additional costs, and expenses that may exceed estimates. Additionally, we are competing in an industry in which there are numerous more well funded and well established competitors. If we have misjudged the potential market for our products, our ability to develop competitive products, or our ability to sell those products, our business will fail.
MANY OF OUR COMPETITORS ARE LARGER AND HAVE GREATER FINANCIAL AND OTHER RESOURCES THAN WE DO AND THOSE ADVANTAGES COULD MAKE IT DIFFICULT FOR US TO COMPETE WITH THEM.
The general market for our products and services is extremely competitive and includes several companies which have achieved substantially greater market shares than we have, and have longer operating histories, have larger customer bases, have substantially greater financial, development and marketing resources than we do. If overall demand for our products should decrease it could have a materially adverse affect on our operating results.
IF ONE OF OUR PRODUCTS GIVES RISE TO A NEGATIVE HEALTH EFFECT, OUR REPUTATION AND BUSINESS WILL BE NEGATIVELY IMPACTED.
If there is negative publicity with either the Surge brand of products as a result of a negative health effect associated with our product, then our reputation could be harmed and our results of operations adversely affected. A negative health effect could also lead to the cancellation of orders, product returns, civil lawsuits and diversion of our resources for us. Any of these occurrences could also result in the loss of or delay in market acceptance of our products and loss of sales and would have a negative impact on our results of operations.
RISKS RELATED TO MANAGEMENT.
NEW LEGISLATION, INCLUDING THE SARBANES-OXLEY ACT OF 2002, MAY MAKE IT MORE DIFFICULT FOR US TO RETAIN OR ATTRACT OFFICERS AND DIRECTORS.
The Sarbanes-Oxley Act of 2002 was enacted in response to public concerns regarding corporate accountability in connection with recent accounting scandals. The stated goals of the Sarbanes-Oxley Act are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies, and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The Sarbanes-Oxley Act generally applies to all companies that file or are required to file periodic reports with the SEC, under the Securities Exchange Act of 1934. As a public company, we are required to comply with the Sarbanes-Oxley Act. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes may deter qualified individuals from accepting these roles. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. We continue to evaluate and monitor developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
RISKS RELATED TO OUR SECURITIES
BECAUSE WE DO NOT EXPECT TO PAY DIVIDENDS ON THE COMMON STOCK FOR THE FORESEEABLE FUTURE, INVESTORS SEEKING CASH DIVIDENDS SHOULD NOT PURCHASE OUR COMMON STOCK.
We do not currently intend to pay cash dividends on our common stock and do not anticipate paying any dividends at any time in the foreseeable future. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends on the common stock in the foreseeable future. Our payment of any future dividends will be at the discretion of our Board of Directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. Accordingly, investors must rely on sales of their own common stock after price appreciation, which may never occur, as the only way to realize gains on their investment. Investors seeking cash dividends should not purchase the common stock.
OUR COMMON STOCK IS QUOTED ON THE PINK SHEETS, WHICH MAY LIMIT THE LIQUIDITY AND PRICE OF OUR COMMON STOCK MORE THAN IF OUR COMMON STOCK WERE QUOTED OR LISTED ON THE NASDAQ STOCK MARKET OR A NATIONAL EXCHANGE.
Our securities are currently quoted on the Pink Sheets, a FINRA -sponsored and operated inter-dealer automated quotation system for equity securities not included in the NASDAQ Stock Market. Quotation of our securities on the Pink Sheets may limit the liquidity and price of our securities more than if our securities were quoted or listed on the NASDAQ Stock Market or a national exchange. Some investors may perceive our securities to be less attractive because they are traded in the over-the-counter market. In addition, as a Pink Sheets listed company, we do not attract the extensive analyst coverage that accompanies companies listed on other exchanges. Further, institutional and other investors may have investment guidelines that restrict or prohibit investing in securities traded on the Pink Sheets. These factors may have an adverse impact on the trading and price of our Common Stock.
IF SIGNIFICANT SHORT SELLING OCCURS IN CONNECTION WITH THE MARKET FOR OUR SECURITIES ON THE PINK SHEETS, SHORT SELLING COULD INCREASE THE VOLATILITY OF OUR STOCK PRICE.
Short selling occurs when a person sells shares of stock which the person does not yet own and promises to buy stock in the future to cover the sale. The general objective of the person selling the shares short is to make a profit by buying the shares later, at a lower price, to cover the sale. Significant amounts of short selling, or the perception that a significant amount of short sales could occur, could depress the market price of the common stock. In contrast, purchases to cover a short position may have the effect of preventing or retarding a decline in the market price of the common stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued at any time. These transactions may be effected on Pink Sheets or any other available markets or exchanges. Such short selling if it were to occur could impact the value of our stock in an extreme and volatile manner to the detriment of our shareholders.
BECAUSE WE ARE SUBJECT TO THE "PENNY STOCK" RULES WHILE OUR SHARES ARE QUOTED ON THE PINK SHEETS, THE LEVEL OF TRADING ACTIVITY IN OUR STOCK MAY BE REDUCED.
Broker-dealer practices in connection with transactions in "penny stocks" are regulated by penny stock rules adopted by the Securities and Exchange Commission. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on some national securities exchanges or quoted on Nasdaq). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealers' presumed control over the market, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, broker-dealers who sell these securities to persons other than established customers and "accredited investors" must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. Consequently, these requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security subject to the penny stock rules, and investors in the common stock may find it difficult to sell their shares.
IF A SUBSTANTIAL NUMBER OF SHARES ARE SOLD, THE MARKET PRICE FOR OUR COMMON STOCK COULD DECLINE.
If any of our stockholders sells substantial amounts of our common stock in the public market, the market price of our common stock could fall. In addition, such sales could create the perception of difficulties or problems with our professional services. As a result, these stock sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
A smaller reporting company is not required to provide the information required by this Item.
ITEM 2.
ITEM 2. PROPERTIES
In February 2009 the Company signed a month to month lease for mail and conference room use located at 9550 Warner Avenue, Fountain Valley, CA 92708. The Company received secured eviction notices relating to two locations, which effectively terminated the noted lease agreements. The balances due have been properly recorded as a liability to the Company. There are no future or current ongoing lease obligations other than the month to month lease noted herein.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS. Detailed below are our ongoing legal proceedings.
BODNAR CAPITAL MANAGEMENT, LLC V. AULT GLAZER CAPITAL PARTNERS, LLC, ET AL. United States District Court, Connecticut Case No: 3:08CV199 (JBA)
Filed February 6, 2008, Bodnar Capital Management, LLC ("Plaintiff") filed a Complaint against Ault Glazer Capital Partners, LLC, Zealous Asset Management, LLC, and Milton Ault, III ("Defendants") in the United States District Court, Connecticut case number 3:08CV199 (JBA). On June 27, 2008, all parties entered into a confidential settlement agreement; the Court granted motion to enforce the settlement agreement. Defendants assert the automatic stay re Zealous Holdings, entities that are in Chapter 11 bankruptcy.
Notice of Ault Bankruptcy has been provided to parties and Court. Present status pending; awaiting info from Ct or Pl Counsel, negotiations for settlement are ongoing.
BODNAR CAPITAL MANAGEMENT, LLC V. MILTON AULT, III, ET AL. United States District Court, District of Connecticut Case No.: 3:08CV1601 (AWT)
On October 20, 2008, Bodnar Capital Management, LLC ("Plaintiff") filed a Complaint against Milton Ault, III, William B. Horne, Lynne Silverstein, Melanie Glazer, Sothi Thillairajah, Scott Livingston, Zealous Holdings, Inc., Ault Glazer Bodnar Investment Management, LLC, Ault Glazer & Co., LLC, et al, for fraud, breach of fiduciary duty, and breach of contract. Plaintiff is seeking $1,523,103 in damages. Filed District Court, Connecticut, and case #3:08CV1601 (AWT). On February 23, 2009, Plaintiff filed a Motion for a Joint and Several Judgments Against Milton Ault, III. Defendants assert the automatic stay re Zealous Holdings, entities that are in Chapter 11 bankruptcy.
Notice of Ault Bankruptcy has been provided to parties and Court. Present status pending; awaiting info from NY or Conn counsel re motion to set aside / change of Venue per Agreement, parties are negotiating settlement .
MOTIVATED MINDS, LLC V. AULT GLAZER CAPITAL PARTNERS, LLC, ET AL. Superior Court of Arizona Case No.: CV2009-003478.
Motivated Minds, LLC ("Plaintiff") filed a Complaint against Ault Glazer Capital Partners, LLC and Ault Glazer Asset Management, LLC (collectively referred to as "Defendants"). On February 4, 2009, Plaintiff filed a Complaint against Defendants in the Superior Court of Arizona for Breach of Contract. The case number CV2009-003478. Plaintiff alleges damages in an amount of $500,000, pre and post-judgment interest and attorneys' fees and costs. Defendants are engaging in settlement discussions with Plaintiffs.
INVESTOR RELATIONS GROUP, INC. V. ZEALOUS TRADING GROUP, INC. New York State Supreme Court Case No.: 602014108.
The Investor Relations Group, Inc. ("Plaintiff") filed a Complaint against Zealous Trading Group, Inc. ("Defendant") on July 2, 2008 in the Supreme Court of the State of New York, under case number 602014108. In their Complaint, Plaintiff alleges breach of contract, quantum meruit, and account stated. Plaintiff alleges that Defendants failed to pay Plaintiff for services performed in accordance with the investor relations services contract between Plaintiff and Defendants. Plaintiff is seeking compensatory damages in an amount of $41,457 and the accrued interest. On November 14, 2008, the New York Supreme Court entered default against Defendant for failure to answer.
Defendant asserts the Chapter 11 automatic stay, and is engaging in settlement discussions with Plaintiff.
Present status pending; awaiting info from NY or Conn counsel re motion to set aside / change of Venue per Agreement
MOTIVATED MINDS, LLC V. GLOBAL AUTHENTICATIONS HOLDINGS, INC., ET AL. Orange County Superior Court Case No.: 30-2008 00234518.
Motivated Minds, LLC ("Plaintiff") filed a Complaint against Global Authentication Holdings, Inc. and Ault Glazer Capital Partners, LLC (collectively referred to as "Defendants") on December 30, 2008. Plaintiff filed a Limited Civil Complaint against Defendants in the Superior Court of California, in Orange County for breach of promissory note and money lent. Case number is 30-2008 00234518. Plaintiff alleges damages in an amount of $25,000, pre and post-judgment interest and attorneys' fees and costs. Defendants asserted the automatic stay of the chapter 11 bankruptcy. Defendants are also engaging in settlement discussions with Plaintiffs.
On September 1, 2009, Plaintiff requested the OC Superior Court to enter default against Defendant.
CALIFORNIA STATE TEACHERS' RETIREMENT SYSTEM V. ZEALOUS TRADING GROUP, INC., ET AL. Los Angeles County Superior Court Case No.: SC100669
California State Teachers' Retirement System ("Plaintiff") filed a Verified Complaint against Zealous Trading Group, Inc., Initiative Legal Group, LLP, Younesi & Yoss, LLC and REM ("Defendants") for Unlawful Detainer. Plaintiff filed their Complaint on November 20, 2008 in the Superior Court of California in Los Angeles County under case number SC100669. Plaintiff seeks damages in an amount of $1,166 per day from November 18, 2008. Defendants filed an answer asserting affirmative defenses on December 8, 2009. Plaintiff issued discovery requests to Defendants on December 23, 2008. Defendants are in the process of propounding and responding to discovery. Defendants are also engaged in settlement discussions with Plaintiff. SECTOR 33 CREATIVE V. ADULT ENTERTAINMENT CAPITAL, INC., ET AL. Burbank Small Claims Court Case No.: BUR 08S00608
Sector 33 Creative ("Plaintiff") filed a small claims case against Adult Entertainment Capital, Inc. dba Rock Candy Entertainment under case number BUR 08S00608 in California North Central District Court on October 6, 2008. Plaintiff alleges Defendant failed to pay Plaintiff for services rendered in the development of websites, and Plaintiff is seeking $5,000 in compensatory damages.
Judgment was entered against Defendants on December 5, 2008. Defendants are currently pursuing settlement negotiations as well as a Motion to Set Aside Default.
PROFESSIONAL OFFSHORE OPPORTUNITIES FUND LIMITED V. ZEALOUS TRADING GROUP, INC. New York State Supreme Court Case No.: 650260
Professional Offshore Opportunities Fund Limited ("Plaintiff") filed a Complaint against Zealous Trading Group, Inc. ("Defendant") in the Supreme Court of the State of New York, July 23, 2008, Case # 650260. Plaintiff seeks $53,171 + pre-judgment interests for trading breach, $206,972 + default interests for breach of the executed debenture. On January 30, 2009, the Court entered Judgment favor of Plaintiff. On February 3, 2009, Plaintiff filed a Restraining Notice to prevent the sale of property.
As a result of this judgment, the Company has converted the related debt into shares of the Company's common stock. The Company has recorded a Contingent liability due to forced conversion of debt of $3,000,000 as of December 31, 2009. Due to the fact that several additional parties are filing claims against the CEO of the Company personally, the Company believes it is more conservative to accrue for the potential loss although it is still uncertain at this time. Under the terms of the convertible notes, the Company had the option to force convert the cash notes to equity.
Defendant has advised Plaintiff of the Ch 11 automatic stay.
IN RE: ZEALOUS HOLDINGS, INC. Central District of California Bankruptcy Court, Case No. 09-11425-ES
Zealous Holdings, Inc. filed for Chapter 11 Bankruptcy on February 20, 2009, in the U.S. Bankruptcy Court, Central District Case # 09-11425-ES. Zealous Holdings, Inc.'s Ch 11 was converted to a Chp 7
Company is currently awaiting a no-asset letter from the U S Trustee indicating the closure of the BK proceedings with Zealous Holdings, Inc. Subsequently, the Company will be dissolved as entity of the state of Delaware.
KENT G. WYATT, SR. V. ADULT ENTERTAINMENT CAPITAL, INC., ET AL. Eighth Judicial District of Nevada Case No.: A574309
Kent G. Wyatt, Sr. ("Plaintiff") filed a Complaint against Adult Entertainment Capital, Inc. and Zealous Trading Group, Inc. ("Defendants") in the Eighth Judicial District of Nevada Case # A574309 on October 24, 2008. Plaintiff took a default against both Defendants. Plaintiff seeks compensatory, consequential, and restitution damages according to proof at trial. Defendants have reached a settlement of the entire litigation, Plaintiff has been partially compensated.
LOUIS GLAZER, ET AL. V. MILTON AULT III, ET AL. Los Angeles County Superior Court Case No.: BC 407274
On February 6, 2009, Louis Glazer and Melanie Glazer, Plaintiffs, filed a Complaint in Los Angeles County Superior Court against Milton Charles Ault, III, Kristine Larsen Ault, Adult Glazer & Co., Zealous Holdings, Inc., Zealous, Inc., Zealous Asset Management LLC, and Zealous Capital Markets LLC. Los Angeles County Superior Court Case # BC 407274. Plaintiffs' took defaults against Kristine Larsen Ault, Zealous Inc., and Ault, Glazer & Co, Inc. Trial Date of August 24, 2010 set by Ct.
Notice of Ault Bankruptcy has been provided to parties and Court. Defendants are engaged in settlement discussion with Plaintiffs, who seek $1.6M damages, and completing discovery responses.
Defaults of Kristy Ault, Zealous Inc., and Ault, Glazer& Co, Inc, will be set aside: answers will be filed after which we will assert the Arbitration Clause in the Agreement.
TRANSPACIFIC V ZEALOUS/KEPPER ORANGE CO SMALL CLAIMS LAGUNA HILLS $2,500 check returned from check cashing store.
Judgment for $1,500 was entered against Zealous in mid-October 2009, Dismissed as to Kepper
ALPHA CAPITAL ANSTALT V MILTON CHARLES AULT, III New York State Supreme Court Case No.: 602444/09
Hedge Fund suit against Milton Charles Ault, III, seeking $1M + Damages. Defendant has answered, and is selecting NY Counsel to handle litigation. No dates have been set by the Court. Notice of Ault Bankruptcy has been provided to parties and Court.
NORTHPOINTE V ZEALOUS TRADING GROUP & AULT GLAZER & CO., INC. Orange Co Superior Ct Case No.: 30-2009 00294865
Commercial litigation; Plf Northpointe was awarded judgment in the amount $120,000 on October 19, 2009.
CALIFORNIA LABOR COMMISSIONER CASES:
HEE KWON V. ADULT ENTERTAINMENT CAPITAL/ZEALOUS INC. Labor Commissioner Case No.: 18-75589 KV
Hee Kwon, Plaintiff, filed a claim for non-payment of wages against Adult Entertainment Capital, Inc. with the Labor Commissioner, State of California. Case # 18-75589 KV. Plaintiff's alleges that defendants owe him $4,000 in wages. Case Dismissed.
LEONARD KIM V. ADULT ENTERTAINMENT CAPITAL/ZEALOUS INC Labor Commissioner Case No.: 18-75590 KV
Leonard Kim, Plaintiff, filed a claim for non-payment of wages against Adult Entertainment Capital, Inc. with the Labor Commissioner, State of California. The case number is 18-75590 KV. Plaintiff's alleges that defendants owe him $4,500 in wages. Defendants terminated Plaintiff's at-will employment and allege that they do not owe him any wages because they have paid him in full through his termination date.
Case Dismissed. on October 19, 2009.
TERESA LYNNE SILVERSTEIN V. ZEALOUS HOLDINGS, INC. Labor Commissioner Case No.: 06-90670 BEN
Teresa Lynne Silverstein, Plaintiff, filed a claim for non-payment of wages against Adult Entertainment Capital, Inc. with the Labor Commissioner, State of California. The case number is 06-90670 BEN. Plaintiff's alleges that defendants owe her $25,0009 in wages. Defendants terminated Plaintiff's at-will employment and allege that they do not owe her any wages because they have paid her in full through her termination date.
Case Dismissed.
STEVE RAFALORICH V. AULT GLAZER & CO., INC. Labor Commissioner Case No.: 18-76138 KV
Steve Rafalorich, Plaintiff, filed a claim for non-payment of wages against Ault Glazer & Co., Inc. with the Labor Commissioner, State of California. The case number is 18-76138 KV. Plaintiff alleges that defendants owe him $30,709 in wages. Defendants terminated Plaintiff's at-will employment and allege that they do not owe him any wages because they have paid him in full through his termination date.
Case Dismissed on October 21, 2009
NANDITA KUMARASWAMY V. AULT GLAZER & CO., INC. Labor Commissioner Case No.: 18-76139 KV
Nandita Kumaraswamy, Plaintiff, filed a claim for non-payment of wages against Ault Glazer & Co., Inc. with the Labor Commissioner, State of California. The case number is 18-76139 KV. Plaintiff alleges that defendants owe her $9,389 in wages. Defendants terminated Plaintiff's at-will employment and allege that they do not owe her any wages because they have paid her in full through her termination date.
Case Dismissed. on October 7, 2009
ROGER COE V. ZEALOUS CAPITAL, INC. Docket Number.: 525988
ROGER COE, Plaintiff, filed a claim for non-payment of wages against ZEALOUS CAPITAL. with the Massachusetts Department of Workforce, in appeal of ruling re earlier start date Docket Number is 525988. Status Pending
JEANNIE LO BUE V. ZEALOUS, INC. Labor Commissioner Case No.: -76295 KV
Jeannie Lo Bue, Plaintiff, filed a claim for non-payment of wages against Zealous, Inc. with the Labor Commissioner, State of California. Case # - 76295 KV. Plaintiff alleges that defendants owe her $1,435 in wages. .
Case Dismissed. on October 19, 2009
GREG FIERROS V. ZEALOUS CAPITAL MARKETS Labor Commissioner Case No.: 18-75462 KV
GREG FIERROS, Plaintiff, filed a claim for non-payment of wages against CAPITAL MARKETS. with the Labor Commissioner, State of California. Case # 18-75462 KV. Plaintiff alleges that defendants owe him $2,000 in wages. .
Case Dismissed.
ITEM 4.
ITEM 4. (REMOVED AND RESERVED) PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
Our common stock is currently quoted on the Pink Sheets, which is sponsored by FINRA. The Pink Sheets is a network of security dealers who buy and sell stock. The dealers are connected by a computer network that provides information on current "bids" and "asks", as well as volume information. Our shares are quoted on the OTCBB under the symbol "ZLUS.PK."
The following table sets forth the range of high and low bid quotations for our common stock for each of the periods indicated as reported by the OTCBB. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Fiscal Year Ending December 31, 2009
Quarter Ended 	High $ 	Low $ December 31, 2009 	$0.0018		$0.0003 September 30, 2009	$0.0023 	$0.0003 June 30, 2009 	$0.0031 	$0.0003 March 31, 2009 	$0.0025 	$0.0003
Fiscal Year Ending December 31, 2008 Quarter Ended 	High $ 	Low $ December 31, 2008 	$0.0179		$0.0001 September 30, 2008	$0.1100 	$0.0025 June 30, 2008 	$0.1780 	$0.0190 March 31, 2008 	$0.2600 	$0.0800
PENNY STOCK
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.
HOLDERS OF OUR COMMON STOCK
As of August 16, 2010, we had approximately 190 holders of our common stock and a total of 960,162,856 shares issued and outstanding. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. The transfer agent of our common stock is Transfer Online, Inc. with address at 512 East Salmon Street, Portland, Oregon 97214.
DIVIDENDS
The Company has not declared, or paid, any cash dividends since inception and does not anticipate declaring or paying a cash dividend for the foreseeable future.
Nevada law prohibits our board from declaring or paying a dividend where, after giving effect to such a dividend, (i) we would not be able to pay our debts as they came due in the ordinary course of our business, or (ii) our total assets would be less than the sum of our total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of distribution, to satisfy the rights of any creditors or preferred stockholders.
RECENT SALES OF UNREGISTERED SECURITIES
On October 15, 2008, the Company was to issue 166,311,335 shares of common stock to its former secured note holders as part of a forced conversion of their outstanding debt under the terms of their agreement. Following a period of negotiation with these note holders in which no agreement was reached, the company issued the share certificates on February 26, 2009. The former secured note holders continue to dispute the proprietary of the conversion of their outstanding debt to equity and thus the matter remains open. During the year ended December 31, 2009, the Company issued 166,311,335 shares of its common stock for conversion of $3,114,490 of its convertible debt and $95,282 of accrued interest on convertible debt into equity.
During the year ended December 31, 2009, the Company also issued 12,000,000 shares of its common stock to one of its shareholders for repayment of debt in the amount of $10,000 and 42,100,000 shares towards payroll payable valued at $42,100.
At various times throughout 2010, the Company issued a total of 47,000,000 shares to Charles Kalina to pay down convertible notes owned by Mr. Kalina. The company is still in final negotiations regarding the amounts to be settled via proceeds of share sales.
On March 3, 2010, the Company issued 1,000,000 shares to John Neal to pay down a convertible note owned by Mr. Neal. The company is still in final negotiations regarding the amounts to be settled via proceeds of share sales.
On August 31, 2007, the Company issued a convertible note payable to Darren Magot for expenses paid on behalf of the Company. On March 15, 2010, a settlement was reached between Zealous, Inc. and Mr. Magot for equity in lieu of cash for the related note. The shares will be issued in 3rd quarter of 2010.
On March 18, 2010 a settlement agreement was reached between Zealous, Inc. and Kent Wyatt for all the past debt. Mr. Wyatt was issued approximately 50,000,000 shares directly out of a total amount of approximately 65,000,000. The other 15,000,000 shares were issued to Charles J Kalina (10,000,000 shares) and Helene Goldie (5,000,000 shares) as stock sales by Kent to these investors. The company is still in final negotiations regarding the amounts to be settled via proceeds of share sales.
On April 22, 2008, the Company issued a convertible note payable to James Sveinson for expenses paid on behalf of the Company. On April 13, 2010, the Company issued 20,000,000 shares to Mr. Sveinson to pay down the note. The company is still in final negotiations regarding the amounts to be settled via proceeds of share sales.
On June 1, 2006, the Company issued a convertible bridge note to Lori Livingston for expenses paid on behalf of the Company. On May 3, 2010, the Company issued 130,000,000 shares to Ms. Livingston to pay down the note. These shares were disbursed immediately per the request of Ms. Livingston to several parties. The company is still in final negotiations regarding the amounts to be settled via proceeds of share sales.
On May 14, 2010, the Company issued 7,500,000 shares to Randy Hamdan for expenses paid on behalf of the Company. At the time of issuance we valued them at .0015 for a total of $11,250.
On May 14, 2010, the Company issued 17,500,000 shares to Allan Schoenberg to pay down a convertible note owned by Mr. Schoenberg. The company is still in final negotiations regarding the amounts to be settled via proceeds of share sales.
On October 17, 2007, the Company issued a convertible note payable to Paradise Cable for expenses paid on behalf of the Company. On May 14, 2010, the Company issued 40,000,000 shares to Paradise Cable to pay down the note. The company is still in final negotiations regarding the amounts to be settled via proceeds of share sales.
In February 2009, a forced conversion occurred of a convertible promissory note held by Whalehaven, a hedge fund that had invested with the Company. Although the shares were issued in 2009, Whalehaven decided not to take their shares at this time and a liability was recorded by the Company's reflect this. On May 14, 2010, Whalehaven, took the settlement and drew down 15,287,022 shares (previously issued in 2009). As a result, the total liability for these shares has been settled.
In February 2009, a forced conversion occurred of a convertible promissory note held by Enable Growth Fund, a hedge fund that had invested with the Company. Although the shares were issued in 2009, Enable Growth Fund decided not to take their shares at this time and a liability was recorded by the Company's reflect this. On May 20, 2010, Enable Growth Fund, took the settlement and drew down 4,868,942 shares (previously issued in 2009). As a result, the total liability for these shares has been settled.
For the above transaction exempt from registration requirements under Rule 506, the individuals and entities to whom we issued securities are unaffiliated with us. For each of such sales, no advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were accredited investors, business associates of ours or our executive officers, and transfer was restricted by us in accordance with the requirements of the Securities Act. Each of such persons represented to us that they were accredited or sophisticated investors, that they were capable of analyzing the merits and risks of their investment, and that they understood the speculative nature of their investment. Furthermore, all of the above-referenced persons had access to our Securities and Exchange Commission filings.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth certain information about the common stock that may be issued upon the exercise of options under the equity compensation plans as of August 16, 2010.
Footnote
[1] The shares issued pursuant to this plan shall not exceed 20% of the outstanding shares of Class A and Class B Common Stock of the Company. There are still 33,655,584 shares registered to be distributed under this plan and given the current outstanding shares, 80,072,571 total shares which could be approved under the plan.
STOCK OPTION PLANS
On March 2, 2005, we adopted a 2005 Non-Qualified Stock & Stock Option Plan for issuance of common stock and options to employees and consultants of the company, and registered 3,100,000 shares underlying the Stock Plan on a Form S-8 Registration Statement, 3,100,000 shares were issued out of this plan for consulting, legal and service agreements during the corporate year. There are 1,240,000 shares available for issuance under this plan.
Our Board of Directors and stockholders adopted the Zealous Holdings, Inc., 2007 Stock Incentive Plan, or the 2007 Plan, on October 10, 2007. This plan allows the Company to issue shares of common stock to key employees, officers, directors and other individuals providing bona-fide services to the Company, through stock options, stock appreciation rights, stock awards, phantom stock awards, performance awards or other stock based awards. The Company registered 79,755,584 shares of commons stock for issuance pursuant to the plan on a Form S-8 registration statement on October 14, 2008. In April of 2009, the Company issued 42,100,000 shares pursuant to this plan.
Our Board of Directors and stockholders adopted the 2007 Equity Incentive Plan, or the 2007 Plan, on October 19, 2007 which reserves a total of 4,000,000 shares of Common Stock for issuance under the 2007 Plan. If an incentive award granted under the 2007 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2007 Plan.
Shares issued under the 2007 Plan through the settlement, assumption or substitution of outstanding awards or obligations to grant future awards as a condition of acquiring another entity are not expected to reduce the maximum number of shares available under the 2007 Plan. In addition, the number of shares of Common Stock subject to the 2007 Plan, any number of shares subject to any numerical limit in the 2007 Plan, and the number of shares and terms of any incentive award are expected to be adjusted in the event of any change in outstanding Common Stock by reason of any stock dividend, spin-off, split-up, stock split, reverse stock split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares or similar transaction.
Administration
It is expected that the compensation committee of the Board of Directors, or the Board of Directors in the absence of such a committee, will administer the 2007 Plan. Subject to the terms of the 2007 Plan, the compensation committee would have complete authority and discretion to determine the terms of awards under the 2007 Plan.
Grants
The 2007 Plan authorizes the grant of nonqualified stock options, incentive stock options, reload options, restricted stock awards, and stock appreciation rights, as described below:
Options granted under the 2007 Plan entitle the grantee, upon exercise, to purchase a specified number of shares from us at a specified exercise price per share. The exercise price for shares of Common Stock covered by an option cannot be less than the fair market value of the Common Stock on the date of grant unless agreed to otherwise at the time of the grant. The compensation committee may also grant options with a reload feature.
Restricted stock awards may be awarded on terms and conditions established by the compensation committee, which may include the lapse of restrictions on the achievement of one or more performance goals.
Stock appreciation rights, or SARs, entitle the participant, upon exercise of the SAR, to receive a distribution in an amount equal to the number of shares of Common Stock subject to the portion of the SAR exercised multiplied by the difference between the market price of a share of Common Stock on the date of exercise of the SAR and the market price of a share of Common Stock on the date of grant of the SAR.
No grants of nonqualified stock options, incentive stock options, reload options, restricted stock awards, and stock appreciation rights have been made under the 2007 Plan.
Duration, Amendment and Termination
The Board of Directors is expected to have the power to amend, suspend or terminate the 2007 Plan without stockholder approval or ratification at any time or from time to time. No change may be made that increases the total number of shares of Common Stock reserved for issuance pursuant to incentive awards or reduces the minimum exercise price for options or exchange of options for other incentive awards, unless such change is authorized by stockholders within one year. Unless sooner terminated, the 2007 Plan would terminate ten years after it is adopted.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
A smaller reporting company is not required to provide the information required by this Item.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward- looking statements generally are identified by the words "believes," "project," "expects," "anticipates," "estimates," "intends," "strategy," "plan," "may," "will," "would," "will be," "will continue," "will likely result," and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward- looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2009 COMPARED TO THE YEAR ENDED DECEMBER 31, 2008.
We generated $68,296 in operating revenues for the year ended December 31, 2009 compared to $721,296 in operating revenues for the year ended December 31, 2008. This is because of lesser brokerage commissions generated during the year ended December 31, 2009 compared to year ended December 31, 2008. During the year ended December 31, 2009 and December 31, 2008, we incurred operating expenses of $1,774,065 and $6,375,714, respectively, a decrease of $4,601,649 because of decreased operating activities. We incurred $1,213,236 in interest expense during the year ended December 31, 2009 compared to $4,213,568 in interest expense during the year ended December 31, 2008 because of interest expense on the decreased liabilities as of December 31, 2009. Interest expense of $1,213,236 included a non-cash component attributable to increase in principle amount of a note payable to a shareholder penalty. The net loss figures for the year ended December 31, 2009 and 2008 were $5,994,582 and $12,075,516, respectively.
LIQUIDITY AND CAPITAL RESOURCES
We had a bank overdraft of $2,984 on December 31, 2009. The available cash balance as at December 31, 2008 was $4,217. We had $0 in restricted cash as on December 31, 2009 and $268,399 in restricted cash on December 31, 2008. Payable to clearing broker and managed funds were $0 on December 31, 2009 as compared to payable from clearing broker and managed funds of $9,853 on December 31, 2008. Investments in affiliated entities on December 31, 2009 stood at $996 as compared to $6,679 on December 31, 2008. The company is party to a Clearing Agreements with Wedbush Morgan Securities, Inc. and Legent Securities on a fully disclosed basis to provide custodial and clearing services for the Company. These custodial and clearing services include custody of customer securities and funds, providing written statements, confirmation of trades, account and security transfers, monitoring of compliance with Federal Reserve regulations, clearance and settlements of transactions hypothecation and lending of securities as well as standard clearing firm and custodial services. The Clearing Agreements can be cancelled at any time for cause or upon 31 days written notice. The Company is required to maintain a minimum deposit of $100,000 with its clearing broker, which is included in deposit with clearing broker in the accompanying statement of financial condition. Deposit with clearing brokers as on December 31, 2009 was $25,714 as compared $104,730 as on December 31, 2008. Net investment in fixed assets as on December 31, 2009 was $208,159 as compared to $293,779 as on December 31, 2008. There were no additional investments in fixed assets in the year ended December 31, 2009 as compared to $26,150 in year ended December 31, 2008. Accounts payables and accrued liabilities as on December 31, 2009 were $4,114,647 as compared to $2,479,820 on December 31, 2008. Non-convertible notes payable as on December 31, 2009 were $5,901,027 as compared to $4,625,973 as on December 31, 2008. We are currently negotiating with various secured and unsecured creditors to settle any notes in default by refinancing and/or renegotiating the terms of repayment of such notes.
Non-convertible notes payable as on December 31, 2009 were $5,901,027 compared to $5,105,973 as on December 31, 2008. Lines of credit as on December 31, 2009 were $998,416 compared to $998,416 as on December 31, 2008. In 2008, we issued various convertible notes payable amounting to $5,122,500. These convertible notes mature at various times within one year from date of issuance, have an interest rate ranging from 5% to 15% and include an option to convert the notes to common stock at a conversion price of $0.02 per share. The balance on these convertible notes payable as on December 30, 2009 was $547,500. Convertible notes payable as on December 31, 2008 were $3,661,991.
During the year ended December 31, 2009, we issued 166,311,335 shares of our common stock to convert the principle balance of $3,114,490 of our convertible notes and related accrued interest of $95,282 into stock of the company. All notes are in default as on December 31, 2009. We are currently negotiating with various secured and unsecured creditors to settle the notes in default by refinancing and/or renegotiating the terms of repayment of such notes.
In connection with these convertible notes, we issued a total of 119,992,500 warrants convertible at $0.02, $0.03 and $0.05 per share with terms of three to five years. Additionally, the Company issued 5,406,249 warrants convertible at $0.03 per share within five years, exercisable one year from the issuance of the note as long as the holder did not demand payment or exercise the option under the note prior to the maturity date of the note.
We accounted for the convertible notes payable in accordance with Emerging Issues Task Force Issue 98-5, Accounting for Convertible Securities with a Beneficial Conversion Features or Contingently Adjustable Conversion Ratios ("EITF 98-5"), and recognized an imbedded beneficial conversion feature present in the convertible note. We recognized and measured an aggregate of $5,122,500 of the proceeds, which is equal to the intrinsic value of the imbedded beneficial conversion feature, to additional paid in capital with a discount against the convertible note. The debt discount attributed to the beneficial conversion feature has been amortized over the maturity period as non-cash interest expense.
In connection with securing the financing pursuant to these notes, we paid $299,250 in cash and issued 24,275,000 warrants. These amounts were recorded as deferred financing costs and have been amortized over the terms of the notes.
The following table shows the amount of convertible notes payable and secured convertible debentures as on December 31, 2009:
Convertible notes payable 	$442,500
Secured convertible debentures 105,000 Total as on December 31, 2009 	$547,500
Stock Options
The Company's Board of Directors and stockholders adopted the 2007 Equity Incentive Plan, or the 2007 Plan, on October 19, 2007 which reserves a total of 4,000,000 shares of Common Stock for issuance under the 2007 Plan. If an incentive award granted under the 2007 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2007 Plan.
During the year ended December 31, 2008, in connection with the Merger, the Company issued 1,600,000 stock options pursuant to its Stock Incentive Plan to holders of options from Zealous Holdings that were previously issued at an exercise price of $1.00 and a term of 10 years as follows:
Number of Options	Vesting Schedule 	Grant Date 467,500 	Vested 	 2/11/08 427,500 	Vested 	 2/11/08 75,000 	Vested 	 12/1/07 25,000 	Vested 	12/12/07 50,000 	Vested 	 2/11/08 40,000 	Vested 	 1/22/08 100,000 	Vested 	 12/1/07 100,000 	Vested 	12/12/07 40,000 	4 year from Grant Date	 2/11/08 50,000 	Vested 	 5/9/08 225,000 	*See Below 	 2/11/08
*50,000 vests upon registration statement becoming effective; 50,000 vests upon one full year from September 3, 2007 of Company not receiving an "E"; and 125,000 upon Company being listed on a national stock exchange.
The Company uses the Fair Value Method in accordance with ASC Topic 718, "Compensation - Stock Compensation", (formerly SFAS No. 123R, "Share Based Payment,") for accounting of stock based compensation. The fair value of these stock options was determined using the Company's historical stock prices and the Black-Scholes option-pricing model with the following assumptions:
Risk free rate 	4% Dividend yield 	0% Weighted average expected volatility 	123.41% Weighted average expected option life	10 yrs
We do not foresee any forfeiture of options.
The following table shows the total number of options outstanding as on December 31, 2009:
Shares 								---------
Total options outstanding as on December 31, 2008 1,600,000 Add: Options issued in 2009 - Total Options outstanding as on December 31, 2009 1,600,000 								========= 817,000 								---------
Total number of options exercisable as on December 31, 2009
Weighted Average exercise price of options outstanding as on December 31, 2009 is $1.00 per share.
We expect significant operating expenditures during the next 12 months for working capital requirements. We have insufficient funds to conduct our operations and to fully realize our operating goals for the next twelve months. We will therefore be required to seek additional financing. There can be no assurance that additional financing will be available in amounts or on terms acceptable to us, if at all.
By adjusting our operations to the level of capitalization, we believe we have insufficient capital resources to meet projected cash flow deficits. If during that period or thereafter, we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations liquidity and financial condition.
We presently do not have any available credit, bank financing or other external sources of liquidity. Due to our brief history and historical operating losses, our operations have not been a source of liquidity. We will need to obtain additional capital in order to expand operations and become profitable. In order to obtain capital, we may need to sell additional shares of our common stock or borrow funds from private lenders. There can be no assurance that we will be successful in obtaining additional funding.
We will still need additional investments in order to continue operations until we are able to achieve positive operating cash flow. 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 a downturn in the U.S. stock and debt markets could 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.
To date, we have generated minimal revenues and have incurred operating losses in every quarter. These factors among others may raise substantial doubt about our ability to continue as a going concern.
Critical Accounting Policies
Use of Estimates
The application of our accounting policies, which are important to our financial position and results of operations, requires significant judgments and estimates on the part of management. These estimates bear the risk of change due to the inherent uncertainty attached to the estimate and are likely to differ to some extent from actual results. Critical accounting policies requiring use of estimates are share based payments and contingent liabilities.
Revenue Recognition
The Company recognizes sales of health and wellness products as they are shipped. Shipping and delivery costs are included in cost of sales. Real estate consulting fees are recognized when earned. All commission expense, if any, associated with revenues are recorded in general and administrative expenses. Membership revenue is recognized at time of payment while ad revenue is recognized upon a signed contract and artwork is provided or approved.
Stock based Compensation
The Company follows the provisions of ASC Topic 718, "Compensation - Stock Compensation", (formerly SFAS No. 123R, "Share Based Payment,") in calculating stock based compensation. ASC Topic 718 addresses all forms of share-based payment awards including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. Under ASC Topic 718, stock-based awards result in a cost that will be measured at fair value on the award's grant date, based on the estimated number of awards that are expected to vest that will result in a charge to operations.
The cost of stock-based compensation awards issued to non-employees for services are recorded at either the fair value of the services rendered or of the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASC Topic 505, "Equity", (formerly Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments that Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.")
RECENT ACCOUNTING PRONOUNCEMENTS
The following Recent Accounting Pronouncements are disclosed as they may be applicable to the Company's operations and could have an impact on the Company's financial statements.
In June 2009, the Financial Accounting Standards Board ("FASB") established the FASB Accounting Standards Codification (the "Codification") to become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. The Codification was effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Codification superseded all then-existing non-SEC accounting and reporting standards on July 1, 2009, and all other non-grandfathered non-SEC accounting literature not included in the Codification became nonauthoritative. The adoption of the Codification did not have a material impact on our consolidated financial statements and results of operations.
In April 2009, the FASB amended its existing standards for accounting and disclosures related to certain financial instruments including: (a) providing additional rules for estimating fair value when the volume and level of activity for the asset or liability has significantly decreased; (b) identifying circumstances that indicate a transaction is not orderly; (c) amending the other-than-temporary impairment rules for debt securities to make it more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements; and (d) requiring enhanced disclosures about the fair value of financial instruments on an interim basis in addition to the annual disclosure requirements. The new standards were required to be adopted for interim periods ending after June 15, 2009. Implementation of this standard does not have a material impact on our financial statements.
In April 2009, the FASB issued accounting standards under ASC Topic "Financial Instruments" (previously FASB Staff Position ("FSP") SFAS No. 107-1 and Accounting Principles Board ("APB") Opinion No. 28-1) which extend the annual financial statement disclosure requirements for financial instruments to interim reporting periods of publicly traded companies. Implementation of this standard does not have a material impact on our financial statements.
In April 2009, the FASB issued guidance that applies to investments in debt securities for which other-than-temporary impairments may be recorded. If an entity's management asserts that it does not have the intent to sell a debt security and it is more likely than not that it will not be required to sell the security before recovery of its cost basis, then an entity may separate other-than temporary impairments into two components: (i) the amount related to credit losses (recorded in earnings) and (ii) all other amounts (recorded in other comprehensive income). Implementation of this standard does not have a material impact on our financial statements.
Effective at the start of a reporting entity's first fiscal year beginning after November 15, 2009, or January 1, 2010, for a calendar year-end entity, the Codification will require more information about transfers of financial assets, including securitization transactions, and transactions where entities have continuing exposure to the risks related to transferred financial assets. The Codification eliminates the concept of a "qualifying special-purpose entity," changes the requirements for derecognizing financial assets, and requires additional disclosures about an entity's involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity's financial statements. We do not expect the adoption of these Codification updates to have a material impact on our consolidated financial statements and results of operations.
In April 2009, the FASB amended its existing standards for accounting and disclosures related to certain financial instruments including: (a) providing additional rules for estimating fair value when the volume and level of activity for the asset or liability has significantly decreased; (b) identifying circumstances that indicate a transaction is not orderly; (c) amending the other-than-temporary impairment rules for debt securities to make it more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements; and (d) requiring enhanced disclosures about the fair value of financial instruments on an interim basis in addition to the annual disclosure requirements (Note 10). The new standards were required to be adopted for interim periods ending after June 15, 2009 and did not impact the Company's financial statements.
In May 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-19 (ASU 2010-19), Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates. The amendments in this Update are effective as of the announcement date of March 18, 2010. The Company does not expect the provisions of ASU 2010-19 to have a material effect on the financial position, results of operations or cash flows of the Company.
In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-18 (ASU 2010-18), Receivables (Topic 310): Effect of a Loan Modification When the Loan is Part of a Pool That Is Accounted for as a Single Asset-a consensus of the FASB Emerging Task Force. The amendments in this Update are effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The amendments are to be applied prospectively. Early application is permitted. The Company does not expect the provisions of ASU 2010-18 to have a material effect on the financial position, results of operations or cash flows of the Company.
In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-17 (ASU 2010-17), Revenue Recognition- Milestone Method (Topic 605): Milestone Method of Revenue Recognition. The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity's fiscal year, the entity should apply the amendments retrospectively from the beginning of the year of adoption. The Company does not expect the provisions of ASU 2010-17 to have a material effect on the financial position, results of operations or cash flows of the Company.
In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-15 (ASU 2010-15), Financial Services-Insurance (Topic 944): How Investments held through Separate Accounts Affect an Insurer's Consolidation Analysis of Those Investments-a consensus of the FASB Emerging Issues Task Force. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2010. Early adoption is permitted. The amendments in this Update should be applied retrospectively to all prior periods upon the date of adoption. The Company does not expect the provisions of ASU 2010-15 to have a material effect on the financial position, results of operations or cash flows of the Company.
OFF BALANCE SHEET ARRANGEMENTS
As of December 31, 2009, there were no off balance sheet arrangements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A smaller reporting company is not required to provide the information required by this Item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the financial statements annexed to this annual report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A(T).
ITEM 9A(T). CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness, as of December 31, 2009, of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. The purpose of this evaluation was to determine whether as of the evaluation date our disclosure controls and procedures were effective to provide reasonable assurance that the information we are required to disclose in our filings with the Securities and Exchange Commission, or SEC, under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) 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 their evaluation, our management has concluded, as discussed below, that a material weakness existed in our internal control over financial reporting as of December 31, 2009 and as a result our disclosures controls and procedures were not effective.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(e) and 15d-15(f) of the Exchange Act. We have designed our internal controls to provide reasonable, but not absolute, assurance that our financial statements are prepared in accordance with U.S. GAAP. We assess the effectiveness of our internal controls based on the criteria set forth in the Internal Control - Integrated Framework developed by the Committee of Sponsoring Organizations of the Treadway Commission. In performing the assessment, our management identified a material weakness in internal control over financial reporting as of December 31, 2009. Specifically, we had the following significant deficiencies at December 31, 2009:
- The company currently only has one employee to oversee bank reconciliations, posting payables, and so forth, so there are no checks and balances on internal controls.
- The Company lacks personnel with the experience to properly analyze and record complex transactions in accordance with GAAP.
- The Company has an insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis.
- The Company has not achieved the optimal level of segregation of duties relative to key financial reporting functions
- The Company does not have an audit committee or an independent audit committee financial expert. While not being legally obligated to have an audit committee or independent audit committee financial expert, it is the management's view that to have an audit committee, comprised of independent board members, and an independent audit committee financial expert is an important entity-level control over the Company's financial statements.
- The Company has not achieved an optimal segregation of duties for executive officers of the Company.
Due to this material weakness, management has concluded that our internal control over financial reporting was not effective as of December 31, 2009.
REMEDIATION The Company will be utilizing the assistance of an outside consultant to assist with the remediation of the material weaknesses in internal control noted above. No further remediation has occurred at this time.
AUDITOR ATTESTATION
This annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.
INHERENT LIMITATION ON THE EFFECTIVENESS OF INTERNAL CONTROLS
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following information sets forth the names of our current directors and executive officers, their ages as of December 31, 2009 and their present positions.
NAME 	AGE	POSITION HELD WITH THE COMPANY
Chris Rainbolt 	45 	Chief Executive Officer, COB Lew Graham 	65 	Secretary James Kevin Adkins	44 	Director
Set forth below is a brief description of the background and business experience of executive officers and directors.
CHRIS RAINBOLT, CEO Chris comes from a family that for three generations has played a role in the oil & gas industry primarily in Oklahoma and Texas. He founded and was CEO of Rainbolt Group Consulting which was focused on the investing in and the financing of oil & gas opportunities. Prior to this, Chris was the managing director of an investment banking firm on the West Coast, as well as a partner in a successful Fund of Funds hedge fund. A graduate of Oklahoma University in Finance.
James Kevin Adkins, Director, COO (Consultant) Kevin is jointly responsible for managing all aspects of CoreStream Energy's daily operations. His expertise consists of consulting strategically with customers and suppliers, negotiating complex contractual agreements, and helping CoreStream Energy maximize its presence and value in the financial marketplace. Prior to joining CoreStream Energy, Kevin spent twenty-two years in the commercial banking and commercial equipment finance industries working with various clients, including many oil and gas companies, to consult, structure and execute hundreds of millions of dollars in financing agreements. With sales and management experience in start-up, origination and syndication functions and a strong financial and documentation background, Kevin received his Bachelor's Degree in Finance from the University of Oklahoma in 1987 and an MBA from the University of Kansas in 1992.
Lew Graham, Secretary Mr. Graham has over 15 years' experience trading personal and proprietary portfolios. He has an extensive analytical background and received training in technical analysis, portfolio management and strategic trading from Pristine and Valez Capital Management. He has a diverse background in military and commercial aviation, engineering, computer simulation, marketing, business development, strategic planning and local and international commercial real estate development. He served in Viet Nam as a Marine jet pilot. Lew has agreed to remain as Secretary of the company during the divestment period of the next six months.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires our directors and executive officers, and persons who own beneficially more than ten percent (10%) of our Common Stock, to file reports of ownership and changes of ownership with the Securities and Exchange Commission. Copies of all filed reports are required to be furnished to us pursuant to Section 16(a). Based solely on the reports we received and on written representations from reporting persons, we believe that the directors, executive officers, and greater than ten percent (10%) beneficial owners have filed all reports required under Section 16(a) during the Company's fiscal year ended December 31, 2009.
FAMILY RELATIONSHIPS
There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
A subsidiary of the Company, Zealous Holdings, Inc., is currently in bankruptcy proceedings. Additional detail regarding this bankruptcy can be found in Item 3.
BOARD COMMITTEES
The Company currently has established compensation and audit committees, although no formal charters have been adopted.
CODE OF ETHICS
We have adopted a comprehensive written code of ethics. It is our policy that our operations are to be conducted in compliance with the law and with the highest ethical standards.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid or accrued by us to our Chief Executive Officer and President and each of our other officers whose compensation exceeded $100,000 for each of the Company's last two completed fiscal years.
NARRATIVE DISCLOSURE TO THE SUMMARY COMPENSATION TABLE
STOCK OPTION GRANTS
We have not granted any stock options to the executive officers or directors since our inception.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
There were no grants of options to purchase our common stock to the named executive officers at December 31, 2009
DIRECTOR COMPENSATION
Michael Edwards (Director) has received approximately $3,000.00 dollars compensation for their respective services rendered to the company for the year ended December 31, 2009.
EMPLOYEE BENEFIT PLANS
The Company has no employee benefit plans.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information known to us with respect to the beneficial ownership of our Common Stock as of December 31, 2009, by (1) all persons who are beneficial owners of 5% or more of our voting securities, (2) each director, (3) each executive officer, and (4) all directors and executive officers as a group. The information regarding beneficial ownership of our common stock has been presented in accordance with the rules of the Securities and Exchange Commission. Under these rules, a person may be deemed to beneficially own any shares of capital stock as to which such person, directly or indirectly, has or shares voting power or investment power, and to beneficially own any shares of our capital stock as to which such person has the right to acquire voting or investment power within 60 days through the exercise of any stock option or other right. The percentage of beneficial ownership as to any person as of a particular date is calculated by dividing (a) (i) the number of shares beneficially owned by such person plus (ii) the number of shares as to which such person has the right to acquire voting or investment power within 60 days by (b) the total number of shares outstanding as of such date, plus any shares that such person has the right to acquire from us within 60 days. Including those shares in the tables does not, however, constitute an admission that the named stockholder is a direct or indirect beneficial owner of those shares. Unless otherwise indicated, each person or entity named in the table has sole voting power and investment power (or shares that power with that person's spouse) with respect to all shares of capital stock listed as owned by that person or entity.
Except as otherwise indicated, all Shares are owned directly and the percentage shown is based on 631,032,858 Shares of Common Stock issued and outstanding as of December 31, 2009.
Footnotes
[2] Includes 180,963,706 shares of common stock issuable upon conversion of Series A Convertible Preferred Stock. Also includes 1,847,877 shares of common stock and 1,718,750 shares of common stock issuable upon exercise of warrants held by the George V. Johnson & Henrietta Johnson Survivor's Trust and George V. Johnson Trust Dated 12/10/1970. Kristy Ault, the wife of Todd Ault, is the trustee of such trusts and Mr. Ault disclaims beneficial ownership of such shares.
[3] This percentage is based upon 811,996,564 shares being issued and outstanding, which is the sum of the current issued and outstanding of 631,032,858 and the conversion of the Series A Convertible Preferred Stock into 180,963,706 shares of Common Stock.
[4] * Less than 1%.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
None of our directors or executive officers, nor any proposed nominee for election as a director, nor any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to all of our outstanding shares, nor any members of the immediate family (including spouse, parents, children, siblings, and in-laws) of any of the foregoing persons has any material interest, direct or indirect, in any transaction over the fiscal year ended December 31, 2009 or in any presently proposed transaction which, in either case, has or will materially affect us.
As of the date of this annual report, our common stock is traded on the Pink Sheets. The Pink Sheets does not impose on us standards relating to director independence or the makeup of committees with independent directors, or provide definitions of independence.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Below is the table of Audit Fees (amounts in US$) billed by our auditor in connection with the audit of the Company's annual financial statements for the years ended:
Financial Statements for the Year Ended	Audit 		Tax Fees	Other Fees December 31, 2009 35,000 	- 	- December 31, 2008 30,000 	- 	-
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
Index to Financial Statements Required by Article 8 of Regulation S- X:
AUDITED FINANCIAL STATEMENTS: Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2009 and December 31, 2008; Statements of Operations for the year ended December 31, 2009, and the periods from inception to December 31, 2008, and from inception to December 31, 2009; Statement of Stockholders' Equity for period from inception to December 31, 2009; Statements of Cash Flows for the year ended December 31, 2009, and the periods from inception to December 31, 2008, and from inception to December 31, 2009; Notes to Financial Statements
Exhibit Number Description 3.1 Articles of Incorporation, as amended
3.2 Bylaws, as amended
31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to 	 	 Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the 		 Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the 	 	 Sarbanes-Oxley Act of 2002
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CoreStream Energy, Inc. f/k/a Zealous, Inc.
By: /s/ Chris Rainbolt CEO August 16, 2010
In accordance with Section 13 or 15(d) of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
By: /s/James Kevin Adkins Director August 16, 2010
Footnotes
[2] Includes 180,963,706 shares of common stock issuable upon conversion of Series A Convertible Preferred Stock. Also includes 1,847,877 shares of common stock and 1,718,750 shares of common stock issuable upon exercise of warrants held by the George V. Johnson & Henrietta Johnson Survivor's Trust and George V. Johnson Trust Dated 12/10/1970. Kristy Ault, the wife of Todd Ault, is the trustee of such trusts and Mr. Ault disclaims beneficial ownership of such shares.
[3] This percentage is based upon 811,996,564 shares being issued and outstanding, which is the sum of the current issued and outstanding of 631,032,858 and the conversion of the Series A Convertible Preferred Stock into 180,963,706 shares of Common Stock.
[4] * Less than 1%.
CORESTREAM ENERGY, INC. AND SUBSIDIARIES (Formerly Zealous, Inc.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
	PAGE 	NUMBER Report of Independent Registered Public Accounting Firm		
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2008
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, -24 2009 AND 2008
PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Zealous, Inc. and Subsidiaries (formerly known as Adult Entertainment Capital, Inc. and Zealous Trading Group, Inc)
We have audited the accompanying consolidated statements of financial condition of Zealous, Inc. and Subsidiaries ("the Company") as of December 31, 2008 and 2007 and the related statements of operations, changes in stockholders' deficiency and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits 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 that 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 Zealous, Inc. and Subsidiaries as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.
As more fully disclosed in Note 15 to the consolidated financial statements, the Company is involved in significant related party transactions.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has not achieved profitable operations, has insufficient working capital to fund ongoing operations and expects to incur further losses. These matters raise a substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty
/s/ Berkovits & Company, LLP
Ft. Lauderdale, Florida May 18, 2009
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders Zealous, Inc and Subsidiaries Tustin, CA
We have audited the accompanying balance sheet of Zealous, Inc. and Subsidiaries as of December 31, 2009 and the statements of operations, stockholders' deficit and cash flows for the year ended December 31, 2009. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Zealous, Inc. and Subsidiaries as of December 31, 2009 and the results of its operations and cash flows for the year ended December 31, 2009 in conformity with generally accepted accounting principles in the United States.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered losses from operations and the Company has not generated sufficient revenue to cover its operation expenses, which all raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
De Joya Griffith & Company, LLC
/s/ De Joya Griffith & Company, LLC Henderson, Nevada August 15, 2010
CORESTREAM ENERGY, INC. AND SUBSIDIARIES (FORMERLY, ZEALOUS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
1. INCORPORATION, NATURE AND CONTINUANCE OF OPERATIONS
Incorporation and Nature of Operations
CoreStream Energy, Inc (formerly known as Zealous, Inc.), is a holding company previously known as Adult Entertainment Capital, Inc. and Zealous Trading Group, Inc. Zealous, Inc. ("the Company"), is engaged in gas and oil exploration and development and conducts business through its various subsidiaries and was originally incorporated under the laws of the state of Nevada on September 25, 1978. Through the years the Company has gone through various name changes as a result of its different business plans.
On June 4, 2010, Zealous, Inc. changed its core business model and its name to CoreStream Energy, Inc. In conjunction with this event, Milton C. Ault III resigned as Chairman of the Board, President and Chief Executive Officer. Chris Kelley resigned as Corporate Secretary and Chris Rainbolt was appointed President, Chief Executive Officer and Chairman of the Board. The Company filed with the Secretary of State of Nevada in order to effectuate this name change and change of officers.
On July 22, 2010 all the assets and liabilities of the previous operations of Zealous, Inc. prior to July 22, 2010, have been placed in an escrow account where all distribution and resolution is proceeding.
The Company focuses on primarily two areas, pursuing opportunities to drill in areas with proven reserves and to purchase existing production with large geological offset opportunities.
Zealous Holdings Inc., a subsidiary of the Company, is a holding company whose subsidiaries were engaged in various financial services businesses including investment banking, trading services, and asset management services. Zealous Holdings Inc. raised capital for small and microcap public companies and select private issuers and was also involved in the development of its Zealous Alternative Trading System ("ZATS"). During the fourth quarter of 2008 as the economic conditions and uncertain investment climate worsened, the Company was no longer able to obtain the necessary financing to continue to fund its financial services operations and maintain the capital requirement of Zealous Capital Markets, LLC, its broker-dealer subsidiary. These conditions caused the Company to shut down the operations of Zealous Capital Markets, LLC in January 2009. On April 2, 2009, the Board of Directors of the Company agreed to cease the business activities of, close down and dissolve its wholly owned subsidiary Zealous Real Estate Consulting, LLC., a consumer mortgage negotiations company, effective May 31, 2009. During the year ended December 31, 2009, the Company established Health and Wellness Partners, Inc. which is engaged in distribution of all natural herbal products that improve the body, mind and spirit of consumers. These health and wellness products include Liquid Ice (an energy drink) and Rock Hard Weekend (a male performance pill) and Surge, a line of sexual performance supplements for both men and
women. The Company also established Zealous Interactive, Inc. which operates a multiple media related business, including a print publication and Internet URLs.
CORESTREAM ENERGY, INC. AND SUBSIDIARIES (FORMERLY, ZEALOUS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
Going Concern
At December 31, 2009, the Company had not achieved profitable operations, had insufficient working capital to fund ongoing operations and expects to incur further losses. These circumstances raise a substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is dependent upon its ability to generate future profitable operations and to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations. Management believes that the Company may not be able to obtain additional funds from debt or equity financing due to current economic conditions.
After evaluating the current economic circumstances and investment climate, management believes that it is in the best interest of the company to exit the financial services business. Management plans to generate revenue through the exploration and development of oil and gas wells and sell the commodities. The Company has placed into escrow all of its assets and liabilities prior to July 22, 2010 for liquidation. The two operating subsidiaries will continue to sale of health and wellness products and operating a multiple media related business, including a print publication, Internet URLs and launching a commercial broadcast network
These consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations. Realization values may be substantially different from carrying values as shown. These consolidated financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
These annual consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Zealous Holdings, Inc., Zealous Capital Markets, LLC, Zealous Asset Management, LLC, Zealous Real Estate Consulting, Health and Wellness Partners and Zealous Interactive. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. A precise determination of many assets and liabilities is dependent upon future events. Actual results may vary from these estimates.
CORESTREAM ENERGY, INC. AND SUBSIDIARIES (FORMERLY, ZEALOUS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
Stock based Compensation
The Company follows the provisions of ASC Topic 718, "Compensation - Stock Compensation", (formerly SFAS No. 123R, "Share Based Payment,") in calculating stock based compensation. ASC Topic 718 addresses all forms of share-based payment awards including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. Under ASC Topic 718, stock-based awards result in a cost that will be measured at fair value on the award's grant date, based on the estimated number of awards that are expected to vest that will result in a charge to operations.
The cost of stock-based compensation awards issued to non-employees for services are recorded at either the fair value of the services rendered or of the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASC Topic 505, "Equity", (formerly Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments that Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.")
Basic and Diluted Net Loss Per Share
The Company computes net loss per share in accordance with ASC Topic 260, "Earnings Per Share", (formerly SFAS No. 128, "Earnings Per Share"). ASC Topic 260 requires presentation of both basic and diluted earnings per share ("EPS") on the face of statement of operations. Basic EPS is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the year. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options and warrants, using the treasury stock method and convertible debt using the if-converted method. Common stock equivalents were not included in the calculation of diluted loss per share as their effect would be anti- dilutive.
Revenue Recognition
The Company recognizes sales of health and wellness products as they are shipped. Shipping and delivery costs are included in cost of sales. Real estate consulting fees are recognized when earned. All commission expense, if any, associated with revenues are recorded in general and administrative expenses. The Company recognizes revenue from membership sales at the time of payment and recognizes revenue from ad sales at the time a contract is signed and the artwork is either provided or approved by the client. The Company recognizes revenue from CoreStream operations from leaseholds at the time of the lease is signed by the sublessee and from production at the time the commodity is paid for in the open market.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original maturities of three months or less.
CORESTREAM ENERGY, INC. AND SUBSIDIARIES (FORMERLY, ZEALOUS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization charges are computed using the straight line method over the useful life of the assets which range from 3 to 15 years. Leasehold improvements are amortized over the life of the related lease. Improvements to equipment that extends the useful life of the asset are capitalized and amortized over the remaining life of such asset. Maintenance and repairs that do not extend the life of the asset are charged to expense in the period incurred.
Impairment of Long-Lived Assets
In accordance with ASC Topic 360, "Property, Plant, and Equipment", (formerly SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"), the carrying value of long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.
Income taxes
The Company adopted ASC Topic 740, "Income Taxes", (formerly SFAS No. 109, "Accounting for Income Taxes"). Pursuant to ASC Topic 740, deferred income tax assets and liabilities are computed for differences between the financial statement carrying amounts and the respective tax bases. Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the periods in which those differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized. Potential benefits of net operating losses have not been recognized in the financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
On January 1, 2007, the Company adopted the new provisions of ASC Topic 740, (formerly FIN 48, "Accounting for Uncertainties in Income Taxes"). FIN 48 clarifies the requirements of SFAS No. 109, Accounting for Income Taxes, relating to the recognition of income tax benefits. FIN 48 provides a two step approach to recognizing and measuring tax benefits when the benefits' realization is uncertain. The first step is to determine whether the benefit is to be recognized, the second step is to determine the amount to be recognized.
Income tax benefits should be recognized when, based on technical merits of a tax position, the company believes that if a dispute arose with the taxing authority and were taken to a court of last resort, it is more likely than not that the tax position would be sustained as filed; and if the position is determined to be more likely than not of being sustained, the reporting company should recognize the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with the taxing authority.
The Company's adoption of FIN 48 did not have any impact on its financial statements.
CORESTREAM ENERGY, INC. AND SUBSIDIARIES (FORMERLY, ZEALOUS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board ("FASB") established the FASB Accounting Standards Codification (the "Codification") to become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. The Codification was effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Codification superseded all then-existing non-SEC accounting and reporting standards on July 1, 2009, and all other non-grandfathered non-SEC accounting literature not included in the Codification became nonauthoritative. The adoption of the Codification did not have a material impact on our consolidated financial statements and results of operations.
In April 2009, the FASB amended its existing standards for accounting and disclosures related to certain financial instruments including: (a) providing additional rules for estimating fair value when the volume and level of activity for the asset or liability has significantly decreased; (b) identifying circumstances that indicate a transaction is not orderly; (c) amending the other-than-temporary impairment rules for debt securities to make it more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements; and (d) requiring enhanced disclosures about the fair value of financial instruments on an interim basis in addition to the annual disclosure requirements. The new standards were required to be adopted for interim periods ending after June 15, 2009. Implementation of this standard does not have a material impact on our financial statements.
In April 2009, the FASB issued accounting standards under ASC Topic "Financial Instruments" (previously FASB Staff Position ("FSP") SFAS No. 107-1 and Accounting Principles Board ("APB") Opinion No. 28-1) which extend the annual financial statement disclosure requirements for financial instruments to interim reporting periods of publicly traded companies. Implementation of this standard does not have a material impact on our financial statements.
In April 2009, the FASB issued guidance that applies to investments in debt securities for which other-than-temporary impairments may be recorded. If an entity's management asserts that it does not have the intent to sell a debt security and it is more likely than not that it will not be required to sell the security before recovery of its cost basis, then an entity may separate other-than temporary impairments into two components: (i) the amount related to credit losses (recorded in earnings) and (ii) all other amounts (recorded in other comprehensive income). Implementation of this standard does not have a material impact on our financial statements.
Effective at the start of a reporting entity's first fiscal year beginning after November 15, 2009, or January 1, 2010, for a calendar year-end entity, the Codification will require more information about transfers of financial assets, including securitization transactions, and transactions where entities have continuing exposure to the risks related to transferred financial assets. The Codification eliminates the concept of a "qualifying special-purpose entity," changes the requirements for derecognizing financial assets, and requires additional disclosures about an entity's involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity's financial statements. We do not expect the adoption of these Codification updates to have a material impact on our consolidated financial statements and results of operations.
CORESTREAM ENERGY, INC. AND SUBSIDIARIES (FORMERLY, ZEALOUS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
In April 2009, the FASB amended its existing standards for accounting and disclosures related to certain financial instruments including: (a) providing additional rules for estimating fair value when the volume and level of activity for the asset or liability has significantly decreased; (b) identifying circumstances that indicate a transaction is not orderly; (c) amending the other-than-temporary impairment rules for debt securities to make it more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements; and (d) requiring enhanced disclosures about the fair value of financial instruments on an interim basis in addition to the annual disclosure requirements. The new standards were required to be adopted for interim periods ending after June 15, 2009 and did not impact the Company's financial statements.
In May 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-19 (ASU 2010-19), Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates. The amendments in this Update are effective as of the announcement date of March 18, 2010. The Company does not expect the provisions of ASU 2010-19 to have a material effect on the financial position, results of operations or cash flows of the Company.
In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-18 (ASU 2010-18), Receivables (Topic 310): Effect of a Loan Modification When the Loan is Part of a Pool That Is Accounted for as a Single Asset-a consensus of the FASB Emerging Task Force. The amendments in this Update are effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The amendments are to be applied prospectively. Early application is permitted. The Company does not expect the provisions of ASU 2010-18 to have a material effect on the financial position, results of operations or cash flows of the Company.
In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-17 (ASU 2010-17), Revenue Recognition- Milestone Method (Topic 605): Milestone Method of Revenue Recognition. The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity's fiscal year, the entity should apply the amendments retrospectively from the beginning of the year of adoption. The Company does not expect the provisions of ASU 2010-17 to have a material effect on the financial position, results of operations or cash flows of the Company.
In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-15 (ASU 2010-15), Financial Services- Insurance (Topic 944): How Investments held through Separate Accounts Affect an Insurer's Consolidation Analysis of Those Investments-a consensus of the FASB Emerging Issues Task Force. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2010. Early adoption is permitted. The amendments in this Update should be applied retrospectively to all prior periods upon the date of adoption. The Company does not expect the provisions of ASU 2010-15 to have a material effect on the financial position, results of operations or cash flows of the Company.
CORESTREAM ENERGY, INC. AND SUBSIDIARIES (FORMERLY, ZEALOUS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
Reclassifications
Certain comparative figures relating to non-convertible debt have been reclassified to conform to the current period's presentation.
3. STOCKHOLDERS' EQUITY
Equity issuances
During the year ended December 31, 2009, the Company issued 166,311,335 shares of its common stock for conversion of $3,114,490 of its convertible debt and $95,282 of accrued interest on convertible debt into equity. The Company also issued 12,000,000 shares of its common stock to one of its shareholders for repayment of debt in the amount of $10,000. During the year ended December 31, 2009, the Company issued 42,100,000 shares towards payroll payable valued at $42,100
4. DEPOSIT WITH CLEARING BROKER
The Company was a party to Clearing Agreements with Wedbush Morgan Securities, Inc. and Legent Securities on a fully disclosed basis to provide custodial and clearing services for the Company's financial services business. These custodial and clearing services include custody of customer securities and funds, providing written statements, confirmation of trades, account and security transfers, monitoring of compliance with Federal Reserve regulations, clearance and settlements of transactions hypothecation and lending of securities as well as standard clearing firm and custodial services. The Clearing Agreements were cancelled during the year ended December 31, 2009. The Company had $25,714 and $104,730 of funds with these clearing brokers as of December 31, 2009 and 2008, respectively.
5. INVESTMENT IN EQUITY SECURITIES OF AFFILIATED ENTITY
On December 31, 2007, the Company entered into three Interest Purchase Agreements ("IPA") with a publicly traded company in the Pink Sheets Market which is also headed by the Company's Chairman and Chief Executive Officer. Under the IPA, the Company agreed to sell its rights, title and interests held in certain investment funds it previously managed amounting to $566,484 for the primary consideration of 28,324,200 shares of common stock in the publicly traded company. These securities were considered as available for sale at December 31, 2007 and were carried at their historical cost.
During the year ended December 31, 2008, the Company sold 12,058,000 shares of these securities and recorded a realized loss of $47,492 on the transaction. During the year ended December 31, 2008, the Company also recorded an unrealized loss of $320,445 to reduce the carrying values of these securities to their fair values.
During the year ended December 31, 2009, the Company recorded an additional unrealized loss of $5,683 to reduce the carrying value of these securities to their fair values. The fair value of investments is $996 and $6,679 as of December 31, 2009 and 2008, respectively.
CORESTREAM ENERGY, INC. AND SUBSIDIARIES (FORMERLY, ZEALOUS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
6. LOANS AND RECEIVABLES
Loans and receivables at December 31, 2009 and 2008 are comprised of the following:
Depreciation and amortization expense recorded during the years ended December 31, 2009 and 2008 amounted to $85,621 and $102,455, respectively.
CORESTREAM ENERGY, INC. AND SUBSIDIARIES (FORMERLY, ZEALOUS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
8. NON-CONVERTIBLE DEBT
Non-convertible notes payable at December 31, 2009 and 2008 are comprised of the following:
(1) The Company has notes payable to stockholders that are unsecured, interest bearing, demand notes having interest rates ranging from 7% to 24%. All of these notes payable are in default as of December 31, 2009. These notes mature at various times between June 2006 and December 2015, however; due to bankruptcy proceeding all notes are in default.
(2) The Company had notes payable to related parties such as entities commonly controlled, current and former officers. The notes payable are interest bearing, demand notes having interest rates ranging from 5% to 12%. All notes payable to related parties are in default as of December 31, 2009. One of the notes payable to a related party grants the holder a senior security interest in all of the assets, proceeds of those assets and equity of the Company.
Borrowings at December 31, 2009, based on their contractual terms, mature as follows:
	Year				Amount 	2010				$4,902,612 	Total non-convertible debt	$4,902,612
CORESTREAM ENERGY, INC. AND SUBSIDIARIES (FORMERLY, ZEALOUS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
9. LINE OF CREDIT
Related parties consisting of individuals affiliated to a stockholder of the Company have two revolving lines of credit for $500,000 each, from Citibank and First Tennessee Bank. The line of credit from Citibank was established by these individuals and assigned to the Company on July 24, 2006, however, legal obligation to pay still remains with the related parties. The line of credit from First Tennessee Bank was established by the same individuals and later assigned to the Company on July 7, 2007. The interest rates on the Citibank and First Tennessee lines of credit are at Prime Rate and Prime Rate plus 1%, respectively. The balances on the lines of credit were $998,416 and $998,416 as of December 31, 2009 and December 31, 2008, respectively. These lines are in default as of December 31, 2009. The lines of credit represent a liability to the Company for the amounts due to the related parties. As a result, the total liability is included within Non-convertible debt on the balance sheet.
10. CONVERTIBLE DEBT
The Company has various convertible notes payable amounting to $547,500. These convertible notes were issued in 2007 by the public shell into which the Company was merged during 2008. The notes whose face value aggregated $5,122,500 at issuance were to mature at various dates through October 2008, they had interest rates ranging from 5% to 15% and included an option to convert into common stock at a conversion price of approximately $0.02 per share. During the year ended December 31, 2009, the Company issued 166,311,335 shares of its common stock for conversion of $3,114,490 of this convertible debt into equity. The remaining balance of $547,500 was therefore in default as a result of the Company's inability to pay by December 31, 2009.
In connection with the issuance of convertible notes, the Company issued a total of 119,992,500 warrants convertible at $0.02, $0.03 and $0.05 per share with terms of three to five years. Additionally, the Company issued 5,406,249 warrants convertible at $0.03 per share within five years, exercisable one year from the issuance of the note as long as the holder did not demand payment or exercise the option under the note prior to the maturity date of the note.
In connection with securing the original financing pursuant to these notes, the Company paid $299,250 in cash and issued 24,275,000 warrants. These amounts were recorded as deferred financing costs and have been completely amortized over the terms of the notes.
The following table shows the amount of convertible notes payable and secured convertible debentures as on December 31, 2009:
	Convertible notes payable 	$442,500 	Secured convertible debentures	 105,000 					-------- 	Total as on December 31, 2009 	$547,500 					--------
These convertible notes are in default as of December 31, 2009.
CORESTREAM ENERGY, INC. AND SUBSIDIARIES (FORMERLY, ZEALOUS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
11. WARRANTS
During the year ended December 31, 2008, the Company had issued 2,125,000 warrants in connection with the sale of 4,250,000 shares of its common stock. These warrants have a life of 5 years from the date of issuance.
In connection with the notes issued in 2007 as discussed in Note 10 above, the Company issued warrants to purchase 125,398,749 shares of common stock at $0.02 to $0.05 per share over five years. The Company also issued 24,275,000 warrants as financing costs related to these notes.
The following table summarizes information on stock warrants outstanding at December 31, 2009:
CORESTREAM ENERGY, INC. AND SUBSIDIARIES (FORMERLY, ZEALOUS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
12. STOCK OPTIONS
On October 19, 2007, the Board of Directors of Zealous Holdings adopted the 2007 Equity Incentive Plan (the "2007 Plan") which reserved a total of 4,000,000 shares of common stock for issuance. If an incentive award granted under the 2007 Plan expired, terminated, was unexercised or was forfeited, such award and related surrendered shares would become available for future awards under the 2007 Plan.
In 2008, in connection with the merger with the public shell, the public shell issued 1,600,000 stock options from its Stock Incentive Plan to holders of options of the Zealous Holdings, Inc. 2007 Plan at an exercise price of $1.00 and a term of 10 years.
The Company uses the Fair Value Method in accordance with ASC Topic 718 for accounting of stock based compensation. The fair value of these stock options was determined using the Company's historical stock prices and the Black-Scholes option-pricing model with the following assumptions:
		Risk free rate 4% 		Dividend yield 0% 		Weighted average expected volatility 	123.41% 		Weighted average expected option life 	10 yrs
The following table shows the total number of options outstanding as of December 31, 2009:
CORESTREAM ENERGY, INC. AND SUBSIDIARIES (FORMERLY, ZEALOUS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
13. COMMITMENTS AND CONTINGENCIES
Legal matters
The Company is subject to litigation from time to time in the normal course of business.
BODNAR CAPITAL MANAGEMENT, LLC V. AULT GLAZER CAPITAL PARTNERS, LLC, ET AL. United States District Court, Connecticut Case No: 3:08CV199 (JBA)
Filed February 6, 2008, Bodnar Capital Management, LLC ("Plaintiff") filed a Complaint against Ault Glazer Capital Partners, LLC, Zealous Asset Management, LLC, and Milton Ault, III ("Defendants") in the United States District Court, Connecticut case number 3:08CV199 (JBA). On June 27, 2008, all parties entered into a confidential settlement agreement; the Court granted motion to enforce the settlement agreement. Defendants assert the automatic stay re Zealous Holdings, entities that are in Chapter 11 bankruptcy.
Notice of Ault Bankruptcy has been provided to parties and Court. Present status pending; awaiting info from Ct or Pl Counsel, negotiations for settlement are ongoing.
BODNAR CAPITAL MANAGEMENT, LLC V. MILTON AULT, III, ET AL. United States District Court, District of Connecticut Case No.: 3:08CV1601 (AWT)
On October 20, 2008, Bodnar Capital Management, LLC ("Plaintiff") filed a Complaint against Milton Ault, III, William B. Horne, Lynne Silverstein, Melanie Glazer, Sothi Thillairajah, Scott Livingston, Zealous Holdings, Inc., Ault Glazer Bodnar Investment Management, LLC, Ault Glazer & Co., LLC, et al, for fraud, breach of fiduciary duty, and breach of contract. Plaintiff is seeking $1,523,103 in damages. Filed District Court, Connecticut, and case #3:08CV1601 (AWT). On February 23, 2009, Plaintiff filed a Motion for a Joint and Several Judgments Against Milton Ault, III. Defendants assert the automatic stay re Zealous Holdings, entities that are in Chapter 11 bankruptcy.
Notice of Ault Bankruptcy has been provided to parties and Court. Present status pending; awaiting info from NY or Conn counsel re motion to set aside / change of Venue per Agreement, parties are negotiating settlement .
MOTIVATED MINDS, LLC V. AULT GLAZER CAPITAL PARTNERS, LLC, ET AL. Superior Court of Arizona Case No.: CV2009-003478.
Motivated Minds, LLC ("Plaintiff") filed a Complaint against Ault Glazer Capital Partners, LLC and Ault Glazer Asset Management, LLC (collectively referred to as "Defendants"). On February 4, 2009, Plaintiff filed a Complaint against Defendants in the Superior Court of Arizona for Breach of Contract. The case number CV2009-003478. Plaintiff alleges damages in an amount of $500,000, pre and post- judgment interest and attorneys' fees and costs. Defendants are engaging in settlement discussions with Plaintiffs.
CORESTREAM ENERGY, INC. AND SUBSIDIARIES (FORMERLY, ZEALOUS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
INVESTOR RELATIONS GROUP, INC. V. ZEALOUS TRADING GROUP, INC. New York State Supreme Court Case No.: 602014108.
The Investor Relations Group, Inc. ("Plaintiff") filed a Complaint against Zealous Trading Group, Inc. ("Defendant") on July 2, 2008 in the Supreme Court of the State of New York, under case number 602014108. In their Complaint, Plaintiff alleges breach of contract, quantum meruit, and account stated. Plaintiff alleges that Defendants failed to pay Plaintiff for services performed in accordance with the investor relations services contract between Plaintiff and Defendants. Plaintiff is seeking compensatory damages in an amount of $41,457 and the accrued interest. On November 14, 2008, the New York Supreme Court entered default against Defendant for failure to answer.
Defendant asserts the Chapter 11 automatic stay, and is engaging in settlement discussions with Plaintiff.
Present status pending; awaiting info from NY or Conn counsel re motion to set aside / change of Venue per Agreement
MOTIVATED MINDS, LLC V. GLOBAL AUTHENTICATIONS HOLDINGS, INC., ET AL. Orange County Superior Court Case No.: 30-2008 00234518.
Motivated Minds, LLC ("Plaintiff") filed a Complaint against Global Authentication Holdings, Inc. and Ault Glazer Capital Partners, LLC (collectively referred to as "Defendants") on December 30, 2008. Plaintiff filed a Limited Civil Complaint against Defendants in the Superior Court of California, in Orange County for breach of promissory note and money lent. Case number is 30-2008 00234518. Plaintiff alleges damages in an amount of $25,000, pre and post-judgment interest and attorneys' fees and costs. Defendants asserted the automatic stay of the chapter 11 bankruptcy. Defendants are also engaging in settlement discussions with Plaintiffs.
On September 1, 2009, Plaintiff requested the OC Superior Court to enter default against Defendant.
CALIFORNIA STATE TEACHERS' RETIREMENT SYSTEM V. ZEALOUS TRADING GROUP, INC., ET AL. Los Angeles County Superior Court Case No.: SC100669
California State Teachers' Retirement System ("Plaintiff") filed a Verified Complaint against Zealous Trading Group, Inc., Initiative Legal Group, LLP, Younesi & Yoss, LLC and REM ("Defendants") for Unlawful Detainer. Plaintiff filed their Complaint on November 20, 2008 in the Superior Court of California in Los Angeles County under case number SC100669. Plaintiff seeks damages in an amount of $1,167 per day from November 18, 2008. Defendants filed an answer asserting affirmative defenses on December 8, 2009. Plaintiff issued discovery requests to Defendants on December 23, 2008. Defendants are in the process of propounding and responding to discovery. Defendants are also engaged in settlement discussions with Plaintiff.
CORESTREAM ENERGY, INC. AND SUBSIDIARIES (FORMERLY, ZEALOUS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
SECTOR 33 CREATIVE V. ADULT ENTERTAINMENT CAPITAL, INC., ET AL. Burbank Small Claims Court Case No.: BUR 08S00608
Sector 33 Creative ("Plaintiff") filed a small claims case against Adult Entertainment Capital, Inc. dba Rock Candy Entertainment under case number BUR 08S00608 in California North Central District Court on October 6, 2008. Plaintiff alleges Defendant failed to pay Plaintiff for services rendered in the development of websites, and Plaintiff is seeking $5,000 in compensatory damages.
Judgment was entered against Defendants on December 5, 2008. Defendants are currently pursuing settlement negotiations as well as a Motion to Set Aside Default.
PROFESSIONAL OFFSHORE OPPORTUNITIES FUND LIMITED V. ZEALOUS TRADING GROUP, INC. New York State Supreme Court Case No.: 650260
Professional Offshore Opportunities Fund Limited ("Plaintiff") filed a Complaint against Zealous Trading Group, Inc. ("Defendant") in the Supreme Court of the State of New York, July 23, 2008, Case # 650260. Plaintiff seeks $53,171 + pre-judgment interests for trading breach, $206,972 + default interests for breach of the executed debenture. On January 30, 2009, the Court entered Judgment favor of Plaintiff. On February 3, 2009, Plaintiff filed a Restraining Notice to prevent the sale of property.
As a result of this judgment, the Company has converted the related debt into shares of the Company's common stock. The Company has recorded a Contingent liability due to forced conversion of debt of $3,000,000 as of December 31, 2009. Due to the fact that several additional parties are filing claims against the CEO of the Company personally, the Company believes it is more conservative to accrue for the potential loss although it is still uncertain at this time. Under the terms of the convertible notes, the Company had the option to force convert the cash notes to equity.
Defendant has advised Plaintiff of the Ch 11 automatic stay.
IN RE: ZEALOUS HOLDINGS, INC. Central District of California Bankruptcy Court, Case No. 09-11425-ES
Zealous Holdings, Inc. filed for Chapter 11 Bankruptcy on February 20, 2009, in the U.S. Bankruptcy Court, Central District Case # 09-11425-ES. Zealous Holdings, Inc.'s Ch 11 was converted to a Chp 7
Company is currently awaiting a no-asset letter from the U S Trustee indicating the closure of the BK proceedings with Zealous Holdings, Inc. Subsequently, the Company will be dissolved as entity of the state of Delaware.
CORESTREAM ENERGY, INC. AND SUBSIDIARIES (FORMERLY, ZEALOUS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
KENT G. WYATT, SR. V. ADULT ENTERTAINMENT CAPITAL, INC., ET AL. Eighth Judicial District of Nevada Case No.: A574309
Kent G. Wyatt, Sr. ("Plaintiff") filed a Complaint against Adult Entertainment Capital, Inc. and Zealous Trading Group, Inc. ("Defendants") in the Eighth Judicial District of Nevada Case # A574309 on October 24, 2008. Plaintiff took a default against both Defendants. Plaintiff seeks compensatory, consequential, and restitutionary damages according to proof at trial. Defendants have reached a settlement of the entire litigation, Plaintiff has been partially compensated.
LOUIS GLAZER, ET AL. V. MILTON AULT III, ET AL. Los Angeles County Superior Court Case No.: BC 407274
On February 6, 2009, Louis Glazer and Melanie Glazer, Plaintiffs, filed a Complaint in Los Angeles County Superior Court against Milton Charles Ault, III, Kristine Larsen Ault, Adult Glazer & Co., Zealous Holdings, Inc., Zealous, Inc., Zealous Asset Management LLC, and Zealous Capital Markets LLC. Los Angeles County Superior Court Case # BC 407274. Plaintiffs' took defaults against Kristine Larsen Ault, Zealous Inc., and Ault, Glazer& Co, Inc. Trial Date of August 24, 2010 set by Ct.
Notice of Ault Bankruptcy has been provided to parties and Court. Defendants are engaged in settlement discussion with Plaintiffs, who seek $1.6M damages, and completing discovery responses.
Defaults of Kristy Ault, Zealous Inc., and Ault, Glazer& Co, Inc, will be set aside: answers will be filed after which we will assert the Arbitration Clause in the Agreement.
TRANSPACIFIC V ZEALOUS/KEPPER ORANGE CO SMALL CLAIMS LAGUNA HILLS $2,500 check returned from check cashing store.
Judgment for $1,500 was entered against Zealous in mid-October 2009, Dismissed as to Kepper
ALPHA CAPITAL ANSTALT V MILTON CHARLES AULT, III New York State Supreme Court Case No.: 602444/09
Hedge Fund suit against Milton Charles Ault, III, seeking $1M + Damages. Defendant has Answered, and is selecting NY Counsel to handle litigation. No dates have been set by the Court. Notice of Ault Bankruptcy has been provided to parties and Court.
NORTHPOINTE V ZEALOUS TRADING GROUP & AULT GLAZER Orange Co Superior Ct Case No.: 30-2009 00294865
Commercial litigation; Plf Northpointe was awarded judgment in the amount $120,000 on October 19, 2009.
CORESTREAM ENERGY, INC. AND SUBSIDIARIES (FORMERLY, ZEALOUS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
CALIFORNIA LABOR COMMISSIONER CASES:
HEE KWON V. ADULT ENTERTAINMENT CAPITAL/ZEALOUS INC. Labor Commissioner Case No.: 18-75589 KV
Hee Kwon, Plaintiff, filed a claim for non-payment of wages against Adult Entertainment Capital, Inc. with the Labor Commissioner, State of California. Case # 18-75589 KV. Plaintiff's alleges that defendants owe him $4,000 in wages. Case Dismissed.
LEONARD KIM V. ADULT ENTERTAINMENT CAPITAL/ZEALOUS INC Labor Commissioner Case No.: 18-75590 KV
Leonard Kim, Plaintiff, filed a claim for non-payment of wages against Adult Entertainment Capital, Inc. with the Labor Commissioner, State of California. The case number is 18-75590 KV. Plaintiff's alleges that defendants owe him $4,500 in wages. Defendants terminated Plaintiff's at-will employment and allege that they do not owe him any wages because they have paid him in full through his termination date.
Case Dismissed. on October 19, 2009.
TERESA LYNNE SILVERSTEIN V. ZEALOUS HOLDINGS, INC. Labor Commissioner Case No.: 06-90670 BEN
Teresa Lynne Silverstein, Plaintiff, filed a claim for non-payment of wages against Adult Entertainment Capital, Inc. with the Labor Commissioner, State of California. The case number is 06-90670 BEN. Plaintiff's alleges that defendants owe her $24,999.99 in wages. Defendants terminated Plaintiff's at-will employment and allege that they do not owe her any wages because they have paid her in full through her termination date.
Case Dismissed.
STEVE RAFALORICH V. AULT GLAZER & CO., INC. Labor Commissioner Case No.: 18-76138 KV
Steve Rafalorich, Plaintiff, filed a claim for non-payment of wages against Ault Glazer & Co., Inc. with the Labor Commissioner, State of California. The case number is 18-76138 KV. Plaintiff alleges that defendants owe him $30,708.63 in wages. Defendants terminated Plaintiff's at-will employment and allege that they do not owe him any wages because they have paid him in full through his termination date.
Case Dismissed on October 21, 2009
NANDITA KUMARASWAMY V. AULT GLAZER & CO., INC. Labor Commissioner Case No.: 18-76139 KV
Nandita Kumaraswamy, Plaintiff, filed a claim for non-payment of wages against Ault Glazer & Co., Inc. with the Labor Commissioner, State of California. The case number is 18-76139 KV. Plaintiff alleges that defendants owe her $9,388.88 in wages. Defendants terminated Plaintiff's at-will employment and allege that they do not owe her any wages because they have paid her in full through her termination date.
Case Dismissed. on October 7, 2009
CORESTREAM ENERGY, INC. AND SUBSIDIARIES (FORMERLY, ZEALOUS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
ROGER COE V. ZEALOUS CAPITAL, INC. Docket Number.: 525988
ROGER COE, Plaintiff, filed a claim for non-payment of wages against ZEALOUS CAPITAL. with the Massachusetts Department of Workforce, in appeal of ruling re earlier start date Docket Number is 525988. Status Pending
JEANNIE LO BUE V. ZEALOUS, INC. Labor Commissioner Case No.: -76295 KV
Jeannie Lo Bue, Plaintiff, filed a claim for non-payment of wages against Zealous, Inc. with the Labor Commissioner, State of California. Case # -76295 KV. Plaintiff alleges that defendants owe her $1,434 in wages.
Case Dismissed. on October 19, 2009
GREG FIERROS V. ZEALOUS CAPITAL MARKETS Labor Commissioner Case No.: 18-75462 KV
GREG FIERROS, Plaintiff, filed a claim for non-payment of wages against CAPITAL MARKETS. with the Labor Commissioner, State of California. Case # 18-75462 KV. Plaintiff alleges that defendants owe him $2,000 in wages.
Case Dismissed.
14. INCOME TAXES
The components of the Company's consolidated income tax provision are as follows:
CORESTREAM ENERGY, INC. AND SUBSIDIARIES (FORMERLY, ZEALOUS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
At December 31, 2009, the Company's net deferred tax assets consisted of the following:
Net operating loss carryforwards 	$ 3,712,075 Amortization of debt discount 676,025 Amortization of deferred financing cost 486,923 Unrealized gain/loss - invest in equity securities 64,831 Asset impairment losses 769,098 Allowance for uncollectible loans and receivables 192,835 Contingent loss 1,020,000 Subtotal 6,921,787 Less valuation allowances (6,921,787) Total 	$ -
The Company has accumulated operating losses available for carry forward of approximately $10,918,000, which expire at different times through end of year 2029. The tax benefit of approximately $3,712,000 resulting from the loss carry forward has been offset by a valuation reserve because the Company has concluded that it is more likely than not that it will not realize any of its deferred tax assets. Current Federal Tax Law limits the amount of loss available to offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.
15. SUBSEQUENT EVENTS
At various times throughout 2010, the Company issued a total of 47,000,000 shares to Charles Kalina to pay down convertible notes owned by Mr. Kalina. The company is still in final negotiations regarding the amounts to be settled via proceeds of share sales.
On March 3, 2010, the Company issued 1,000,000 shares to John Neal to pay down a convertible note owned by Mr. Neal. The company is still in final negotiations regarding the amounts to be settled via proceeds of share sales.
On March 18, 2010, a settlement agreement was reached between Zealous, Inc. and Kent Wyatt for all the past debt. Mr. Wyatt was issued approximately 50,000,000 shares directly out of a total amount of approximately 65,000,000. The other 15,000,000 shares were issued to Charles J Kalina (5,000,000 shares) and Helene Goldie (10,000,000 shares) as stock sales by Kent to these investors. The company is still in final negotiations regarding the amounts to be settled via proceeds of share sales.
On April 22, 2008, the Company issued a convertible note payable to James Sveinson for expenses paid on behalf of the Company. On April 13, 2010, the Company issued 20,000,000 shares to Mr. Sveinson to pay down the note. The company is still in final negotiations regarding the amounts to be settled via proceeds of share sales.
On May14, 2010, the Company issued 7,500,000 shares to Randy Hamdan for expenses paid on behalf of the Company. At the time of issuance we we valued them at $0.0015 for a total of $11,250.
CORESTREAM ENERGY, INC. AND SUBSIDIARIES (FORMERLY, ZEALOUS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
On May 14, 2010, the Company issued 17,500,000 shares to Allan Schoenberg to pay down a convertible note owned by Mr. Schoenberg. The company is still in final negotiations regarding the amounts to be settled via proceeds of share sales.
On June 1, 2006, the Company issued a convertible bridge note to Lori Livingston for expenses paid on behalf of the Company. On May 3, 2010, the Company issued 130,000,000 shares to Ms. Livingston to pay down the note. These shares were disbursed immediately per the request of Ms. Livingston to several parties.The company is still in final negotiations regarding the amounts to be settled via proceeds of share sales.
On October 17, 2007, the Company issued a convertible note payable to Paradise Cable for expenses paid on behalf of the Company. On May 14, 2010, the Company issued 40,000,000 shares to Paradise Cable to pay down the note.The company is still in final negotiations regarding the amounts to be settled via proceeds of share sales.
On August 31, 2007, the Company issued a convertible note payable to Darren Magot for expenses paid on behalf of the Company. On March 15, 2010, a settlement was reached between Zealous, Inc. and Mr. Magot for equity in lieu of cash for the related note. The shares will be issued in 3rd quarter of 2010. The company is still in final negotiations regarding the amounts to be settled via proceeds of share sales.
CoreStream Energy, Inc., formerly known as Zealous, Inc. is in the process of divesting its non-gas and oil assets over the next several months. A few offers are pending for Health and Wellness Partners, Inc. and management is working on determining the best path for the Company. Zealous Interactive is in negotiations to be sold to a third party while Milton C. Ault III has been retained as a consultant to help liquidate the remaining assets to the benefit of the company's creditors and investors.
The Company changed its course of business and decided to hire a new CEO and CFO during 2010 that were very familiar with the new business model and industry. The Company also changed its name to reflect the change in business.
Zealous Holdings, Inc., filed for Chapter 11 Bankruptcy on February 20, 2009, in the U.S. Bankruptcy Court, Central District Case # 09-11425- ES. Zealous Holdings, Inc.'s Ch 11 Petition was converted to a Chp 7 in April, 2009. Continued 341 hearings, have now clearly established that Zealous Holdings, Inc., is without assets. Since April 2010, the Company has been awaiting a `no-asset' report from the U S Trustee, indicating the `closure' of the BK proceedings with Zealous Holdings, Inc., lacking assets, with no discharge, and no payments to Creditors, contemplated. Subsequently, the Company will be dissolved as an entity in the state of Delaware.
In February 2009, a forced conversion occurred of a convertible promissory note held by Whalehaven, a hedge fund that had invested with the Company. Although the shares were issued in 2009, Whalehaven decided not to take their shares at this time and a liability was recorded by the Company's reflect this. On May 14, 2010, Whalehaven, took the settlement and drew down 15,287,022 shares (previously issued in 2009). As a result, the total liability for these shares has been settled. In February 2009, a forced conversion occurred of a convertible promissory note held by Enable Growth Fund, a hedge fund that had invested with the Company. Although the shares were issued in 2009, Enable Growth Fund decided not to take their shares at this time and a liability was recorded by the Company's reflect this. On May 20, 2010, Enable Growth Fund, took the settlement and drew down 4,868,942 shares (previously issued in 2009). As a result, the total liability for these shares has been settled.