Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from _________ to ________
Commission file number: 000-26383
CORESTREAM ENERGY, INC
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(Exact name of registrant as specified in its charter)
NEVADA 88-0325940
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
6565 N. MACARTHUR BLVD. , SUITE 225, IRVING, TX 75039
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(Address of principal executive offices) (Zip Code)
ZEALOUS, INC.
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(Former name, former address and former fiscal year, if changed since last report)
Registrant's telephone number: 214-624-5200
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
NONE NOT APPLICABLE
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Securities registered under Section 12(g) of the Exchange Act:
Title of each class
COMMON STOCK, PAR VALUE $0.001
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Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. YES [ ] NO [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. YES [ ] NO [X]
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES [ ] NO [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ({section} 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. YES [] NO [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
LARGE ACCELERATED FILER [ ] ACCELERATED FILER [ ] NON-ACCELERATED FILER [ ]
SMALLER REPORTING COMPANY [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES [] NO [X]
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity,
as of the last business day of the registrant's most recently completed second
fiscal $1,873,988.
The number of shares of registrant's commons stock outstanding as of August 16,
2010 was 958,532,856 shares.
TABLE OF CONTENTS
Page
PART I
Item 1. Business 1
Item 1A. Risk Factors 7
Item 1B. Unresolved Staff Comments 10
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. (Removed and Reserved) 16
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder 16
Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data 23
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 30
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 30
Item 8. Financial Statements and Supplementary Data 30
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure 30
Item 9A(T).Controls and Procedures 30
Item 9B. Other Information 32
PART III
Item 10. Directors, Executive Officers and Corporate Governance 32
Item 11. Executive Compensation 34
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 35
Item 13. Certain Relationships and Related Transactions, and
Director Independence 35
Item 14. Principal Accountant Fees and Services 35
PART IV
Item 15. Exhibits, Financial Statement Schedules 36
PART I
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.
1
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.
2
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.
3
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.
4
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.
5
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.
6
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. 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.
7
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.
8
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.
9
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. UNRESOLVED STAFF COMMENTS
A smaller reporting company is not required to provide the information required
by this Item.
10
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. 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.
11
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.
12
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.
13
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.
14
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
15
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. (REMOVED AND RESERVED)
PART II
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
16
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.
17
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.
18
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.
19
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.
PLAN CATEGORY NUMBER OF SHARES WEIGHTED-AVERAGE NUMBER OF SHARES
TO BE ISSUED EXERCISE REMAINING
UPON EXERCISE OF PRICE OF AVAILABLE FOR
OUTSTANDING OUTSTANDING FUTURE ISSUANCE
OPTIONS, OPTIONS, UNDER EQUITY
WARRANTS AND WARRANTS AND COMPENSATION
RIGHTS RIGHTS PLANS (EXCLUDING
SHARES REFLECTED
IN THE FIRST
COLUMN[1])
Equity compensation plans approved by shareholders 49,200,000 $0.00575 80,072,571
Equity compensation plans not approved by shareholders - $ - -
Total 49,200,000 $0.00575 80,072,571
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.
20
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.
21
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.
22
ITEM 6. SELECTED FINANCIAL DATA
A smaller reporting company is not required to provide the information required
by this Item.
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.
23
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.
24
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
25
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.
26
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.")
27
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.
28
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.
29
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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A smaller reporting company is not required to provide the information required
by this Item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the financial statements annexed to this annual report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL
DISCLOSURE
None.
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.
30
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.
31
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. OTHER INFORMATION
None
PART III
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
32
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.
33
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. 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 $100,000 for each of the Company's last two completed
fiscal years.
Change in
Pension Value
Qualified
Name & Year Salary Bonus Stock Option Non-Equity and Non- All Other Total
Principal ($) ($) Awards Awards Incentive Qualified Compensation ($)
Position ($) ($) Plan Deferred ($)
Compensation Compensation
($) Earnings ($)
----------- ---- ---------- --- ---- ---- ------------- ------------ ------------ --------
Milton C. 2009 $100,000 N/A N/A- N/A N/A-- N/A $N/A $100,000
Ault III
2008 $200,000 N/A N/A- N/A N/A-- N/A $N/A $200,000
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
34
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. 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.
NAME AND ADDRESS OF BENEFICIAL AMOUND AND
OWNERS OF COMMON STOCK TITLE OF CLASS NATURE OF BENEFICIAL OWNERSHIP % OF COMMON STOCK
------------------------------ -------------- ------------------------------ ------------------
Milton C. Ault, III Common Stock 184,530,333[2] 22.72%[3]
Michael Edwards Common stock 635,000 *[4]
DIRECTORS AND OFFICERS - TOTAL COMMON STOCK 185,573,706 23.03%
5% SHAREHOLDERS
Enable Growth Partners, LLC 41,386,011 6.55%
The Glazer Family Partnership, LP 126,464,150 20.04%
Lori Livingston 52,754,466 8.36%
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. 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. 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 - -
35
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
Index to Financial Statements Required by Article 8 of Regulation S-
X:
AUDITED FINANCIAL STATEMENTS:
F-1 Report of Independent Registered Public Accounting Firm
F-2 Consolidated Balance Sheets as of December 31, 2009 and December 31,
2008;
F-3 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;
F-4 Statement of Stockholders' Equity for period from inception to December
31, 2009;
F-5 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;
F-6 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
36
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%.
37
CORESTREAM ENERGY, INC. AND SUBSIDIARIES
(Formerly Zealous, Inc.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
NUMBER
Report of Independent Registered Public Accounting Firm F1
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2009 AND F2
DECEMBER 31, 2008
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED F3
DECEMBER 31, 2009 AND 2008
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT FOR THE YEARS F4
ENDED DECEMBER 31, 2009 AND 2008
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED F5
DECEMBER 31, 2009 AND 2008
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, F6-24
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
2580 ANTHEM VILLAGE DR., HENDERSON, NV 89052
TELEPHONE (702) 563-1600 FACSIMILE (702) 920-8049
CORESTREAM ENERGY, INC. AND SUBSIDIARIES
(Formerly Zealous, Inc.)
CONSOLIDATED BALANCE SHEETS
ASSETS DECEMBER 31, 2009 DECEMBER 31, 2008
CASH $ - $ 4,217
RESTRICTED CASH - 268,399
INVESTMENT IN EQUITY SECURITIES OF AFFILIATE 996 6,679
INVENTORY 55,351 -
REAL ESTATE NOTE RECEIVABLE, NET - 1
DEPOSIT WITH CLEARING BROKER 25,714 104,730
PREPAID EXPENSES - 11,602
DEPOSITS ON COMPUTER SOFTWARE AND - 25,002
----------- ------------
TOTAL CURRENT ASSETS 82,061 420,630
----------- ------------
PROPERTY AND EQUIPMENT, NET 208,159 293,779
----------- ------------
TOTAL ASSETS $ 290,220 $ 714,409
=========== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
BANK OVERDRAFT $ 2,984 $ -
PAYABLE CLEARING BROKER - 9,853
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 4,114,647 2,479,820
NON-CONVERTIBLE DEBT 5,901,027 4,625,973
CONTINGENT LIABILITY DUE TO FORCED 3,000,000 -
CONVERSION OF DEBT
CONVERTIBLE DEBT 547,500 3,661,991
STOCK PAYABLE 305,844 305,844
----------- ------------
TOTAL CURRENT LIABILITIES 13,872,002 11,083,481
LONG TERM PORTION OF NON-CONVERTIBLE DEBT - 480,000
----------- ------------
TOTAL LIABILITIES 13,872,002 11,563,481
STOCKHOLDERS' DEFICIT:
PREFERRED STOCK, PAR VALUE $0.01, 10,000,000 1,996 1,996
SHARES AUTHORIZED, 199,607 SHARES
SERIES A CONVERTIBLE PREFERRED SHARES ISSUED
AND OUTSTANDING ON DECEMBER 31, 2009
COMMON STOCK, PAR VALUE $0.001, 1,500,000,000 631,034 410,622
SHARES AUTHORIZED, 631,032,858 AND 410,621,523
SHARES ISSUED AND OUTSTANDING ON DECEMBER 31,
2009 AND DECEMBER 31, 2008, RESPECTIVELY
ADDITIONAL PAID-IN CAPITAL 9,595,950 6,554,490
ACCUMULATED DEFICIT (23,810,762) (17,816,180)
TOTAL STOCKHOLDERS' DEFICIT (13,581,782) (10,849,072)
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 290,220 $ 714,409
=========== ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
F2
CORESTREAM ENERGY, INC. AND SUBSIDIARIES
(Formerly Zealous, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED YEAR ENDED
DECEMBER 31, 2009 DECEMBER 31, 2008
REVENUES
SALES $ 68,296 $ -
COMMISSIONS - 698,269
REAL ESTATE CONSULTING INCOME - 5,554
INTEREST INCOME - 17,473
---------- ----------
TOTAL REVENUE 68,296 721,296
COST OF GOODS SOLD 107,368 -
---------- ----------
GROSS (LOSS) PROFIT (39,072) 721,296
OPERATING EXPENSES
GENERAL AND ADMINISTRATIVE 515,657 2,027,255
SALARIES AND BENEFITS 541,679 2,606,650
PROFESSIONAL FEES 230,647 512,736
CONSULTING EXPENSE - 71,500
RENT 394,778 482,091
DEPRECIATION AND AMORTIZATION 85,621 102,455
REALIZED LOSSES, NET - 252,582
UNREALIZED LOSSES (GAINS), NET 5,683 320,445
---------- ----------
TOTAL OPERATING EXPENSES 1,774,065 6,375,714
LOSS BEFORE OTHER EXPENSES (1,813,137) (5,654,418)
OTHER (EXPENSES) INCOME:
INTEREST EXPENSE (1,213,236) (4,213,568)
IMPAIRMENT LOSSES - 2,262,054)
GAIN ON SALE OF SECURITIES PREVIOUSLY 28,739 -
IMPAIRED
INTEREST INCOME 2,000 -
CONTINGENT LOSS (3,000,000) -
OTHER INCOME, NET 1,052 54,524
---------- ----------
TOTAL OTHER EXPENSES (4,181,445) (6,421,098)
---------- ----------
NET LOSS $(5,994,582) $(12,075,516)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 536,203,231 397,764,118
OUTSTANDING-BASIC
NET LOSS PER SHARE - BASIC $ (0.01) $ (0.03)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
F3
CORESTREAM ENERGY, INC. AND SUBSIDIARIES
(Formerly Zealous, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT ADDITIONAL ACCUMULATED TOTAL
PAID IN (DEFICIT)
CAPITAL
========= ========= ============ ========= =========== ============ =============
BALANCE, DECEMBER - $- 459,981,786 $459,982 $1,174,523 (5,740,664) (4,106,159)
31, 2007
SHARES ISSUED - - - 11,796,917 11,797 931,956 - 43,753
SOFTWARE
PURCHASE
AGREEMENT
TOLTD
SALE OF STOCK FOR - - 4,250,000 4,250 165,750 - 170,000
CASH
SHARES ISSUED FOR - - 73,032,017 73,032 1,379,477 - 1,452,509
REPAYMENT
OF DEBT
SHARES ISSUED FOR - - 9,939,477 9,940 139,870 - 149,810
PAYMENT OF
ACCRUED INTEREST
SHARES ISSUED FOR - - 15,130,094 15,130 245,898 - 261,028
SERVICES
RECAPITALIZATION 199,607 1,996 (163,508,768) (163,509) 2,517,016 - 2,355,503
PURSUANT TO
REVERSE MERGER
NET LOSS FOR 2008 - - - - - (12,075,516) (12,075,516)
========= ========= ============ ========= =========== ============ =============
BALANCE, DECEMBER 199,607 $1,996 410,621,523 $410,622 $6,554,490 $ (17,816,180) $(10,849,072)
31, 2008
SHARES ISSUED FOR - - 167,724,550 167,724 2,956,766 - 3,124,490
REPAYMENT
OF DEBT
SHARES ISSUED FOR - - 10,586,783 10,588 84,694 - 95,282
PAYMENT OF
ACCRUED INTEREST
SHARES ISSUED IN - - 42,100,000 42,100 - - 42,100
LIEU OF
PAYROLL
NET LOSS - - - - - (5,994,582) (5,994,582)
========= ========= ============ ========= =========== ============ =============
BALANCE DEC. 31, 99,607 $1,996 631,032,856 $631,034 $9,595,950 $(23,810,762) $(13,581,782)
2009
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
F4
CORESTREAM ENERGY, INC. AND SUBSIDIARIES
(Formerly Zealous, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED YEAR ENDED
DECEMBER 31, 2009 DECEMBER 31, 2008
CASH FLOWS FROM OPERATING ACTIVITIES
NET LOSS $(5,994,582) $(12,075,516)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
DEPRECIATION EXPENSE 85,621 102,455
CONTINGENT LOSS 3,000,000 -
BAD DEBTS WRITTEN OFF - 941,593
AMORTIZATION OF DEBT DISCOUNT - 1,988,309
AMORTIZATION OF DEFERRED FINANCING COST - 1,432,125
IMPAIRMENT LOSSES - 2,262,054
UNREALIZED (GAINS)/LOSSES 5,683 320,445
PENALTIES ACCRUED TO NOTE PAYABLE 607,447 -
STOCK BASED COMPENSATION EXPENSE - 261,028
CHANGES IN OPERATING ASSETS AND LIABILITIES:
BANK OVERDRAFT 2,984 -
DEPOSIT WITH CLEARING BROKER 79,017 435,255
LOANS AND RECEIVABLES - 616,106
RESTRICTED CASH 268,399 -
INCREASE IN INVENTORY (55,351) -
PREPAID EXPENSES 11,602 62,500
DEPOSITS 25,002 (510,294)
ACCOUNTS PAYABLES AND ACCRUED LIABILITIES 1,762,355 2,307,335
----------- --------------
NET CASH USED IN OPERATING ACTIVITIES (201,823) (1,856,605)
CASH FLOWS FROM INVESTING ACTIVITIES
ACQUISITION OF NET LIABILITIES IN MERGER - (793,086)
PURCHASE OF PROPERTY AND EQUIPMENT - (26,150)
PAYMENTS TOWARDS ACQUISITION OF - (50,000)
SOFTWARE -TOLTD
SALE OF FINANCIAL INSTRUMENTS, NET - 748,412
----------- --------------
NET CASH (USED IN) PROVIDED BY - (120,824)
INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
PROCEEDS FROM NOTES PAYABLE 226,346 1,820,120
REPAYMENT OF NOTES PAYABLE (28,740) (25,000)
PROCEEDS FROM SALE OF STOCK - 170,000
----------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 197,606 1,965,120
----------- --------------
NET CHANGE IN CASH (4,217) (12,309)
CASH, BEGINNING OF YEAR 4,217 16,526
CASH, END OF YEAR $ 0 $ 4,217
SUPPLEMENTAL DISCLOSURE OF NON-CASH AND CASH FLOW INFORMATION:
STOCK ISSUED FOR CONVERSION OF DEBT $ 3,124,491 $ 1,452,509
STOCK ISSUED FOR PAYMENT OF ACCRUED INTEREST $ 95,281 $ 149,810
STOCK ISSUED FOR PAYMENT OF ACCRUED PAYROLL $ 42,100 $ -
STOCK ISSUED FOR ASSET ACQUISITION $ - $ 1,158,073
CASH INTEREST PAID $ - $ 121,605
The accompanying notes are an integral part of these consolidated financial statements.
F5
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.
F6
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.
F7
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.
F8
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.
F9
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.
F10
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.
F11
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.
F12
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:
2009 2008
--------- ----------
Short-Term Receivables:
Loans Receivable - Officer $ - $ 474,109
Loans Receivable - Affiliated entity - 457,767
Loans Receivable - Employees - 70,200
Accrued Interest Receivable - 41,695
Receivable - Other related parties - 67,699
--------- ----------
Total Short-Term Receivables - 1,111,470
--------- ----------
Long-Term Receivables:
Loan Receivable - Employee - 125,000
--------- ----------
Total Long-Term Receivables - 125,000
--------- ----------
Less: Amounts classified to compensation - (669,309)
Less: Allowance for doubtful accounts - (567,161)
--------- ----------
Total loans and receivables $ - $ -
--------- ----------
7. PROPERTY AND EQUIPMENT, NET
As of December 31, 2009 and 2008 property and equipment consist of the
following:
Estimated
2009 2008 Useful Life
--------- --------- ------------
Furniture and Equipment $ 537,666 $ 537,666 3-15
Leasehold Improvements - 140,374 5
Less: Accumulated Depreciation (329,507) (303,975)
Less: Impairment Reserve - (80,286)
---------- ----------
$ 208,159 $ 293,779
Depreciation and amortization expense recorded during the years ended
December 31, 2009 and 2008 amounted to $85,621 and $102,455,
respectively.
F13
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:
2009 2008
---------- ----------
Short-Term Borrowings:
Notes Payable - Stockholders (1) $3,503,139 $2,056,039
Financial institutions (see Note 9) 998,416 998,416
Notes Payable - Related Parties (2) 1,399,472 1,571,518
---------- ----------
Total Short-Term Borrowings 5,901,027 4,625,973
---------- ----------
Long-Term Borrowings:
Note Payable - Stockholders (1) - 480,000
---------- ----------
Total Long-Term Borrowings - 480,000
---------- ----------
Total Notes Payable $5,901,027 $5,105,973
---------- ----------
(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
F14
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.
F15
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:
Number
Number Outstanding Expiration Exercise Exercisable at
Description at Dec. 31, 2009 Dates Price Dec. 31, 2009
-------------------------- ---------------------- ----------------- -------- ----------------
Issued on 15% convertible 8,109,375 September through $0.02 8,109,375
notes October 2012
Additional warrants on 15% 5,406,249 September through 0.03 5,406,249
convertible notes - October 2012
exercisable
after 1 year
Issued on 5% secured 106,875,000 October 2012 0.03 106,875,000
convertible debentures
Issued on 12% convertible 5,000,000 October 2012 0.03 5,000,000
promissory note
Issued upon sale of 2,125,000 March 2013 0.05 2,125,000
4,250,000
shares of common stock
Issued on non convertible 13,325 September through 0.03 to 13,325
debt November 2010 0.05
Issued to consultants 24,275,000 October 2012 through $0.03 24,275,000
January 2013
151,803,949 151,803,949
F16
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:
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
=========
Total number of options exercisable as on December 31, 2009 817,500
---------
Weighted Average exercise price of options outstanding as on December
31, 2009 is $1.00 per share.
F17
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.
F18
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.
F19
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.
F20
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.
F21
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
F22
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:
Years ended December 31,
-------------------------------------
2009 2008
-------------------------------------
Current benefit $ 1,001,912 $ 1,758,686
Deferred benefit (expense) 1,021,932 2,207,305
Subtotal 2,023,844 3,965,991
Less valuation allowances (2,203,844) (3,965,991)
Net income tax provision $ - $ -
The reconciliation of the income tax provision at the statutory rate to
the reported income tax expense is as follows:
Years ended December 31,
-------------------------------------
2009 2008
-------------------------------------
Computed at US statutory rate 34.00% 34.00%
Stock based compensation expense 0.2% 0.70%
Stock based interest expense 0.0% 0.40%
Valuation allowance -34.2% -40.93%
Total - -
F22
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.
F23
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.
F2