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
      1934For
      the fiscal year ended  December 31,
  2008[  ]
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACTFor
      the transition period from _________ to ________Commission
      file number:000-26383





Zealous,
      Inc.(Exact
      name of registrant as specified in its
charter)




Nevada
            88-0325940(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification No.)15641 Red Hill Avenue, Suite
      200,
              Tustin,
      California
            92780(Address
      of principal executive offices)
            (Zip
      Code)




Registrant’s
      telephone number:  949-885-7399Securities
      registered under Section 12(b) of the Exchange Act:Title
      of each class
            Name
      of each exchange on which registeredNone
            not
      applicableSecurities
      registered under Section 12(g) of the Exchange Act:Title
      of each class
            Name
      of each exchange on which registeredCommon Stock, par
      value $0.001
            not
      applicable





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
[X]       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
[X]       No
[   ]





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 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 April 30, 2009
was 624,662,856 shares.




1
 Table of Contents




TABLE OF
CONTENTS





PagePART
      IItem 1.
            Business
            3Item 1A.
            Risk Factors
            9Item 1B.
            Unresolved Staff Comments
            14Item 2.
            Properties
            14Item 3.
            Legal Proceedings
            14Item 4.
            Submission of Matters to a Vote of Security
      Holders
            18PART
      IIItem 5.
            Market for Registrant’s Common Equity and Related Stockholder
      Matters and Issuer Purchases of Equity Securities
            18Item 6.
            Selected Financial Data
            22Item 7.
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
            23Item 7A.
            Quantitative and Qualitative Disclosures About Market
      Risk
            30Item 8.
            Financial Statements and Supplementary Data
            30Item 9.
            Changes In and Disagreements With Accountants on Accounting and
      Financial Disclosure
            31Item 9A(T).
            Controls and Procedures
            31Item 9B.
            Other Information
            32PART
      IIIItem 10.
            Directors, Executive Officers and Corporate
      Governance
            32Item 11.
            Executive Compensation
            34Item 12.
            Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters
            35Item 13.
            Certain Relationships and Related Transactions, and Director
      Independence
            36Item 14.
            Principal Accountant Fees and Services
            36PART IVItem 15.
            Exhibits, Financial Statement Schedules
            37






2
 Table of Contents








PART I


Item 1.   Business





Overview





Zealous,
Inc. (“the Company”) 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”).





Zealous,
Inc., is a holding company and 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 a non prescription supplement designed to
improve sexual performance.  Interactive was formed in February of
2009 and operates multiple media related business, including a print
publication,




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Internet
URLs and is launching a commercial broadcast network. 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, but has filed a petition to withdraw from
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.





Overview





Health
and Wellness Partners, Inc.





Health
markets, sells and distributes energy drinks under the following brand name:
Liquid Ice Energy Drink®.  We have the exclusive distribution rights for
Liquid Ice Energy Drink for California.  We also market, sell and
distribute Rock Hard Weekend TM. We possess the exclusive distribution rights for
products produced by Rock Hard Laboratories, including Rock Hard Weekend, in
California.





Zealous
Interactive, Inc.


Interactive
operates multiple media related business, including 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.





Zealous
Holdings





Holdings
is a Los Angeles, California-based financial services holding company that
provides, through its wholly-owned operating subsidiaries, a broad range of
securities, brokerage and trading, merchant and investment banking related
services primarily to institutional clients and accredited individual investors,
as well as an alternative trading system for illiquid and restricted
securities.




On
February 20, 2009, ASNI II (Zealous Holdings) filed a voluntary petition for
relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the Central District of
California Santa Ana Division (the "Bankruptcy Court"), Case No. 09-11425 ES. On
May 12, 2009 Zealous Holdings, filed a motion to dismiss/withdraw the bankruptcy
action.




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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
currently registered as an investment adviser under the laws of the State of
California, and may register as an investment adviser with the SEC in the future
pursuant to Section 203 of the Investment Advisers Act of 1940, as
amended.




Zealous
Capital Markets, LLC




Zealous
Capital Markets, LLC, was a broker-dealer registered with the Financial Industry
Regulatory Authority, Inc., or FINRA and Securities Investor Protection
Corporation, or SIPC.




The
recent economic turmoil, uncertain investment climate and the corresponding loss
of revenue for Zealous Capital Markets, LLC, a broker dealer subsidiary of the
Zealous Holdings, made it impossible for the Company to continue financing its
broker dealer business. Loss of revenue, lack of sufficient working capital and
inability to raise capital caused the company to shut down the operations of
Zealous Capital Markets, LLC and file a Form BDW request to withdraw from the
broker-dealer business in January 2009.




Zealous
ATS, LLC





ZCM
wholly-owns and operates Zealous ATS, LLC, (alternative trading system), or
ZATS, which had planned to be a global electronic marketplace used to support
and execute trades for buyers and sellers of restricted and illiquid
securities.




The
Company also made an unsuccessful attempt to sell ZATS platform to an unrelated
entity during the quarter ended December 31, 2008.  This sale fell
through.  The Company has further determined that there is no market
for the ZATS platform and has written off the asset of approximately $500,000 on
its books under guidance from FAS 157 as on December 31,2008.





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 Table of Contents




Our Products.





Health
and Wellness Partners, Inc.





Liquid
Ice Energy Drink is a part of the “alternative” beverage
category.  The “alternative” beverage category combines non-carbonated
ready-to-drink iced teas, lemonades, juice cocktails, single serve juices and
fruit beverages, ready-to-drink dairy and coffee drinks, energy drinks, sports
drinks, and single-serve still water (flavored, unflavored and enhanced) with
“new age” beverages, including sodas that are considered natural, sparkling
juices and flavored sparkling beverages. Liquid Ice Energy Drink is fortified
with Vitamins B3, B5, B6 and B12 and contains Ubiqunone (CoQ-10).





RockHard
Weekend is considered a “nutri-pharmaceutical’’.  Pharmaceuticals are
typically drugs and medicines manufactured for the relief or cure of
disease.  Nutritional pharmaceutical or nutri-pharmaceuticals 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.  Rock hard weekend is a non prescription supplement composed
of 13 herbal ingredients.  It is designed to improve sexual
performance.





We
continue to evaluate and, where considered appropriate, introduce additional
flavors and types of beverages to complement our existing product lines. 
We will also evaluate, and may, where considered appropriate, introduce new
products that utilize similar channels of distribution and/or are complementary
to our existing products and/or to which our brand names are able to add
value.





Zealous
Interactive, Inc.





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.  The television show will also cover both the adult nightclub
industry and events exclusively geared for adults.  The television
show will be 30 minutes in length and is on air throughout Southern California
on KJLA-TV, the Los Angeles affiliate of LATV, every Wednesday night at 11:30
PM.





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 Table of Contents




Sales
and Marketing





Health
and Wellness Partners, Inc.




Our sales
and marketing strategy for all our products is to focus our efforts on
developing brand awareness and trial through sampling both in stores and at
events. We use our branded vehicles and other promotional vehicles at events
where we sample our products to consumers.  We utilize “push-pull” methods
to achieve maximum shelf and display space exposure in sales outlets and maximum
demand from consumers for our products, including advertising, in-store
promotions and in-store placement of point-of-sale materials and racks, prize
promotions, price promotions, competitions, endorsements from selected public
and extreme sports figures, coupons, sampling and sponsorship of selected causes
such as ED research.  In-store posters, outdoor posters, print, radio and
television advertising, together with price promotions and coupons, may also be
used to promote our brands.




We
believe that one of the keys to success is differentiation, which entails making
our products visually distinctive from other products on the shelves of
retailers.  We review our products packaging on an ongoing basis and, where
practical, endeavor to make them better by working with the manufacturer. 
The labels and graphics for many of our products are redesigned from time to
time to maximize their visibility and identification, wherever they may be
placed in stores and we will continue to reevaluate the same from time to
time.  Where appropriate we partner with retailers to assist our
marketing efforts.





Zealous
Interactive, Inc.


Stiletto
Magazine is an established magazine brand throughout California and Las
Vegas.  Our marketing strategy is to build off the current,
established distribution network to increase circulation and take advantage of
advertising sales opportunities from past advertisers.  Additionally,
we possess a lengthy list of businesses that have inquired about advertising in
the past, but ultimately chose not to do so.  We plan to contact these
parties in hopes that they will now have decided to advertise with
us.





Stiletto
TV is utilizing the same client list from Stiletto Magazine to sell advertising
on its broadcast show.   Ad sales and other revenue streams will
be built from those businesses that can best utilize the demographics provided
by the channels that carry the show.  Stiletto TV is also a marketing
tool for Stiletto Magazine to increase its ad sales and to increase its
readership.





Competition




Health
and Wellness Partners, Inc.





The
“alternative” beverage and “nutri-pharmaceutical” industries are highly
competitive.  The principal areas of competition for the “alternative
beverages” are pricing, packaging, development of new products and flavors and
marketing campaigns.  Our products compete with a wide range of drinks and
nutri-pharmaceuticals produced by a relatively large number of manufacturers,
most of which have substantially greater financial, marketing and distribution
resources than we do.





We
compete not only for consumer preference, but also for maximum marketing efforts
by multi-brand licensed bottlers, brokers and distributors, many of which have a
principal affiliation with competing companies and brands.  Our energy
drinks compete with all liquid refreshments and




7
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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.




Rock Hard
Weekend competes directly with traditional pharmaceutical products including
those marketed by Phizer (Viagra), Lilly USA (Cialis). and Bayer Pharmaceuticals
(Levitra), as well as other nutri-pharmaceutical 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.





Zealous
Interactive, Inc.





There is
significant competition within the print publication, Internet and commercial
broadcast industries.  The economic downturn has resulted in a 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, Rude TV, G4, and Marva from Canada.





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 nutri
pharmaceutical 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 nutria-pharmaceuticals in the United
States is not subject to special regulatory and/or supervisory
requirements.





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.





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The print
publication businesses face on-going scrutiny at state and local levels.
Currently our print publication is involved with litigation against two
municipalities that have unfairly restricted distribution of the magazine within
their respective city limits.  A third instance has recently appeared
and litigation may be necessary to resolve the first amendment rights of our
publication.  Increased local taxes and fees applicable in the
distribution of publications via newsracks and newsstands may be incurred in the
future impacting the profitability and operations of the
business.  Zoning restrictions as to the distribution of publications
is pending and may negatively impact the business and the ability to maintain
and attract new advertisers.




The
Internet based businesses may be virtually unregulated now but there is
continued legislation each year to regulate content and tax business done via
the Internet.  This potential for regulation may negatively impact our
businesses and hamper our profitability and operations.  Our gathering
of subscriber information is regulated by privacy laws and requires due
diligence to always maintain our systems and records with the utmost
care.  Changes in privacy laws and increases in fines for violations
thereof may severely hamper our profitability and
operations.  Management must stay abreast of these changes to properly
manage these dynamic aspects of the business.





Our
broadcast businesses are under FCC regulation and must adhere to their
guidelines for content while also adhering to state and local laws that may
impact transmission of our programs into their communities.  There is
a constant series of legislative and bureaucratic efforts to further regulate
and tax television and cable productions and to unionize these businesses as
they grow in size.  Furthermore, there are industry efforts to hinder
entry into the broadcast business by some corporate members of the
industry.  Their lobbying efforts to stifle potential competition
through regulatory requirements and legislative action must be monitored
constantly.





Employees





We had 12
full time employees as of April 30, 2009. 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 Zealous, 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 document, including our consolidated financial
statements and the related notes in determining the viability of the
business.





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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 $10,849,072 as of
December 31, 2008.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 Health and
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 May 18, 2008 our independent registered public accounting firm
stated that our financial statements for the year ended December 31, 2008 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’
deficiency of $10,849,072 as on December 31, 2008 and a net loss of $12,075,515
for the year ended December 31, 2008. We continue to experience net operating
losses. Our ability to continue as a going concern is subject to our ability to
generate a profit and/or obtain necessary funding from outside sources,
including obtaining additional funding from the sale of our securities,
generating sales or obtaining loans and grants from various financial
institutions where possible. Our continued net operating losses increase the
difficulty in meeting such goals and there can be no assurances that such
methods will prove successful.




Health
and Interactive have only recently begun implementing their business plan and
have no operating history in this area.





There is
a substantial enhanced risk of failure associated with any new business as a
result of problems encountered in connection with their commencement of new
operations. These include, but are not limited to, the entry of new competition,
unknown or unexpected additional costs, and expenses that may exceed
estimates.  Additionally, we are competing in an industry in which
there are numerous more well funded and well established
competitors.  If we have misjudged the potential market for our
products, our ability to develop competitive products, or our ability to sell
those products, our business will fail.





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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 Liquid Ice Energy Drink or the Rock Hard
Weekend pill as a result of a negative health effect associated with either
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.




Because
Health has only two products and one supplier for each product, then if Health
were to lose either supplier its business would be materially, negatively
impacted.





RockHard
Laboratories is the sole supplier of the RockHard Weekend pill, and Liquid
Management Partners is the sole supplier of Liquid Ice Energy
Drink.  If either supplier were to terminate their contract with
Health or be unable to deliver the product, then Health has no suppliers to
provide the product, or a like or similar product.  Therefore, if
either supplier stopped supplying us with the product, then we would lose
revenue, and our business may fail.




Because Health is limited to selling
the products in California, Health could be susceptible to an economic downturn
in the state.





Downward
changes in the California economy could have significant, adverse effects on the
business of Health.  Our competitors may be able to better weather
such a downturn if they have a national presence and the economic downturn is
limited to California.





Risks Related to
Management.





If
We Are Unable to Retain the Services of Our Present Management or If We Are
Unable to Successfully Recruit Qualified Managerial and Field Personnel Having
Experience in our industries, We May Not Be Able to Continue Our
Operations.




Our
success depends to a significant extent upon the continued services of our
current management. Loss of their services could have a material adverse effect
on our growth, revenues, and prospective business. In addition, in order to
successfully implement and manage our business plan, we will be dependent upon,
among other things, successfully recruiting qualified managerial and field
personnel having experience in our industries. Competition for qualified
individuals is intense. There can be no assurance that we will be able to find,
attract and retain existing employees or that we will be able to find, attract
and retain qualified personnel on acceptable terms.





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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
Securities Are Quoted on the OTC Bulletin Board, which will Limit the Liquidity
and Price of our Securities More than if our Securities were Quoted or Listed on
a National Stock Exchange.





Our
common stock is currently quoted on the OTC Bulletin Board (“OTCBB”), which is
sponsored by FINRA. The OTCBB 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




12
 Table of Contents




"asks",
as well as volume information. Our shares are quoted on the OTCBB under the
symbol “ZLUS.OB.” We anticipate that the market price of our Common Stock will
be subject to


wide
fluctuations in response to several factors, including: our ability to develop
projects successfully; increased competition from competitors; and our financial
condition and results of our operations. We cannot assure you that our
securities will continue to be quoted on the OTCBB. Quotation of our securities
on the OTCBB may limit the liquidity and price of our securities more than if
our securities were quoted or listed on a national stock exchange. Lack of
liquidity may limit the price at which you may be able to sell our securities or
your ability to sell our securities at all.




While
our Shares are Quoted on the OTC Bulletin Board, We are Required to Remain
Current in our Filings with the SEC and our Securities will not be Eligible for
Quotation if we are not Current in our Filings with the SEC.





While the
common stock is quoted on the OTCBB, we will be required order to remain current
in our filings with the SEC in order for shares of the common stock to be
eligible for quotation on the OTCBB. In the event that we become delinquent in
our required filings with the SEC, quotation of the common stock will be
terminated following a 30 day grace period if we do not make our required filing
during that time. If the common stock is not eligible for quotation on the
OTCBB, investors in the common stock may find it difficult to sell their
shares.





If
Significant Short Selling Occurs in Connection with the Market for Our
Securities on the OTCBB, 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 OCTBB or any other available markets or
exchanges. Such short selling if it were to occur could impact the value of our
stock in an extreme and volatile manner to the detriment of our
shareholders.





Because
we are Subject to the “Penny Stock” Rules while our Shares are Quoted on the OTC
Bulletin Board, 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




13
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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 or station acquisition strategy. 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.





Item 2.   Properties





Our
principal office is located at 15641 Red Hill avenue, Tustin, CA
92780.  On April 18, 2008 we signed a lease for approximately 10,767
square feet of space with 9,293 square feet usable space. The term of the lease
is from June 1, 2008 through May 31, 2011.  We sublease a portion of
this facility on a monthy basis to an unrelated entity for
$2,500.  The rental obligation on the lease is as
follows:





Months
      of Lease Term
            Aggregate
      Monthly Installment of Base RentJanuary
      2009-December 2009
            $251,940January
      2010-December 2010
            $251,940January
      2011- May 2011
            $104,975




Item
3.   Legal Proceedings. Detailed below are
our ongoing legal proceedings.





I.
            Bodnar
      Capital Management, LLC v. Ault Glazer Capital Partners, LLC, et
      al.


United
States District Court, District of Connecticut Case No: 3:08CV199
(JBA)





14
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On
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, District of
Connecticut under the case number 3:08CV199 (JBA).  On June 27, 2008,
all parties entered into a confidential settlement agreement.  On
August 7, 2008, the Court granted Plaintiff’s motion to enforce the settlement
agreement and entered judgment in Plaintiff's favor in the amount of $350,000,
plus interest to run from June 27, 2008, against Ault Glazer Capital Partners
LLC, Zealous Asset Management, LLC and Milton "Todd" Ault, III, jointly and
severally.  On September 23, 2008 the Court granted the motion for
amendment of judgment include reasonable attorney fees of
$6,160.00.  Defendants are pursuing settlement discussions with
Plaintiff. Plaintiffs are seeking to enforce the Judgment in
California.  On April 28, 2009, Defendant Milton Ault, III was deposed
in a debtor’s examination at the United States District Court, Central District
in California.





II.           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, and Adult Entertainment
Capital, Inc. (“Defendants”) for fraud, breach of fiduciary duty, and breach of
contract.  Plaintiff alleges that Defendants violated the Company’s
Private Placement Memorandum, the Subscription Agreement, and other documents
related to investing in the Company, and consequently, Plaintiff is seeking
$1,523,103.60 in damages.  Plaintiff filed this case under the United
States District Court, District of Connecticut, under case number 3:08CV1601
(AWT).   On February 23, 2009, Plaintiff filed a Motion for a
Joint and Several Judgment against Milton Ault, III.  Defendants are
pursuing settlement discussions with Plaintiff.





III.           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 is CV2009-003478.  Plaintiff
alleges that Defendants failed to repay Plaintiff in accordance with an executed
Promissory Note, and Defendants failed to pay a Guarantee as executed between
Plaintiff and Defendants.  Plaintiff is alleging damages in an amount
of $500,000.00, pre and post-judgment interest and attorneys’ fees and
costs.  Defendants are preparing responsive pleadings bringing
affirmative defenses.  In April 2009, Defendants also began settlement
discussions with Plaintiffs.





IV.           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 $41,457.14 and the accrued interest.  On
November 14, 2008, the New York Supreme Court entered default against Defendant
in an amount of $41,457.14 for failure to answer the Complaint. Additionally,
Defendant is pursuing settlement possibilities with Plaintiff.




15
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V.           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 alleges
that Defendant permitted an improper sublease and although the improper
subtenant has vacated, Plaintiff wants to complete the unlawful
detainer.  Plaintiff is seeking damages in an amount of $1,166.89 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.





VI.           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
$5,000.00 in compensatory damages.  Judgment was entered against
Defendants on December 5, 2008.  Defendants are pursuing settlement
negotiations and drafting a Motion to Set Aside Default.





VII.
            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 on July 23, 2008.  The case number for this litigation is
650260.  Plaintiff’s causes of action against Defendant include
negligent misrepresentation, breach of the duty of good faith and fair dealing,
and breach of the debenture.  Plaintiff alleges that Defendants misled
Plaintiff as to the nature of their convertible debentures, Plaintiff
incorrectly told Plaintiff that the shares were eligible for Rule 144 treatment,
and Defendants failed to abide by the default provision of the
debenture.  Plaintiff is seeking $53,171.60 plus pre-judgment
interests for Defendants’ trading breach and $206,972.22 plus default interests
for Defendants’ breach of the executed debenture.  On January 30,
2009, the New York Court entered Judgment against Defendant in favor of
Plaintiff.




16
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On February
3, 2009, Plaintiff filed a Restraining Notice against Plaintiff to prevent the
sale of certain property.  On February 23, 2009, Plaintiff filed with
the Court a Notice of Entry of Default, dated January 16, 2009, against
Defendants for the principal amount of $200,000.00, plus interest at the rate of
five (5) percent from October 17, 2007 to June 24, 2008, plus interest at a rate
of 18 percent from June 24, 2008 to the date of entry of judgment (January 16,
2009), plus the amount of $53,171.60, with interest at the statutory rate from
July 23, 2008 to the date of the entry of judgment (January 16, 2009), costs and
disbursements.





VIII.         In
Re: Zealous Holdings, Inc.


Central District of California
Bankruptcy Court, Case No. 09-11425-ES





On May
12, 2009, Zealous Holdings (“Holdings”), a wholly owned subsidiary of Zealous,
Inc., filed a voluntary petition for relief under Chapter 11 of the United
States 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 1, 2009, the Bankruptcy Court,
on its own initiative, filed a motion to convert the bankruptcy to a Chapter 7
bankruptcy.  Holdings was notified of this change on May 8, 2009 via
PACER.





Holdings
believes that it is now in a position to start settling and paying its
debts.  Therefore Holdings would like to dismiss the bankruptcy
action.  Pursuant to this desire, Holdings filed an Emergency Hearing
to Dismiss the Bankruptcy on May 11, 2009.  That request was
denied.  Therefore, on Tuesday May 12, 2009, Holdings filed a
motion requesting that the Bankruptcy Court schedule a Hearing on the Motion to
Dismiss the Voluntary Bankruptcy Petition for June 11, 2009.





IX.           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 under case number A574309 on October 24,
2008.  Plaintiff’s complaint alleges breach of promissory note, breach
of consulting agreement, unpaid loans and NSF checks, declaratory relief, breach
of implied covenant of good faith and fair dealing, intentional
misrepresentation, negligent misrepresentation, accounting, and
conversion.  Plaintiff then took a default judgment against both
Defendants.  Plaintiff alleges hat Defendants failed to repay
Plaintiff in accordance with the promissory notes, failed to pay Plaintiff in
accordance with the consulting agreement, failed to pay back loans, and failed
to abide by their fiduciary duty to pay Plaintiff the money owed.  On
December 26, 2008 the Court entered Default Judgment against all Defendants for
the principal plus interests totaling $270,036.65, plus costs of $222.50 for a
total of $270,259.15.  Defendants engaged in a settlement conference
with Plaintiff on March 30, 2009 and are continuing to pursue settlement
discussions.




X.           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.  The
case number is Los Angeles County Superior Court case number BC
407274.  Plaintiffs’ complaint alleges negligent misrepresentation,
breach of fiduciary




17
 Table of Contents




duty,
breach of 6 contracts, breach of implied covenant of good faith and fair dealing
of 6 contracts, violations of Corp Code §§ 25400, 25401, 25500, 25501 25504,
fraud, unjust enrichment on 2 contracts, equitable indemnity, constructive
trust, and unfair business practices.  Plaintiffs allege that
Defendants, individually and/or separately, fraudulently induced Plaintiffs to
invest in the Defendant companies, failed to repay in accordance with promissory
notes, failed to pay management fees and violated Corporations Codes in certain
mergers.  Plaintiffs are seeking damages according to proof at trial
and equitable relief that the Court deems just and proper.  Defendants
are engaged in settlement discussion with Plaintiffs, preparing responsive
pleadings, and completing discovery responses.  Defendants have
responded to Plaintiffs’ Requests for Admissions and are in the process of
completing additional discovery.





CALIFORNIA LABOR
COMMISSIONER CASES:





I.           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.  The
case number is 18-75589 KV.  Plaintiff’s alleges that defendants owe
him $4,000.00 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.





II.           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 $4,500.00 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.





Item 4.   Submission of Matters to a Vote of Security
Holders





None.


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 OTC Bulletin Board (“OTCBB”), which is
sponsored by FINRA. The OTCBB 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.OB.”





18
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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, 2008Quarter
      Ended
            
            High
      $
            
            Low
      $December
      31, 2008
            
            $0.0179
            
            $0.0001September
      30, 2008
            
            $0.1100
            
            $0.0025June
      30, 2008
            
            $0.1780
            
            $0.0190March
      31, 2008
            
            $0.2600
            
            $0.0800





Fiscal
      Year Ending December 31, 2007Quarter
      Ended
            
            High
      $
            
            Low
      $December
      31, 2007
            
            .28
            
            .04September
      30, 2007
            
            .08
            
            .01June
      30, 2007
            
            .04
            
            .01March
      31, 2007
            
            .02
            
            .01




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.





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 Table of Contents




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
April 30, 2009, we have approximately 210 holder of our common stock and a total
of 624,662,856 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 317
SW Alder Street, 2nd Floor,
Portland, Oregon 97204.





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





Pursuant
to the Merger among us, ASNI-II, Inc. and Zealous Holdings, Inc., which closed
on May 9, 2008, we issued 248,341,573 shares of common stock to Zealous Holdings
shareholders, and 199,607 of preferred stock to Zealous Holdings
shareholder.  One shareholder of Zealous Holdings Inc. has not
surrendered its certificate of Zealous Holdings, Inc. Upon surrender of the
certificate we will be obligated to issue 80,844,638 shares of common stock to
such shareholder.





The
Company issued 73,032,017 shares of its common stock for conversion of its
convertible debt into equity during the twelve months ended December 31,
2008.  The Company issued 15,130,094 shares of its common stock for
services received by the company and 9,939,477 shares of its common stock as
interest payment during the twelve months ended December 31, 2008.





20
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On
October 15, 2008, the Company issued 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.




For each
of the above transactions exempt from registration requirements under Rule 506,
the individuals and entities to whom we issued securities are unaffiliated with
us. For each of such sales, no advertising or general solicitation was employed
in offering the securities. The offerings and sales were made to a limited
number of persons, all of whom were accredited investors, business associates of
ours or our executive officers, and transfer was restricted by us in accordance
with the requirements of the Securities Act. Each of such persons represented to
us that they were accredited or sophisticated investors, that they were capable
of analyzing the merits and risks of their investment, and that they understood
the speculative nature of their investment. Furthermore, all of the
above-referenced persons had access to our Securities and Exchange Commission
filings.





Securities
Authorized for Issuance under Equity Compensation Plans





The
following table sets forth certain information about the common stock that may
be issued upon the exercise of options under the equity compensation plans as of
May 11, 2009.








Plan
      Category
            Number
      of Shares
              to
      be Issued
              Upon
      Exercise of
              Outstanding
              Options,
              Warrants
      and
              Rights
            
            Weighted-Average
              Exercise
              Price
      of
              Outstanding
              Options,
              Warrants
      and
              Rights
            
            Number
      of Shares
              Remaining
              Available
      for
              Future
      Issuance
              Under
      Equity
              Compensation
              Plans
      (Excluding
              Shares
      Reflected
              in
      the First
              Column1)Equity
      compensation plans approved by shareholders
            49,200,000
            
            $
            0.00575
            
            80,072,571Equity
      compensation plans not approved by shareholders
            -
            
            $
            -
            
            -Total
            49,200,000
            
            $
            0.00575
            
            80,072,571




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 46,100,000 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.


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.




21
 Table of Contents




Shares
issued under the 2007 Plan through the settlement, assumption or substitution of
outstanding awards or obligations to grant future awards as a condition of
acquiring another entity are not expected to reduce the maximum number of shares
available under the 2007 Plan.  In addition, the number of shares of
Common Stock subject to the 2007 Plan, any number of shares subject to any
numerical limit in the 2007 Plan, and the number of shares and terms of any
incentive award are expected to be adjusted in the event of any change in
outstanding Common Stock by reason of any stock dividend, spin-off, split-up,
stock split, reverse stock split, recapitalization, reclassification, merger,
consolidation, liquidation, business combination or exchange of shares or
similar transaction.





Administration





It is
expected that the compensation committee of the Board of Directors, or the Board
of Directors in the absence of such a committee, will administer the 2007
Plan.  Subject to the terms of the 2007 Plan, the compensation
committee would have complete authority and discretion to determine the terms of
awards under the 2007 Plan.





Grants





The 2007
Plan authorizes the grant of nonqualified stock options, incentive stock
options, reload options, restricted stock awards, and stock appreciation rights,
as described below:





Options
granted under the 2007 Plan entitle the grantee, upon exercise, to purchase a
specified number of shares from us at a specified exercise price per
share.  The exercise price for shares of Common Stock covered by an
option cannot be less than the fair market value of the Common Stock on the date
of grant unless agreed to otherwise at the time of the grant.  The
compensation committee may also grant options with a reload
feature.





Restricted
stock awards may be awarded on terms and conditions established by the
compensation committee, which may include the lapse of restrictions on the
achievement of one or more performance goals.





Stock
appreciation rights, or SARs, entitle the participant, upon exercise of the SAR,
to receive a distribution in an amount equal to the number of shares of Common
Stock subject to the portion of the SAR exercised multiplied by the difference
between the market price of a share of Common Stock on the date of exercise of
the SAR and the market price of a share of Common Stock on the date of grant of
the SAR.





No grants
of nonqualified stock options, incentive stock options, reload options,
restricted stock awards, and stock appreciation rights have been made under the
2007 Plan.





Duration, Amendment and
Termination





The Board
of Directors is expected to have the power to amend, suspend or terminate the
2007 Plan without stockholder approval or ratification at any time or from time
to time.  No change may be made that increases the total number of
shares of Common Stock reserved for issuance pursuant to incentive awards or
reduces the minimum exercise price for options or exchange of options for other
incentive awards, unless such change is authorized by stockholders within one
year.  Unless sooner terminated, the 2007 Plan would terminate ten
years after it is adopted.





Item 6.   Selected Financial Data





A smaller
reporting company is not required to provide the information required by this
Item.





22
 Table of Contents




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 twelve months ended December 31, 2008 compared to the
twelve months  ended December 31, 2007.





We
generated $721,296 in operating revenues for the twelve months ended December
31, 2008 compared to $939,806 in operating revenues for the twelve months ended
December 31, 2007. This is because of lesser brokerage commissions generated
during the twelve months ended December 31, 2008 compared to twelve months ended
December 31, 2007. During the twelve months ended December 31, 2008 and December
31, 2007, we incurred operating expenses of $6,375,713 and $3,334,839,
respectively, an increase of $3,040,874 because of increased operating
activities. We incurred $4,213,568 in interest expense during the twelve months
ended December 31, 2008 compared to $375,850 in interest expense during the
twelve months ended December 31, 2007 because of interest expense on the
increased borrowings subsequent to December 31, 2007. Interest expense of
$4,213,568 included a non-cash amortization of discount on debt of $1,988,309
and deferred financing cost of $1,432,125.  The net operating loss figures
for the twelve months ended December 31, 2008 and 2007 were $12,075,516 and
$2,741,035, respectively.




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Liquidity
and Capital Resources





We had a
bank overdraft of $4,217 on December 31, 2008. The available cash balance as at
December 31, 2007 was $16,526.  We had $268,399 in restricted cash as
on December 31, 2008 and $262,500 in restricted cash on December 31, 2007.
Payable to clearing broker and managed funds were $9,853 on December 31, 2008 as
compared to receivable from clearing broker and managed funds of $435,255 on
December 31, 2007. Investments in affiliated entities on December 31, 2008 stood
at $6,679 as compared to $693,011 on December 31, 2007. We had no trading
instruments as on December 31, 2008 as compared to $466,153 as on December 31,
2007. 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, 2008 was $104,730 as compared $128,881 as on
December 31, 2007. Loans and receivables as on December 31, 2008 were $0 as
compared to $1,363,645 as on December 31, 2007. Net investment in fixed assets
as on December 31 2008 was $293,779 as compared to $450,370 as on December 31,
2007. There was an additional investment of $26,150 in fixed assets in the
twelve months ended December 31, 2008 as compared to none in twelve months ended
December 31, 2007. Accounts payables and accrued liabilities as on December 31,
2008 were $2,479,820 as compared to $615,524 on December 31, 2007.
Non-convertible notes payable as on December 31, 2008 were $5,105,973 as
compared to $7,142,782 as on December 31, 2007. 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.





At
December 31, 2008 we have a real estate note receivable of $632,000 from an
individual engaged in real estate development reduced by an impairment reserve
of $631,999 (see note 17). The note resulted from deposits made by us on a land
parcel that was to be subdivided for resale. The initial note amounted to
$535,000, was collateralized by the underlying real estate and bore interest at
the rate of 6% annually.  During the year ended December 31, 2008, we
advanced an additional $97,000 towards the same real estate project. At December
31, 2008, accrued interest relating to this note of $41,695 has been included in
accrued interest receivable. The note receivable balance of $632,000 and related
interest receivable of $41,695 has been written down to $1 pursuant to our
evaluation of the viability of the real estate project, the uncertainties raised
by a failed sale of certain intellectual property to a party related to the
debtor and the cash flows expected from the underlying real estate. We also
believe that this note cannot be sold due to the current economic conditions
surrounding the real estate market.





At
December 31, 2008 deposits on computer software and other assets consisted of a
$514,321 deposit on a contract for the development of software for the ZATS
platform, a deposit of $993,754 with Transfer Online Technology Development, LLC
(“TOLTD”) towards the purchase of other necessary software and intellectual
property for the ZATS platform, a $75,000 deposit towards the failed acquisition
of Comedy.Net and other miscellaneous deposits




24
 Table of Contents




totalling
$25,000.  These amounts have been netted by an impairment reserve of
$1,508,075 to reduce the book value of all of the above, except for deposit
towards the failed acquisition of Comedy.Net and other deposits of $25,000 to
zero. The $75,000 deposit towards the failed acquisition of Comedy.Net has been
written off as uncollectable due to our inability to collect.





The
$514,321 deposit resulted from cash payments and stock issued to EAI, Inc.
(‘EAI”) towards the development of the software to operate ZATS. The total cost
of the contract was for $814,321. The amounts paid on this contract are not
expected to be recovered. The completion of this contract was dependent upon us
making a final payment of $300,000. We lack the resources to make such payment
and further believe that such platform no longer has a competitive advantage. We
also believe that this software cannot be sold due to its uniqueness and
specific use.





The
$993,754 deposit with TOLTD represents various advances to TOLTD pursuant to an
Asset Purchase Agreement dated  March 3, 2008,  whereby we
agreed to purchase from TOLTD all rights, title and interest in an
online/electronic trading platform, including without limitation, the source
code, software, any and all intellectual property rights and title related to
such trading platform, excluding any licenses for third party software necessary
for the performance of the trading platform for the sum of $1,000,000
..  Through December 31, 2008, we paid a deposit of $50,000 in cash and
$943,754 in stock which includes $37,253 in accrued interest on the note
pertaining to the purchase.  The amounts paid on this agreement are
not expected to be recovered. The transaction was rescinded due to our failure
to perform in accordance with the terms of the agreement. We also believe that
this platform cannot be sold even if recovered due to its uniqueness and
specific use.





In 2007,
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. During the
twelve months ended December 31, 2008, we issued 73,032,017 shares of the
company’s common stock for conversion of $1,452,509 of this convertible debt
into equity. The remaining balance of $3,661,991 was therefore in default as a
result of the Company’s inability to pay by December 31, 2008. During February
2009 the remaining balance of these notes were ultimately converted into stock
pursuant to a force conversion effectuated by the Company.





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.  During the twelve months ended December 31, 2008, the
Company amortized the remaining balance of the discount of $1,988,309 as
non-cash interest expense.





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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.
Amortization of deferred financing costs during the twelve months ended December
31, 2008 amounted to $1,432,125.





The
following table shows the amount of convertible notes payable and secured
convertible debentures as on December 31, 2008:





Convertible
      notes payable
            $
            442,500Secured
      convertible debentures
            
            3,219,491Total
      as on December 31, 2008
            $
            3,661,991





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 twelve months 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
      Date467,500
            2
      years from Grant Date
            2/11/08427,500
            Vested
            2/11/0875,000
            2
      years from Grant Date
            12/1/0725,000
            2
      years from Grant Date
            12/12/0750,000
            Vested
            2/11/0840,000
            Vested
            1/22/08100,000
            Vested
            12/1/07100,000
            Vested
            12/12/0740,000
            4
      year from Grant Date
            2/11/0850,000
            Vested
            5/9/08225,000
            *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.





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The
Company uses the Fair Value Method in accordance with SFAS 123R 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. During the twelve months ended December 31,
2008, the Company recorded stock based compensation expense of $128,000 in
accordance with SFAS 123R.





The
following table shows the total number of options outstanding as on December 31,
2008:






Beginning balance
      December 31, 2006
            -Add:
            Options granted
      during twelve months ended December 31, 2008
            1,860,000Balance, December
      31, 2007
            1,860,000Add:
            Options granted
      during nine months ended September 30, 2008
            1,600,000Less:
            Options cancelled
      pursuant to the merger
            (1,860,000)Less:
            Options exercised
      during nine months ended September 30, 2008
            -Less:
            Options Forfeited
      during nine months ended September 30, 2008
            -Total number of
      options outstanding as on September 30, 2008
            1,600,000Total number of
      options exercisable as on December 31, 2008
            817,500




Weighted
Average exercise price of options outstanding as on December 31,
2008  is $1.00 per share.





Weighted
average fair value fair value of options granted during the twelve months ended
December 31, 2008 is $0.08 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.





27
 Table of Contents




We
presently do not have any available credit, bank financing or other external
sources of liquidity. Due to our brief history and historical operating losses,
our operations have not been a source of liquidity. We will need to obtain
additional capital in order to expand operations and become profitable. In order
to obtain capital, we may need to sell additional shares of our common stock or
borrow funds from private lenders. There can be no assurance that we will be
successful in obtaining additional funding.





We will
still need additional investments in order to continue operations until we are
able to achieve positive operating cash flow. Additional investments are being
sought, but we cannot guarantee that we will be able to obtain such
investments.  Financing transactions may include the issuance of
equity or debt securities, obtaining credit facilities, or other financing
mechanisms. However, the trading price of our common stock and a downturn in the
U.S. stock and debt markets could make it more difficult to obtain financing
through the issuance of equity or debt securities. Even if we are able to raise
the funds required, it is possible that we could incur unexpected costs and
expenses, fail to collect significant amounts owed to us, or experience
unexpected cash requirements that would force us to seek alternative financing.
Further, if we issue additional equity or debt securities, stockholders may
experience additional dilution or the new equity securities may have rights,
preferences or privileges senior to those of existing holders of our common
stock. If additional financing is not available or is not available on
acceptable terms, we will have to curtail our operations.





To date,
we have generated minimal revenues and have incurred operating losses in every
quarter.  These factors among others may raise substantial doubt about
our ability to continue as a going concern.





Critical
Accounting Policies





Use of
Estimates





The
application of our accounting policies, which are important to our financial
position and results of operations, requires significant judgments and estimates
on the part of management. These estimates bear the risk of change due to the
inherent uncertainty attached to the estimate and are likely to differ to some
extent from actual results. Critical accounting policies requiring use of
estimates are share based payments.





Stock based
Compensation





Effective
January 1, 2006, the Company adopted SFAS No. 123R, "Share Based Payment," using
the modified-prospective-transition method. There was no effect to the
accompanying financial statements pursuant to the adoption of SFAS No.123R since
at the date of the adoption, all employee stock options were fully vested. SFAS
No. 123R is a revision of SFAS No. 123, and supersedes APB Opinion No. 25, and
its related implementation guidance. SFAS No. 123R 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 SFAS
No. 123R, 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.





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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 Emerging Issues Task Force
("EITF") Issue No. 96-18, "Accounting for Equity Instruments that Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services."





Recent Accounting
Pronouncements





The
following Recent Accounting Pronouncements are disclosed as they may be
applicable to the Company’s operations and could have an impact on the Company’s
financial statements.





In
February 2008, the FASB issued staff position 157-2 which delays the effective
date of SFAS No, 157 for all non-financial assets and non-financial liabilities,
except for those that are recognized and disclosed at fair value in the
financial statements on a recurring basis. For items within its scope, this
staff position defers the effective date of SFAS No, 157 to fiscal years
beginning after November 15, 2008, which for the Company would be the fiscal
year beginning on January 1, 2009. The Company is currently evaluating the
impact of adopting the provisions of SFAS No. 157 and believes that
the adoption of SFAS No. 157 can have an impact on its financial
position, cash flows, or results of operations.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities — Including an Amendment of
FASB Statement No. 115,” (“SFAS No. 159”), which is effective for
fiscal years beginning after November 15, 2007. SFAS No. 159
permits an entity to choose to measure many financial instruments and certain
other items at fair value at specified election dates. Subsequent unrealized
gains and losses on items for which the fair value option has been elected will
be reported in earnings. The Company is currently evaluating the potential
impact of SFAS No. 159.





In
December 2007, the FASB issued Statement No. 141 (revised 2007) Business
Combinations. This Statement applies to all transactions or other events in
which an entity (the acquirer) obtains control of one or more businesses (the
acquirer), including those sometimes referred to as “true mergers” or “mergers
of equals” and combinations achieved without the transfer of consideration, for
example, by contract alone or through the lapse of minority veto rights. This
Statement applies to all business entities, including mutual entities that
previously used the pooling-of-interests method of accounting for some business
combinations. This Statement applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after November 15, 2008. We will adopt this
statement on January 1, 2009.





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In
December 2007, the FASB issued Statement No. 160 Non controlling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51. This statement
requires that the ownership interests in subsidiaries held by parties other than
the parent be clearly identified, labeled, and presented in the consolidated
statement of financial position within equity, but separate from the parent’s
equity. This Statement is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008 (that is, January 1,
2009, for entities with calendar year-ends). Earlier adoption is prohibited. We
will adopt this statement on January 1, 2009.





In May
2008, the Financial Accounting Standards Board ("FASB") issued FASB Staff
Position ("FSP") APB 14-1, Accounting for Convertible Debt Instruments That May
Be Settled in Cash upon Conversion (Including Partial Cash Settlement). FSP APB
14-1 clarifies that convertible debt instruments that may be settled in cash
upon either mandatory or optional conversion (including partial cash settlement)
are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for
Convertible Debt and Debt issued with Stock Purchase Warrants. Additionally, FSP
APB 14-1 specifies that issuers of such instruments should separately account
for the liability and equity components in a manner that will reflect the
entity's non-convertible debt borrowing rate when interest cost is recognized in
subsequent periods. FSP APB 14-1 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. We will adopt FSP APB 14-1 beginning in the first quarter of
fiscal 2009, and this standard must be applied on a retrospective basis. We are
evaluating the impact the adoption of FSP APB 14-1 will have on our consolidated
financial position and results of operations.





In May
2008, the FASB issued Statement of Financial Accounting Standards ("SFAS") No.
162, The Hierarchy of Generally Accepted Accounting Principles. This standard is
intended to improve financial reporting by identifying a consistent framework,
or hierarchy, for selecting accounting principles to be used in preparing
financial statements that are presented in conformity with generally accepted
accounting principles in the United States for non-governmental entities. SFAS
No. 162 is effective 60 days following approval by the U.S. Securities and
Exchange Commission ("SEC") of the Public Company Accounting Oversight Board's
amendments to AU Section 411, The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles. We do not expect SFAS No. 162 to have
a material impact on the preparation of our consolidated financial
statements.





Off
Balance Sheet Arrangements





As of
December 31, 2008, 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.





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 Table of Contents




Item
9.   Changes In and Disagreements with Accountants on Accounting
and FinancialDisclosure





None.





Item 9A(T).  Controls and Procedures





We
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of December 31, 2008.  This evaluation was
carried out under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, Mr. Arthur Kaplan.  Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that, as of December 31, 2008, our disclosure controls and procedures
are effective.  There have been no significant changes in our internal
controls over financial reporting during the quarter ended December 31, 2008
that have materially affected or are reasonably likely to materially affect such
controls.





Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act are recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in our
reports filed under the Exchange Act is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure.





Limitations on the
Effectiveness of Internal Controls





Our
management does not expect that our disclosure controls and procedures or our
internal control over financial reporting will necessarily prevent all fraud and
material error. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving our objectives and our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures are effective at that reasonable assurance level.  Further, the
design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within our company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
internal control. The design of any system of controls also is based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions. Over time, control may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate.





Management’s
Annual Report on Internal Control over Financing Reporting





This
annual report does not include a report of management's assessment regarding
internal control over financial reporting or an attestation report of the
company's registered public accounting firm due to a transition period
established by rules of the Securities and Exchange Commission for newly public
companies.





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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, 2008 and their present
positions.





Name
            Age
            Position
      Held with the CompanyMilton
      C. Ault, III
            38
            President,
      Chief Executive Officer and DirectorGary
      Gottlieb
            52
            Chief
      Financial OfficerMichael
      Edwards
            58
            Director





Set forth
below is a brief description of the background and business experience of
executive officers and directors.





Milton C. Ault has been the
President and Chief Executive Officer of the Company since August 2007 and a
member of Company’s Board of Directors since October 2007.  Between
June and July 2007, Mr. Ault was President of the Company. Between July 2007 and
August 2007, Mr. Ault was the Executive Vice President of the Company.  As
of May 2008, Mr. Ault is the chairman, director, Chief Executive Officer and
President of ASNI-II, Inc., a wholly owned subsidiary of the Company.  Mr.
Ault was the Chairman, CEO and President of Zealous Holdings, Inc. from June
2005 to May 2008.  Mr. Ault is the manager and Chief Investment
Officer of Zealous Asset Management, LLC, a wholly owned subsidiary of the
Company. Mr. Ault was a registered representative at Strome Securities, LP from
July 1998 until December 2005. He was elected to the board of directors of
Patient Safety Technologies (formally Franklin Capital Corp.) in July, 2004 and
became its Chairman and Chief Executive Officer in October, 2004 where here
served until January of 2006 and again from July 2006 to January of 2007. Mr.
Ault has been a member of the board of directors of IPEX, Inc, since May 2005
and served as interim Chief Executive Officer of IPEX, Inc, between May and July
2005. Mr. Ault was Chief Executive Officer of Digicorp, Inc., a publicly traded
corporation, from April 26, 2005




32
 Table of Contents




until
September 30, 2005 and he served as Chairman of Digicorp from July 16, 2005
until September 30, 2005. In November of 2005 Mr. Ault became Chief Executive
Officer  and President in November 2006 of Zealous Capital Markets,
LLC (formally, Ault Glazer Bodnar Securities), a subsidiary of the Company
formed in June 2005. Mr. Ault has also held positions as a director and interim
Chief Executive Officer at certain portfolio companies held by the Company or
its subsidiaries from time to time. Mr. Ault currently holds the series 7, 24,
and 63 licenses and is also a registered principal of Zealous Capital
Markets.





Michael Edwards has been a
director of the Company since 1998.  From 1985 to the present, Mr. Edwards
has been president of Premier Attractions, Inc, a full-service production
company that distributes, acquires and provides funding for feature films and
multi-media projects.  Mr. Edwards holds a BA in Psychology and a BA in Art
from Cal Western University; a MSc. in Communications from SDSU, and
was a post graduate/PhD candidate psycholinguistics at Macquarie University,
Australia.  He is an Active Member of the Directors Guild of America as a
Feature Film and Commercial Director since 1998.





Gary Gottlieb.  Mr.
Gottlieb has been serving as the Chief Financial Officer of Zealous, Inc., since
December 8, 2008.  Additionally, he has been serving as the Chief
Operating Officer of Stiletto Magazine since March of 2007.  Prior to
Stiletto, he served as the Chief Operating Officer of Private Dancer Magazine
from August 2002 to March 2007. In addition to these roles, Gottlieb has served
as Chief Accountant of C&R Clothiers, Bosley Medical Group, and as an
internal accountant at Computer Science Corporation.  Mr. Gottlieb
graduated from California State University at Northridge in 1981 with a
Bachelors degree in Accounting.





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, 2008.  However, during the first
quarter of 2009, Milton C. Ault, III, failed to file a timely Form
4.





Milton C.
Ault purchased shares of stock of the Company on March 11th and
12th
of 2009.  A Form 4 reporting the purchases of the stock was not filed
until April 9, 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
 Table of Contents




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 Chief Operating Officer and each of our
other officers whose compensation exceeded $100,000 for each of the Company’s
last two completed fiscal years.





Name
      & Principal Position
            Year
            
            Salary
      ($)
            
            Bonus
      ($)
            
            Stock
      Awards ($)
            
            Option
      Awards ($)
            
            Non-Equity
      Incentive Plan Compensation ($)
            
            Change
      in Pension Value and Non-Qualified Deferred Compensation Earnings
      ($)
            
            All
      Other Compensation ($)
            
            Total
      ($)Milton
      C. Ault,
              CEO
      and President
            2008
            
            $
            200,000
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            $
            N/A
            
            $
            200,0002007
            
            $
            200,000
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            $
            N/A
            
            $
            200,000Scott
      Livingston,
              CCO
      of ZCM
            2008
            
            $
            110,000
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            
            N/A
            
            $
            110,0002007
            
            $
            110,000
            
            N/A
            
            50,000
            
            N/A
            
            N/A
            
            N/A
            
            
            N/A
            
            $
            110,000




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.





34
 Table of Contents




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, 2008





Director
Compensation





None of
the directors have received compensation for their respective services rendered
to the Company for the year ended December 31, 2008.





Employee
Benefit Plans





The
Company has no employee benefit plans.





Item
12.  Security Ownership of Certain Beneficial Owners and Management
and RelatedStockholder
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, 2008, 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 624,662,856 Shares of Common Stock issued and outstanding as of April
30, 2009.





35
 Table of Contents


Name
      and Address of Beneficial Owners of Common Stock
            Title
      of Class
            Amount
      and Nature of Beneficial Ownership
            %
      of Common StockMilton
      C. Ault, III
            Common
      Stock
            184,963,7062
            22.96%3Michael
      Edwards
            
            610,000
            *4DIRECTORS
      AND OFFICERS – TOTAL
            Common
      Stock
            185,573,706
            23.03%5%
      SHAREHOLDERSEnable
      Growth Partners, LLC
            
            41,386,011
            6.63%The
      Glazer Family Partnership, LP
            
            126,464,150
            20.25%Lori  Livingston
            
            52,754,466
            8.45%





Item 13.   Certain Relationships and Related
Transactions, and Director Independence





During
the twelve months ended December 31, 2008, in connection with the closing of the
Merger with the public shell, the Company entered into a consulting agreement
with Kent Wyatt, a shareholder of the public shell.  Pursuant to the
consulting agreement, the Company engaged Mr. Wyatt as an independent consultant
for a term of one year.  Mr. Wyatt was to receive compensation of
$96,000 pursuant to the consulting agreement.  The Company has accrued
$64,000 of compensation pursuant to this consulting agreement as of December 31,
2008.





In
addition, the Company issued Mr. Wyatt a 7% promissory note in the amount of
$166,367, which was due and payable on July 19, 2008. In the event of non
payment the note includes certain penalty provisions which in effect increase
the interest rate retroactively to 10% and the principal balance by 10% every 30
days until repaid in full. The balance outstanding on this note as on December
31, 2008 including penalty increases of $97,915 was approximately $264,000.
During the twelve months ended December 31, 2008, the Company also borrowed
$15,000 from Mr. Wyatt pursuant to this note. Interest accrued on this note
amounted to approximately $13,000 at December 31, 2008.




As of the
date of this annual report, our common stock is traded on the OTC Bulletin Board
(the “Bulletin Board”).  The Bulletin Board 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
      FeesDecember
      31, 2008
            30,000
            -
            -February
      29, 2008
            45,000
            -
            -







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
805,626,562 shares being issued and outstanding, which is the sum of the current
issued and outstanding of624,662,856 and the conversion of the
Series A Convertible Preferred Stock into 180,963,706 shares of Common
Stock.


4* Less than
1%.





36
 Table of Contents




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
      FirmF-2
            Consolidated Statements of Financial Condition as of December
      31, 2008 and December 31, 2007F-3
            Consolidated Statements of Operations for the years ended
      December 31, 2008 and 2007F-4
            Consolidated Statement of Stockholders’ Deficiency for the
      years ended December 31, 2008 and 2007F-5
            Consolidated Statements of Cash Flows for the years ended
      December 31, 2008 and 2007F-6
            Notes to Consolidated Financial Statements as of December
      31, 2008 and 2007




Exhibit
              Number
            Description3.1
            Articles
      of Incorporation, as amended3.2
            Bylaws,
      as amended23.1
            Consent
      of Berkovits  & Company, Chartered, Independent Registered
      Public Accounting Firm31.1
            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 200231.2
            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 200232.1
            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




37
 Table of Contents




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.





Zealous,
Inc.





By:
            /s/Milton C. Ault,
    IIIMilton
      C. Ault, III,CEO,
      DirectorMay
      15, 2009





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/Milton C. Ault,
    IIIMilton
      C. Ault, III,CEO,
      DirectorMay
      15, 2009








By:
            /s/Gary GotliebGary
      Gotlieb,CFOMay
      15, 2009





By:
            /s/Michael
  EdwardsMichael
      Edwards, DirectorMay
      15, 2009




Table of Contents


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




F-1
 Table of Contents


Zealous,
Inc. and Subsidiaries


(Formerly,
Adult Entertainment Capital, Inc.)
 Consolidated Statements of Financial Condition
  December
      31, 2008
                
                December
      31, 2007AssetsCash
                $
                4,217
                
                $
                16,526Restricted
      cash
                
                268,399
                
                
                262,500Receivable
      from clearing broker and managed funds
                
                -
                
                
                435,255Financial
      instruments:
                  Trading
      instruments, at fair value
                
                -
                
                
                466,153Investment
      in equity securities of affiliatedentity,
      net of valuation allowance of $320,445($0
      for 2007)
                
                6,679
                
                
                693,011Other
      investments, at cost
                
                -
                
                
                112,500Loans
      and receivables, net
                
                -
                
                
                1,363,645Real
      estate note receivable, net
                
                1
                
                
                -Property
      and equipment, net
                
                293,779
                
                
                450,370Deposit
      with clearing broker
                
                104,730
                
                
                129,881Prepaid
      expenses
                
                11,602
                
                
                74,102Deposits
      on computer software and other assets, net
                
                25,002
                
                
                208,204Total
      Assets
                $
                714,409
                
                $
                4,212,147Liabilities and
      Stockholders’ DeficiencyLiabilities:Payable
      clearing broker
                $
                9,853
                
                $
                -Accounts
      payable and accrued liabilities
                
                2,479,820
                
                
                615,524Non-convertible
      notes payable
                
                5,105,973
                
                
                7,142,782Convertible
      debt
                
                3,661,991
                
                
                -Liability
      to issue stock
                
                305,844
                
                
                560,000Total
      Liabilities
                
                11,563,481
                
                
                8,318,306Stockholders’
      Deficiency:Preferred
      stock, par value $0.01, 10,000,000   shares authorized,
      199,607 shares Series A Convertible preferred shares issued and
      outstanding on December 31, 2008
                
                1,996
                
                
                -Common
      stock, par value $0.001,  1,500,000,000 shares authorized,
      410,621,523 and 459,981,786 shares issued and outstanding on December 31,
      2008 and December 31, 2007, respectively
                
                410,622
                
                
                459,982Additional
      paid-in capital
                
                6,554,490
                
                
                1,174,523Accumulated
      deficit
                
                (17,816,180)
                
                
                (5,740,664)Total
      Stockholders’ Deficiency
                
                (10,849,072)
                
                
                (4,106,159)Total
      Liabilities and Stockholders’ Deficiency
                $
                714,409
                
                $
                4,212,147
 The
accompanying notes are an integral part of these consolidated financial
statements.
 F-2
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Consolidated
Statements of Operations
  Year
      ended
                  December
      31, 2008
                
                Year
      ended
                  December
      31, 2007REVENUESPrivate
      placement fees
                $
                -
                
                $
                200,600Commissions
                
                698,269
                
                
                671,892Real
      estate consulting income
                
                5,554
                
                
                -Interest
      income
                
                17,473
                
                
                25,105Management
      fees
                
                -
                
                
                42,209Total
      Revenues
                
                721,296
                
                
                939,806OPERATING
      EXPENSESGeneral
      and administrative
                
                2,027,255
                
                
                1,086,283Salaries
      and benefits
                
                2,606,650
                
                
                1,309,825Professional
      fees
                
                512,736
                
                
                517,070Consulting
      Expense
                
                71,500
                
                
                -Rent
                
                482,091
                
                
                320,233Depreciation
      and amortization
                
                102,455
                
                
                101,428Realized
      losses, net
                
                252,582
                
                
                64,969Unrealized
      losses (gains), net
                
                320,445
                
                
                (57,428)Total
      Operating Expenses
                
                6,375,714
                
                
                3,342,380Loss
      before Other Expenses
                
                (5,654,418)
                
                
                (2,402,574)OTHER
      EXPENSES (INCOME):Interest
      expense including amortization of deferred financing cost of $1,432,125
      ($0 for 2007) and amortization of discount on debt of
      $1,988,309
                  ($0
      for 2007)
                
                4,213,568
                
                
                375,850Impairment
      losses
                
                2,262,054
                
                
                -Other
      income, net
                
                (54,524)
                
                
                (37,389)Total
      Other Expenses
                
                6,421,098
                
                
                338,461Net
      Loss
                $
                (12,075,516)
                
                $
                (2,741,035)Weighted
      average number of common shares outstanding
                
                397,764,118
                
                
                459,981,786Net
      Loss per Share - Basic and Diluted
                $
                (0.03)
                
                $
                (0.005)
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 F-3
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Consolidated Statements of Stockholders’ Deficiency
 For
the years ended December 31, 2008 and 2007
  COMMON STOCK
                
                PREFERRED STOCKSHARES
                
                AMOUNT
                
                SHARES
                
                AMOUNT
                
                ADDITIONAL
                  PAID
      IN CAPITAL
                
                ACCUMULATED
                  (DEFICIT)
                
                TOTALBalance
      December 31, 2006
                377,521,363
                
                $
                377,521
                
                -
                
                
                -
                
                $
                174,614
                
                $
                (2,999,629)
                
                $
                (2,447,494)Sale
      of stock for cash
                19,587,501
                
                
                19,588
                
                -
                
                
                -
                
                
                245,412
                
                
                -
                
                
                265,000Stock
      issued for securities
                62,872,922
                
                
                62,873
                
                -
                
                
                -
                
                
                754,497
                
                
                -
                
                
                817,370Net
      loss
                -
                
                
                -
                
                -
                
                
                -
                
                
                -
                
                
                (2,741,035)
                
                
                (2,741,035)Balance,
      December 31, 2007
                459,981,786
                
                $
                459,982
                
                -
                
                $
                -
                
                $
                1,174,523
                
                $
                (5,740,664)
                
                $
                (4,106,159)Shares
      issued – softwarepurchase
      agreement
                  TOLTD
                11,796,917
                
                
                11,797
                
                -
                
                
                -
                
                
                931,956
                
                
                -
                
                
                943,753Sale
      of stock for cash
                4,250,000
                
                
                4,250
                
                -
                
                
                -
                
                
                165,750
                
                
                -
                
                
                170,000Shares
      issued for repaymentof
      debt
                73,032,017
                
                
                73,032
                
                -
                
                
                -
                
                
                1,379,477
                
                
                -
                
                
                1,452,509Shares
      issued for payment ofaccrued
      interest
                9,939,477
                
                
                9,940
                
                -
                
                
                -
                
                
                139,870
                
                
                -
                
                
                149,810Shares
      issued for services
                15,130,094
                
                
                15,130
                
                -
                
                
                -
                
                
                245,898
                
                
                -
                
                
                261,028Recapitalization
      pursuant toreverse
      merger
                (163,508,768
                )
                
                (163,509
                )
                199,607
                
                
                1,996
                
                
                2,517,016
                
                
                -
                
                
                2,355,503Net
      loss
                -
                
                
                -
                
                -
                
                
                -
                
                
                -
                
                
                (12,075,516)
                
                
                (12,075,516)Balance,
      December 31, 2008
                410,621,523
                
                $
                410,622
                
                199,607
                
                $
                1,996
                
                $
                6,554,490
                
                $
                (17,816,180)
                
                $
                (10,849,072)
  The
accompanying notes are an integral part of these consolidated financial
statements.
 F-4
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Consolidated Statements of Cash Flows
  Year
      EndedDecember 31, 2008
                
                Year
      EndedDecember 31, 2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                $
                (12,075,516)
                
                $
                (2,741,035)Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Depreciation
      expense
                
                102,455
                
                
                101,428Bad
      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
                
                320,445
                
                
                (57,428)Stock
      based compensation expense
                
                261,028
                
                
                -Changes
      in operating assets and liabilities:Receivables
      from clearing broker
                
                435,255
                
                
                (205,087)Loans
      and receivables
                
                616,106
                
                
                -Prepaid
      expenses
                
                62,500
                
                
                (52,322)Deposits
      on computer software and other assets
                
                (510,294)
                
                
                (207,785)Accounts
      payables and accrued liabilities
                
                2,307,335
                
                
                24,027Net
      cash used in operating activities
                
                (1,856,605)
                
                
                (3,138,202)CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisition
      of net liabilities in merger
                
                (793,086)
                
                
                -Purchase
      of property and equipment
                
                (26,150)
                
                
                -Payments
      towards acquisition of software -TOLTD
                
                (50,000)
                
                
                -Sale
      of financial instruments, net
                
                748,412
                
                
                433,887Net
      cash (used in) provided by investing activities
                
                (120,824)
                
                
                433,887CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from notes payable
                
                1,820,120
                
                
                3,872,703Repayment
      of notes payable
                
                (25,000)
                
                
                (895,406)Liability
      to issue stock
                
                -
                
                
                (524,870)Proceeds
      from sale of stock
                
                170,000
                
                
                265,000Net
      cash provided by financing activities
                
                1,965,120
                
                
                2,717,427Net
      change in cash
                
                (12,309)
                
                
                13,112Cash,
      beginning of year
                
                16,526
                
                
                3,414Cash,
      end of year
                $
                4,217
                
                $
                16,526
 Supplemental
      disclosure of non-cash investing and financing
  activities:Stock
      issued for conversion of debt
                  $
                  1,452,509
                  
                  $
                  -Stock
      issued for payment of accrued interest
                  $
                  149,810
                  
                  $
                  -Stock
      issued for asset acquisition
                  $
                  1,158,073
                  
                  $
                  -Supplemental
      disclosure of cash flow information:Cash
      interest paid
                  $
                  121,605
                  
                  $
                  148,336
  The
accompanying notes are an integral part of these consolidated financial
statements.
 F-5
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes to Consolidated Financial Statements
 December
31, 2008 and 2007
 1.             Incorporation,
Nature and Continuance of Operations
  Incorporation and Nature of
Operations
  Zealous,
Inc. previously known as Adult Entertainment Capital, Inc. and Zealous Trading
Group, Inc. (“the Company”) was originally incorporated under the laws of the
state of Nevada on September 25, 1978. Through the years the Company has gone
though various name changes as a result of its different business
plans.
  On July
16, 2007, the Company (then named Atlantic Syndication Network, 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, Inc merged with and into ASNI-II and
ASNI-II merged into the Company. As a result of the merger, Zealous Holdings
became a wholly-owned subsidiary of Zealous, Inc., through which its operations
have been conducted.
  Zealous
Holdings Inc. 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”). The ZATS
trading platform was to be a global electronic market place to support and
execute trades for buyers and sellers of restricted illiquid
securities. During 2008 the Company created Zealous Real Estate Consulting,
LLC which is engaged in consumer mortgage negotiations for a fee.
  The
Company was engaged in the financial services industry through the year ended
December 31, 2008. During the fourth quarter 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 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 and to evaluate its financial
services assets and its notes and loans receivables to determine their
recoverability.  Our evaluation revealed that certain deposits
advanced by the Company to develop its trading platform, leasehold improvements
and certain note receivable and related accrued interest were impaired (See note
17).
  F-6
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
 1.             Incorporation,
Nature and Continuance of Operations (continued)
  Going
Concern
  At
December 31, 2008, 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 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, LLC and
Zealous ATS, LLC. All intercompany balances and transactions have been
eliminated in consolidation.
  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 from
actual results.
 F-7
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
  2.             Significant
accounting policies (continued)
  Stock based
Compensation
  The
Company follows the provisions of SFAS No. 123R, "Share Based Payment," in
calculating stock based compensation.  SFAS No. 123R is a revision of
SFAS No. 123, and supersedes APB Opinion No. 25, and its related implementation
guidance. SFAS No. 123R 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 SFAS No. 123R, 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 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 SFAS No. 128, "Earnings
Per Share". SFAS No. 128 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.
  Securities Transactions and
Revenue Recognition
  Proprietary
securities transactions, commission revenue and commission expense are recorded
on a trade-date basis. Profits and losses arising from securities transactions
entered into for the account and risk of the Company are recorded on a
trade-date basis.
  Private
placement fees arising from securities offering in which the Company acts as
agent, along with fees earned from providing financial advisory services are
recognized at the time the transaction is consummated.
 F-8
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
 2.             Significant
accounting policies (continued)
  Financial
Instruments
  Investments:
  Trading
instruments which primarily consist of publicly traded unrestricted securities
are valued at the closing price on the financial reporting date. These
instruments are recorded at fair value with unrealized gains and losses
reflected in the current period’s earnings.  Fair values are generally
based on prices from independent sources, such as listed market prices or price
quotations.
  Investment
in equity securities of affiliated entity are considered available for sale and
were originally recorded at cost. These securities have been reduced to their
fair value with an unrealized loss reflected in the Statement of Operations for
the period. Fair values were based on prices and quotations from independent
sources.
  Other
investments primarily consist of non-tradable debt which is convertible into
stock and is reported at cost.
  Effective
January 1, 2008, the Company adopted Statement of Financial Accounting Standards
(“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No.157”). In February 2008,
the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No.
FAS 157–2, “Effective Date of FASB Statement No. 157”, which provides a one year
deferral of the effective date of SFAS 157 for non-financial assets and
non-financial liabilities, except those that are recognized or disclosed in the
financial statements at fair value at least annually. Therefore, the Company has
adopted the provisions of SFAS No. 157 with respect to its financial assets and
liabilities only. SFAS No. 157 defines fair value, establishes a framework for
measuring fair value under generally accepted accounting principles and enhances
disclosures about fair value measurements.
  Fair
value is defined under SFAS No. 157 as the price that would be received to sell
an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. Valuation techniques used
to measure fair value under SFAS No. 157 must maximize the use of observable
inputs and minimize the use of unobservable inputs. The standard describes a
fair value hierarchy based on three levels of inputs, of which the first two are
considered observable and the last unobservable, that may be used to measure
fair value which are the following:
  • Level 1
– Quoted prices in active markets for identical assets or
liabilities.
  • Level 2
– Inputs other than Level 1 that are observable, either directly or indirectly,
such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the
assets or liabilities.
  F-9
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
  2.             Significant
accounting policies (continued)
  Financial
Instruments (continued)
  Investments
(continued):
  •
Level 3 – Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or
liabilities.
  Cash
  For
purposes of the statement of cash flows, cash equivalents usually consist of
highly liquid investments which are readily convertible into cash with maturity
of three months or less when purchased.  Cash consists primarily of
demand deposits at federally insured institutions. Restricted cash consists of a
certificate of deposit which is pledged against an office lease
commitment.
  Fair
Value of  Other Financial instruments
  The
carrying values of cash, restricted cash, receivables, accounts payable, accrued
liabilities and notes payable approximate their fair value because of the short
maturity of these instruments.  The carrying value of convertible and
non-convertible debt approximates fair value due to the interest rates
approximating that of similar instruments having similar terms. It is
management’s opinion that the Company is not exposed to significant interest,
currency or credit risks arising from these financial instruments.
  Receivables
and Allowance for Doubtful Accounts
  Receivables
include amounts due from broker-dealer transactions and from asset management
services. The receivables from broker-dealer clients are principally for amounts
due on cash and margin transactions while those from asset management clients
are primarily for accrued asset management fees. These receivables are reported
at their outstanding principal balance, adjusted for any allowance for doubtful
accounts.
  The
Company also makes loans or pays advances to certain employees, primarily for
recruiting and retention purposes.
  The
Company reviews all its receivables and records an allowance for its doubtful
accounts once it determines that specific accounts are
uncollectible.
  Concentration
of Credit Risk
  The
Company has no significant off-balance-sheet concentrations of credit risk such
as foreign exchange contracts, options contracts or other foreign hedging
arrangements.  The Company maintains cash balances at several
federally insured financial institutions.
   F-10
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
  
 2.             Significant
accounting policies (continued)
  Concentration of Credit Risk
(continued)
  The
Company is engaged in trading and in a broad range of securities brokerage and
investment services to a diverse clientele.  The Company discloses to
its clientele the use of a clearing broker.  The clearing broker
carries the clientele’s money and securities balances as custodian.
  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 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.
 See note
17 for impairment losses recognized in 2008.
  Income
taxes
  The
Company adopted the SFAS No. 109, “Accounting for Income Taxes”. Pursuant to
SFAS No. 109, 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 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.
  F-11
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
  2.             Significant
accounting policies (continued)
  Income taxes
(continued)
 
 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.
  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 May
2008, the Financial Accounting Standards Board ("FASB") issued FASB Staff
Position ("FSP") APB14-1, Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement). This FSPclarifies that convertible debt instruments that may be settled
in cash upon either mandatory or optional conversion (including partial cash
settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting
for Convertible Debt and Debt issued with Stock Purchase Warrants. Additionally,
FSPAPB14-1 specifies that
issuers of such instruments should separately account for the liability and
equity components in a manner that will reflect the entity's non-convertible
debt borrowing rate when interest cost is recognized in subsequent periods. FSPAPB14-1 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. We will adopt FSPAPB14-1 beginning in the first quarter
of fiscal 2009, and this standard must be applied on a retrospective basis. We
are evaluating the impact the adoption of FSPAPB14-1 will have on our consolidated financial position and
results of operations.
  In May
2008, the FASB issued Statement of Financial Accounting Standards ("SFAS") No.
162, The Hierarchy of Generally Accepted Accounting Principles. This standard is
intended to improve financial reporting by identifying a consistent framework,
or hierarchy, for selecting accounting principles to be used in preparing
financial statements that are presented in conformity with generally accepted
accounting principles in the United States for non-governmental entities. SFAS
No. 162 is effective 60 days following approval by the U.S. Securities and
Exchange Commission ("SEC") of the Public Company Accounting Oversight Board's
amendments to AU Section 411, The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles. We do not expect SFAS No. 162 to have
a material impact on the preparation of our consolidated financial
statements.
  F-12
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
  2.             Significant
accounting policies (continued)
 
 Recent Accounting
Pronouncements (continued)
  In April
2009, the FASB issued FASB Staff Position (“FSP”) FAS 107-1 and APB 28-1,
“Interim Disclosures about Fair Value of Financial Instruments (“FAS 107-1 and
APB 28-1”), which amends SFAS No. 107, “Disclosures about Fair Value of
Financial Instruments,” and APB opinion No. 28, “Interim Financial Reporting,”
to require disclosures about fair value of financial instruments in interim as
well as in annual financial statements.  FSP FAS 107-1 and ABP 28-1 is
effective for interim reporting periods ending after June 15, 2009, which for
the Company is the first quarter of fiscal 2010.  The Company is
assessing the effect, if any, that FSP FAS 107-1 and ABP 28-1 may have on its
consolidated financial statements.
  Reclassifications
  Certain
comparative figures have been reclassified to conform to the current period’s
presentation.
  3.             Stockholders’
Equity
  Recapitalization pursuant to
merger
  The
merger between the Company and Zealous Holdings was consummated on May 9, 2008,
by exchanging 248,341,572 shares of the Company’s common stock and 199,607
shares of its series A convertible preferred stock for 100% of the outstanding
common stock of Zealous Holdings. As a result of the exchange, the stockholders
of Zealous Holdings became the controlling stockholders of the Company. The
acquisition has been accounted for as a capital transaction under the rule of
accounting for business combinations.  Under this method, Zealous
Holdings (the accounting acquirer) is considered to have acquired the Company
(the accounting acquiree) on the date of the merger and continued as the
reporting entity thereafter.  The net assets of the Company were
recorded at carrying value with no recognition of goodwill.
  Pursuant
to this merger, all of the common stock was exchanged, however the Company is
obligated to issue 80,844,638 shares of its common stock to one of the
shareholders pending surrender of his original stock certificate in Zealous
Holdings. The Company has therefore recorded a liability to issue stock for
$80,844 related to this transaction, which has been included in its respective
caption in the accompanying statement of financial condition as of December 31,
2008.
  During
the twelve months ended December 31, 2008, Zealous Holdings, Inc. issued
50,168,247 shares (678,728 pre-merger) of its common stock as follows:
24,022,407 shares (325,000 pre-merger) in connection with employment agreements;
6,336,594 shares (85,728 pre-merger) pursuant to a contract for development of
software; 19,809,246 shares (268,000 pre-merger) in connection with a liability
to issue stock at December 31, 2007.
  F-13
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
  3.             Stockholders’
Equity (continued)
  Increase in authorized
shares
  The
Company obtained shareholder approval on April 24th, 2008, to amend its Articles
of Incorporation to increase the authorized shares of common stock of the
Company from 50,000,000 to 1,500,000,000.  The Company filed an
Amendment of Certificate of Articles of Incorporation with the Secretary State
of the State of Nevada to increase its authorized shares of common stock from
50,000,000 to 1,500,000,000 and preferred shares to 10,000,000. As a consequence
of the above, the Company has sufficient authorized and unissued shares
available to settle the conversion of debt into equity and the exercise of
warrants. Therefore the Company has reclassified to additional paid-in capital
previously recorded derivative liability associated with potential shares to be
converted pursuant to its convertible notes.
  Other equity
issuances
  The
Company issued 73,032,017 shares of its common stock for conversion of its
convertible debt into equity during the twelve months ended December 31, 2008.
The company also sold 4,250,000 shares of its common stock at $0.04 per share to
three investors for $170,000 during the twelve months ended December 31, 2008.
The Company issued 15,130,094 shares of its common stock for services received
by the company and 9,939,477 shares of its common stock as interest payment
during the twelve months ended December 31, 2008. The Company also issued
11,796,917 shares of its common stock pursuant to its agreement with Transfer
Online Technology Development, LLC (“TOLTD”) dated March 3, 2008 for purchase of
all rights, title and interest in and to the online/electronic trading platform,
including without limitation, the source code, software, any and all
intellectual property rights and title related to such trading platform,
excluding any licenses for third party software necessary for the performance of
the trading platform.
  4.             Deposit
with Clearing Broker
  The
Company was as 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. 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 30 days written notice. The Company has $104,730 and $129,881 of
funds with these clearing brokers as of December 31, 2008 and 2007,
respectively.
  F-14
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
 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 twelve months 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 twelve months ended December 31, 2008, the Company also recorded an
unrealized loss of $242,425 to reduce the carrying values of these securities to
their fair values.
 
 Investments
of $6,679 at December 31, 2008 includes the balance of the shares mentioned
above valued at their market value of $0.0003 per share.
 
 6.
                Loans
      and Receivables
 
 Loans and
receivables at December 31, 2008 and 2007 are comprised of the
following:
 
 2008
                
                2007Short-Term
      Receivables:Loans
      Receivable - Officer (1)
                $
                474,109
                
                $
                471,109Loans
      Receivable - Affiliated entity (2)
                
                457,767
                
                
                644,472Loans
      Receivable - Employees (1)
                
                70,200
                
                
                74,300Accrued
      Interest Receivable
                
                41,695
                
                
                -Receivable
      – Other related parties (3)
                
                67,699
                
                
                48,764Total
      Short-Term Receivables
                
                1,111,470
                
                
                1,238,645Long-Term
      Receivables:Loan
      Receivable – Employee
      (1)
                
                125,000
                
                
                125,000Total
      Long-Term Receivables
                
                125,000
                
                
                125,000Less;
      Amounts classified to compensation (1)
                
                (669,309)
                
                
                -Less:
      Allowance for doubtful accounts
                
                (567,161)
                
                
                -Total
      Loans and Receivables
                $
                -
                
                $
                1,363,645
 
 (1)          Represents
various advances to the Company’s CEO and key employees. Advances were non
interest bearing and due on demand.  Amounts have been declared
compensation by the Company’s Board of Directors and thus have been classified
as salaries and benefits in the accompanying 2008 statement of
operations.
 
 (2)           Represent
various advances and notes to related funds and portfolio entities. Majority of
amounts were subject to interest at rates ranging from 6% to 12%d and were due
on demand.
  F-15
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
 6.
                Loans
      and Receivables (continued)
 
 (3)          Represents
advance to related parties which are non interest bearing and due on
demand.
  The
Company has evaluated the recoverability of all its loans and receivables
(except for those from officer and key employees) and has determined that all
receivables are uncollectible. The evaluation was based on management’s
assessment of the nature of the receivable, the parties’ credit worthiness and
their ability to repay.  As of December 31, 2008, the Company has
recorded an allowance against loans and receivables of $567,161 to cover
potentially uncollectible balances. This amount has been reflected in general
and administrative expenses in the accompanying statement of operations for the
year ended December 31, 2008.
  7.           
Real Estate Note Receivable
  At
December 31, 2008 the balance in the real estate note receivable account
consisted of a $632,000 note receivable from an individual engaged in real
estate development reduced by an impairment reserve of $631,999 (see note 17).
The note resulted from deposits made by the Company on a land parcel that was to
be subdivided for resale. The initial note amounted to $535,000, was
collateralized by the underlying real estate and bore interest at the rate of 6%
annually.  During the year ended December 31, 2008, the Company
advanced an additional $97,000 towards the same real estate project. At December
31, 2008, accrued interest relating to this note of $41,695 has been included in
accrued interest receivable. The note receivable balance of $632,000 and related
interest receivable of $41,695 has been written down to $1 pursuant to
management’s evaluation of the viability of the real estate project, the
uncertainties raised by a failed Company sale of certain intellectual property
to a party related to the debtor (See note 15) and the cash flows expected from
the underlying real estate. The Company also believes that this note cannot be
sold due to the current economic conditions surrounding the real estate
market.
  8.             Deposit
on computer software and other assets
  At
December 31, 2008 deposits on computer software and other assets consisted of a
$514,321 deposit on a contract for the development of software for the ZATS
platform, a deposit of $993,754 with Transfer Online Technology Development, LLC
(“TOLTD”) towards the purchase of other necessary software and intellectual
property for the ZATS platform, a $75,000 deposit towards the failed acquisition
of Comedy.Net and other miscellaneous deposits totalling
$25,000.  These amounts have been netted by an impairment reserve of
$1,508,075 (see note 17) to reduce the book value of all of the above, except
for deposit towards the failed acquisition of Comedy.Net and other deposits of
$25,000 to zero. The $75,000 deposit towards the failed acquisition of
Comedy.Net has been written off as uncollectable due to the Company’s inability
to collect.
  F-16
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007


8.             Deposit
on computer software and other assets (continued)
  The
$514,321 deposit resulted from cash payments and stock issued to EAI, Inc.
(‘EAI”) towards the development (see note 15) of the software to operate ZATS.
The total cost of the contract was for $814,321. The amounts paid on this
contract are not expected to be recovered. The completion of this contract was
dependent upon the Company making a final payment of $300,000. The Company lacks
the resources to make such payment and further believes that such platform no
longer has a competitive advantage. The Company also believes that this software
cannot be sold due to its uniqueness and specific use.
  The
$993,754 deposit with TOLTD (see note 15) represents various advances to TOLTD
pursuant to an Asset Purchase Agreement dated  March 3,
2008,  whereby the Company agreed to purchase from TOLTD all rights,
title and interest in an online/electronic trading platform, including without
limitation, the source code, software, any and all intellectual property rights
and title related to such trading platform, excluding any licenses for third
party software necessary for the performance of the trading platform for the sum
of $1,000,000 .  Through December 31, 2008, the Company paid a deposit
of $50,000 in cash and $943,754 in stock which includes $37,253 in accrued
interest on the note pertaining to the purchase.  The amounts paid on
this agreement are not expected to be recovered. The transaction was rescinded
due to the Company’s failure to perform in accordance with the terms of the
agreement. The Company also believes that this platform cannot be sold even if
recoverd due to its uniqueness and specific use.
  The other
deposits of $25,002 which are deemed to be recoverable consist of a deposit
towards rent for our current office premises of $25,000, $1 towards the purchase
of the TOLTD intellectual property and $1 towards the purchase of
the  ZATS platform.
  9.             Property
and Equipment, net
 
 As of
December 31, 2008 and 2007 property and equipment consist of the
following:
 
 Estimated2008
              
              2007
              
              Useful LifeFurniture
      and Equipment
              $
              537,666
              
              $
              511,515
              
              3-15Leasehold
      Improvements
              
              140,374
              
              
              140,374
              
              5Less:
      Accumulated Depreciation
              
              (303,975)
              
              
              (201,519)Less:
      Impairment Reserve
              
              (80,286)
              
              
              -$
              293,779
              
              $
              450,370
 
 During
the twelve months ended December 31, 2008, the Company purchased assets for
$26,151 and recorded an impairment of $80,286 (see note 17) against leasehold
improvements relating to an office no longer occupied by the
Company.
 
 Depreciation
and amortization expense recorded during the twelve months ended December 31,
2008 and 2007 amounted to $102,455 and $101,428,
respectively.


F-17
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
 10.             Non-convertible notes
payable
 
 Non-convertible
notes payable at December 31, 2008 and 2007 are comprised of the
following:
 
 2008
                
                2007Short-Term
      Borrowings:Notes
      Payable - Subsidiary    (1)
                $
                -
                
                $
                3,765,659Notes
      Payable - Stockholders (2)
                
                2,056,039
                
                
                1,483,556Notes
      Payable - Financial Institutions (3)
                
                998,416
                
                
                1,000,000Notes
      Payable - Related Parties (4)
                
                1,571,518
                
                
                413,567Total
      Short-Term Borrowings
                
                4,625,973
                
                
                6,662,782Long-Term
      Borrowings:Note
      Payable – Stockholders (2)
                
                480,000
                
                
                480,000Total
      Long-Term Borrowings
                
                480,000
                
                
                480,000Total
      Notes Payable
                $
                5,105,973
                
                $
                7,142,782
 
 (1)  On
November 7, 2007, Zealous Holdings Inc. had entered into a revolving credit-line
with the Company of up to $5,000,000.  At December 31, 2007, the
aggregate amounts borrowed were $3,765,659.  At May 9, 2008 such
balance was eliminated upon merger.
 
 (2)  The
Company has notes payable to stockholders that are unsecured, interest bearing,
demand notes having interest rates ranging from 7% to 24%. All except for
$749,000 of these notes payable are in default as of December 31,
2008.
 
 (3)  The
Company has notes payable to financial institutions consisting of two revolving
lines of credit for $500,000 each, from Citibank and First Tennessee
Bank.  The line of credit from Citibank was established by individuals
affiliated to a stockholder and assigned to the Company on July 24,
2006.  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.  These
notes are in default as of December 31, 2008.
 
 (4)  The
Company had notes payable to related parties that 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, 2008. 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.
 F-18
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
 10.             Non-convertible notes payable
(continued)
 
 Borrowings
at December 31, 2008, based on their contractual terms, mature as
follows:
 
 Year
                Amount2009
                $
                4,625,973After
      2009
                
                480,000Total
                $
                5,105,973
  11.             Convertible
Debt
 
 At
December 31, 2008, the Company had various convertible notes payable amounting
to $3,661,991. 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 $0.02 per share.
During the twelve months ended December 31, 2008, the company issued 73,032,017
shares of its common stock for conversion of $1,452,509 of this convertible debt
into equity. The remaining balance of $3,661,991was therefore in default as a
result of the Company’s inability to pay by December 31, 2008. During February
2009 the remaining balance of these notes were ultimately converted into stock
pursuant to a force conversion effectuated by the Company (see note
17).
 
 In
connection with these 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.
 
 Upon
issuance, the Company 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. The Company 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.  During the twelve
months ended December 31, 2008, the Company amortized the remaining balance of
the discount of $1,988,309 as non-cash interest expense.
 F-19
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
 11.             Convertible
Debt (continued)
 In
connection with securing the 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 amortized over the terms of the notes.
Amortization of deferred financing costs during the twelve months ended December
31, 2008 amounted to $1,432,125.
 The
following table shows the amount of convertible notes payable and secured
convertible debentures as on December 31, 2008:
 
 Convertible
      notes payable
                $
                442,500Secured
      convertible debentures
                
                3,219,491Total
      as on December 31, 2008
                $
                3,661,991
 12.             Warrants
  During
the twelve months ended December 31, 2008, the Company 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 11 above, the
Company issued warrants to purchase 125,390,749 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, 2008:
  Description
                
                Number
      Outstanding at December 31,
                  2008
                
                Expiration
      Dates
                
                Exercise
                  Price
                
                Number
                  Exercisable
      at December 31,
                  2008Issued
      on 15% convertible notes
                
                8,109,375
                
                September
      through October 2012
                
                $
                0.02
                
                8,109,375Additional
      warrants on 15%
                  convertible
      notes – exercisable
                  after
      1 year
                
                5,406,249
                
                September
      through October 2012
                
                
                0.03
                
                5,406,249Issued
      on 5% secured
                  convertible
      debentures
                
                106,875,000
                
                October
      2012
                
                
                0.03
                
                106,875,000Issued
      on 12% convertible
                  promissory
      note
                
                5,000,000
                
                October
      2012
                
                
                0.03
                
                5,000,000
   F-20
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
  12.             Warrants
(continued)
 
 Issued
      upon sale of 4,250,000
                  shares
      of common stock
                
                2,125,000
                
                March
      2013
                
                0.05
                
                2,125,000Issued
      on non convertible debt
                
                13,325
                
                September
      through
                  November
      2010
                
                0.03 to 
      0.05
                
                13,325
   Issued
      to consultants
                
                24,275,000
                
                October
      2012 through
                  January
      2013
                
                $
                0.03
                
                24,275,000151,803,949
                
                
                
                
                
                
                151,803,949
 
 
 
 13.             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.
 
 During
the twelve months ended December 31, 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 SFAS 123R 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
 
 During
the twelve months ended December 31, 2008, the Company recorded stock based
compensation expense of $128,000 in accordance with SFAS 123R pertaining to
options granted.
 F-21
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
 13.             Stock
Options (continued)
 
 The
following table shows the total number of options outstanding as on December 31,
2008:
 
 SharesBalance,
      December 31, 2006
                -Add:
      Options granted during 2007
                1860,000Balance,
      December 31, 2007
                1,860,000Add:
      Options granted during 2008
                1,600,000Less:
      Options cancelled pursuant to the Merger
                (1,860,000)Total
      options outstanding as on December 31, 2008
                1,600,000Total
      number of options exercisable as on December 31,
      2008
                817,500
 
 Weighted
Average exercise price of options outstanding as on December 31, 2008 is $1.00
per share.
 
 Weighted
average fair value of options granted during the twelve months ended December
31, 2008 is $0.08 per share.
 
 14.            Commitments
and Contingencies
 
 Operating
leases
 
 In 2005,
the Company entered into a lease agreement for its corporate headquarters in Los
Angeles, California.  The lease was for a 62 month term, which was to
expire in the year 2011.  During November, 2008, the Company vacated
the premise in Los Angeles and identified tenants to take over the office space
and pay future rent for which the Company was responsible pursuant to the lease
agreement. During the twelve months ended December 31, 2008, the Company signed
a lease for office space located at Tustin, California which begins in June 2008
and expires in May 2011. The Company has also entered into a month to month
sub-lease of a portion of these new premises for $2,500 a month. Future minimum
lease payments for all non-cancelable operating leases are as
follows:
 
 Year
                Amount2009
                
                251,9402010
                
                251,9402011
                
                104,975Total
                $
                608,855
 F-22
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
 14.            Commitments
and Contingencies (continued)
 
 Legal
matters
 
 The
Company is subject to litigation from time to time in the normal course of
business.
 
 During
the twelve months ended December 31, 2008, the Company was served as a
co-defendant with a complaint by a former director and stockholder. The
complaint seeks damages in the amount of $600,000 plus interest and attorney
fees. In July 2008, the Company entered a settlement agreement for $350,000. The
Company has currently been served with a complaint as a co-defendant to enforce
the settlement agreement and is pursuing settlement
discussions.  The other
co-defendants in this case have agreed to assume any and all damages arising
from this settlement and therefore the Company has not accrued this judgment as
of December 31, 2008.
 
 Company
was served as a co-defendant with a complaint by a former director and
stockholder.  The complaint seeks recovery of $1,500,000, relating to prior
equity and unsecured debt investments, plus attorneys fees and costs.  The
complaint alleges violations of federal and state securities laws.  The
Company cannot determine the merit of the case at this time.
 
 The
Company was served as a defendant with a complaint by a secured creditor. 
The complaint seeks damages in the amount of $500,000 plus interest and
attorneys fees and costs.  The complaint alleges that the Company defaulted
on a secured convertible debenture held by plaintiff.  The Company cannot
determine the merit of the case at this time.
 
 The
Company was served as a co-defendant with a verified complaint by a creditor for
Unlawful Detainer.  The Company has filed an answer asserting affirmative
defenses on December 8, 2009.  Plaintiff issued discovery requests to the
Company on December 23, 2008.  The Company is in the process of propounding
and responding to discovery and is also engaged in settlement
discussions.
 
 Professional
Offshore Opportunities Fund Limited, a secured creditor, filed a complaint
against the Company on July 23, 2008.  Professional Offshore Opportunities
Fund Limited’s causes of action against the Company include negligent
misrepresentation, breach of the duty of good faith and fair dealing, and breach
of the debenture.  On January 30, 2009, the New York Court entered Judgment
against Defendant in favor of Plaintiff.  On February 3, 2009, Plaintiff
filed a Restraining Notice against the Company to prevent the sale of certain
property.  On February 23, 2009, Plaintiff filed with the Court a Notice of
Entry of Default, dated January 16, 2009, against Defendants for the principal
amount of $200,000, plus interest, costs and disbursements. The Company is
pursuing settlement negotiations and drafting a Motion to Set Aside
Default.
 
 F-23
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
 14.            Commitments
and Contingencies (continued)
 
 Legal matters
(continued)
 
 Kent G.
Wyatt, Sr., former CEO and Chairman of the board of the public shell
(pre-merger) filed a Complaint against the Company on October 24, 2008 for
alleged breach of promissory note, breach of consulting agreement, unpaid loans
and NSF checks, declaratory relief, breach of implied covenant of good faith and
fair dealing, intentional misrepresentation, negligent misrepresentation,
accounting, and conversion. On December 26, 2008 the Court entered Default
Judgment against all Defendants for the principal plus interests totaling
$270,259.  Defendants engaged in a settlement conference with
Plaintiff on March 30, 2009 and are continuing to pursue settlement
discussions.
 
 On
February 6, 2009, a shareholder filed a Complaint with the Company as
co-defendant alleging negligent misrepresentation, breach of fiduciary duty,
breach of 6 contracts, breach of implied covenant of good faith and fair dealing
of six contracts and violations of Corporate Code §§ 25400, 25401, 25500, 25501
25504, fraud, unjust enrichment on two contracts, equitable indemnity,
constructive trust, and unfair business practices.  The Company is engaged
in settlement discussion, preparing responsive pleadings, and completing
discovery responses.
 
 The
Company was served as a co-defendant with a verified complaint by a creditor on
February 4, 2009.  The Plaintiff alleges that Defendants failed to
repay Plaintiff in accordance with an executed Promissory Note, and Defendants
failed to pay a Guarantee as executed between Plaintiff and
Defendants.  Plaintiff is alleging damages in an amount of
$500,000.00, pre and post-judgment interest and attorneys’ fees and
costs.  Defendants are preparing responsive pleadings bringing
affirmative defenses.  In April 2009, Defendants also began settlement
discussions with Plaintiffs.
 
 On
November 7, 2007, the Company entered into a Letter of Agreement with The
Investor Relations Group, Inc. (“IRG”) in which IRG is to provide a
comprehensive corporate communications program.  The term of the
agreement is one (1) year unless sooner terminated and the Company shall pay on
a monthly basis $13,500. The Company was served with as a defendant with a
complaint by IRG.  The complaint seeks damages in the amount of
$40,000 plus interest and costs. On November 14, 2008, the New York Supreme
Court entered default against Defendant for failure to answer the Complaint. The
Company is evaluating the merits of the case and researching the advantages to
filing a Motion to Set Aside Default. The Company is also discussing settlement
possibilities with the Plaintiff.
 
 A former
employee of the Company filed a claim for non-payment of wages against the
Company with the Labor Commissioner, State of California alleging that the
Company owes him $4,000 in wages. The Company terminated his at-will employment
and the Company believes that it does not owe him any wages since he had been
paid in full through his termination date. . The Company is drafting responsive
pleadings and will oppose the claim at any future hearings.
 F-24
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
 14.            Commitments
and Contingencies (continued)
 
 Legal matters
(continued)
 
 
 A former
employee of the Company filed a claim for non-payment of wages against the
Company with the Labor Commissioner, State of California alleging that the
Company owes him $4,500 in wages. The Company terminated his at-will employment
and the Company believes that it does not owe him any wages since he had been
paid in full through his termination date. The Company is pursuing settlement
discussions.  The Company is also drafting responsive pleadings and
will oppose the claim at any future hearings.
  15.             Related
party transactions
 
 The
Company engages in various transactions and financing activities with related
parties which include amongst others stockholders of the Company and other
related businesses and acquaintances of prior officers and the Company’s Chief
Executive Officer.
 
 During
October 2008, the Company entered into an Asset Purchase Agreement (the”
Agreement”) with Global Access Holdings, LLC and its affiliate  (“GA”)
for the sale of certain Company assets and rights including the ZATS
platform  The controlling shareholder of GA is related to the
guarantor of a Company real estate note receivable which is deemed uncollectible
(see note 7). This transaction was never consumated due to the inability of the
parties to adhere to the terms of the agreement.
 
 During
March 2008, the Company entered into an Asset Purchase Agreement with TOLTD for
the purchase for $1,000,000 of certain software and intellectual property needed
for the operation of the Company’s ZATS platform.  The controlling
shareholder of TOLTD is also a creditor and shareholder of the Company (see note
8). This transaction was rescinded due to the Company’s failure to perform in
accordance with the terms of the agreement.
 
 Through
December 31, 2008 the Company paid approximately $514,000 to EAI towards the
development of the commercial ZATS software. EAI is controlled by a family
member of a previous officer of the Company (see note 8).
 
 During
the twelve months ended December 31, 2008, in connection with the closing of the
Merger with the public shell, the Company entered into a consulting agreement
with Kent Wyatt, a shareholder of the public shell.  Pursuant to the
consulting agreement, the Company engaged Mr. Wyatt as an independent consultant
for a term of one year.  Mr. Wyatt was to receive compensation of
$96,000 pursuant to the consulting agreement.  The Company has accrued
$64,000 of compensation pursuant to this consulting agreement as of December 31,
2008.
 F-25
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
  15.           Related
party transactions (continued)
 
 In
addition, the Company issued Mr. Wyatt a 7% promissory note in the amount of
$166,367, which was due and payable on July 19, 2008. In the event of non
payment the note includes certain penalty provisions which in effect increase
the interest rate retroactively to 10% and the principal balance by 10% every 30
days until repaid in full. The balance outstanding on this note as on December
31, 2008 including penalty increases of $97,915 was approximately $264,000.
During the twelve months ended December 31, 2008, the Company also borrowed
$15,000 from Mr. Wyatt pursuant to this note. Interest accrued on this note
amounted to approximately $13,000 at December 31, 2008.
 
 16.           Income
Taxes
 
 The
components of the Company's consolidated income tax provision are as
follows:
 
 Years
      ended December 31,2008
                
                2007Current
      benefit
                $
                1,758,686
                
                $
                35,000Deferred
      benefit (expense)
                
                2,207,305
                
                
                2,210,000Subtotal
                
                3,965,991
                
                
                2,245,000Less
      valuation allowances
                
                (3,965,991)
                
                
                (2,245,000)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 31,2008
                
                2007Computed
      at U.S. statutory rate
                34.00%
                
                34.00%State
      taxes, net of federal
                5.83%
                
                5.83%Stock
      based compensation expense
                0.70%
                
                -Stock
      based interest expense
                0.40%
                
                -Valuation
      allowance
                -40.93%
                
                -39.83%Total
                -
                
                -
 F-26
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
 16.           Income
Taxes (continued)
 
 At
December 31, 2008, the Company's net deferred tax assets consisted of the
following:
 
 Net
      operating loss carryforwards
                $
                2,710,163Amortization
      of debt discount
                
                676,025Amortization
      of deferred financing cost
                
                486,923Unrealized
      gain/loss - invest in equity securities
                
                62,899Asset
      impairment losses
                
                769,098Allowance
      for uncollectible loans and receivables
                
                192,835Subtotal
                
                4,897,943Less
      valuation allowances
                
                (4,897,943)Total
                $
                -
 
 SFAS No.
109 requires a valuation allowance to reduce the deferred tax assets reported,
if based on the weight of evidence, it is more likely than not that some portion
or the entire deferred tax asset will not be realized. After consideration of
all the evidence, both positive and negative, management has determined that a
valuation allowance of $3,966,988 and $931,952 as of December 31, 2008 and 2007,
respectively, is necessary to reduce the deferred  tax assets to the
amount that will more likely than not be realized. The change in the valuation
allowance for the current year is $0.
 
 Effective
January 1, 2007, the Company adopted the provisions of FASB Interpretation No.
48, “Accounting for Uncertainty in Income Taxes”. The Interpretation provides
clarification on accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with FASB No. 109, “Accounting
for Income Taxes.” The Interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return, and also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. As a result of the Company’s
evaluation of the implementation of FIN 48, no significant income tax
uncertainties were identified. Therefore, the Company recognized no adjustment
for unrecognized income tax benefits for the year ended December 31, 2008. The
tax years subject to examination by the taxing authorities are the years ended
December 31, 2007, 2006 and 2005.
 
 In May
2007, the FASB issued FASB Staff Position (“FSP”) FIN 48-1 “Definition of
Settlement in FASB Interpretation No. 48” (FSP FIN 48-1). FSP FIN 48-1 provides
guidance on how to determine whether a tax position is effectively settled for
purpose of recognizing previously unrecognized tax benefits. FSP FIN 48-1 is
effective retroactively to January 1, 2007. The implementation of this standard
did not have a material impact on our consolidated financial position or results
of operation.
 F-27
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
 16.           Income
Taxes (continued)
 
 At
December 31, 2008, the Company will have federal net operating loss carryforward
of approximately $17.8 million. Current federal tax law limits the amount of
loss available to offset future taxable income when a substantial change in
ownership occurs. Therefore the amount available to offset future taxable income
may be limited. The federal net operating losses expire by 2028.
 
 17.             Impairment
Losses
 
 The
evaluation of deposits on computer software and intellectual property, property
and equipment and real estate note receivable resulted in the following
impairment charges to operations for the year ended December 31,
2008:
  Unrecoverable
      advances to EAI for development of ZATS platform (1)
                $
                514,321Unrecoverable
      deposits and interest to TOLTD towards purchase of
                  additional
      software and intellectual property for ZATS platform (2)
                
                993,753Unamortized
      leasehold improvements related to vacated offices (3)
                
                80,286Unrecoverable
      real estate note receivable and accrued interest (4)
                
                673,694Total
                $
                2,262,054
  1)
                Represents
      impairment of deposit on a contract for the development of software for
      ZATS. This deposit resulted from cash payments and stock issued to EAI,
      towards the development (see note 15) of the software to operate ZATS. The
      total cost of the contract was for $814,321. The amounts paid on this
      contract are not expected to be recovered. The completion of this contract
      was dependent upon the Company making a final payment of $300,000. The
      Company lacks the resources to make such payment and further believes that
      such platform no longer has a competitive advantage. The Company also
      believes that this software cannot be sold due to its uniqueness and
      intended use. Hence this deposit has been impaired and carried on the
      books at $1 as on December, 31,
2008.
  2)
                Represents
      impairment of deposit with TOLTD (see note 15) pursuant to an Asset
      Purchase Agreement dated  March 3, 2008 The Company agreed to
      purchase from TOLTD all rights, title and interest in an online/electronic
      trading platform, including without limitation, the source code, software,
      any and all intellectual property rights and title related to such trading
      platform, excluding any licenses for third party software necessary for
      the operation of ZATS for the sum of $1,000,000 .  Through
      December 31, 2008, the Company paid a deposit of $50,000 in cash and
      $943,754 in stock which includes $37,253 in accrued interest on the note
      pertaining to the purchase.  The amounts paid on this agreement
      are not expected to be recovered. The transaction was rescinded due to the
      Company’s failure to perform in accordance with the terms of the
      agreement. The Company also believes that this platform cannot be sold
      even if recovered due to its uniqueness and specific use. This deposit has
      therefore been impaired by an amount of $993,753 and carried on the books
      at $1 as on December 31, 2008
  3)
                Represents
      impairment charge against leasehold improvements relating to an office no
      longer occupied by the
Company.
 
 F-28
 Table of Contents
 Zealous,
Inc. and Subsidiaries
 (Formerly,
Adult Entertainment Capital, Inc.)
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
 17.             Impairment
Losses (continued)
  1)
                  Represents
      impairment of principle and accrued interest related to the real estate
      note receivable. The note resulted from deposits made by the Company on a
      land parcel that was to be subdivided for resale. The initial note
      amounted to $535,000, was collateralized by the underlying real estate and
      bore interest at the rate of 6% annually.  During the year ended
      December 31, 2008, the Company advanced an additional $97,000 towards the
      same real estate project. At December 31, 2008, accrued interest relating
      to this note of $41,695 has been included in accrued interest receivable.
      The note receivable balance of $632,000 and related interest receivable of
      $41,695 has been written down to $1 pursuant to management’s evaluation of
      the viability of the real estate project, the uncertainties raised by a
      failed Company sale of certain intellectual property to a party related to
      the debtor and the cash flows expected from the underlying real estate.
      The Company also believes that this note cannot be sold due to the current
      economic conditions surrounding the real estate
  market.
 
 18.             Subsequent
events
  On
February 26, 2009, the Company issued 166,311,335 shares of common stock to
its   convertible note holders as part of a forced conversion of
their outstanding debt under the terms of the agreements.  This
conversion was based on the advice of legal counsel after review of the note
agreement’s forced conversion clauses and the new rules pertaining to section
144 restricted stock. The forced conversion took place after a period of
negotiations with the note holders in which no agreement was reached. The former
note holders continue to dispute the proprietary of the conversion.
  On
February 20, 2009, Zealous Holdings, Inc, (ZHI) a wholly owned subsidiary of the
Company engaged in financial services filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code.  ZHI will
continue to operate its business as "debtor-in-possession" under the
jurisdiction of the Bankruptcy Court and in accordance with the applicable
provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The
Company decided that it was in its best interest to withdraw the bankruptcy
filing for ZHI and contacted the Court to do so on April 30,
2009.  However, the Court by its own motion had already at that point
converted the bankruptcy to a Chapter 7 bankruptcy.  Thus, on Monday
May 11, 2009, the Company filed a Request for an Emergency Hearing to Dismiss
the Bankruptcy but that request was denied.  The Company believes that
it is now in a position to start settling and paying the debts for
ZHI.  Therefore, On Tuesday May 12, 2009, the Company requested this
filed that the Court schedule a Hearing on the Motion to Dismiss the Voluntary
Bankruptcy Petition with the California Central District Bankruptcy Court for
June 11, 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, effective March 31,
2009.
  F-29
 Table of Contents