As filed with the Securities and Exchange Commission on _______________.
REGISTRATION NO. ______________
U.S. SECURITIES AND EXCHANGE
COMMISSION WASHINGTON D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
THE FLOORING ZONE, INC.
---------------------------------------------
(Name of Small Business Issuer in its Charter)
Nevada 5211 20-0019425
- ----------------------------- -------------------------- -------------------
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification No.)
Organization) Code Number)
3219 Glynn Avenue, Brunswick, Georgia 31520
(912) 264-0505
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(Address and Telephone Number of Registrant's Principal Place of Business)
Gateway Enterprises, Inc.
3230 East Flamingo Road, Suite 156 Las Vegas, Nevada 89121
800 992-4333
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(Name, Address and Telephone Number of Agent for Service)
Copies to:
Ronald L. Poulton, Esq.
Poulton & Yordan
136 East South Temple, Suite 1700-A, Salt Lake City, Utah 84111
(801) 355-1341
Approximate Date of Proposed Sale to the Public: As soon as practicable from
time to time after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [ ]
If delivery of the prospectus is expected pursuant to Rule 434, please check the
following box. [ ]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------
Title of each Number of Proposed Maximum Proposed Maximum Amount of
Class of Securities Securities Offering Price Aggregate Offering Registration
to be Registered to be Registered Per Share Price (1) Fee(1)
- -------------------------------------------------------------------------------------------------------------------
Common Stock 10,000,000 $2.00 $20,000,000 $2,534
- -------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.
THE FLOORING ZONE, INC.
Maximum Offering: 10,000,000 Common Shares
Offering Price: $2.00 per share
================================================================================
The Flooring Zone, Inc. This is our initial public offering.
3219 Glynn Avenue No public market exists currently
Brunswick, Georgia 31520 for our common shares, although we
intend to apply for trading on the
OTC Bulletin Board, or the NASD
The Offering Small Cap market if this offering is
successful. We have not arranged to
have a broker/dealer make
application with the NASD to act as
Total a market maker for our common stock
Per Share Maximum after the offering.
--------- -------
Public Price .... $2.00 $20,000,000 The offering price may not reflect
Underwriting the market price of our shares after
Discounts ....... -0- -0- the offering. There is no minimum
Maximum offering amount and no escrow of
Proceeds to us .. $2.00 $20,000,000* funds is required by us.
================================================================================
*Proceeds to The Flooring Zone, Inc. are shown before deducting estimated
offering costs of $200,000 including legal and accounting fees and printing
costs payable by The Flooring Zone, Inc. This offering is self underwritten and
will be managed by us. The shares will be offered and sold by our officers and
directors without discounts or other commissions. We may also retain licensed
broker/ dealers to assist us in the offer and sell of shares in this offering,
if we deem such to be in our best interest. At this time we do not have any
commitments, agreements or understandings with any broker/dealers. The maximum
underwriting discounts and commissions we are willing to pay to engage
broker/dealers is 10% of the proceeds realized from the sale of shares sold by
such broker/dealers. In the event we retain any broker/dealers to assist in the
offer and sell of units, such broker/dealers must receive approval from the NASD
as to the reasonableness of the compensation paid by us to the broker/dealer.
Investing in these Shares involves a high degree of risk. The Shares
offered should not be purchased by any investor who cannot afford to sustain the
total loss of their investment. See "RISK FACTORS" on pages 4 through 6 for a
discussion of certain material risk factors that should be considered in
connection with an investment in the common shares offered hereby.
These securities have not been approved by the Securities and Exchange
Commission or any state securities agency nor has the Commission or any agency
passed upon the accuracy or adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
This offering will commence with the date of this prospectus and will end
270 days from that date, unless terminated earlier by us. There will be no
extensions of time in which to continue this offering.
The date of this Prospectus is ____, 2004.
1
TABLE OF CONTENTS
Page
Summary..................................................................... 3
Risk Factors................................................................ 4
Use of Proceeds............................................................. 6
Determination of Offering Price............................................. 9
Dilution.................................................................... 9
Selling Security Holders.................................................... 10
Plan of Distribution........................................................ 10
Legal Proceedings........................................................... 11
Directors, Executive Officers, Promoters and Control Persons................ 11
Security Ownership of Certain Beneficial Owners and Management.............. 12
Description of Securities................................................... 13
Interest of Named Experts and Counsel....................................... 15
Disclosure of Commission Position of Indemnification for Securities
Act Liabilities........................................................... 15
Organization Within Last Five Years......................................... 16
Description of Business..................................................... 16
Management's Discussion and Analysis of Results of Operations and
Financial Condition....................................................... 21
Description of Property..................................................... 27
Certain Relationships and Related Transactions.............................. 27
Market for Common Equity and Related Stockholders Matters................... 28
Executive Compensation...................................................... 28
Financial Statements........................................................ 29
Changes in and Disagreements with Accountant Disclosure..................... 48
2
PROSPECTUS SUMMARY
The Company
The Flooring Zone, Inc. is a Nevada corporation organized on May 5, 2003,
to operate full service retail floorcovering stores. We have a wholly-owned
subsidairy, The Flooring Zone of Georgia, Inc. The Georgia corporation was
formed in 2000, by the founders of The Flooring Zone, Inc., and was established
to develop our business concept in the retail floorcovering industry. Through
our subsidiary we operate a total of three retail stores. We have stores in
Brunswick and St. Mary's, Georgia and one in Yulee, Florida. We also maintain
administrative offices and warehouse facilities in Brunswick, Georgia. We are
conducting this offering to raise capital to expand our operations and store
locations in the southeastern United States.
The Offering
Securities Offered: 10,000,000 Shares of $.001 par value
Company common stock.
Offering Price: $2.00 per share.
Summary of Selected For the six months ended June 30, 2004,
Financial Data: our financial data is as follows:
Balance Sheet Data (Unaudited)
------------------------------
Total Assets $ 964,930
Total Current Liabilities $ 900,658
Stockholders' Deficit $ 276,986
Net Tangible Book Value $ 964,930
Net Tangible Book Value Per Share $ 0.03
Operations Data (Unaudited)
---------------------------
Gross Profits $ 788,956
Expenses $ 729,767
Net Income (Loss) $ 59,189
Income(Loss) per Share $ (0.00)
Termination Date: This offering will commence with the date of
this prospectus and will end 270 days from that
date, unless terminated earlier by us. There
will be no extensions of time in which to
continue this offering.
3
RISK FACTORS
An investment in the Shares offered hereby involves a high degree of risk.
You should carefully consider the following risk factors in addition to the
other information set forth elsewhere in this prospectus, including the
Financial Statements and Notes, prior to making an investment in The Flooring
Zone, Inc.
If we are unable to expand into new markets, our ability to grow our
business and to operate profitably could be materially adversely effected and
you could lose some or all of the funds you invest in this offering. We intend
to pursue an aggressive growth strategy for the foreseeable future. Our future
operating results will depend largely upon our ability to open and operate new
stores successfully. To support our growth, we employ a centralized management
information system to integrate our store operations and financial data. There
can also be no assurance that we will be able to expand our market presence in
our existing markets or successfully enter new or contiguous markets by opening
new stores or that any such expansion will not adversely affect our
profitability and results of operations. If we are unable to manage this growth
effectively, our business, results of operations and financial condition could
be materially adversely affected.
If we are unable to manage this growth effectively, the Company's
business, results of operations and financial condition could be materially
adversely affected. Our ability to successfully open new stores is dependent on
a number of factors including:
o the ability to hire, train and assimilate management and store-level
employees o the adequacy of the Company's financial resources
o the ability to identify new and contiguous markets, to locate and
construct suitable store sites, to negotiate acceptable lease terms
and to successfully compete in new and contiguous markets
o ability to minimize delay, increased expenses or loss of potential
sites due to the complexities associated with the regulatory and
permitting processes in the markets in which we attempt to locate
our stores
There can be no assurance that the Company will be able to achieve the planned
expansion, that the new stores will be accepted in the marketplace or that they
will achieve planned operating results or results comparable with the existing
Flooring Zone stores.
The floorcovering market is highly competitive. If we are unable to
successfully compete in the industry, you could lose your entire investment.
Competition in the retail floorcovering market is intense due to the significant
number or retailers. The majority of flooring retailers are independently owned
and operated stores. In addition, large retailers also provide significant
competition, including The Home Depot, Inc., Lowe's and Sears, Roebuck & Co.
Another significant competitor in the market is Shaw Industries, Inc., the
world's largest carpet manufacturer. In 1995 Shaw Industries announced its
decision to move into the retail floorcovering sector and has since acquired
Carpetland USA, Inc and New York Carpet World, Inc. The principal methods of
competition within the retail
4
floorcovering industry include store location, product selection, merchandising
strategy, customer service and price.
The floorcovering business is cyclical and our quarterly results of
operations may fluctuate significantly based on various factors such as
seasonality and economic downturns. If we encounter an unexpected or extended
cyclical downturn, we may not have sufficient financial resources to continue
operations, which could result in you losing all or part of your investment in
our Company. Our quarterly operating results have fluctuated in the past and are
expected to fluctuate in the future as a result of a variety of factors. We
expect our business to continue to exhibit some measure of seasonality, which we
believe is typical of the floorcovering industry. Individual stores generally
experience lower net sales, operating income and cash flow from operations and
lower sales of manufactured carpets in the first and fourth fiscal quarters when
compared to the second and third quarters, due primarily to the effect of winter
weather on home improvement projects. Other factors which may affect operating
results include the timing of store openings and related pre-openings expenses,
weather conditions, price increases by suppliers, actions by competitors,
conditions in the carpet manufacturing, home building and improvement markets
and the floorcovering industry in general. In addition, the floorcovering
industry historically has been adversely impacted by economic downturns. The
industry is also significantly influenced by economic conditions generally and
particularly by consumer behavior, consumer confidence, the level of personal
discretionary spending, the condition of the residential and commercial
construction industries, interest rates, credit availability and the overall
strength of the economy . A prolonged economic downturn could have a material
adverse effect on financial results and our ability to continue operations.
You may lose the full amount of your investment if we were to lose the
services of our President or other key senior management members. Our is largely
dependent on the skills, experience and efforts of its senior management and
especially its President and Chief Executive Officer, Jimmy S. Lee. The loss of
the services of Mr. Lee or other members of our senior management could have a
material adverse effect on our business and prospects. We believe that our
future success will also depend in part upon our ability to attract, retain and
motivate qualified personnel.
We are dependent upon several suppliers of floorcovering products. Any
significant disruption or change in our relationships with these supplier could
materially adversely effect our results of operations and the value of your
investments in our Company. We rely on several large independent floorcovering
manufacturers for the production of the floorcoverings we sell. In addition, our
retail inventory management is highly dependent on the delivery capabilities of
these manufacturers. Any significant changes in our relationships with
manufacturers, or in the manner in which these manufacturers produce or
distribute their products, could have a material adverse effect on our
operations. Although these manufacturers have been reliable, high-quality
producers, there can be no assurance that in the future these manufacturers will
be willing or able to meet our requirements on a timely basis or that their
pricing and rebate policies will remain competitive. While we believe there are
a number of alternative manufacturers capable of supplying and distributing the
floorcovering products we sell, any delays in obtaining alternative suppliers
could have a material adverse effect on our operations.
5
We have a limited operating history. We have developed our company's
business model based upon our experience in opening and operating three retail
floorcovering stores located in southeast Georgia and Northeast Florida. Based
upon the success of this offering, we intend to pursue a growth strategy by
opening and operating new retail floorcovering stores in areas with greater
populations such as Jacksonville, Florida and Atlanta, Georgia and other
metropolitan area in the southern states. There can also be no assurance that we
will be able to enter new or contiguous markets successfully.
If we are unsuccessful in gaining market share in the markets into which
we expand, we will be unable to generate revenue from those stores and you may
lose your entire investment. Our proposed business is based on our belief that
we can successfully enter and compete in new markets. We believe market
acceptance will be dependent on a number of factors including:
o advertising and promotion;
o acceptance from consumers;
o availability of competing products and services;
o pricing factors;
o other intangible factors.
The abovementioned factors change rapidly and cannot be predicted with
certainty. If we are unable to properly analyze market need and acceptance, we
may not gain the market share in these new markets that we need to generate
sufficient revenue to operate profitably. If our new stores cannot operate
profitably, that could materially adversely effect the results of operations of
the Company, which could result in you losing your entire investment.
There is no market for our securities which will cause your investment to
be extremely illiquid and virtually impossible to sell. Currently, our stock is
not listed on any established trading system. Therefore, the market for our
common stock is limited and we cannot assure you that a market will ever be
developed or maintained. The fact that most of our stock is held by a small
number of investors, further reduces the liquidity of our stock and the
likelihood that any active trading market will develop.
The market for our common stock is likely to be volatile and many factors
may affect the market. These include, for example:
o our success, or lack of success, in marketing our products and
services;
o competition;
o governmental regulations; and
o fluctuations in operating results.
The stock markets generally have experienced, and will likely continue to
experience, extreme price and volume fluctuations which have affected the market
price of the shares of many small capital companies. These fluctuations have
often been unrelated to the operating results of such companies. Such broad
market fluctuations, as well as general economic and political conditions, may
decrease the market price of our common stock in any market that may develop.
6
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are based on our
current expectations, assumptions, estimates and projections about us and our
industry. When used in this prospectus, the words "expects," "anticipates,"
"estimates," "intends" and similar expressions are intended to identify forward
looking statements. These statements include, but are not limited to, statements
under the captions "Risk Factors," "Use of Proceeds," "Plan of Operations,"
"Description of Business" and elsewhere in this prospectus.
These forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from those projected. The
cautionary statements made in this prospectus should be read as being applicable
to all related forward-looking statements wherever they appear in this
prospectus.
USE OF PROCEEDS
The following table sets forth our estimate of the allocation of net
proceeds from this offering based on varying levels of funding that we deem to
be key milestones to our operations. Actual expenditures may vary from these
estimates. If we raise at least $1,375,000 we will seek to satisfy our
outstanding debt obligations. If we raise at least $4,750,000, we intend to open
four new showroom stores and one warehouse/hub facility in Florida. If we raise
at least $10,250,000, we intend to open ten new showroom stores and two
warehouse/hub facilities in Florida. If we raise at least 15,750,000, we intend
to open ten new showroom stores, two warehouse/hub facilities in Florida and
eight new showroom stores and one to two warehouse/hub facilities in Georgia. In
the event we raise the full $20,000,000, in addition to the showroom stores and
warehouse/hub facilities we plan to open if we raise at least $15,750,000, we
may open additional stores in Florida and/or Georgia, and stores in North
Carolina and/or South Carolina. Pending such uses, we will invest the net
proceeds in investment- grade, short-term, interest bearing securities. The
following order of the use of proceeds reflects the order of priority of each
purpose.
$1,375,000 % $4,750,000 % $10,250,000 % $15,750,000 % $20,000,000 %
---------- - ---------- - ----------- - ----------- - ----------- -
Commissions/
Finders' fees(1) 137,500 10 475,000 10 1,025,000 10 1,575,000 10 2,000,000 10
Offering expenses 225,000 16 225,000 4 225,000 2 225,000 2 225,000 1
Reduce debt (2) 1,000,000 73 1,000,000 21 1,000,000 10 1,000,000 6 1,000,000 5
Working capital(3) 12,500 1 990,000 21 2,000,000 20 3,200,000 20 4,193,750 21
----------
Leasehold
improvements,
deposits 450,000 9 1,200,000 12 1,950,000 13 2,516,250 13
Furniture, fixtures,
displays, samples 510,000 11 1,360,000 13 2,210,000 14 2,851,750 14
7
Inventory 600,000 13 1,840,000 18 2,990,000 19 3,858,250 19
Computer
hardware/software 120,000 3 320,000 3 520,000 3 671,000 3
Machinery,
equipment 90,000 2 240,000 2 390,000 3 503,250 3
Store Signs 145,000 3 520,000 5 845,000 5 1,090,375 5
Advertising prior
to opening new
stores 145,000 3 520,000 5 845,000 5 1,090,375 6
---------- ----------- ----------- -----------
Total $1,375,000 $4,750,000 $10,250,000 $15,750,000 $20,000,000
========== ========== =========== =========== ===========
- ----------------
(1) At the present time, we intend to have our officers and directors offer
and sell the shares included in this prospectus. Our officers and
directors will not be paid any commission or finders' fee for shares they
sell. We reserve the right, however, to retain licensed broker/dealers to
assist us in the offer and sale of shares in this offering, if we deem
such to be in our best interest. At this time we do not have any
commitments, agreements or understandings with any broker/dealers, we
have, however, designated maximum underwriting discounts, commissions and
fees we are willing to pay to engage broker/dealers at 10% of the proceeds
realized from the sale of shares sold by such broker/dealers. To the
extent we do not incur commissions and finders' fees, funds set aside to
pay such commissions and finders' fees will be applied to working capital.
(2) The net proceeds of the offering designated to reduce debt will be applied
to reduce current liabilities including accounts payable, accrued
liabilities and long-term debt. The long-term debts to be reduced include
the following:
a) A secured note payable to a bank requiring monthly payments through
April 2005, and bearing interest at a rate of 8.00%
b) A secured note payable to a bank requiring monthly payments through
August 2006, and bearing interest at a rate of 5.84%;
c) An unsecured note payable to a shareholder requiring monthly
payments through October 2008, and bearing interest at a rate of
10.00%;
d) A secured note payable to a bank requiring monthly payments through
August 2013, and bearing interest at 6.00% per year; and
e) An unsecured note payable to an individual that is due on demand and
bears interest at a rate of 6.00% per year.
(3) The net proceeds of the offering remaining in working capital will be
invested in short-term, interest bearing accounts and investments.
8
DETERMINATION OF OFFERING PRICE
As no underwriter has been retained to offer our securities, the offering
price of our shares was not determined by negotiation with an underwriter as is
customary in underwritten public offerings. Rather, we arbitrarily selected the
offering price. There is no relationship between the offering price of the
shares and our assets, earnings, book value, net worth or other economic or
recognized criteria or future value of our shares.
DILUTION
As of the date of this offering, we had 38,428,700 common shares issued
and outstanding and no preferred shares outstanding, and a net tangible book
value of $964,930 or $0.03 per share. The proceeds from the sale of shares will
vary depending on the total shares sold.
If all 10,000,000 shares offered herein are sold there would be a total of
48,428,700 common shares outstanding. If the maximum offering is sold, the net
proceeds to us after deducting sales commissions/finders' fees and offering
costs would be $17,775,000. Adding the net proceeds to our current net tangible
book value, our total net tangible book value would be $18,739,930. Dividing our
net worth by the number of common shares outstanding discloses a per share book
value of approximately $0.39 per share. Therefore, the shareholders who
purchased pursuant to the offering will suffer an immediate dilution in the book
value of their shares of approximately $1.61 or approximately 81% and the
present shareholders will receive an immediate increase in book value of
approximately $0.36 per share.
If 7,875,000 shares offered herein are sold there would be a total of
46,303,700 common shares outstanding. If 7,875,000 shares are sold, the net
proceeds to us after deducting sales commissions/ finders' fees and offering
costs would be $13,950,000. Adding the net proceeds to our current net tangible
book value, our total net tangible book value would be $14,914,930. Dividing our
net worth by the number of common shares outstanding discloses a per share book
value of approximately $0.32 per share. Therefore, the shareholders who
purchased pursuant to the offering will suffer an immediate dilution in the book
value of their shares of approximately $1.68 or approximately 84% and the
present shareholders will receive an immediate increase in book value of
approximately $0.29 per share.
If 5,125,000 shares offered herein are sold there would be a total of
43,553,700 common shares outstanding. If 5,125,000 shares are sold, the net
proceeds to us after deducting sales commissions/ finders' fees and offering
costs would be $9,000,000. Adding the net proceeds to our current net tangible
book value, our total net tangible book value would be $9,964,930. Dividing our
net worth by the number of common shares outstanding discloses a per share book
value of approximately $0.23 per share. Therefore, the shareholders who
purchased pursuant to the offering will suffer an immediate dilution in the book
value of their shares of approximately $1.77 or approximately 88% and the
present shareholders will receive an immediate increase in book value of
approximately $0.20 per share.
If 2,375,000 shares offered herein are sold there would be a total of
40,803,700 common shares outstanding. If 2,375,000 shares are sold, the net
proceeds to us after deducting sales commissions/
9
finders' fees and offering costs would be $4,050,000. Adding the net proceeds to
our current net tangible book value, our total net tangible book value would be
$5,014,930. Dividing our net worth by the number of common shares outstanding
discloses a per share book value of approximately $0.12 per share. Therefore,
the shareholders who purchased pursuant to the offering will suffer an immediate
dilution in the book value of their shares of approximately $1.88 or
approximately 94% and the present shareholders will receive an immediate
increase in book value of approximately $0.09 per share.
If 687,500 shares offered herein are sold there would be a total of
39,116,200 common shares outstanding. If 687,500 shares are sold, the net
proceeds to us after deducting sales commissions/ finder's fees and offering
costs would be $1,012,500. Adding the net proceeds to our current net tangible
book value, our total net tangible book value would be $1,977,430. Dividing our
net worth by the number of common shares outstanding discloses a per share book
value of approximately $0.05 per share. Therefore, the shareholders who
purchased pursuant to the offering will suffer an immediate dilution in the book
value of their shares of approximately $1.95 or approximately 98% and the
present shareholders will receive an immediate increase in book value of
approximately $0.02 per share.
The following table illustrates the dilution which will be experienced by
investors in the offering:
If 10,000,000 If 7,875,000 If 5,125,000 If 2,375,000 If 687,500
shares sold shares sold shares sold shares sold shares sold
----------- ----------- ----------- ----------- -----------
Offering price per share before
deduction of offering expense $2.00 $2.00 $2.00 $2.00 $2.00
Net tangible book value per
share before the offering 0.03 0.03 0.03 0.03 0.03
Net tangible book value per
share after the offering 0.39 0.32 0.23 0.12 0.05
Dilution to new investors per
share 1.61 1.68 1.77 1.88 1.95
Dilution to new investors as a
percentage 81% 84% 88% 94% 98%
SELLING SECURITY HOLDERS
None of our existing shareholders is selling securities pursuant to this
registration statement.
PLAN OF DISTRIBUTION
Currently we plan to have our officers and directors sell the common
shares on a self underwritten basis. They will receive no discounts or
commissions. In the past, we have received unsolicited indications of interest
in The Flooring Zone, Inc. from persons familiar with us. These indications have
been nothing more than verbal communications and we have no commitments, oral or
10
written, from any party to purchase any of our shares. Our officers and
directors will deliver prospectuses to these individuals and to others who they
believe might have interest in purchasing all or a part of this offering. At
this time, we do not intend to retain an underwriter or licensed broker/dealers
to assist us in the offer and sell of the shares. Similarly, we do not intend to
offer the shares for sale via the internet. None of our officers or directors
are registered broker-dealers and therefore will rely on the exemption provided
in Rule 3a4-1 under the Securities Exchange Act of 1934 to sell the shares.
To buy shares you must complete and execute the subscription agreement and
return it to us at 3219 Glynn Avenue Brunswick, Georgia 31520. Payment of the
purchase price may be made by check or money order payable to the order of "The
Flooring Zone, Inc." There is no minimum offering and no escrow account has been
established, therefore, all funds will be made available to The Flooring Zone,
Inc. upon receipt.
We have the right to accept or reject subscriptions in whole or in part,
for any reason or for no reason. All monies from rejected subscriptions will be
returned immediately to the subscriber, without interest or deductions.
Subscriptions for securities will be accepted or rejected within 48 hours after
we receive them. This offering will commence with the date of this prospectus
and will end 270 days from that date, unless terminated earlier by us. There
will be no extensions of time in which to continue this offering.
LEGAL PROCEEDINGS
To our knowledge, neither us, nor any of our officers or directors is a
party to any material legal proceeding or litigation and we know of no material
legal proceeding or contemplated or threatened litigation. There are no
judgments against us or our officers or directors. None of our officers or
directors has been convicted of a felony or misdemeanor relating to securities
or performance in corporate office.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS
The following table sets forth our directors, executive officers,
promoters and control persons, their ages, and all offices and positions held.
Directors are elected for a period of one year and thereafter serve until their
successor is duly elected by the stockholders. Officers and other employees
serve at the will of the Board of Directors.
Name Age Positions Held Director Since
- ---- --- -------------- --------------
Jimmy S. Lee 40 CEO/President and Director May 2003
Michael J. Carroll 35 Secretary/Treasurer and Director May 2003
Steven C. Nichols 37 Vice President May 2003
11
There is currently one vacancy on our board of directors that we expect to
fill with an independent director. Our ability to locate an independent director
may be unsuccessful because we do not have error and omission insurance for
officers and directors. The above individuals will serve as officers and/or
directors. A brief description of their positions, proposed duties and their
background and business experience follows:
Jimmy S. Lee. Mr. Lee founded the Flooring Zone, Inc., in May 2003, and
has served as the President, CEO and a Director of the Flooring Zone, Inc.,
since that time. Mr. Lee founded the Flooring Zone of Georgia, Inc., in June
2000. Since June of 2000, he has also served as the President, CEO and a
Director of the Flooring Zone of Georgia, Inc. In his capacities with the
Flooring Zone and the Flooring Zone of Georgia, Mr. Lee has been responsible for
the day to day operations and overseen the activities of the sales departments
of each entity. Prior to founding the Flooring Zone of Georgia, Mr. Lee served
as the General Manager of Tommy Lee Carpets, Inc., where he managed office
personnel, sales staff and installation subcontractors. Mr. Lee was employed by
Tommy Lee Carpets from July 1996 to May 2000. Mr. Lee is not a director of any
other reporting company.
Michael J. Carroll. Mr. Carroll has served as the Secretary, Treasurer and
a Director of the Flooring Zone, Inc., since May 2003, and has held the same
positions with The Flooring Zone of Georgia, Inc., since June 2000. In August
1997, Mr. Carroll founded Carroll Custom Homes, Inc., and since that time has
served as its President. In that capacity, Mr. Carroll has been primarily
responsible to oversee the development and construction of residential housing
and to manage purchasing, payroll and accounts payable. Mr. Carroll graduated
from Georgia College and State University with a Bachelors Degree in Business
Administration in 1992. Mr. Carroll is not a director of any other reporting
company.
Steven C. Nichols. Mr. Nichols has served as a Vice President of the
Flooring Zone, Inc., since May 2003. Mr. Nichols has also served as the Vice
President of the Flooring Zone of Georgia, Inc., since May 2002. As the Vice
President Mr. Nichols duties include sales, collections, customer service and
overseeing the operations of Company stores. From December 2000 to December
2001, Mr. Nichols also worked as an account representative for Cook's Wholesale
Flooring in Atlanta, Georgia where he was responsible for introducing new and
existing products to existing and prospective accounts. From January 1997 to
December 2000, Mr. Nichols owned and operated Floors For Less Floor Coverings.
As the owner, he was responsible to oversee all aspects of the business. Mr.
Nichols earned a Bachelors of Science Degree in Economic from Valdosta State
College in 1989. Mr. Nichols is not a director of any other reporting company.
There are no family relationships among any of our officers and directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The term "beneficial owner" refers to both the power of investment (the
right to buy and sell) and rights of ownership (the right to receive
distributions from the company and proceeds from sales of the shares). Inasmuch
as these rights or shares may be held by more than one person, each person who
12
has a beneficial ownership interest in shares is deemed the beneficial owners of
the same shares because there is shared power of investment or shared rights of
ownership.
Amount of
Title of Beneficial % of Class % of Class
Name and Address Class Ownership Before Offering After Offering(1)
- ---------------- -------- --------- --------------- -----------------
Jimmy Lee Common 19,000,000 49% 39%
3219 Glynn Avenue
Brunswick, Georgia 31520
Michael Carroll Common 19,000,000 49% 39%
3219 Glynn Avenue
Brunswick, Georgia 31520
Steven Nichols Common 1,000 * *
3219 Glynn Avenue
Brunswick, Georgia 31520
- -------------------------------------------------------------------------------------------------------------------
All officers and directors
as a group (3 persons) 38,001,000 99% 78%
- -------------------------------------------------------------------------------------------------------------------
TOTAL 99% 78%
===================================================================================================================
* Less than 1%
- -------------------
(1) Assumes that all 10,000,000 shares are sold in this offering.
DESCRIPTION OF THE SECURITIES
Description of Common Stock. Our authorized capital stock consists of
100,000,000 shares of common stock with a $.001 par value and 10,000,000 shares
of preferred stock with a $.001 par value. As of September 1, 2004, we had
approximately 38,428,700 common shares outstanding. We have no preferred shares
outstanding. Holders of our common shares are entitled to receive dividends when
declared by the Board of Directors out of funds legally available therefore. Any
such dividends may be paid in cash, property or shares. We have not paid any
dividends since our inception. All dividends will be subject to the discretion
of the Board of Directors, and will depend upon, among other things, our
operating and financial conditions, capital requirements and general business
conditions. Therefore, there can be no assurance that any dividends on the
shares will be paid in the future.
All common shares have equal voting rights and, when validly issued and
outstanding, will have one vote per share on all matters to be voted upon by the
shareholders. Cumulative voting in the
13
election of directors is not allowed, and a quorum for shareholder meetings
shall result from a majority of the issued and outstanding shares present in
person or by proxy. Accordingly, the holders of a majority of the common shares
present, in person or by proxy at any legally convened shareholders' meeting at
which the Board of Directors is to be elected, will be able to elect all
directors and the minority shareholders will not be able to elect a
representative to the Board of Directors.
Common shares have no preemptive or conversion rights, no redemption or
sinking fund provisions, and are not liable for further call or assessment. Each
common share is entitled to share pro rata any assets available for distribution
to holders of its equity securities upon our liquidation.
Description of Preferred Stock. We currently have authorized 10,000,000
shares of preferred stock, $.001 par value, with no shares issued or
outstanding. No rights, privileges and preferences have been designated for our
preferred stock. Our Board of Directors is authorized to divide our preferred
shares into classes or series and to designate the rights, privileges and
preferences of any such class or series of preferred stock by resolution prior
to its issuance.
Description of Stock Options. We have adopted The Flooring Zone, Inc.,
2003 Stock Incentive Plan (the "Plan") allowing us to offer our key employees,
officers, directors, consultants and sales representatives, an opportunity to
acquire a proprietary interest in our corporation. The various types of
incentive awards which may be provided under the Stock Option Plan will enable
us to respond to changes in compensation practices, tax laws, accounting
regulations and the size and diversity of its business. The total number of
common shares reserved and available for distribution under the Plan is 500,000
shares. These shares will underlie the options granted by us pursuant to the
Plan. In June 2003, we granted stock options to purchase up to 45,000 shares of
our common stock to our employees and consultants. All such options were
exercised prior to the year ended December 31, 2003. At the current time, there
are no stock options outstanding. No option shares are being registered under
this registration statement
Option holders are not protected against dilution if we should issue
additional shares in the future. Neither the options, nor the shares underlying
the option have preemptive rights.
In the case of any reclassification, change, consolidation, merger, sale
or conveyance of our shares to another corporation, we will make adequate
provision whereby the registered holder of any outstanding option will have the
right thereafter to receive an exercise of the options immediately prior to the
reclassification, change, consolidation, merger, sale or conveyance of our
shares.
Other provisions of the options are set forth below. This information is
subject to the provisions of the Plan and the Stock Option Certificates
representing the options. The following information is a summary of The Flooring
Zone, Inc., 2003 Stock Incentive Plan.
1. The shares underlying the options offered pursuant to the Plan are
subject to the same rights and restrictions as other shares.
2. Once an option is granted, we may not be call the option.
14
3. The options may not be sold prior to six months from the date of the
grant of the related award without our prior approval.
4. Unless exercised within the time provided for exercise, the options
will automatically expire.
5. The exercise price per share purchasable under a stock option shall be
determined by the Committee at the time of grant and may not be less that 100%
of Fair Market Value of the shares, provided however, that the exercise price of
an Incentive Stock Option granted to a 10% Stockholder shall not be less than
110% of the Fair Market Value of the shares.
6. There is no minimum number of shares that must be purchased upon
exercise of the option.
7. The option holders, in certain instances, are protected against
dilution of their interest represented by the underlying shares upon the
occurrence of stock dividends, stock splits, reclassifications and mergers.
Transfer Agent. OTC Stock Transfer, Inc., located at 231 East 2100 South,
Salt Lake City, Utah 84165, Telephone (801) 485-5555, has agreed to be our
transfer agent upon completion of this offering.
INTEREST OF NAMED EXPERTS AND COUNSEL
None of the experts named herein was or is a promoter, underwriter, voting
trustee, director, officer or employee of The Flooring Zone, Inc. Further, none
of the experts was hired on a contingent basis and none of the experts named
herein will receive a direct or indirect interest in The Flooring Zone, Inc.
Legal Matters. Certain legal matters will be passed upon for us by Poulton
& Yordan, of Salt Lake City, Utah.
Accounting Matters. The financial statements included in this prospectus
and elsewhere in the registration statement have been audited by Mantyla
McReynolds LLC, located in Salt Lake City, Utah, as indicated in their report
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in accounting and auditing in giving said reports.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "act") may be permitted to directors, officers and controlling
persons for the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the
15
Act and is, therefore, unenforceable.
In the event that any claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
ORGANIZATION WITHIN LAST FIVE YEARS
We filed our Articles of Incorporation on May 5, 2003. On May 13, 2003,
pursuant to a Share Exchange Agreement, we acquired all of the outstanding
common stock of The Flooring Zone of Georgia, Inc., in exchange for 38,125,000
shares of our common stock. The Flooring Zone of Georgia, Inc., was founded by
our president in 2000, and had been operating in the retail floorcovering
industry since its inception. We currently operate a network of four retail
flooring stores located in the southeast United States, two of which are in
southern Georgia and two in northern Florida. Our executive offices are located
in our Georgia store located at 3219 Glynn Avenue, Brunswick, Georgia 31520. Our
telephone number at that location is (912) 264-0505.
DESCRIPTION OF BUSINESS
Retail Floorcovering Industry
The North American retail floorcovering industry is highly fragmented with
approximately 15,000 individual floorcovering retail dealers operating 25,000
locations in North America according to FLOOR COVERING WEEKLY, a leading
floorcovering industry publication. Our management believes that no single
retailer accounts for more than a 5% market share of total annual industry
revenues. The industry is characterized by a large number of small local and
regional companies and a small number of national chains, such as The Home
Depot, and organizations such as Carpet One and Carpet Max, which principally
operate as buying groups offering their members economies of scale in the
purchasing of floorcovering products.
History of the Flooring Zone
Early Development. Mr. Lee founded our subsidiary, The Flooring Zone of
Georgia, Inc. in June of 2000. Based upon his experience working with retail
carpet stores owned by his grandfather and father and his experience with a
national floorcovering retail company, Mr. Lee developed a strategy for a full
service floorcovering retail operation. Through our subsidiary we initiated our
present strategy of providing low-cost product sourcing and advanced specialty
retailing capabilities. We have focused on establishing relationships with the
leading carpet suppliers to negotiate favorable purchasing terms. In addition,
we seek to hire experienced retailing management personnel and developed product
mix, distribution, merchandising, advertising, and promotion, sales training and
store
16
operations strategies and resources designed to increase store sales volume and
profitability.
Most small independent floorcovering retailers face distinct competitive
disadvantages and challenges, including limited purchasing power for products
and services, lack of consumer product knowledge, and ineffective asset
management, merchandising, selling and store-management techniques. We believe
our four store network is larger than most other independent floorcovering
retailers. We also believe that we are significantly smaller than the larger
floorcovering retailers who may enjoy better economies of scale but often lose
the personal touch delivered by smaller operations.
Our operating strategies are designed to capitalize on competitive
advantages of the smaller retailers while developing and maintaining
industry-leading buying power and the implementing professional retailing
operations.
Business Strategy
The principal elements of our business strategy are as follows:
Full-service Retail Formats. A central aspect of our business strategy is
the development of a retail format that targets a specific segment of the
floorcovering market. Our floorcovering stores offer customers a full range of
floorcovering products directly and floorcovering services, including ordering,
measuring, delivery and installation through third parties. Our stores typically
offer discount floorcovering products held in inventory at the store. We have a
small installation staff and can provide installation services. We also maintain
strong relationships with several floorcovering installers who can provide
installation services to our customers. By primarily outsourcing installation,
management believes that we can effectively target both the customer primarily
concerned with product selection, quality and customer service, and the customer
primarily concerned with price.
Purchasing. We believe we are able to obtain competitive pricing, delivery
terms and merchandising programs by leveraging the purchasing power of our
retail network and by maintaining close relationships with floorcovering
manufacturers.
Professional Retail Management Capabilites. We have invested substantial
financial and management resources into the development of information systems,
services and infrastructure to support our retail floorcovering network. We are
committed to making shopping for floorcovering products a pleasant experience
through the employment of well-trained, knowledgeable and courteous sales
associates. We plan to continue to invest in information systems and use current
technology to improve the operating efficiency of our business.
Centralized Distribution and Limited Inventory Levels. We attempt to
minimize our store-level inventories by utilizing our primary distribution
center in Brunswick, Georgia. As we grow, we plan to use regional warehouse
facilities on a limited basis to receive shipments and to stock high volume
items. As a result, our retail stores will maintain limited amounts of
inventory, consisting primarily of product samples and enough inventory to
support the cash-and-carry customer. In addition, a distribution center or hub
allows us to purchase and inventory "specials," or seasonal overruns.
17
Multiple Product Categories. We offer a full range of floorcovering
products, including broadloom carpets, area rugs, hardwood floorings, ceramic
tiles and vinyl floorings, available in both private and branded labels.
Multiple product categories allow us to respond to changes in consumer demand.
Our focus on multiple floorcovering products results in decreased carpet sales
as a percentage of total retail sales.
Growth Strategy. Our growth strategy is to develop the leading retail
floorcovering network in North America. We intend to continue our growth
strategy initially throughout the southeastern United States in the areas
surrounding our current network. The principal elements of our growth strategy
include (i) opening additional company-owned stores, (ii) broadening our
products and services, and (iii) making selective acquisitions.
Opening of New Stores. We intend to initially expand within our existing
markets or into contiguous new markets and attempt to continue to cluster our
stores within a market in order to achieve management and operating efficiencies
and to enhance our name recognition. We believe, however, that we can also
establish company-owned stores in new markets due to our effective strategies in
generating customer traffic.
We intend to open new stores in Class A strip shopping retail space and we
have developed several standardized store formats ranging from 6,500 to 10,000
square feet to accelerate store openings and minimize store opening costs. The
interior store designs include pre-determined product mixes, fixtures and
equipment, signage, and point-of-sale advertising and promotional programs. Once
a new store site is identified, we will stage the products, merchandising
systems and personnel for the new store in our distribution center and
headquarters. We believe that we can open a Flooring Zone store within 45 to 90
days of executing a lease, with expected total capital expenditures, initial
inventory investments and pre-opening expenses ranging from $75,000 to $150,000
per store. We do not currently intend to offer our stores as franchises.
Broadening of Products and Services. We are developing additional services
relating to product installation, maintenance and in-store credit, among others.
These additional services, if fully developed, will be utilized by retail
operations to increase sales and profitability.
Making Selective Acquisitions. We intend to search for existing
floorcovering retail stores that would strengthen our distribution capabilities,
that can be reasonably converted into Flooring Zone stores, and that are able to
be acquired at or below what we believe our costs would be to open a new store
and generate customer traffic.
Company Operations
We provide our retail floorcovering stores with products, services and
trained personnel that we believe generally are unavailable to many independent
floorcovering retailers and would be cost prohibitive for most independent
dealers to develop. Our resources include merchandising, purchasing and
distribution, advertising and promotion, management and sales training and
management information systems, as described below.
18
Purchasing and Distribution. Due to the floorcovering puchasing volume of
our retail network and our relationships with floorcovering suppliers,
management believes that we obtain high-quality products and services at
competitive costs. A substantial portion of the floorcovering products purchased
by or through our Company are shipped directly by the supplier to our individual
retail stores or to our distribution hub. Our stores generally maintain minimal
inventory, which predominantly consists of product samples. Our distribution
center or hub allows us to make opportunistic purchases from carpet mills at
substantially discounted prices. We are also able to offer special purchases to
customers, including purchases of mill drops (discontinued lines) and excess
mill inventory which are occasionally made available to us at discounted prices.
We also make available on an ongoing basis remnant packages and short roll
packages which can be as small as 10 and as large as 1,000 remnants at a time.
Our ability to purchase and inventory private-label products and specials
creates the opportunity for increased revenues and margins and lower pricing to
the customer. We have relationships with many vendors within the industry. While
we have preferred vendors from whom we purchase a majority of our products,
because of our numerous relationships within the industry, we do not believe
that we are dependent upon any one vendor for product purchases. Nor do we
believe that the loss of any single vendor would have a long-term material
adverse effect on our operating results or financial position.
Product Mix and Merchandising. We offer a full range of floorcovering
products from key suppliers, including Shaw, Mohawk Industries, Beaulieu of
America, DuPont and AlliedSignal for proprietary carpet fiber, Armstrong World
Industries and Congoleum for vinyl flooring, Bruce Hardwood Floors (a division
of Triangle Pacific) for hardwood flooring and Dal-Tile for ceramic tile. Each
of these suppliers is a leader in its respective floorcovering category. Our
suppliers also include niche carpet, vinyl, hardwood and ceramic tile producers,
as well as leading manufacturers and importers of room-size area rugs.
Our merchandising strategies address effective store layout, fixtures,
signage, product mix, and cross-selling techniques designed to increase sales
closing performance, average transaction size, sales per square foot of retail
space, and gross margins. Store interiors provide easy-to-locate presentation of
floorcovering samples, organized by product line, in an attractive and brightly
lit interior. In addition, we provide conference rooms where contractors and
interior designers can meet with their clients to discuss flooring options.
Advertising and Promotion. We believe advertising and promotion are
important to our success. Therefore, we budget a percentage of revenues per
market for multimedia advertising campaigns. These campaigns will include radio,
bill board, print, direct mail and television promotions. To promote our
products we also offer our low price guarantee - If you find a local competitor
selling your new first quality carpet for less money we will double the
difference. We also hold one day "Private Sales" events at each of our retail
stores twice a year. Our Private Sales events are conducted by direct mail
invitation with coordinated manufacturer's participation.
Management and Sales Training. Our training program focuses on developing
professional sales and leadership skills and team building concepts. Our
training methodology incorporates a turnkey training and diagnostics system that
provides our retail stores with competent and skilled professional personnel.
19
In addition, our management has ongoing training to keep our employees
informed about the latest floorcovering information such as new technology, new
products, merchandising, available specials and design trends.
Management Information Systems. Our stores utilize a point-of-sale
software system for tracking consumer demographics and purchasing patterns and
other data to integrate all store operations into a central information system
we spent the last three years developing in-house.
Credit. Through a national bank we offer consumer credit packages to our
retail network.
Store Operations
Retail Operations. We have and intend to continue to open and operate
floorcovering stores in markets that we believe have the potential for
above-average growth in floorcovering sales. Our stores generate revenues
through sales of floorcovering products to consumers and other customers. Each
store carries the full product mix available to our Company including several
leading brand names. New stores average 6,500 -10,000 square feet, are typically
located in Class A strip shopping retail space in suburban locations, and are
staffed with two to six personnel. These stores cater primarily to consumers
seeking a variety of high-quality products and customer service. Consumers make
purchase selections from floor samples, and the order is usually delivered from
our local warehouse or hub, or direct from the manufacturer. We maintain some
internal installation staff and have established relationships with several
local contractors and usually subcontract installation. Our stores are supported
by the full range of services provided by manufacturers, including merchandising
and sales promotion programs, high quality advertising, our own integrated
information systems, and professionally trained management and sales personnel.
Our customers include homeowners, designers, homebuilders and commercial
contractors. We are not dependent on one or a few major customers. Our stores
compete with other independent retailers, industry franchisees and a small
number of national chains, including The Home Depot.
We believe that the Flooring Zone concept utilized in our stores is
visually appealing and provides an enjoyable shopping experience for our
customers. Our stores standardized layout is professionally designed to include
eye-catching signage, bright lighting, a conferencing area and departmentalized
product displays. Our stores use floor samples to display the full range of our
available products, with separate areas dedicated to carpet, area rugs, hardwood
flooring, vinyl flooring and ceramic tiles.
Competition
Through our retail stores we compete with other floorcovering retailers in
their respective local market areas. According to FLOOR COVERING WEEKLY, the
North American market consists of approximately 15,000 individual floorcovering
retailers, which represent 25,000 locations. Competition in the retail
floorcovering market is intense due to the significant number of retailers in
operation. In addition, large retailers have entered the market and provide
significant competition, including Home Depot, Inc.
20
Trademarks, Service Marks, Trade Names and Commercial Symbols
We have registered marks with the U.S. Trademark Office including: "The
Flooring Zone" and "Save A Comma." At this time, we know of no infringing uses
which could materially affect the use of our service marks, logos or slogans in
any state in which stores are or are proposed to be located. We are not the
owner or licensee of any patents or copyrights.
Employees
As of the date of this prospectus we employ approximately 12 persons on a
full-time basis, including approximately 6 persons at our retail operations and
6 persons at our corporate offices. No employee is a party to any collective
bargaining agreement.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This discussion summarizes the significant factors affecting our
consolidated operating results, financial condition, liquidity and capital
resources during our fiscal years ended December 31, 2002 and 2003, and for the
three and six month periods ended June 30, 2004. This discussion should be read
in conjunction with the financial statements and financial statement footnotes
included in this registration statement.
Forward-Looking Statements
Certain statements of our expectations contained herein, including, but
not limited to statements regarding sales growth, new stores, increases in
comparable store sales, commodity price inflation and deflation, and capital
expenditures constitute "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. Such statements are based on currently
available operating, financial and competitive information and are subject to
various risks and uncertainties that could cause actual results to differ
materially from our historical experience and our present expectations. These
risks and uncertainties include but are not limited to, fluctuations in and the
overall condition of the U.S. economy, stability of costs and availability of
sourcing channels, conditions affecting new store development, our ability to
implement new technologies and processes, our ability to attract, train, and
retain highly-qualified associates, unanticipated weather conditions and the
impact of competition and regulatory and litigation matters. Undue reliance
should not be placed on such forward-looking statements, as such statements
speak only as of the date on which they are made.
Results of Operations
Despite our expectation that we would realize an operating profit in
fiscal 2003 as a result of having all three of our Company-owned store locations
open for all of fiscal 2003, compared to two
21
stores for all of fiscal 2002 and a third store for part of fiscal 2002, we
realized a slightly increased net loss from operations in fiscal 2003. Based on
our results of operations for the three and six months ended June 30, 2004, as
compared to the comparable periods of 2003, we believe we will enjoy increased
revenues and realize an operating profit in 2004.
Revenues
In fiscal 2002, we realized our highest yearly revenue. We had experienced
significant revenue growth each fiscal year until fiscal 2003. During fiscal
2003, sales fell $32,694, to $3,396,107 as compared to fiscal 2002. A decrease
of about 1%. Licensing fees earned from the licensing of our name during fiscal
2003 was $978 compared to $20,413 during fiscal 2002. This resulted in a 1.5%
reduction in net revenues in fiscal 2003 compared to fiscal 2002. We believe the
reduction in revenues we experienced in fiscal 2003 as compared to fiscal 2002,
was the result of various factors that contributed to a reduction in consumer
confidence in the region in which we operate.
In the three and six month periods ended June 30, 2004, we have realized
increases in net revenue as compared to the same periods of 2003. In the three
months ended June 30, 2004, we realized a 15% increase in net revenue as
compared to the three months ended June 20, 2003. For the six months ended June
30, 2004, we realized net revenue of $2,015,982 compared to $1,757,546, also a
15% increase, over the same period ended June 30, 2003
We anticipate that our planned expansion into more and larger markets will
increase the revenue we realize from operations. We believe the revenues we can
earn from one store in the large markets we are targeting will be equivalent to
the revenue we earn in the three stores we currently have.
Gross Profits
Cost of sales includes all direct costs of floor coverings, materials used
in installation and installation labor. In fiscal 2003, our cost of sales
margins were essentially unchanged as compared to fiscal 2002 and we realized an
$8,167 increase in gross profit in fiscal 2003.
During the three and six months ended June 30, 2004, our cost of sales
margins have improved approximately 5% compared to the same the and six month
periods of 2003, resulting in increases in gross profits in the three and six
months ended June 30, 2004, of $68,400 and $234,578, respectively as compared to
the corresponding 2003 periods.
We have and will continue to seek to build alliances with major vendors in
the floor covering industry. We believe these relationships and our strategic
purchasing methods have contributed to improving margins. We also expect our
cost of sales margins to improve as we increase the utilization of in-house
installation labor.
22
General and Administrative Expenses
General and administrative expenses increased $334,665, or 30% to $1.43
million in fiscal 2003, and as a percentage of sales revenue increased from 32%
in fiscal 2002 to 42% in fiscal 2003. These increases are due to expenses we
have incurred in hiring and training staff, at various levels, to expand into
larger markets in southeast Georgia and northern Florida; purchase and
implementation of our computer system with sales and inventory systems capable
of operating a large floor covering company, and increases in accounting and
legal expenses as a result of this offering. Because of delays in plans to
expand to new locations, our general and administrative expenses in 2003 were
not offset by increases in sales and revenue generated by the opening of
additional stores. In fiscal 2003 and 2002, general and administrative costs
consisted of:
2003 2002
------------ -----------
Salaries & benefits costs $ 661,795 $ 513,209
Advertising & display costs 139,516 158,173
Occupancy costs & utilities 309,926 213,879
Legal & accounting costs 67,006 16,773
Interest expense 45,662 31,799
Other 210,130 165,537
------------ -----------
$ 1,434,035 $ 1,099,370
============ ===========
We have experienced increases in salaries in each of the past two fiscal
years. With the completion of our management information system, during the
first quarter of 2004, we reduced our staff. We do not anticipate significant
increases in staffing needs until we have raised sufficient capital to expand
our operations.
In fiscal 2003, we reduced our advertising & display costs because we
believe we are well known within our current markets. We anticipate continued
reductions in advertising costs until we expand to new markets.
Occupancy costs & utilities in fiscal 2003 increased primarily as a result
of our expansion from two stores to three. We expect these costs to remain
constant until we expand our operations.
As discussed above, the significant increase in legal and accounting costs
in 2003, is the result of our efforts to undertake this offering.
During the three months ended June 30, 2004, general and administrative
expenses increased $40,841, to $307,599, or 15%, compared to the three months
ended June 30, 2003. For the six month period ended June 30, 2004, general and
administrative expenses increased to $698,738, from $643,200 for the six months
ended June 30, 2003, a 9% increase from 2003 to 2004.
Net Loss
Our net loss in fiscal 2003 increased $340,361, to $467,460, compared to
fiscal 2002. During the three months ended June 30, 2004, we realized a net loss
23
of $9,253, a decrease in net loss of $20,591 compared to the three months ended
June 30, 2003. During the six months ended June 30, 2004, we have realized net
income of $59,189 compared to a net loss of $107,876 for the six months ended
June 30, 2003.
Liquidity and Capital Resources
Our capital resources have consisted of revenues from operations, funds
raised through the sale of our common stock and debt. We anticipate our capital
resources in the upcoming twelve months will likewise consist primarily of
revenues from operations, funds raised in financing activities and debt.
During fiscal 2002 and 2003 and the six months ended June 30, 2003 and
2004, cash was primarily used to fund operations. See below for additional
discussion and analysis of cash flow.
Fiscal 2003 Fiscal 2002 6/30/2004 6/30/2003
------------ ----------- ------------- ------------
Net cash used in operating activities ($327,651) ($75,032) ($227,031) ($121,717)
Net cash used in investing activities (39,406) (160,990) (3,265) (30,892)
Net cash provided by financing activities 374,397 283,696 249,415 160,880
------------ ----------- ------------- ------------
NET INCREASE IN CASH $7,340 $47,674 $19,119 $8,271
============ =========== ============= ============
Net cash used in operating activities increased $252,619 in fiscal 2003
compared to fiscal 2002. This increase was primarily the result of the increase
in net loss and a decrease in accounts receivable in fiscal 2003. Net cash used
in operating activities increased $105,314 for the six months ended June 30,
2004 compared to the same six month period 2003. This increase in cash used in
operating activities during the six month period ended June 30, 2004, was
largely the result of an increase in inventory and a decrease in customer
deposits.
Net cash used in investing activities decreased in fiscal 2003 by $121,584
compared to fiscal 2002. This decrease was the result of fewer purchases of
property and equipment during fiscal 2003. Cash used in investing activities
decreased $27,627 in the six months ended June 30, 2004, compared to the same
period 2003. This decrease was also the result of fewer purchases of property
and equipment in the 2004 period.
Net cash provided from financing activities increased $90,701 in fiscal
2003 compared to fiscal 2002. In fiscal 2003, the funds we raised through
financing activities were primarily obtained from a line of credit provided by a
related party, and the sale of our securities. In 2002, the funds we obtained
through financing activities were the result of borrowing funds. During the six
months ended June 30,
24
2004, our financing activities included funds obtained through our credit line
with a related party, long- term borrowing and the sale of our securities.
During the six months ended June 30, 2003, we obtained funds through the sale of
our securities. Net cash provided by financing activities increased by $88,535
during the six months ended June 30, 2004, when compared to June 30, 2003.
At December 31, 2003 and June 30, 2004, we had cash on hand of $55,014 and
$74,133, respectively.
Summary of Material Contractual Commitments
The following table lists our significant commitments as of December 31,
2003.
Payments Due by Fiscal Year
-------------------------------------------------------------------------
Contractual Commitments Total 2004 2005 2006 2007 Thereafter
- -------------------------------------------------------------------------------------------------------------------
Line of Credit-Related Party(1) $ 124,000 $ 124,000 $ -- $ -- $ -- $ --
Note Payable-Related Party(2) 209,296 35,450 39,162 43,263 47,793 43,628
Long Term Debt2 276,497 38,881 29,915 24,757 23,041 159,903
Operating Leases 872,186 186,790 189,310 194,578 149,338 152,170
----------- ---------- --------- ---------- --------- ---------
TOTAL $ 1,481,979 $ 385,121 $ 258,387 $ 262,598 $ 220,172 $ 355,701
=========== ========== ========= ========== ========= =========
- ------------------
(1) On August 2, 2004, we paid the line of credit in full.
(2) On August 2, 2004, we consolidated the note payable to the related party and
our long term debt by obtaining a loan from a bank. The new loan is in the
amount of $550,000, bears interest at a rate of 6.6%, requires monthly
installment payments of $6,270 and matures in August 2014.
Off-Balance Sheet Financing Arrangements
As of December 31, 2003, and June 30, 2004, we had no off-balance sheet
financing arrangements.
Critical Accounting Policies
Revenue Recognition
We recognize revenues according to Staff Accounting Bulletin 101, Revenue
Recognition in Financial Statements. Accordingly, revenue is recognized when an
order has been received, the price is fixed and determinable, the order is
shipped and installed, collection is reasonably assured and we have no
significant obligations remaining. Licensing fees are royalties paid to us for
licensing the use of the name The Flooring Zone. The royalties range from 1-2%
of the licensee's commercial sales volume.
25
Merchandise Inventory
We record inventory at the lower of cost or market, cost being determined
on a first-in, first-out method. We do not believe our merchandise inventories
are subject to significant risk of obsolescence in the near-term, and we have
the ability to adjust purchasing practices based on anticipated sales trends and
general economic conditions.
Vendor Funds
We receive funds from vendors in the normal course of business for
purchase-volume-related rebates. Our accounting treatment for these
vendor-provided funds is consistent with Emerging Issues Task Force (EITF) 02-16
"Accounting by a Customer (Including a Reseller) for Certain Consideration
Received From a Vendor." Under EITF 02-16, purchase volume rebates should be
treated as a reduction of inventory cost, unless they represent a reimbursement
of specific, incremental and identifiable costs incurred by the customer to sell
the vendor's product. The purchase volume rebates that we receive do not meet
the specific, incremental and identifiable criteria in EITF 02-16. Therefore,
they are treated as a reduction in the cost of inventory and we recognize these
funds as a reduction of cost of sales when the inventory is sold.
Recently Issued Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation (FIN) No. 46, Consolidation of Variable Interest Entities (VIEs),
in an effort to expand upon and strengthen existing accounting guidance that
addresses when a company should include in its financial statements the assets,
liabilities and activities of another entity. In general, a VIE is a
corporation, partnership, trust, or any other legal structure used for business
purposes that either (a) does not have equity investors with voting rights or
(b) has equity investors that do not provide sufficient financial resources for
the entity to support its activities. FIN 46 requires a VIE to be consolidated
by a company if that company is subject to a majority of the risk of loss from
the VIE's activities, is entitled to receive a majority of the VIE's residual
returns, or both. FIN 46 also requires disclosures about VIEs that the Company
is not required to consolidate, but in which it has a significant variable
interest. The consolidation requirements of FIN 46 apply immediately to VIEs
created after January 31, 2003, and to other entities no later than the three
months ended September 30, 2003. Certain disclosure requirements are required in
all financial statements issued after January 31, 2003, regardless of when the
VIE was established. The Company has not identified any VIEs that must be
consolidated.
On April 30, 2003 -- The FASB issued Statement No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities. The Statement
amends and clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under Statement 133. The amendments set forth in SFAS No. 149 require that
contracts with comparable characteristics be accounted for similarly. SFAS No.
149 is generally effective for contracts entered into or modified after June 30,
2003 (with a few exceptions) and for hedging relationships designated after June
30, 2003. The guidance is to be applied prospectively only. The adoption of this
pronouncement had no effect on the Consolidated Financial Statements of the
26
Company.
On May 15, 2003 -- The FASB issued Statement No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity. The Statement improves the accounting for certain financial instruments
that, under previous guidance, issuers could account for as equity. It also
establishes standards for how an issuer classifies and measures on its balance
sheet certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances) because that
financial instrument embodies an obligation of the issuer. SFAS No. 150 was
effective for financial instruments entered into or modified after May 31, 2003,
and was otherwise effective for us as of July 1, 2003. The adoption of the
applicable provisions of this statement as of the indicated dates has had no
effect on the Company's financial statements.
DESCRIPTION OF PROPERTY
Our principal executive offices are located in leased office space located
at 3219 Glynn Avenue, Brunswick, Georgia 31520. We also lease warehouse space
and space for our four retail stores in Georgia and Florida. We believe these
spaces will be adequate for our needs through the terms of their existing
leases, the first of which expires in 2007 and the last of which expires in
2014. Based on leases currently have in place, our minimum required annual lease
payments for these locations through December 31, 2004, is $186,790 and will be
$189,310 for the year ending December 31, 2005.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two years, we have issued shares to the following
officers, directors, promoters and beneficial owners of more than 5% of our
outstanding securities.
Number Consideration Relationship to
Name of Shares Given Issuer
- ---- --------- -------------- ----------------
Jimmy Lee 19,000,000 Services CEO/President/Director *
Michael Carroll 19,000,000 Services Secretary/Treasurer/Director*
Steven Nichols 1,000 Cash Vice President
* Holder of 5% or more of our outstanding securities.
On May 13, 2003, Jimmy Lee, our president and director and Michael
Carroll, our secretary/treasurer and director each gave 62,500 common shares of
their personal shareholdings to satisfy debt of the Company in the amount of
$61,609. Mr. Lee and Mr. Carroll received no consideration from the Company in
connection with this transaction.
In October 2003, we entered into an agreement with Mr. Carroll, whereby he
agreed to extend a line of credit to the Company. The interest rate on the line
of credit is 6%. The outstanding balance on the line of credit as of June 30,
2004, was $198,144. This line of credit was paid in full by the
27
Company on August 2, 2004.
In August 2000, Mr. Carroll loaned Flooring Zone of Georgia, Inc.,
$275,000 pursuant to an unsecured note payable. This note bears interest at a
rate of 10% per year. Under the terms of the note, we are required to make
monthly installment payments of $4,565.33 though October 2008. As of June 30,
2004, the outstanding balance on this note was $192,012.
We believe that each of the above described transactions was negotiated on
terms at least as favorable to us as those available to us on an arms-length. As
with the above transactions, all future material transactions entered into with
related parties shall be on terms no less favorable to us than we can obtain
from an unaffiliated third party on an arms-length basis and will be approved by
a majority of our disinterested directors.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At present, our securities are not traded publicly. There is no assurance
that a trading market will develop, or, if developed, that it will be sustained.
A purchaser of shares may, therefore, find it difficult to resell the securities
offered herein should he or she desire to do so when eligible for public
resales. Furthermore, the shares are not marginable and it is unlikely that a
lending institution would accept our common stock as collateral for a loan.
Pursuant to this registration statement, we propose to publicly offer
10,000,000 common shares. To date, none of our outstanding shares of common
stock are subject to outstanding options or warrants to purchase our common
stock. We currently have approximately 60 shareholders.
None of our currently issued and outstanding shares are eligible for
public resale under Rule 144 because our stock is not listed on any exchange and
no broker-dealer is making a market for our securities. Therefore, shareholders
seeking to make public resales of our stock would currently be precluded by both
the trading volume limitations and the brokers' transaction requirements of Rule
144.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation paid or accrued since the Company's inception on May 5, 2003
through December 31, 2003, (the end of the Registrant's last completed fiscal
year).
Summary Compensation Table
Long Term Compensation
---------------------------------------------
Annual Compensation Awards Payouts
----------------------------------- ---------------------------------------------
Restricted LTIP
Name and Principal Other Annual Stock Options/ Payout All Other
Position Year Salary Bonus Compensation Awards SARs # ($) Compensation
- -------- ---- ------ ----- ------------ --------- -------- ------ ------------
Jimmy Lee, CEO, 2003 $62,400 $10,000 $-0- $-0- -0- $-0- $-0-
President and Director
Steven Nichols 2003 59,800 2,500 -0- -0- -0- -0- -0-
Vice President
28
Employment Agreements with Executive Officers
We have no formal employment agreements with any of our executive
officers.
Compensation of Directors
We have no arrangements pursuant to which your directors are compensated
for any services provided as a director, or for committee participation or
special assignments.
Termination of Employment and Change of Control Arrangement
There are no compensatory plans or arrangements, including payments to be
received from us, with respect to any person named in cash compensation set
forth above that would in any way result in payments to any such person because
of his resignation, retirement, or other termination of such person's employment
with the company or its subsidiaries, or any change in control, or a change in
the person's responsibilities following a changing in control of the Company.
FINANCIAL STATEMENTS
The Flooring Zone, Inc.
Report of Independent Registered Public Accounting Firm
and
Consolidated Financial Statements
December 31, 2003
29
The Flooring Zone, Inc.
TABLE OF CONTENTS
Page
Report of Independent Registered Public Accounting Firm . . . . . . . . . 31
Consolidated Balance Sheet - December 31, 2003 . . . . . . . . . . . . . 32
Consolidated Statements of Operations for the Years Ended December 31,
2003 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Consolidated Statements of Stockholders' Deficit for the Years Ended
December 31, 2003 and 2002 . . . . . . . . . . . . . . . . . . . . . . . 35
Consolidated Statements of Cash Flows for the Years Ended December 31,
2003 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 37
30
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
The Flooring Zone, Inc.
We have audited the accompanying consolidated balance sheet of The Flooring
Zone, Inc. as of December 31, 2003 and the related consolidated statements of
operations, stockholders' deficit, and cash flows for the years ended December
31, 2003 and 2002. These 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 audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Flooring Zone,
Inc. and subsidiaries as of December 31, 2003 and the results of operations and
cash flows for the years ended December 31, 2003 and 2002, in conformity with
accounting principles generally accepted in the United States of America.
/s/ Mantyla McReynolds
Mantyla McReynolds
Salt Lake City, Utah
February 27, 2004
31
The Flooring Zone, Inc.
Consolidated Balance Sheet
December 31, 2003
ASSETS
Current assets:
Cash $ 55,014
Accounts receivable, net of allowance of $45,976 111,684
Inventory-Notes 1 & 3 249,337
Prepaid expense 4,468
---------------------
Total current assets 420,503
Property & equipment, net - Notes 1 & 2 296,812
Other assets:
Intangible assets, net of accumulated amortization of $755 4,088
Deposits 2,266
---------------------
Total other assets 6,354
---------------------
TOTAL ASSETS $ 723,669
=====================
See accompanying notes to financial statements
32
The Flooring Zone, Inc.
Consolidated Balance Sheet [continued]
December 31, 2003
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 382,712
Line of credit-related party-Note 6 124,000
Customer deposits 146,527
Accrued liabilities 28,312
Current portion long-term debt - Note 7 74,331
---------------------
Total current liabilities 755,882
---------------------
Long-term liabilities:-Note 7
Note payable-related party 209,296
Long-term debt 276,497
Current portion long-term debt (74,331)
---------------------
Total long-term liabilities 411,462
---------------------
Total liabilities 1,167,344
---------------------
Stockholders' deficit:-Note 5
Preferred Stock, 10,000,000 shares authorized $.001 par
value: No shares issued and outstanding -
Common stock, 100,000,000 shares authorized $.001 par
value; 38,352,700 shares issued and outstanding 38,353
Additional paid in capital 308,881
Accounts receivable, shareholder (12,500)
Accumulated deficit (778,409)
---------------------
Total stockholders' deficit (443,675)
---------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 723,669
=====================
See accompanying notes to financial statements
33
The Flooring Zone, Inc.
Consolidated Statements of Operations
For the years ended December 31, 2003 and 2002
Revenues: 2003 2002
-------------------- -------------------
Sales $ 3,396,107 $ 3,428,801
Licensing Fees 978 20,413
-------------------- -------------------
Net revenues 3,397,085 3,449,214
Less cost of sales 2,384,848 2,445,144
-------------------- -------------------
Gross profit 1,012,237 1,004,070
General and administrative expenses 1,434,035 1,099,370
-------------------- -------------------
Net income (loss) from operations (421,798) (95,300)
Other income/(expense):
Interest expense (45,662) (31,799)
-------------------- -------------------
Total other income/(expense) (45,662) (31,799)
-------------------- -------------------
Net income (loss) before taxes (467,460) (127,099)
Income taxes - -
-------------------- -------------------
Net income (loss) $ (467,460) $ (127,099)
==================== ===================
Loss per share-basic and diluted $ (0.01) $ (0.01)
==================== ===================
Weighted average shares outstanding-basic
and diluted 38,176,515 38,000,000
==================== ===================
See accompanying notes to financial statements
34
The Flooring Zone, Inc.
Consolidated Statements of Stockholders' Deficit
For the Years Ended December 31, 2003 and 2002
Additional Accts. Total
Shares Common Paid in Receivable, Accumulated Stockholders'
Issued Stock Capital Shareholder Deficit Deficit
------------- ------------ --------------- --------------- ---------------- -----------------
Balance January 1, 2002 100 $ 1,000 $ - $ - $ (168,850) $ (167,850)
Distributions to shareholders (15,000) (15,000)
Net loss for year ended
December 31, 2002 (127,099) (127,099)
------------- ------------ --------------- --------------- ---------------- -----------------
Balance, December 31, 2002 100 1,000 - - (310,949) (309,949)
Recapitalization at merger with
Nevada Corporation , May 13, 2003 38,124,900 37,125 24,484 61,609
Shares issued pursuant to Stock
Incentive Plan at $1.25/share 45,000 45 56,205 56,250
Shares issued for cash/credit at
$1.25/share 182,700 183 228,192 (12,500) 215,875
Net loss for year ended
December 31, 2003 (467,460) (467,460)
------------- ------------ --------------- --------------- ---------------- -----------------
Balance, December 31, 2003 38,352,700 $ 38,353 $ 308,881 $ (12,500) $ (778,409) $ (443,675)
============= ============ =============== =============== ================ =================
See accompanying notes to financial statements
35
The Flooring Zone, Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2003 and 2002
2003 2002
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (467,460) $ (127,099)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 35,436 24,659
Bad debt expense 27,776 8,700
Decrease (increase) in accounts receivable (6,128) (70,840)
Decrease (increase) in accounts receivable-related party 3,694 (3,694)
Decrease (increase) in inventories 44,468 (97,436)
Decrease (increase) in employee loans and advances 4,667 (4,667)
Decrease (increase) in prepaid expenses 2,000 (6,468)
Decrease (increase) in deposits (115) (2,151)
Increase (decrease) in bank overdraft - (11,473)
Increase (decrease) in accounts payable (37,805) 186,136
Increase (decrease) in payroll and payroll taxes payable (7,945) 21,014
Increase (decrease) in customer deposits 73,761 8,287
----------------- -----------------
Net cash used in operating activities (327,651) (75,032)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (39,406) (159,671)
Purchase of intangible assets - (1,319)
----------------- -----------------
Net cash used in investing activities (39,406) (160,990)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowing on line of credit-related party 124,000 -
Net borrowing(payments) on long term debt (21,728) 298,696
Proceeds from the issuance of common stock 272,125 -
Distributions to shareholders - (15,000)
----------------- -----------------
Net cash provided by financing activities 374,397 283,696
----------------- -----------------
NET INCREASE IN CASH 7,340 47,674
CASH AT BEGINNING OF YEAR 47,674 -
----------------- -----------------
CASH AT END OF YEAR $ 55,014 $ 47,674
================= =================
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 45,662 $ 31,799
Cash paid for income taxes - -
Issued stock to relinquish debt 61,069 -
See accompanying notes to financial statements
36
The Flooring Zone, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization-The Flooring Zone, Inc. (the "Company) is a corporation
organized under the laws of the State of Nevada on May 5, 2003. On May
13, 2003 pursuant to a Share Exchange Agreement, the Company acquired
all of the outstanding common stock of The Flooring Zone of Georgia,
Inc (the "Georgia Company), a Georgia Corporation, in exchange for
38,125,000 shares of common stock of the Company. The company's
business operations provide for full-service retail floor covering
products and services.
The financial statements of the Company have been prepared in
accordance with generally accepted accounting principles. The following
summarizes the more significant of such policies:
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of The Flooring Zone, Inc. and its
wholly owned subsidiary, The Flooring Zone of Georgia, Inc. All
significant intercompany balances and transactions are eliminated.
Revenue Recognition - The Company recognizes revenue according to Staff
Accounting Bulletin 101, Revenue Recognition in Financial Statements
which clarifies U.S. Generally accepted accounting principles for
revenue transactions. Accordingly, revenue is recognized when an order
has been received, the price is fixed and determinable, the order is
shipped and installed, collection is reasonably assured and the Company
has no significant obligations remaining. Licensing fees are royalties
paid to the Company for licensing the use of the name The Flooring
Zone. The royalties range from 1-2% of the licensee's commercial sales
volume.
Use of Estimates in Preparation of Financial Statements - The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and cash equivalents - The Company considers all highly liquid
investments with original maturities at the date of purchase of three
months or less to be cash equivalents.
Bad debt and allowance for doubtful accounts - The allowance for
doubtful accounts is maintained at a level sufficient to provide for
estimated credit losses based on evaluating known and inherent risks in
the receivables portfolio. The Company provides an allowance for
doubtful accounts which, based upon management's evaluation of numerous
factors, including economic conditions, a predictive analysis of the
outcome of the current portfolio and prior credit loss experience, is
deemed adequate to cover reasonably expected losses inherent in
outstanding receivables.
Concentrations of credit risk - Financial instruments which potentially
subject the Company to concentrations of credit risk consist
principally of trade receivables. The Company provides credit to its
customers in the normal course of business, and accordingly performs
ongoing credit evaluations and maintains allowances for potential
credit losses. Concentrations of credit with respect to trade
receivables are limited due to the Company requiring a deposit from
customers.
37
The Flooring Zone, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -[continued]
Inventory - Inventories are stated at the lower of cost or market, cost
being determined on a first-in, first- out method.
Property and Equipment - Property and equipment are stated at cost.
Expenditures for maintenance and repairs are charged to expense as
incurred. The following is a summary of the estimated useful lives and
depreciation methods used in computing depreciation expense:
Depreciation Estimated
Asset Method useful life
------------------------ ---------------- ------------
Equipment Straight-line 5-10 years
Furniture and fixtures Straight-line 10-15 years
Vehicles Straight-line 10 years
Leasehold improvements Straight-line 10 years
Displays Replacement N/A
Intangible Assets - Intangible assets include trademarks that have been
registered with the United States Patent and Trademarks office. The
costs of obtaining trademarks are capitalized as incurred and are
amortized over their estimated useful lives of ten years using the
straight-line method. Amortization expense for the years ended December
31, 2003 and 2002 were $323 and $316, respectively.
Income Taxes - In July 2000 the Company elected to be taxed as an S
Corporation under the Internal Revenue Service Code. Accordingly, under
such an election, the Company's taxable income was reported by the
individual shareholders. In 2003 the Company cancelled its election to
be taxed as an S Corporation and therefore applies the provisions of
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes which requires an asset and liability approach for
financial accounting and reporting for income taxes, and the
recognition of deferred tax assets and liabilities for the temporary
differences between the financial reporting basis and tax basis of the
Company's assets and liabilities at enacted tax rates expected to be in
effect when such amounts are realized or settled.
Net Loss Per Common Share - In accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," basic loss per
common share is computed using the weighted average number of common
shares outstanding. Diluted earnings per share is computed using
weighted average number of common shares plus dilutive common share
equivalents outstanding during the period using the treasury stock
method. At December 31, 2003 there are no common stock equivalents
outstanding, thus, basic and diluted loss per share calculations are
the same.
Advertising Costs - Advertising costs of the Company are charged to
expense as incurred. Advertising expense amounted to $104,000 and
$147,414 in 2003 and 2002, respectively.
38
The Flooring Zone, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 2 PROPERTY AND EQUIPMENT
The major categories of property and equipment are as follows:
12/31/2003
--------------------
Equipment $ 101,275
Furniture and fixtures 21,331
Vehicles 20,127
Leasehold improvements 152,515
Displays 82,750
Accumulated depreciation (81,186)
--------------------
Net property and equipment 296,812
====================
Depreciation expense was $35,113 in 2003, and $24,343 in 2002.
Note 3 INVENTORY
Inventories are stated at lower of cost or market and consist of the
following:
12/31/03
---------------------
Flooring material 249,337
---------------------
Total $ 249,337
=====================
Note 4 INCOME TAXES
Below is a summary of deferred tax asset calculations on net operating
loss carry forward amounts. Loss carry forward amounts expire through
2023. A valuation allowance is provided when it is more likely than not
that some portion of the deferred tax asset will not be realized.
NOL
Description Balance Tax Rate
- -------------------------------- -------------- ------------- ---------
Federal Income Tax $473,960 $161,146 34%
Georgia State Income Tax 473,960 28,438 6%
-------------
Valuation allowance (189,584)
-------------
Deferred tax asset 12/31/2003 $0
=============
The allowance has increased $189,584 from $0 as of December 31, 2002.
39
The Flooring Zone, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 5 COMMON STOCK/PREFERRED STOCK
On May 13, 2003 pursuant to a Share Exchange Agreement, the Company
acquired all of the outstanding common stock of The Flooring Zone of
Georgia, Inc (the "Georgia Company), a Georgia Corporation, in exchange
for 38,125,000 shares of common stock of the Company of which 125,000
eventually were issued to a creditor to relieve $61,609 of debt.
Also on May 13, 2003 the Company's board of directors adopted the
Company's 2003 Stock Incentive Plan ("The Plan"). The Plan grants
options to its key employees, officers, directors, consultants,
advisors and sales representatives to purchase up to 500,000 shares of
its $.001 par value restricted common stock at an exercise price of
$1.25 per share. All of which shall fully vest upon the date of grant.
As of December 31, 2003 45,000 options have been granted and no granted
options are unexercised.
On June 20, 2003 pursuant to receiving Notices of Stock Option exercise
the Company issued 44,950 shares of its restricted Common Stock for
$56,187.50 or $1.25 per share. The Company also accepted the
Subscriptions and Investment Representation Letters from 14 investors
and issued 37,700 shares of its restricted common stock at a price of
$1.25 per share for a total of $47,125.
On August 1, 2003 the Company accepted the Subscriptions and Investment
Representation Letters from 16 investors and issued 76,400 shares of
its restricted common stock at a price of $1.25 per share for a total
of $95,500.
In September 2003 the Company accepted the Subscriptions and Investment
Representation Letters from 7 investors and issued 68,600 shares of its
restricted common stock at a price of $1.25 per share for a total of
$85,750. Of this, 10,000 shares were issued but payment of $12,500 was
not received until February 2004. This amount has been recorded as a
receivable from shareholder in these financial statements. The Company
also received Notices of Stock Option exercise and issued 50 shares of
its restricted Common Stock for $62.50 or $1.25 per share.
The Company's preferred stock may be issued from time to time in one or
more series. The Board of Directors are to establish by resolution(s)
the number of shares to be included in each series, and to fix the
designation, powers, preferences and rights of the shares of each such
series and the qualifications, limitations or restrictions thereof.
Note 6 LINE OF CREDIT-RELATED PARTY
During the year ended December 31, 2003 the Company obtained a line of
credit with a shareholder of the Company for the purpose of meeting
cash flow needs. The interest rate on the line of credit is 6%. As of
December 31, 2003, the outstanding balance on this line was $124,000.
40
The Flooring Zone, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 7 LONG-TERM DEBT
The following is a summary of the Company's indebtedness as of December
31, 2003:
Note payable to a bank with interest at 6.00% due in
monthly installments of $2,780.00 through August 2013,
secured by property owned by the Company's president $ 244,341
Note payable to a shareholder with interest at 10.00%
due in monthly installments of $4,565.33 through October
2008, unsecured 209,296
Note payable to a bank with interest at 5.84% due in
monthly installments of $610.94 through April 2006,
secured by a vehicle 16,526
Note payable to a bank with interest at 8.00% due in
monthly installments of $633.42 through April 2005,
secured by equipment 9,630
Note payable to an individual with interest at 6%, due
on demand, unsecured 6,000
----------
Total $ 485,793
==========
Maturities of debt are as follows:
Year Ending December 31: Amount
------------------------ ------
2004 $ 74,331
2005 69,077
2006 68,020
2007 70,834
Thereafter 203,531
---------------------
$ 485,793
=====================
Note 8 LEASES
The Company has entered into three operating leases with unrelated
parties for its retail stores, warehouse and office facilities. The
leases expire between 2007 and 2014. During the year ended December 31,
2003, and 2002 the Company paid lease payments in the amount of
$198,220 and $131,260, respectively. In 2003 the Company also leased on
a month to month basis additional office space totaling $14,400.
41
The Flooring Zone, Inc.
Notes to Financial Statements
December 31, 2003
Note 8 LEASES-[continued]
The following is a schedule by years of future minimum lease payments
required under operating leases that have initial or remaining
noncancellable lease terms in excess of one year as of December 31,
2003:
Year ended Total
--------------------------------------- ---------------
December 31, 2004 $ 186,790
December 31, 2005 189,310
December 31, 2006 194,578
December 31, 2007 149,338
December 31, 2008 152,170
---------------
Totals $ 872,186
===============
Note 9 SUBSEQUENT EVENTS
On February 14, 2004 the Company entered into a note payable agreement
with one of its vendors in the amount of $155,070.11. This amount is
included in the accounts payable section of these financial statements.
Monthly payments are due in the amount of $12,922.51 with interest at
6.00% through February 2005.
In April 2004 the Company accepted the Subscriptions and Investment
Representation Letters from 3 investors and issued 76,000 shares of its
restricted common stock at a price of $1.25 per share for a total of
$95,000.
42
The Flooring Zone, Inc.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
43
The Flooring Zone, Inc.
Condensed Consolidated Balance Sheet
June 30, 2004
(Unaudited)
ASSETS
Current assets:
Cash $ 74,133
Accounts receivable, net 119,195
Inventory 479,684
Prepaid expense 4,468
--------------------
Total current assets 677,480
Property & equipment, net 281,960
Other assets:
Intangible assets, net 3,927
Deposits 1,563
--------------------
Total other assets 5,490
--------------------
TOTAL ASSETS $ 964,930
====================
See accompanying notes to financial statements
44
The Flooring Zone, Inc.
Condensed Consolidated Balance Sheet-[continued]
June 30, 2004
(Unaudited)
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 433,898
Line of credit-related party 198,144
Customer deposits 36,775
Accrued liabilities 19,536
Current portion long-term debt 212,305
--------------------
Total current liabilities 900,658
--------------------
Long-term liabilities:
Note payable-related party 192,012
Long-term debt 361,551
Current portion long-term debt (212,305)
--------------------
Total long-term liabilities 341,258
--------------------
Total liabilities 1,241,916
--------------------
Stockholders' deficit:-Note 2
Preferred Stock, 10,000,000 shares authorized $.001 par
value: No shares issued and outstanding -
Common stock, 100,000,000 shares authorized $.001 par
value; 38,428,700 shares issued and outstanding 38,429
Additional paid in capital 403,805
Accumulated deficit (719,220)
--------------------
Total stockholders' deficit (276,986)
--------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 964,930
====================
See accompanying notes to financial statements
45
The Flooring Zone, Inc.
Condensed Consolidated Statements of
Operations For the three month and six month periods
ended June 30, 2004 and 2003
(Unaudited)
Three months ended June 30, Six months ended June 30,
Revenues: 2004 2003 2004 2003
----------------- ------------------ ------------------- -----------------
Sales $ 937,535 $ 814,247 $ 2,010,763 $ 1,757,546
Licensing Fees 9 - 5,219 -
----------------- ------------------ ------------------- -----------------
Net revenues 937,544 814,247 2,015,982 1,757,546
Less cost of sales 624,338 569,441 1,227,026 1,203,165
----------------- ------------------ ------------------- -----------------
Gross profit 313,206 244,806 788,956 554,381
General and administrative expenses 307,599 266,758 698,738 643,200
----------------- ------------------ ------------------- -----------------
Net income (loss) from operations 5,607 (21,952) 90,218 (88,819)
Other income (expense):
Interest expense (14,860) (7,892) (31,029) (19,057)
Total other income(expense) (14,860) (7,892) (31,029) (19,057)
----------------- ------------------ ------------------- -----------------
Net income (loss) before taxes (9,253) (29,844) 59,189 (107,876)
Income taxes - - - -
Net income (loss) $ (9,253) $ (29,844) $ 59,189 $ (107,876)
================= ================== =================== =================
Income (loss) per share-basic and
diluted $ (0.01) $ (0.01) $ 0.00 $ (0.01)
================= ================== =================== =================
Weighted average shares
outstanding- basic and diluted 38,416,034 38,086,882 38,384,436 37,620,341
================= ================== =================== =================
See accompanying notes to financial statements
46
The Flooring Zone, Inc.
Condensed Consolidated Statements of Cash Flows
For the six month periods ended June 30, 2004 and 2003
(Unaudited)
6/30/2004 6/30/2003
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 59,189 $ (107,876)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization 18,278 17,238
Decrease (increase) in accounts receivable (7,512) (9,278)
Decrease (increase) in inventories (230,346) (3,208)
Decrease (increase) in prepaid expenses 703 (115)
Increase (decrease) in accounts payable 51,185 (7,965)
Increase (decrease) in accrued liabilities (8,776) (7,302)
Increase (decrease) in customer deposits (109,752) (3,211)
------------------ ------------------
Net cash used in operating activities (227,031) (121,717)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (3,265) (30,892)
Purchase of intangible assets - -
------------------ ------------------
Net cash used in investing activities (3,265) (30,892)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowing(payments) on line of credit-related party 74,144 (20,645)
Net borrowing(payments) on long term debt 67,771 (45,684)
Proceeds from the issuance of common stock 107,500 227,209
------------------ ------------------
Net cash provided by financing activities 249,415 160,880
------------------ ------------------
NET INCREASE IN CASH 19,119 8,271
CASH AT BEGINNING OF PERIOD 55,014 47,674
------------------ ------------------
CASH AT END OF PERIOD $ 74,133 $ 55,945
================== ==================
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 31,029 $ 19,057
Cash paid for income taxes - -
See accompanying notes to financial statements
47
The Flooring Zone, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2004
Note 1 ORGANIZATION AND INTERIM FINANCIAL STATEMENTS
Organization - The Flooring Zone, Inc. (the "Company) is a corporation
organized under the laws of the State of Nevada on May 5, 2003. The
company's business operations provide for full-service retail floor
covering products and services.
Interim financial statements - The accompanying condensed consolidated
financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes
required by accounting principles for complete financial statements
generally accepted in the United States of America. There has not been
any change in the significant accounting policies of The Flooring Zone,
Inc. for the periods presented. It is suggested that these unaudited
condensed consolidated financial statements be read in conjunction with
the consolidated financial statements and the notes thereto included in
the Company's Annual Report for the fiscal year ended December 31,
2003.
Note 2 COMMON STOCK
In April 2004 the Company accepted the Subscriptions and Investment
Representation Letters from 3 investors and issued 76,000 shares of its
restricted common stock at a price of $1.25 per share for a total of
$95,000.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
- --------------------------------------------------------------------------------
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The statutes, charter provisions, bylaws, contracts or other
arrangements under which controlling persons, directors or officers of the
registrant are insured or indemnified in any manner against any liability which
they may incur in such capacity are as follows:
48
(a) Section 78.751 of the Nevada Business Corporation Act provides that
each corporation shall have the following powers:
1. A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, except an action by or in the right of
the corporation, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with the action, suit or proceeding if he
acted in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interest of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, does not, of itself create
a presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal
action or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
2. A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him
in connection with the defense or settlement of the action or suit if
he acted in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to
which such a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable
to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the
action or suit was brought or other court of competent jurisdiction,
determines upon application that in view of all the circumstances of
the case, the person is fairly and reasonably entitled to indemnity for
such expenses as the court deems proper.
3. To the extent that a director, officer, employee or agent
of a corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in subsections 1
and 2, or in defense of any claim, issue or matter therein, he must be
indemnified by the corporation against expenses, including attorneys'
fees, actually and reasonably incurred by him in connection with the
defense.
4. Any indemnification under subsections 1 and 2, unless
ordered by a court or
49
advanced pursuant to subsection 5, must be made by the corporation only
as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper
in the circumstances. The determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a
quorum consisting of directors who were not parties to the
act, suit or proceeding;
(c) If a majority vote of a quorum consisting of
directors who were not parties to the act, suit or proceeding
so orders, by independent legal counsel, in a written opinion;
or
(d) If a quorum consisting of directors who were not
parties to the act, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion.
5. The certificate or articles of incorporation, the bylaws or
an agreement made by the corporation may provide that the expenses of
officers and directors incurred in defending a civil or criminal
action, suit or proceeding must be paid by the corporation as they are
incurred and in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the
director or officer to repay the amount if it is ultimately determined
by a court of competent jurisdiction that he is not entitled to be
indemnified by the corporation. The provisions of this subsection do
not affect any rights to advancement of expenses to which corporate
personnel other than directors or officers may be entitled under any
contract or otherwise by law.
6. The indemnification and advancement of expenses authorized
in or ordered by a court pursuant to this section:
(a) Does not exclude any other rights to which a
person seeking indemnification or advancement of expenses may
be entitled under the certificate or articles of incorporation
or any bylaw, agreement, vote of stockholders of disinterested
directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his
office, except that indemnification, unless ordered by a court
pursuant to subsection 2 or for the advancement of expenses
made pursuant to subsection 5, may not be made to or on behalf
of any director or officer if a final adjudication establishes
that his acts or omissions involved intentional misconduct,
fraud or a knowing violation of the law and was material to
the cause of action.
(b) Continues for a person who has ceased to be a
director, officer, employee or agent and inures to the benefit
of the heirs, executors and administrators of such a person.
7. The registrant's Articles of Incorporation limit liability
of its Officers and Directors to the full extent permitted by the
Nevada Business Corporation Act.
50
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses we will
pay in connection with the offering described in this registration statement.
Amount
Expense Maximum
------- -------
SEC Registration Fees $ 2,534.00
Blue Sky fees and expenses 5,000.00
Printing and shipping expenses 10,000.00
Legal fees and expenses 100,000.00
Accounting fees and expenses 100,000.00
Transfer and miscellaneous expenses 7,466.00
-------------
Total $ 225,000.00
=============
RECENT SALES OF UNREGISTERED SECURITIES
We have issued the following unregistered securities since our
inception on May 5, 2003:
On May 13, 2003, 38,125,000 restricted common shares were issued to our
CEO and director, Jimmy Lee, and to our Secretary and director, Mike Carroll,
pursuant to a Share Exchange Agreement in exchange for 98,000,000 common shares
of The Flooring Zone of Georgia, Inc., a Georgia corporation, which shares were
owned by Mr. Lee and Mr. Carroll. The shares were issued without registration
under the Securities Act of 1933 in reliance on an exemption from registration
provided by Section 4(2) of the Securities Act, and from similarly applicable
state securities laws, rules and regulations exempting the offer and sale of
these securities by available state exemptions. No general solicitation was made
in connection with the offer or sale of these securities. The Company received
no cash for these securities.
In June 2003, under The Flooring Zone, Inc., 2003 Stock Incentive Plan
we granted stock options to purchase up to an aggregate of 45,000 shares of our
common stock to 26 of our employees and/or consultants. The options were granted
without registration under the Securities Act of 1933 in reliance on an
exemption from registration provided by Rule 701 of Regulation E of the
Securities Act, and from similarly applicable state securities laws, rules and
regulations exempting the offer and sale of these securities by available state
exemptions. The Company received no cash for these securities.
In June and September of 2003, 45,000 restricted common shares were
issued to 26 employees and/or consultants pursuant to Notices of Exercise of
stock options granted. The shares were issued without registration under the
Securities Act of 1933 in reliance on an exemption from registration provided by
Rule 701 of Regulation E of the Securities Act, and from similarly applicable
state securities laws, rules and regulations exempting the offer and sale of
these securities by available state
51
exemptions. No general solicitation was made in connection with the offer or
sale of these securities. The Company received $56,250 cash for these
securities.
From June through September of 2003, 182,700 restricted common shares
were issued pursuant to subscription agreements received from 34 individuals.
The shares were issued without registration under the Securities Act of 1933 in
reliance on an exemption from registration provided by Rule 504 of Regulation D
of the Securities Act, and from similarly applicable state securities laws,
rules and regulations exempting the offer and sale of these securities by
available state exemptions. No general solicitation was made in connection with
the offer or sale of these securities. The Company received $228,375 cash for
these securities.
In April of 2004, 76,000 restricted common shares were issued pursuant
to subscription agreements received from three accredited investors. The shares
were issued without registration under the Securities Act of 1933 in reliance on
an exemption from registration provided by Rule 506 of Regulation D of the
Securities Act, and from similarly applicable state securities laws, rules and
regulations exempting the offer and sale of these securities by available state
exemptions. No general solicitation was made in connection with the offer or
sale of these securities. The Company received $95,000 cash for these
securities.
EXHIBIT INDEX
SEC
Reference Exhibit No. Document Location
- --------- ----------- -------- --------
3 3.01 Articles of Incorporation Attached
3 3.02 Bylaws Attached
4 4.01 The Flooring Zone, Inc. Attached
2003 Stock Incentive Plan
5 5.01 Opinion on Legality Attached
23 23.01 Consent of Independent Auditors Attached
23 23.02 Consent of Attorney See Exhibit 5.01
99 99.01 Specimen Subscription Agreement Attached
52
UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
The Flooring Zone, Inc. pursuant to the foregoing provisions, or otherwise, we
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by us of expenses incurred or paid by a
director, officer or controlling person of The Flooring Zone, Inc. in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
We hereby undertake to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 242(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
53
SIGNATURES
The issuer has duly caused this SB-2 registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Brunswick, State of Georgia, on September 23, 2004.
THE FLOORING ZONE, INC.
By: /s/ Jimmy Lee
---------------------------
Jimmy Lee, President
This SB-2 registration statement has been signed by the following
persons in the capacities and on the dates indicated.
Name and Title Date
/s/ Jimmy Lee
- ----------------------------- September 23, 2004
Jimmy Lee
CEO, President & Director
/s/ Michael Carroll
- ----------------------------- September 23, 2004
Michael Carroll
Secretary & Director
54