United States
Securities and Exchange Commission
Washington, DC 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
March 31, 2005 333-119234
THE FLOORING ZONE, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA
--------------------------------------------------------------
(State or other jurisdiction of incorporation or organization
20-0019425
-------------------------------------
(I.R.S. Employer Identification No.)
3219 Glynn Avenue, Brunswick, Georgia 31520
-------------------------------------------
(Address of principal executive offices)
(912) 264-0505
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None.
Securities registered pursuant to section 12(g) of the Exchange Act:
Common, $0.001 par value
Check whether the Issuer filed all reports required to be filed by section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such report(s), Yes [X] No [ ]
Check whether the Issuer has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
As of May 11, 2005 we had 38,529,000 shares of our $0.001 par value, common
stock outstanding.
THE FLOORING ZONE, INC.
FORM 10-QSB
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) as of
March 31, 2005 .................................................... 3
Condensed Consolidated Statements of Operations (Unaudited)
for the three months ended March 31, 2005 and 2004................ 5
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the three months ended March 31, 2005 and 2004................ 6
Notes to Condensed Consolidated Financial Statements (Unaudited).... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 8
Item 3. Controls and Procedures........................................ 14
PART II -- OTHER INFORMATION
Item 2. Changes in Securities.......................................... 15
Item 6. Exhibits and Reports on Form 8-K............................... 15
Signatures.............................................................. 16
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
The Flooring Zone, Inc.
Condensed Consolidated Balance Sheet
March 31, 2005
(Unaudited)
ASSETS
Current assets:
Cash $ 68,772
Accounts receivable, net 149,712
Inventory 470,403
Prepaid expense 89,975
-------------------
Total current assets 778,862
Property & equipment, net 284,359
Other assets:
Intangible assets, net 6,678
Deposits 1,563
-------------------
Total other assets 8,241
-------------------
TOTAL ASSETS $ 1,071,462
===================
See accompanying notes to financial statements
3
The Flooring Zone, Inc.
Condensed Consolidated Balance Sheet-[continued]
March 31, 2005
(Unaudited)
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 478,773
Line of credit-related party 42,000
Customer deposits 28,529
Accrued liabilities 21,212
Current portion long-term debt 186,279
-------------------
Total current liabilities 756,793
Long-term liabilities:
Note payable-related party 133,631
Long-term debt 738,946
Current portion long-term debt (186,279)
-------------------
Total long-term liabilities 686,298
Total liabilities 1,443,091
Stockholders' deficit:-Note 2
Preferred Stock, 10,000,000 shares authorized $.001 par value
value: No shares issued and outstanding -
Common stock, 100,000,000 shares authorized $.001 par
value; 38,503,700 shares issued and outstanding 38,504
Additional paid in capital 553,730
Accumulated deficit (963,863)
-------------------
Total stockholders' deficit (371,629)
-------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,071,462
===================
See accompanying notes to financial statements
4
The Flooring Zone, Inc.
Condensed Consolidated Statements of Operations
For the three month periods ended March 31, 2005 and 2004
(Unaudited)
Three months ended March 31,
2005 2004
----------------- ----------------
Revenues:
Sales $ 858,553 $ 1,073,228
Licensing Fees 2,500 5,210
----------------- ----------------
Net revenues 861,053 1,078,438
Less cost of sales 482,412 602,688
----------------- ----------------
Gross profit 378,641 475,750
General and administrative expenses 348,247 391,139
----------------- ----------------
Net income from operations 30,394 84,611
Other income (expense):
Interest Income 42 -
Interest expense (20,766) (16,169)
------------------ -----------------
Total other income(expense) (20,724) (16,169)
----------------- ----------------
Net income before taxes 9,670 68,442
Income taxes - -
----------------- ----------------
Net income $ 9,670 $ 68,442
================= ================
Income per share-basic and diluted $ 0.00 $ 0.00
================= ================
Weighted average shares outstanding -
basic and diluted 38,455,856 38,352,700
================= ================
See accompanying notes to financial statements
5
The Flooring Zone, Inc.
Condensed Consolidated Statements of Cash Flows
For the three month periods ended March 31, 2005 and 2004
(Unaudited)
3/31/2005 3/31/2004
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,670 $ 68,442
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 10,581 9,101
Decrease (increase) in accounts receivable (1,052) (56,176)
Decrease (increase) in inventories (167,229) (60,219)
Decrease (increase) in prepaid expenses and deposits (6,000) -
Increase (decrease) in accounts payable (38,878) (71,003)
Increase (decrease) in accrued liabilities 6,742 1.422
Increase (decrease) in customer deposits (7,284) (48,020)
--------------- ---------------
Net cash used in operating activities (193,450) (156,453)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment - -
Purchase of intangible assets - -
--------------- ---------------
Net cash used in investing activities - -
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowing(payments) on line of credit-related party 15,000 100,000
Net borrowing(payments) on long term debt 7,130 127,475
Proceeds from the issuance of common stock 150,000 -
--------------- ---------------
Net cash provided by financing activities 172,130 227,475
--------------- ---------------
NET INCREASE (DECREASE) IN CASH (21,320) 71,022
CASH AT BEGINNING OF PERIOD 90,092 55,014
--------------- ---------------
CASH AT END OF PERIOD $ 68,772 $ 126,036
=============== ===============
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 20,766 $ 16,169
Cash paid for income taxes - -
See accompanying notes to financial statements
6
The Flooring Zone, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2005
(Unaudited)
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 are unaudited and 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. In the
opinion of management, the accompanying consolidated financial
statements contain all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of our financial position
as of March 31, 2005 and 2004. There has not been any change in the
significant accounting policies of The Flooring Zone, Inc. for the
periods presented. The results of operations for the three months ended
March 31, 2005 are not necessarily indicative of the results for a
full-year period. 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 on Form 10-KSB for the fiscal year ended
December 31, 2004 filed with the Securities and Exchange Commission
(the "SEC").
Stock based compensation- The Company accounts for stock compensation
arrangements under the intrinsic value method outlined in Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, (APB Opinion No. 25) and currently intends to continue to do
so until it adopts the provisions of Statement of Financial Accounting
Standards (SFAS) No. 123R, Share-Based Payment, (SFAS No. 123R).
Accordingly, no compensation cost has been recognized for stock
compensation arrangements. If the compensation cost for the
compensation plans had been determined consistent with SFAS No. 123R,
net income and earnings per common share and common share equivalent
would have changed to the pro forma amounts indicated below:
3/31/2005 3/31/2004
--------------- ---------------
Net income, as reported $ 9,670 $ 68,442
Compensation cost under fair value-based
accounting method, net of tax - -
--------------- ---------------
Net loss, pro forma 9,670 68,442
Net loss per share-basic and diluted:
As reported $ 0.00 $ 0.00
Pro forma $ 0.00 $ 0.00
7
The Flooring Zone, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2005
(Unaudited)
Note 2 COMMON STOCK
The Company's SB-2 Registration statement filed with the Securities and
Exchange Commission became effective in January 2005. During the first
quarter of 2005 the Company issued 75,000 shares of its common stock at
a price of $2.00 per share for a total of $150,000.
Note 3 INVENTORY
Inventories are stated at lower of cost or market and consist of the
following:
3/31/05
---------------
Flooring material 470,403
---------------
Total $ 470,403
===============
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion summarizes the significant factors affecting our
consolidated operating results, financial condition, liquidity and capital
resources during our fiscal quarters ended March 31, 2005 and 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." 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.
8
General
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 currently conducting a registered offering to raise capital to
expand our operations and store locations in the southeastern United States.
Results of Operations
While we enjoyed a net income during the first quarter of 2005, our
revenues and net income during the quarter were lower compared to the same
quarter of 2004.
Revenues
We generate revenue primarily from the sale of flooring products. We
sell flooring products to two groups - retail customers and contractors. Retail
customers generally pay higher prices for products than contractors. Typically,
about 70% of our product sales are to retail customers and 30% of our product
sales are to contractors.
Despite average retail product prices being approximately 10% higher,
in the three months ended March 31, 2005 compared to the same three month period
of 2004, we realized a decrease in net revenue of 20% to $861,053. This decrease
in revenue in the first fiscal quarter 2005 was primarily the result of an
unusually successful first fiscal quarter of 2004, when we provided flooring
products for a large condominium complex and several hospitals, combined with
the fact that we shifted our spring private sales event from March to April in
2005. While overall revenue decreased 20%, we believe that, exclusive of the
condominium project and the hospitals and the timing of our spring private sale,
our revenue from product sales in the first quarter 2005 was consistent with
revenues from the first quarter of 2004.
As noted above, our revenues are affected by consumer confidence. Based
on sales during the first quarter, we believe consumer confidence in the
communities where we operate continues to be strong. We anticipate revenues at
our current stores to remain constant or even slightly higher during the
remainder of 2005. We anticipate that our planned expansion into more and larger
markets will increase product sales and revenue from operations. We believe the
revenues we can earn from one store in the larger markets we are targeting will
be equivalent to the revenue we earn in the three stores we currently have.
Gross Profits
Our gross profits are directly affected by our costs of sales. Cost of
sales includes all direct costs of floor coverings, materials used in
installation and installation labor. As with revenues, our cost of sales and
gross profits are directly affected by changes in the percentage of products
9
sold to retail customers versus contractors. As discussed above, the prices we
can charge contractors are lower than the prices we can charge retail customers,
therefore, our profit margin on product sales to retail customers is greater.
Moreover, we typically also realize profit from the sale of materials used in
installation and from the costs charged for installation labor to retail
customers. Conversely, contractors typically use their own subcontractors to
install the floor covering products they purchase. These subcontractors provide
the materials used in installation and the installation labor.
Gross profits during the first fiscal quarter of 2005, was $378,641,
20% lower than the $475,750 gross profits realized during the first fiscal
quarter of 2004, as net revenue decreased by 20% during the first fiscal quarter
of 2005. Cost of sales as a percentage of net revenues was essentially
unchanged. Until such time as we are able to expand our operations into
additional markets, we anticipate gross profits to remain consistent with the
prior year results or to increase modestly.
General and Administrative Expenses
For the three months ended March 31, 2005 and 2004
General and administrative expenses for the three months ended March
31, 2005, decreased $42,892, or 11% to $348,247 compared to the three months
ended March 31, 2004, but as a percentage of sales revenue increased from 36%
during the quarter ended March 31, 2004 to 40% during the quarter ended March
31, 2005. During the three months ended March 31, 2005 and 2004, general and
administrative costs consisted of:
Three Months Ended
March 31, 2005 March 31, 2004
-------------- --------------
Salaries & benefits costs $ 129,881 $ 165,928
Advertising & display costs 21,350 31,463
Occupancy costs & utilities 77,120 76,038
Legal & accounting costs 27,500 24,953
Other 92,396 92,757
----------- -----------
$ 348,247 $ 391,139
=========== ===========
The 22% reduction in salaries and benefits costs in the quarter ended
March 31, 2005 compared to 2004 is largely the result of a reduction in our
administrative work force with the completion of our management information
system and the consolidation of certain job functions, during the first quarter
of 2004. We do not anticipate significant increases in staffing needs until we
have raised sufficient capital to expand our operations.
During the three months ended March 31, 2005 we reduced our advertising
and display costs by 32% compared to the same period of 2004 because we believe
we are well known within our current markets. We anticipate advertising costs to
remain fairly consistent with those incurred during the first quarter 2005 until
we expand to new markets.
Occupancy costs and utilities during the first quarter 2005 compared to
the same quarter 2004, remained relatively flat, increasing by less than 1.5%.
We expect these costs to remain constant until we expand our operations.
10
Legal and accounting costs increased 10% to $27,500 during the three
months ended March 31, 2005 compared to the three months ended March 31, 2004.
We anticipate legal and accounting costs to continue at levels consistent with
or higher than the first quarter 2005 as we begin to incur legal and accounting
costs in connection with our ongoing public reporting obligations.
Other costs were essentially unchanged during the quarters ended March
31, 2005 and 2004. We anticipate other expenses to remain relatively constant
until we expand and add additional Company owned stores to our network.
Net Income
Our net income in the first quarter 2005 was $9,670 compared to $68,442
in the first quarter 2004. This 88% decrease in net income during the first
quarter 2005 is primarily the result of decreased sales volume compared to the
first quarter 2004 and an increase in general and administrative expenses as a
percentage of net revenue.
Liquidity and Capital Resources
Our capital resources have consisted of revenues from operations, funds
raised through the sale of our common stock and debt. On January 31, 2005 our
SB-2 registration statement was declared effective by the Securities and
Exchange Commission and we commenced selling shares of our common stock at $2.00
per share. As of May 11, 2005, we have raised $200,600. 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 the first quarter 2005 and 2004 cash was primarily used to fund
operations. See below for additional discussion and analysis of cash flow.
Three Months Ended
March 31, 2005 March 31, 2004
-------------- --------------
Net cash used in operating activities $ (193,450) $ (156,453)
Net cash used in investing activities - -
Net cash provided by financing activities $ 172,130 $ 227,475
------------ ------------
NET INCREASE (DECREASE) IN CASH $ (21,320) $ 71,022
============ ============
As discussed herein, during the three months ended March 31, 2005
compared to the three months ended March 31, 2004 product sales decreased as
general and administrative expenses as a percentage of sales increased leading
to a reduction in net income of $58,772, to $9,670. During the first quarter
2005 inventory has increased $167,229. As is our practice, we generally allow
inventory to decrease in December because retail sales are typically slow at the
11
end of the year. We then increase inventory dramatically in January to prepare
for anticipated increased sales volume during the first quarter of each year. As
a result of financing arrangements with a major product supplier and the
application of proceeds from our public offering to reduce debts, our account
payable decreased by $38,878 during the first quarter 2005. Net cash used in
operating activities during the three months ended March 31, 2005, was 24%
higher than net cash used in operating activities during the three months ended
March 31, 2004. This increase in cash used in operating activities during the
first quarter 2005, was largely the result of reduced net income combined with
increased inventory partially offset by decreases in accounts in accounts
receivable and customer deposits.
We used no net cash in investing activities during the first quarter of
2005 or 2004.
Net cash provided from financing activities was $172,130 during the
three months ended March 31, 2005 compared to $227,475 during the three months
ended March 31, 2004, a 24% decrease. During the first quarter 2005 we borrowed
$22,130 compared to $227,475 during the first quarter 2004. Also during the
first quarter 2005, we sold 75,000 shares of our common stock in a public
offering resulting in $150,000 in proceeds from stock sales during the first
quarter 2005. We sold no shares during the first quarter 2004.
At March 31, 2005 and 2004, we had cash on hand of $68,772 and
$126,036, respectively.
Summary of Material Contractual Commitments
The following table lists our significant commitments as of March 31,
2005.
Payments Due by Fiscal Year
---------------------------
Contractual Commitments Total 2005 2006 2007 2008 Thereafter
- ---------------------------------------------------------------------------------------------------
Note Payable-Related Party 124,269 29,224 47,414 47,631 -- --
Notes Payable 640,435 145,171 44,373 47,344 50,515 353,032
Capital Leases 23,898 5,391 10,473 8,034 -- --
Operating Leases 762,256 106,066 199,534 149,388 152,170 155,098
---------- -------- -------- -------- -------- --------
TOTAL $1,550,858 $285,852 $301,794 $252,397 $202,685 $508,130
========== ======== ======== ======== ======== ========
Off-Balance Sheet Financing Arrangements
As of March 31, 2005 and 2004, we had no off-balance sheet financing
arrangements.
Critical Accounting Policies
Revenue Recognition
We recognize revenues in accordance with the Securities and Exchange
Commission, Staff Accounting Bulletin (SAB) number 104, "Revenue Recognition in
Financial Statements." SAB 104 clarifies application of U. S. generally accepted
accounting principles to revenue transactions. Accordingly, revenue is
12
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.
We record accounts receivable for sales which have been delivered but
for which money has not been collected. An allowance for doubtful accounts is
provided for accounts deemed potentially uncollectible based on analysis and
aging of accounts. For customer purchases or deposits paid in advance, we record
a liability until products are shipped or installed.
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 December 2004, the FASB issued SFAS No. 123R, Share-based Payment.
This standard is a revision of SFAS No. 123, Accounting for Stock-Based
Compensation, and supersedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and its related implementation
guidance. SFAS No. 123R requires the measurement of the cost of employees
services received in exchange for an award of the entity's equity instruments
based on the grant-date fair value of the award. The cost will be recognized
over the period during which an employee is required to provide service in
exchange for the award. No compensation cost is recognized for equity
instruments for which employees do not render service. The Company will adopt
SFAS No. 123R on July 1, 2005, which will require stock-based compensation
expense to be recognized against earnings for the portion of outstanding
unvested awards, based on the grant date fair value of those awards calculated
using a Black-Scholes pricing model under SFAS 123 for pro forma disclosure. The
Company is currently evaluating to what extent the entity's equity instruments
will be used in the future for employees services and the transition provisions
of this standard; therefore, the impact to the Company's financial statements of
the adoption of SFAS No. 123R cannot be predicted with certainty.
13
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an
amendment of ARB No. 43, Chapter 4, Inventory Pricing, to clarify that for
abnormal amounts of idle facility expense, freight, handling costs, and wasted
material (spoilage), should be expensed as incurred and not included in
overhead. In addition, this Statement requires the allocation of fixed
production overheads to the costs of conversion be based on the normal capacity
of the production facilities. The provisions in SFAS No. 151 are effective for
inventory costs incurred during fiscal years beginning after June 15, 2005. The
Company is currently assessing the impact of SFAS no. 151 on its consolidated
financial statements.
In December 2004, the FASB issued Staff Position No. FAS 109-1,
Application of FASB Statement No. 109, Accounting for Income Taxes, to the tax
Deduction on Qualified Production Activities Provided by the American Jobs
Creation Act of 2004 (the "Act") that provides a tax deduction on qualified
production activities. Accordingly FASB indicated that this deduction should be
accounted for as a special deduction in accordance with FASB Statement No. 109.
The Company will comply with the provisions of FSP 109-1 effective January 1,
2005, and does not believe that the adoption of this FASB Staff Position will
have a material impact on the Company's financial statements.
Item 3. Controls and Procedures
Our principal executive officers and our principal financial officer
(the "Certifying Officers") are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e). Such officers have concluded (based upon their evaluations of
these controls and procedures as of the end of the period covered by this
report) that the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed by it in this report is
accumulated and communicated to management, including the Certifying Officers as
appropriate, to allow timely decisions regarding required disclosure.
The Certifying Officers have also indicated that there were no
significant changes in the Company's internal controls over financial reporting
or other factors that could significantly affect such controls subsequent to the
date of their evaluation, and there were no significant deficiencies and
material weaknesses.
Management, including the Certifying Officers, does not expect that the
Company's disclosure controls or its internal controls will prevent all error
and all fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met. In addition, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within a company have
been detected. These inherent limitations include the realities that judgments
in decision-making can be faulty, and that breakdowns can occur because of
simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people or by
14
management override of the control. The design of any systems of controls is
also based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions. Because of these
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and may not be detected.
PART II - OTHER INFORMATION
Item 2. Changes in Securities
No instruments defining the rights of the holders of any class of
registered securities have been materially modified, limited or qualified during
the quarter ended March 31, 2005.
During the quarter, we sold no shares which were not registered under
the Securities Act of 1933.
We are currently undertaking a public offering of a maximum of
10,000,000 shares of our common stock at a price of $2.00 per share, for an
aggregate offering of up to $20,000,000. This public offering was registered
with the Securities and Exchange Commission pursuant to an SB-2 registration
statement. Our SB-2 registration statement was declared effective by the
Securities and Exchange Commission on January 31, 2005 and we commenced our
public offering at that time. The commission file number assigned to this
registration statement is 333-119234.
As of May 11, 2005, we had sold 100,300 raising $200,600.
Currently the offering is self underwritten and is being sold by our
officers and directors, so no underwriting discounts and commissions, finders'
fees or expenses have been paid.
In accordance with the use of proceeds set forth in the registration
statement, as of May 11, 2005, approximately $170,000 has been used to reduce
outstanding debt obligations of the Company. Of the $170,000, approximately
$29,000 was paid to reduce amounts owed on a line of credit extended to us by
Michael Carroll and a note payable to Michael Carroll. Mr. Carroll is an officer
and director of the Company.
Item 6. Exhibits and Reports on Form 8-K
(A) Reports on Form 8-K
None.
15
(B) Exhibits. The following exhibits are included as part of this
report:
Exhibit 31.1 Certification of Principal Executive Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 31.2 Certification of Principal Financial Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.1 Certification of Principal Executive Officer
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.2 Certification of Principal Executive Officer
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this to be signed on its behalf by the undersigned
thereunto duly authorized.
THE FLOORING ZONE, INC.
May 16, 2005 /s/ Jimmy Lee
-----------------------------
Jimmy Lee,
Chief Executive Officer
May 16, 2005 /s/ Michael Carroll
-----------------------------
Michael Carroll,
Chief Financial Officer
16