U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PlushZone, Inc.,
(Exact name of registrant as specified in its charter)
Delaware 3942 06-1584525
- -------- ---- ----------
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction Classification Code Number) Identification No.)
of incorporation
or organization)
1111 Route 10, Suite 333, East Farmingdale, New York 11735
- ---------------------------------------------------- -----
(Address of registrant's principal executive offices) (Zip Code)
631.249.2429
(Registrant's Telephone Number, Including
Area Code)
Thomas E. Stepp, Jr.
Stepp Law Group
1301 Dove Street, Suite 460
Newport Beach, California 92660
949.660.9700
Facsimile 949.660.9010
(Name, Address and Telephone Number of Agent for Service)
Approximate date of proposed sale to the public: 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, please 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
====================================================================================================================
Title of each class Amount Proposed maximum Proposed maximum Amount of
of securities to be offering price aggregate registration
to be registered registered per share offering price fee
------------------------------- ---------------- ------------------ ------------------- ----------------
Common Stock, $.001 par value 8,100,000 $0.25 $2,025,000.00 $534.60
====================================================================================================================
The offering price per share for the selling security holders was estimated
solely for the purpose of calculating the registration fee pursuant to Rule 457
of Regulation C.
(boldface)
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, as amended, or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
See "Risk Factors" on pages 4 through 11 for factors to be considered before
investing in the shares of our common stock.
(end boldface)
1
Preliminary Prospectus
PlushZone, Inc.,
a Delaware corporation
8,100,000 Shares of Common Stock
This prospectus relates to 8,100,000 shares of common stock of PlushZone, Inc.,
a Delaware corporation, which are issued and outstanding shares of our common
stock acquired by the selling security holders. No national securities exchange
or the Nasdaq Stock Market lists the common stock being offered by the selling
security holders, and we have not applied for listing or quotation with any
national securities exchange or automated quotation system.
The shares of common stock offered by the selling security holders have not been
registered for sale under the securities laws of any state as of the date of
this prospectus. Brokers or dealers effecting transactions in the shares of our
common stock should confirm the registration thereof under the securities laws
of the states in which transactions occur or the existence of any exemption from
registration. We will not receive any of the proceeds from the sale of those
shares being offered.
(boldface)
See "Risk Factors" on pages 4 to 11 for factors to be considered before
investing in the shares of our common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
The information in this prospectus is not complete and may be changed. The
selling security holders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
(end boldface)
Price to public Underwriting discounts Proceeds to issuer
and commissions
------------------- ---------------------- --------------------
Per share $ 0.25 $0.00 $ 0.25
Total maximum $2,025,000.00 $0.00 $2,025,000.00
The date of this prospectus is December 6, 2001
Subject to completion.
2
TABLE OF CONTENTS
Prospectus Summary ........................................................4
Risk Factors...............................................................4
Use of Proceeds...........................................................11
Determination of Offering Price...........................................11
Dilution..................................................................11
Selling Security Holder...................................................11
Plan of Distribution......................................................11
Legal Proceedings.........................................................14
Directors, Executive Officers, Promoters and Control Persons............. 14
Security Ownership of Certain Beneficial Owners and Management............15
Description of Securities.................................................16
Interest of Named Experts and Counsel.....................................16
Disclosure of Commission Position on Indemnification for
Securities Act Liabilities...........................................16
Organization Within Last Five Years.......................................17
Description of Business...................................................17
Management's Discussion and Analysis of Financial Condition
and Results of Operations..............................18
Description of Property.................................................. 19
Certain Relationships and Related Transactions............................19
Market for Common Equity and Related Stockholder Matters..................19
Executive Compensation....................................................21
Financial Statements......................................................21
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.............................................22
Legal Matters.............................................................22
Experts...................................................................22
Additional Information....................................................22
Indemnification of Directors and Officers.................................22
Other Expenses of Issuance and Distribution...............................23
Recent Sales of Unregistered Securities...................................23
Exhibits..................................................................24
Undertakings..............................................................24
Signatures ............................................................25
3
Prospectus Summary
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Our Business: Our principal business address is 1111 Route 10, Suite 333,
East Farmingdale, New York 11735; our telephone number is
631.249.2429.
We are a developmental stage company and we intend to
provide plush toys, stuffed animals, Indy caps and T-shirts,
baseball caps, basketball caps, and football caps over the
Internet worldwide. Our principal business activities are:
o Create and update a website where customers can review,
compare and ultimately purchase our products;
o promote, market and sell a our products over the Internet.
We have not yet generated any revenues from the sale of our
products.
Our website displays pictures of the pre-packaged baskets of
our products which we intend to sell and distribute.
Our State of We were incorporated in Delaware on April 25, 2000.
Organization:
Number of Shares The selling security holders want to sell 8,100,000 shares
Being Offered: of our common stock. The offered shares were acquired by the
selling security holders in private placement transactions
which were exempt from the registration and prospectus
delivery requirements of the Securities Act of 1933.
Number of Shares 8,100,000 shares of our common stock are issued and
Outstanding After outstanding. We have no other securities issued.
the Offering:
Estimated use of We will not receive any of the proceeds from the sale of
proceeds: those shares being offered.
RISK FACTORS
In addition to the other information in this prospectus, the following risk
factors should be considered carefully in evaluating our business before
purchasing any of our shares of common stock. A purchase of our common stock is
speculative and involves a lot of risks. No purchase of our common stock should
be made by any person who is not in a position to lose the entire amount of his
investment.
(boldface)
Information in this prospectus contains "forward looking statements" which can
be identified by the use of forward-looking words, such as "believes",
"estimates", "could", "possibly", "probably", "anticipates", "estimates",
"projects", "expects", "may", "will", or "should" or other variations thereon or
similar words. No assurances can be given that the future results anticipated by
the forward-looking statements will be achieved. The following matters
constitute cautionary statements identifying important factors with respect to
those forward-looking statements, including certain risks and uncertainties,
that could cause actual results to vary materially from the future results
anticipated by those forward-looking statements. Among the key factors that have
a direct bearing on our results of operations are the effects of various
governmental regulations, the fluctuation of our direct costs and the costs and
effectiveness of our operating strategy. Other factors could also cause actual
results to vary materially from the future results anticipated by those
forward-looking statements.
(end boldface)
4
We may not be successful in the implementation of our business strategy or our
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business strategy may not be successful, either of which will impede our growth
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and operating results.
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Our business strategy involves the implementation and operation of our website
from which our products will be retailed. Our ability to implement this business
strategy is dependent on our ability to:
o Develop and continually update a functional, user-friendly website
through which our products can be sold;
o Procure and continue licensing agreements with providers of our
products;
o Identify and pursue mediums through which we will be able to market
our products; and
o Manage growth by managing administrative overhead and distribution
costs.
We do not know whether we will be able to successfully implement our business
strategy or whether our business strategy will be successful. In assessing our
ability to meet these challenges, a potential investor should take into account
our the lack of operating history and brand recognition, our management's
inexperience, the competitive conditions existing in our industry and general
economic conditions and consumer discretionary spending habits. Our future
growth is largely dependent on our ability to successfully implement our
business strategy. Our revenues may be adversely affected if we fail to
implement our business strategy or if we divert resources to a business strategy
that ultimately proves unsuccessful.
The market for Internet-related products and services is characterized by rapid
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technological change, changing customer needs, frequent new product
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introductions and evolving industry standards.
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We intend on becoming an Internet based provider of pre-packaged plush items,
stuffed animals and sports caps. The market for Internet-related products and
services is characterized by rapid technological change, changing customer
needs, frequent new product introductions and evolving industry standards. These
market characteristics are exacerbated by the emerging nature of this market and
the fact that many companies are expected to introduce continually new and
innovative products and services. Our success will depend partially on our
ability to introduce new products, services and technologies continually and on
a timely basis and to continue to improve the performance, features and
reliability of our products and services in response to both evolving demands of
prospective customers and competitive products. Our success will also partially
depend on our ability to develop and expand our website.
Our success is partially dependent on an increase in the use of the Internet for
electronic commerce ("e-commerce"). If the markets for Internet or e-commerce do
not continue to develop, our business and financial condition may be adversely
affected. The Internet e-commerce market is new and rapidly evolving, and the
effectiveness of e-commerce cannot be accurately measured. As a result, demand
and market acceptance for the Internet and e-commerce is uncertain and may not
increase as necessary for our business to increase or succeed. The use of
e-commerce, particularly by companies that have historically relied on
traditional methods of selling their products and services, requires the
acceptance of a new method of conducting business, exchanging information and
completing commercial transactions. If the Internet or e-commerce fails to
develop or develops more slowly than we expect, our business could be adversely
affected.
There can be no assurance that any of our new or proposed products or services
will achieve market acceptance. Our failure to design, develop, test, market and
introduce new and enhanced products, technologies and services successfully so
as to achieve market acceptance could have a material adverse effect upon our
business, operating results and financial condition.
There can be no assurance that we will not experience difficulties that could
delay or prevent the successful development, introduction or marketing of new or
enhanced products and services, or that our new products and services will
adequately satisfy the requirements of prospective customers and achieve
significant acceptance by those customers. Because of certain market
characteristics, including technologic change, changing customer needs, frequent
new product and service introductions and evolving industry standards, the
continued introduction of new products and services is critical. Delays in the
introduction of new products and services may result in customer dissatisfaction
and may delay or cause a loss of revenue. There can be no assurance that we will
be successful in developing new products or services or improving existing
products and services that respond to technological changes or evolving industry
standards. Additionally, there can be no assurance that we will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of new or improved products and services, or that our
new products and services will adequately satisfy the requirements of
prospective customers and achieve acceptance by those customers. In addition,
5
new or enhanced products and services introduced by us may contain undetected
errors that require significant design modifications. This could result in a
loss of customer confidence which could adversely affect the use of our website,
which, in turn, could have a material adverse effect upon our business, results
of operations or financial condition. If we are unable to develop and introduce
new or improved products or services in a timely manner in response to changing
market conditions or customer requirements, our business, operating results and
financial condition will be materially adversely affected.
We face numerous operational risks associated with a new and unproven business
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system.
- ------
We have designed a new business system that is substantially dependent on a
complex order fulfillment and product delivery system. The success of our
business heavily rests upon whether we can effectively fulfill our obligation to
our customers by providing them with both low-priced products and efficient
delivery. The success of our system in a high order volume environment has yet
to be proven. We cannot assure you that our business system will be able to
accommodate a significant increase in the number of customers and orders. If we
are unable to effectively accommodate substantial increases in customer orders,
we may lose existing customers or fail to attract new customers. Additionally,
the efficient and timely execution of our business system is critical to
consumer acceptance of our services. If we are unable to meet customer demand or
service expectations as a result of operational issues, our ability to develop
customer relationships that result in repeat orders will be adversely affected.
We may be subject to government regulation of the Internet and face many legal
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uncertainties.
- -------------
We are not currently subject to direct regulation by any government agency in
the United States, other than regulations applicable to businesses generally,
and there are currently few laws or regulations directly applicable to access to
commerce on the Internet. Because of the increasing popularity and use of the
Internet, it is possible that a number of laws and regulations may be adopted
with respect to the Internet, relating to issues such as user privacy, pricing
and characteristics and quality of products and services.
Several telecommunications carriers are attempting to have telecommunications
over the Internet regulated by the Federal Communications Commission ("FCC") in
the same manner as other telecommunications services. In addition, because the
growing popularity and use of the Internet has burdened the existing
telecommunications infrastructure and many areas with significant Internet use
have begun to experience interruptions in telephone service, local telephone
carriers have petitioned the FCC to regulate Internet Service Providers ("ISPs")
and Online Service Providers ("OSPs") in a manner similar to long distance
telephone carriers and to impose access fees on the ISPs and OSPs. If the
request relief is granted, the costs of communicating on the Internet could
increase substantially, potentially reducing the growth in use of the Internet,
which could in turn decrease the demand for our productions, products and
services.
Because of the global nature of the Internet, it is possible that, although
transmissions by us over the Internet originate primarily in the state of New
York, the governments of other states and foreign countries might attempt to
regulate our transmissions or prosecute us for violations of their laws. There
can be no assurance that violations of local laws will not be alleged or charged
by state or foreign governments, that we might not unintentionally violate such
law, or that such laws will not be modified, or new laws enacted, in the future.
Any of the foregoing developments could have a material adverse effect on our
business, results of operations, and financial condition.
Our relationships with our customers may be adversely affected if the security
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measures that we use to protect their personal information, such as credit card
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numbers, are ineffective.
- ------------------------
Any breach in our website security could expose us to a risk of loss or
litigation and possible liability. We anticipate that we will rely on encryption
and authentication technology licensed from third parties to provide secure
transmission of confidential information. As a result of advances in computer
capabilities, new discoveries in the field of cryptography or other
developments, a compromise or breach of our security precautions may occur. A
compromise in our proposed security could severely harm our business. A party
who is able to circumvent our proposed security measures could misappropriate
proprietary information, including customer credit card information, or cause
interruptions in the operation of our website. We may be required to spend
significant funds and other resources to protect against the threat of security
breaches or to alleviate problems caused by these breaches. However, protection
may not be available at a reasonable price, or at all. Concerns regarding the
security of e-commerce and the privacy of users may also inhibit the growth of
the Internet as a means of conducting commercial transactions.
6
Because we rely primarily on on-line credit card payment for our services, we
risk fraudulent credit card transactions; a failure to adequately control such
transactions would harm our net sales and results of operations because we do
not carry insurance against this risk. We utilize technology to help us detect
the fraudulent use of credit card information. Nonetheless, we may suffer losses
as a result of orders placed with fraudulent credit card data, even though the
associated financial institution approved payment of the orders. Under current
credit card practices, we are liable for fraudulent credit card transactions
because we do not obtain a cardholder's signature. Because we have no operating
history, we cannot predict our future levels of bad-debt expense.
There are significant risks associated with license agreements.
- --------------------------------------------------------------
License agreements with manufacturers of our products will generally require
minimum guarantees, obligating us to make specified royalty payments regardless
of sales. If we need to fund significant additional royalty advances and fulfill
guarantees of minimum royalty payments, it will place greater pressure on our
liquidity. As such, if we enter into such agreements and are unable to fulfill
the minimum guarantee, the resultant loss of revenues may have an adverse effect
on our financial condition and results of operation. Additionally, we cannot
ensure that we will be able to procure license agreements on terms agreeable to
us, or renew license agreements once procured, or that such licenses will not be
terminated. There also can be no assurance that the procurement of licenses or
obtaining of additional licenses for characters or trademarks can be effected on
commercially reasonable terms. License agreements we enter into may limit both
the products that can be distributed thereunder and the territories and markets
in which such products may be marketed. Generally, license agreements require
licensor approval before any merger or reorganization involving the licensee,
certain stock sales or assignment of the license. Certain license agreements
require licensor approval of management changes. In addition, licensors
typically have the right to approve, at their sole discretion, the products
developed and distributed by the Company and the third party manufacturer of
such products. Such license agreements sometimes allow the licensor the right to
set prices. Obtaining such approvals may be time consuming and could adversely
affect the timing of the introduction of new products. Certain of our
significant licenses may be non-exclusive. Licenses that overlap our licenses
with respect to products, geographic areas and markets may and will likely be
granted to our competitors, which may adversely affect our product sales.
We may be dependent on concepts, technologies and other intellectual property
rights licensed from third parties, such as rights to trademarks for certain of
our proprietary products. For each of these proprietary products and product
lines, we will typically enter into a license agreement with the owner of the
intellectual property to permit us to use the intellectual property. These
license agreements typically require us to make royalty payments to the licensor
based on the net sales of the product incorporating the licensed property. There
can be no assurance that we will be able to procure new license agreements,
renew license agreements once procured on commercially reasonable terms, or at
all, or that such license agreements will not be terminated. Our license
agreements may contain restrictions on products manufactured and permitted sales
territories, and may give the licensor the right to approve the manufacturer to
be utilized by us to produce the product.
In addition to rights licensed from third parties, we will rely on a combination
of design patent, copyright, trademark and trade secret protection and
non-disclosure agreements with employees to establish and protect the
proprietary rights that we have in the products we distribute. There can be no
assurance that our competitors will not independently develop or acquire
proprietary technologies that are substantially equivalent or superior to ours.
There also can be no assurance that the measures we adopt to protect our
proprietary rights will be adequate to do so. The ability of our competitors to
develop or acquire technologies or other proprietary rights equivalent or
superior to ours or that our inability to enforce our proprietary rights could
have a material adverse affect our results of operation.
Though we do not believe that any of the products we agree to distribute will
infringe on the proprietary rights of third parties in any material respect,
there can be no assurance that third parties will not claim infringement by us
with respect to the products we will distribute. Any such claim, with or without
merit, could be time-consuming, result in costly litigation, cause product
shipment delays or require us to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to us or at all, which could have a material adverse effect on our
business, results of operations and financial condition.
7
We are subject to numerous general risks associated with our anticipated foreign
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operations.
- ----------
Foreign operations are generally subject to risks such as transportation delays
and interruptions, political and economic disruptions, the imposition of tariffs
and import and export controls, difficulties in staffing and managing foreign
operations, longer payment cycles, problems in collecting accounts receivable,
changes in governmental policies, restrictions on the transfer of funds,
currency fluctuations and potentially adverse tax consequences. There can be no
assurance that such events will not occur and any growth of our international
operations will subject us to greater exposure to risks of foreign operations.
The occurrence of such an event would have a material adverse effect on our
business results.
Our ability to successfully develop, market and sell our products is uncertain
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because our management does not have any experience in conducting our business.
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Our management team, specifically, James Butler and Stacey Butler, lacks
experience in the development, marketing and distribution of our products.
Moreover, our management team lacks experience in website development and
distributing products over the Internet. Our failure to successfully attract
customers to our products will significantly affect our ability to generate
revenues. We cannot guaranty, given our management team's lack of experience,
that we will be able to establish sales, marketing and distribution capabilities
or make arrangements with collaborators, licensees or others to perform such
activities or that such efforts will be successful. If our management team is
unable to overcome their lack of experience, our operating results and financial
condition will suffer.
Changing consumer preferences will require periodic product introduction.
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As a result of changing consumer preferences, many toys are successfully
marketed for only one or two years. There can be no assurance that any of our
products or any of our product lines will continue to be popular for any
significant period of time or that new products and product lines we introduce
will achieve an acceptable degree of market acceptance, or that if such
acceptance is achieved, it will be maintained for any significant period of
time. Our success will be dependent upon our ability to enhance existing product
lines and develop new products and product lines. Our failure to introduce new
products and product lines and to achieve and sustain market acceptance for such
products and to produce acceptable margins could have a material adverse effect
on our financial condition and results of operations.
We may be subject to product liability claims for our products and are subject
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to federal regulation.
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Products that we sell may expose us to potential liability from personal injury
claims by end-users of such products. We are currently not involved in any legal
proceedings and claims incident to the normal conduct of our business. We do not
currently maintain product liability insurance coverage, but should our license
agreements require we carry specified types and amounts of insurance, we hope
procure such insurance as required. However, there can be no assurance that we
will be able to either procure or maintain such coverage or obtain additional
coverage on acceptable terms, or that such insurance will provide adequate
coverage against any potential claims. Moreover, even if we maintain adequate
insurance, any successful claim could materially and adversely affect our
reputation and prospects. We believe that the products we choose to license will
meet all applicable safety standards.
The United States Consumer Products Safety Commission ("CPSC") has the authority
under certain federal laws and regulations to protect consumers from hazardous
goods. The CPSC may exclude from the market goods it determines are hazardous,
and may require a manufacturer to repurchase such goods under certain
circumstances. Some state, local and foreign governments have similar laws and
regulations. In the event that such laws or regulations change or we are found
in the future to have violated any such law or regulation, the sale of the
relevant product could be prohibited and we could be required to repurchase such
products.
We face intense competition and our inability to successfully compete with our
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competitors will have a material adverse effect on our results of operation.
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The toy industry and the sports cap industry are highly competitive. Many of our
competitors have longer operating histories, greater brand recognition, broader
product lines and greater financial resources and advertising budgets than we
do. In addition, the toy industry and the sports cap industry have certain
barriers to entry. Competition is based primarily on the ability to design and
develop new toys and caps, procure licenses for popular characters and
8
trademarks, and successfully market products. Many of our competitors, including
our potential licensors, offer similar products or alternatives to our products.
Licenses that overlap our licenses with respect to products, geographic areas
and markets have been and may continue to be granted to our competitors. Certain
of our potential licensors, may and likely will distribute competing products
through proprietary retail outlets and various other mediums. Our retail
products will compete with other products for the on-line retail market. There
can be no assurance that we will procure an on-line retail market that will be
available to support the products we will offer or allow us to seek expansion of
our products and product lines. There can be no assurance that we will be able
to compete effectively in this marketplace.
If we experience problems in our distribution operations, we could lose
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customers.
- ---------
We will rely upon third-party carriers for product shipments, including
shipments to and from our distribution facilities. We are therefore subject to
the risks, including employee strikes and inclement weather, associated with
such carriers' ability to provide delivery services to meet our shipping needs.
In addition, failure to deliver products to our customers in a timely and
accurate manner would damage our reputation and brand. We also depend upon
temporary employees to adequately staff our distribution facilities,
particularly during the holiday shopping season. If we do not have sufficient
sources of temporary employees, we could lose customers.
Because we will likely experience seasonal fluctuations in our net sales, our
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quarterly results will fluctuate and our annual results could be below
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expectations.
- ------------
We expect to experience seasonal fluctuations in our net sales. These seasonal
patterns will cause quarterly fluctuations in our operating results. In
particular, a disproportionate amount of our net sales will likely be realized
during the holiday season occurring in the fourth calendar quarter. If our net
sales fall below seasonal expectations during this quarter, our annual operating
results could be below our expectations. Due to our lack of operating history,
it is difficult to predict the seasonal pattern of our sales and the impact of
such seasonality on our business and financial results.
Intellectual property claims against us can be costly and could impair our
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business.
- --------
Other parties may assert infringement or unfair competition claims against us.
We cannot predict whether third parties will assert claims of infringement
against us, or whether any past or future assertions or prosecutions will harm
our business. If we are forced to defend against any such claims, whether they
are with or without merit or are determined in our favor, then we may face
costly litigation, diversion of technical and management personnel, or product
shipment delays. As a result of such a dispute, we may have to develop
non-infringing technology or enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may be unavailable on terms
acceptable to us, or at all. If there is a successful claim of product
infringement against us and we are unable to develop non-infringing technology
or license the infringed or similar technology on a timely basis, it could
impair our business.
If we are unable to acquire or retain the necessary web domain names, our brand
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and reputation could be damaged and we could lose customers.
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We may be unable to acquire or maintain web domain names relating to our
business in the United States and other countries in which we may conduct
business. As a result, we may be unable to prevent third parties from acquiring
and using domain names relating to our brand. Such use could damage our brand
and reputation and take customers away from our website. We currently hold the
domain name "plushzone.com". The acquisition and maintenance of domain names
generally is regulated by governmental agencies and their designees. For
example, in the United States, the National Science Foundation has appointed
Network Solutions, Inc. as the current exclusive registrar for the ".com",
".net" and ".org" generic top-level domains. The regulation of domain names in
the United States and in foreign countries is subject to change in the near
future. Such changes in the United States are expected to include a transition
from the current system to a system which is controlled by a non-profit
corporation and the creation of additional top-level domains. Governing bodies
may establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names.
Our net sales could decrease if we become subject to sales and other taxes.
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A number of proposals have been made at various federal, state and local
agencies that would impose additional taxes on the sale of goods and services on
9
the Internet. Such proposals, if adopted, could substantially impair the growth
of e-commerce, and could adversely affect our ability to derive financial
benefit from such activities. In addition, a number of countries have announced,
or are considering, additional regulation in many of the foregoing areas. Those
laws and regulations, if enacted in the United States or elsewhere, could have a
material adverse effect on our business, operating results, and financial
condition. Moreover, the applicability to the Internet of the existing laws
governing issues such as property ownership, copyright, defamation, obscenity
and personal privacy is uncertain, and we may be subject to claims that our
products and services violate such laws. Any such new legislation or regulation
in the United States or elsewhere or the application of existing laws and
regulations to the Internet could have a material adverse effect on our
business, operating results, and financial condition.
If one or more states or any foreign country successfully asserts that we should
collect sales or other taxes on the sale of our products, our net sales and
results of operations could be harmed. We do not currently collect sales or
other similar taxes for physical shipments of goods into states other than New
York. However, one or more local, state or foreign jurisdictions may seek to
impose sales tax collection obligations on us. In addition, any new operation in
states outside New York could subject our shipments in such states to state
sales taxes under current or future laws. If we become obligated to collect
sales taxes, we will need to update our system that processes customers' orders
to calculate the appropriate sales tax for each customer order and to remit the
collected sales taxes to the appropriate authorities. These upgrades will
increase our operating expenses. In addition, our customers may be discouraged
from purchasing products from us because they have to pay sales tax, causing our
net sales to decrease. As a result, we may need to lower prices to retain these
customers.
We have no operating history upon which an evaluation of our prospects can be
- --------------------------------------------------------------------------------
made.
- ----
We were incorporated on April 25, 2000. Since our incorporation we have focused
on developing the operating model of our business. We have not yet initiated our
commercial services. Our lack of operating history makes an evaluation of our
business and prospects very difficult. Our prospects must be considered
speculative considering the risks, expenses and difficulties frequently
encountered by internet-based businesses and the toy industry in general. The
continued development of our products and services involves significant risks,
which our combination of experience, knowledge and careful evaluation may not be
able to overcome. These risks and difficulties include, but are not limited to:
o An unproven business system;
o Lack of sufficient customers, revenue or cash flow;
o Difficulties in managing rapid growth;
o High capital expenditures; and
o Lack of widespread acceptance of Internet commerce.
We cannot be certain that our business strategy will be successful or that we
will successfully address these risks. Our failure to address any of the risks
described above could have a material adverse effect on our business, financial
condition and results of operations. There can be no assurance that
unanticipated problems will not occur which would result in material delays in
our operations. There can be no assurance that we will be able to achieve
profitable operations.
We anticipate that we will depend on third-party providers and key vendors.
- --------------------------------------------------------------------------
We will rely solely on third-party providers for the products we offer for
retail on our website, as well as for all delivery orders. We may become
dependent upon various other third parties for one or more significant services
required for the implementation and execution of our business, which services
will be provided to our business pursuant to agreements with such providers.
Inasmuch as the capacity for certain services by certain third parties may be
limited, our inability, for economic or other reasons, to receive services from
providers or to obtain similar products or services from additional providers
could have a material adverse effect on our business.
Our Certificate of Incorporation limits the liability of our officers and
- --------------------------------------------------------------------------------
directors.
- ---------
Article Six of our Certificate of Incorporation includes a provision eliminating
or limiting the personal liability of our directors to the Company and its
shareholders for damages for breach of fiduciary duty as a director. Moreover,
the Delaware General Corporation Law provides for the indemnification, under
10
certain circumstances, of officers and directors. Accordingly, our directors may
have no liability to our shareholders for any mistakes or errors of judgment or
for any act of omission, unless such act or omission involves intentional
misconduct, fraud, or a knowing violation of law or results in unlawful
distributions to our shareholders.
DISCLOSURE OF OPINION OF SECURITIES AND EXCHANGE COMMISSION REGARDING
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
(boldface)
Insofar as indemnification for liabilities resulting from violations of the
Securities Act of 1933 may be permitted to our directors, officers or
controlling persons pursuant to the foregoing provisions, we have been informed
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
(end boldface)
Our officers and directors are engaged in other activities that could have
- --------------------------------------------------------------------------------
conflicts with our business interests.
- -------------------------------------
The potential for conflicts of interest exists among us and affiliated persons
for future business opportunities that may not be presented to us. Our officers
and directors engage in other activities which may potentially conflict with
their responsibilities to us. Specifically, James Butler, our President, Chief
Executive Officer and a member of our Board of Directors, is currently employed
as a mechanic. Although he has committed to devote time to us in developing our
business, his other responsibilities may interfere with his ability to devote
significant time and attention to us. Stacey Butler, our Secretary, Chief
Financial Officer and a member of our Board of Directors, is currently employed
as a teacher's assistant. Although she has committed to devote time to us in
developing our business, her other responsibilities may interfere with her
ability to devote significant time and attention to us. Our officers and
directors may have conflicts of interests in allocating time, services, and
functions between the other business ventures in which those persons may be or
become involved. Our officers and directors, however, believe that we will have
sufficient staff, consultants, employees, agents, contractors, and managers to
adequately conduct our business.
Our common stock may be subject to penny stock regulation which may make it
- --------------------------------------------------------------------------------
difficult for investors to sell their stock.
- -------------------------------------------
The Securities and Exchange Commission ("Commission") has adopted rules that
regulate broker-dealer practices in connection with transactions in "penny
stocks". Penny stocks generally are equity securities with a price of less than
$5.00 (other than securities registered on certain national securities exchanges
or quoted on the NASDAQ system, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from those rules, deliver a
standardized risk disclosure document prepared by the Commission, which
specifies information about penny stocks and the nature and significance of
risks of the penny stock market. The broker-dealer also must provide the
customer with bid and offer quotations for the penny stock, the compensation of
the broker-dealer and our salesperson in the transaction, and monthly account
statements indicating the market value of each penny stock held in the
customer's account. In addition, the penny stock rules require that, prior to a
transaction in a penny stock not otherwise exempt from those rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the trading activity in the secondary market for a stock that
becomes subject to the penny stock rules. If any of our securities become
subject to the penny stock rules, holders of those securities may have
difficulty selling those securities.
We are registering all of the issued and outstanding shares of common stock,
- --------------------------------------------------------------------------------
including those shares owned by our officers and directors. The selling security
- --------------------------------------------------------------------------------
holders, including our officers and directors, may sell all of their shares as
- --------------------------------------------------------------------------------
soon as possible, which could significantly decrease the price of our common
- --------------------------------------------------------------------------------
stock and reduce our officers' and directors' desire to see us succeed.
- ----------------------------------------------------------------------
All of the stock owned by the selling security holders, including our officers
and directors, will be registered by the registration statement of which this
prospectus is a part. The selling security holders, including our officers and
directors, may sell some or all of their shares immediately after they are
registered. In the event that the selling security holders sell some or all of
their shares, the price of our common stock could decrease significantly.
11
Use of Proceeds
- ---------------
We will not receive any proceeds from the sale of shares of our common stock
being offered by the selling security holders.
Determination of Offering Price
- -------------------------------
Factors Used to Determine Share Price. The selling security holders have
- -----------------------------------------
determined that $0.25 per share is a reasonable maximum offering price. We will
not receive any of the proceeds from the sale of such shares. If a market
develops for the shares, we may file a post-effective amendment, on behalf of
the selling security holders, that changes the price of the shares to an
at-the-market price. In the event a market for the shares develops, the offering
price will be determined by market factors and the independent decisions of the
selling security holders. The selling security holders may sell our common stock
at prices then prevailing or related to the then current market price or at
negotiated prices. The offering price has no relationship to any established
criteria of value, such as book value or earnings per share. Additionally,
because we have no significant operating history and have not generated any
revenues to date, the price of our common stock is not based on past earnings,
nor is the price of the shares of our common stock indicative of current market
value for the assets owned by us. No valuation or appraisal has been prepared
for our business and potential business expansion.
Dilution
- --------
The shares offered for sale by the selling security holders are already
outstanding and, therefore, do not contribute to dilution.
Selling Security Holders
- ------------------------
The following table sets forth the number of shares which may be offered for
sale from time to time by the selling security holders. The shares offered for
sale constitute all of the shares known to us to be beneficially owned by the
selling security holders. None of the selling security holders has held any
position or office with us, except as specified in the following table. Other
than the relationships described below, none of the selling security holders had
or have any material relationship with us.
================================================================================
Name of Selling Security Holder Shares of Common Stock
------------------------------- ----------------------
James Butler, President, Chief Executive Officer
and a Director 3,050,000
Stacey Butler, Secretary, Chief Financial Officer
and a Director 2,050,000
Edward Bollinger 200,000
Dawn Chiarelli 150,000
Dwayne Johnson 150,000
Robert Sforza 140,000
Michael Bozzo 130,000
Peggy Franco 125,000
Camille Marano 120,000
Maureen Mulvey 120,000
Michele Zanazzi 110.000
Angelo Pantazis 100,000
Christie Arculeo 100,000
Marc Tyree 100,000
Steve Trook 100,000
Susanne McErlean 100,000
Michael Sforza 95,000
Anthony Paduano 90,000
Kimberly Wessner 90,000
12
Patricia Szforza 90,000
Craig Reed 85,000
Darien Johnson 80,000
Jennifer Costa 80,000
Shelby Block 80,000
Christopher Poletti 75,000
Courtney Dobbins 75,000
Steven Farrell 70,000
Steven Halpin 65,000
Lamar Smith 60,000
Patrick Paduano 60,000
Anthony Paduano III 60,000
David Galietta 50,000
Gregory Franco 50,000
============================================================================
Plan of Distribution
- --------------------
The selling security holders may sell our common stock in the over-the-counter
market, or on any securities exchange on which our common stock is or becomes
listed or traded, in negotiated transactions or otherwise. The selling security
holders will initially offer their shares for sale at the maximum price of $0.25
per share. If a market develops for our common stock, we may file a
post-effective amendment that changes the price of the common stock to an
at-the-market price. The shares will not be sold in an underwritten public
offering.
The selling security holders may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act of 1933. Any profit on the sale
of shares by the selling security holders may be deemed to be underwriting
commissions or discounts.
We have filed the Registration Statement, of which this prospectus forms a part,
with respect to the sale of the shares by the selling security holders. There
can be no assurance that the selling security holders will sell any or all of
the shares being registered in the Registration Statement.
Under the Securities Exchange Act of 1934 and the regulations thereunder, any
person engaged in a distribution of the shares of our common stock offered by
this prospectus may not simultaneously engage in market making activities with
respect to our common stock during the applicable "cooling off" periods prior to
the commencement of such distribution. Also, the selling security holders are
subject to applicable provisions which limit the timing of purchases and sales
of our common stock by the selling security holders.
We have informed the selling security holders that, during such time as they may
be engaged in a distribution of any of the shares we are registering by this
Registration Statement, they are required to comply with Regulation M. In
general, Regulation M precludes any selling security holderand any affiliated
purchasers or other person who participates in a distribution from bidding for
or purchasing, or attempting to induce any person to bid for or purchase, any
security which is the subject of the distribution until the entire distribution
is complete. Regulation M defines a "distribution" as an offering of securities
that is distinguished from ordinary trading activities by the magnitude of the
offering and the presence of special selling efforts and selling methods.
Regulation M also defines a "distribution participant" as an underwriter,
prospective underwriter, broker, dealer, or other person who has agreed to
participate or who is participating in a distribution.
Regulation M prohibits any bids or purchases made in order to stabilize the
price of a security in connection with the distribution of that security, except
as specifically permitted by Rule 104 of Regulation M. These stabilizing
transactions may cause the price of our common stock to be more than it would
otherwise be in the absence of these transactions. We have informed the selling
security holders that stabilizing transactions permitted by Regulation M allow
bids to purchase our common stock if the stabilizing bids do not exceed a
specified maximum. Regulation M specifically prohibits stabilizing that is the
13
result of fraudulent, manipulative, or deceptive practices. Selling security
holders and distribution participants are required to consult with their own
legal counsel to ensure compliance with Regulation M.
Legal Proceedings
- -----------------
There are no legal actions pending against us nor are any legal actions
contemplated by us at this time.
Directors, Executive Officers, Promoters and Control Persons
- ------------------------------------------------------------
Executive Officers and Directors. We are dependent on the efforts and abilities
- --------------------------------
of certain of our senior management. The interruption of the services of key
management could have a material adverse effect on our operations, profits and
future development, if suitable replacements are not promptly obtained. We
anticipate that we will enter into employment agreements with each of our key
executives. We cannot guaranty that each executive will remain with us during or
after the term of his or her employment agreement. In addition, our success
depends, in part, upon our ability to attract and retain other talented
personnel. Although we believe that our relations with our personnel are good
and that we will continue to be successful in attracting and retaining qualified
personnel, we cannot guaranty that we will be able to continue to do so. Our
officers and directors will hold office until their resignations or removal.
Our directors and principal executive officers are as specified on the following
table:
=============================================================================
Name Age Position
--------------- ----- -------------------------------------------------
James P. Butler 29 President, Chief Executive Officer and a Director
Stacey Butler 29 Secretary, Chief Financial Officer and a Director
=============================================================================
James P. Butler. Mr. Butler is our President, Chief Executive Officer and a
- ---------------
director. Mr. Butler manages all aspects of our operations, including
negotiating agreements with product manufacturers and suppliers as well as
marketing and sales of our products. Mr. Butler has worked as a mechanic for the
following companies: M&R Auto Repairs from 1990 to 1994; Transervice Lease Corp.
from 1994 to 1995; Mobile from 1995 to 1996; Midas from 1997 to 1999; Medford
Tire from 1999 to 2000; Mobil from May, 2000 to September, 2000; and Millenium
Service from September, 2000 to the present. From 1996 to 1997, Mr. Butler
worked as a driver for Corporate Limo. Mr. Butler has not been a director of any
reporting company.
Stacey L. Butler. Ms. Butler is our Secretary, Chief Financial Officer and a
- ----------------
director. Ms. Butler is responsible for our day-to-day operations and the
development of new and innovative models to improve customer service and our
business management. Ms. Butler has been involved in social work and child-care
for the last ten years and has extensive hand-on knowledge of plush toys,
stuffed animals and related products through her infant care experience and will
translate her experience to the development of our user-friendly website and
related marketing efforts. Ms. Butler studied Early Education at St. Joseph's
College. She also graduated with an AAS in Social Work from Suffolk Community
College. From 1989 to 1991, Ms. Butler worked in sales at K-Mart. From 1991 to
1992, Ms. Butler worked as a nanny. From 1998 to 1999, Ms. Butler worked as Head
Supervisor at Lemore's Hallmark. From February, 2000 to June, 2000, Ms. Butler
worked as a Teacher's Assistant for Tutor Time. From June, 2000 to the present,
Ms. Butler has worked as a Teacher's Assistant at Childtime. Ms. Butler has not
been a director of any other reporting company.
James P. Butler and Stacey L. Butler are husband and wife.
There are no orders, judgments, or decrees of any governmental agency or
administrator, or of any court of competent jurisdiction, revoking or suspending
for cause any license, permit or other authority to engage in the securities
business or in the sale of a particular security or temporarily or permanently
restraining any of our officers or directors from engaging in or continuing any
conduct, practice or employment in connection with the purchase or sale of
securities, or convicting such person of any felony or misdemeanor involving a
security, or any aspect of the securities business or of theft or of any felony.
Nor are any of the officers or directors of any corporation or entity affiliated
with us so enjoined.
14
Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of October 1, 2001, by each person or entity
known by us to be the beneficial owner of more than 5% of the outstanding shares
of common stock, each of our directors and named executive officers, and all of
our directors and executive officers as a group.
Title of Class Name and Address of Amount and Nature of Percent of Class
Beneficial Owner Beneficial Owner
- ------------------- ----------------------------------- --------------------- -------------------
Common James Butler 5,100,000 62.9%
11 Hayward Street, Patchogue, New
York 11772
Common Stacey Butler 5,100,000 62.9%
11 Hayward Street, Patchogue, New
York 11772
James Butler and Stacey Butler are husband and wife. Therefore, Mr. and Mrs.
Butler beneficially own, in the aggregate, 5,100,000, or 62.9%, of our issued
and outstanding common stock.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. In accordance with Securities and Exchange
Commission rules, shares of our common stock which may be acquired upon exercise
of stock options or warrants which are currently exercisable or which become
exercisable within 60 days of the date of the table are deemed beneficially
owned by the optionees. Subject to community property laws, where applicable,
the persons or entities named in the table above have sole voting and investment
power with respect to all shares of our common stock indicated as beneficially
owned by them.
Changes in Control. Our management is not aware of any arrangements which may
- ------------------
result in "changes in control" as that term is defined by the provisions of Item
403(c) of Regulation S-B.
Description of Securities
- -------------------------
We are authorized to issue 50,000,000 shares of $.001 par value common stock.
Each share of common stock has equal rights and preferences, including voting
privileges. We are authorized to issue 5,000,000 shares of $.001 par value
preferred stock. As of October 1, 2001, 8,100,000 shares of our common stock
were issued and outstanding. As of October 1, 2001, none of our preferred stock
was issued and outstanding.
Each shareholder of our common stock is entitled to a pro rata share of cash
distributions made to shareholders, including dividend payments. The holders of
our common stock are entitled to one vote for each share of record on all
matters to be voted on by shareholders. There is no cumulative voting with
respect to the election of our directors or any other matter. Therefore, the
holders of more than 50% of the shares voted for the election of those directors
can elect all of the directors. The holders of our common stock are entitled to
receive dividends when, as and if declared by our Board of Directors from funds
legally available therefor. Cash dividends are at the sole discretion of our
Board of Directors. In the event of our liquidation, dissolution or winding up,
the holders of common stock are entitled to share ratably in all assets
remaining available for distribution to them after payment of our liabilities
and after provision has been made for each class of stock, if any, having any
preference in relation to our common stock. Holders of shares of our common
stock have no conversion, preemptive or other subscription rights, and there are
no redemption provisions applicable to our common stock.
Dividend Policy. We have never declared or paid a cash dividend on our capital
- ----------------
stock. We do not expect to pay cash dividends on our common stock in the
foreseeable future. We currently intend to retain our earnings, if any, for use
in our business. Any dividends declared in the future will be at the discretion
of our Board of Directors and subject to any restrictions that may be imposed by
our lenders.
Interest of Named Experts and Counsel
- -------------------------------------
15
No "expert", as that term is defined pursuant to Regulation Section 228.509(a)
of Regulation S-B, or our "counsel", as that term is defined pursuant to
Regulation Section 228.509(b) of Regulation S-B, was hired on a contingent
basis, or will receive a direct or indirect interest in us, except as specified
below, or was a promoter, underwriter, voting trustee, director, officer, or
employee of the company, at any time prior to the filing of this Registration
Statement.
Disclosure of Commission Position on Indemnification for Securities Act
- --------------------------------------------------------------------------------
Liabilities
- -----------
Article Six of our Certificate of Incorporation provides, among other things,
that our directors shall not be personally liable to us or our shareholders for
monetary damages for breach of fiduciary duty as a director, except for
liability:
o for any breach of such director's duty of loyalty to us or our
security holders;
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o liability for unlawful payments of dividends or unlawful stock
purchase or redemption by us; or
o for any transaction from which such director derived any improper
personal benefit.
Accordingly, our directors may have no liability to our shareholders for any
mistakes or errors of judgment or for any act of omission, unless the act or
omission involves intentional misconduct, fraud, or a knowing violation of law
or results in unlawful distributions to our shareholders.
Article VI of our Bylaws also provides that our officers and directors shall be
indemnified and held harmless by us to the fullest extent permitted by the
provisions of Section 145 of the Delaware General Corporation Law.
Indemnification Agreements. We anticipate that we will enter into
- ----------------------------
indemnification agreements with each of our executive officers. If we do enter
into such agreements, we will agree to indemnify each such person for all
expenses and liabilities, including criminal monetary judgments, penalties and
fines, incurred by such person in connection with any criminal or civil action
brought or threatened against such person by reason of such person being or
having been our officer or director or employee. In order to be entitled to
indemnification by us, such person must have acted in good faith and in a manner
such person believed to be in our best interests. With respect to criminal
actions, such person must have had no reasonable cause to believe his or her
conduct was unlawful.
(boldface)
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers and controlling persons
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 that act and is, therefore, unenforceable.
(end boldface)
Organization Within Last Five Years
- -----------------------------------
Transactions with Promoters. We did not use the services of promoters.
- ---------------------------
Description of Business
- -----------------------
Our Background. PlushZone, Inc, was incorporated pursuant to the laws of the
- --------------
State of Delaware on April 25, 2000, under the name "i-playsports.com." We
changed the name of the company to "PlushZone, Inc." in March, 2001.
Our Business. We are a developmental stage company and we intend to provide our
- ------------
products, including our plush toys, worldwide. Our principal business activities
will be:
o creating and updating a website where customers can review, compare
and ultimately purchaseour products. Our website displays pictures of
the pre-packaged baskets of plush products, stuffed animals and sports
caps, which we intend to sell and distribute;
o promoting, marketing and selling our products over the Internet.
We have not yet generated any revenues from the sale of our products.
16
Products and Services. We intend on retailing pre-packaged baskets of plush
- -----------------------
products, stuffed animals and sports caps and making them available to the
retail consumer.
Our Website. Our website displays pictures of the products we will offer for
- ------------
sale. If we generate revenues, we intend to further develop our website to
market our products. If we generate significant revenues from the sale of our
products, we plan to expand and design our website to function as a digital
community for consumers. A community website allows interaction and exchange of
information between consumers. For example, our digital community website would
allow consumers and collectors to interact regarding new products and
collectibles.
Internet Advertising. If we generate significant revenues, we anticipate that we
- --------------------
will expand and develop our website as a market for consumers and collectors of
plush toys. If we develop our website as we anticipate, we believe that we will
be able to generate advertising revenues from companies which have complementary
products and desire to advertise on our website. However, we have not developed
a business model relating to such advertising, and we do not anticipate
attracting any advertising revenue from complementary products until we have
significantly expanded and further developed our website to function as a
digital community for consumers. This will not occur until and unless we
generate revenues from our website, which has not yet occurred.
Our Target Markets and Marketing Strategy. We believe that our primary target
- -------------------------------------------
market will consist of individuals and collectors of plush products and stuffed
animals. We anticipate that we will market and promote our website on the
Internet. Our marketing strategy is to promote our products and attract
individuals and collectors to our website. Our marketing initiatives are merely
proposals and, thus, have not yet been commenced. We anticipate that our
marketing initiatives will include:
o utilizing direct-response print advertisements placed primarily in toy
collector magazines and special interest magazines;
o providing links to related industry websites;
o advertising by television, radio, banners, affiliated marketing and
direct mail;
o maintaining a presence at toy industry tradeshows; and
o entering into affiliate marketing relationships with website providers
to increase our access to Internet consumers. Affiliate marketing
means that we would place a link to our website or a banner
advertisement on the websites of other companies in exchange for
placing their link or banner advertisement on our website. Such
marketing increases access to users, because the users of other
websites may visit our website as a result of those links or banner
advertisements.
Growth Strategy. Our objective is to become a recognized Internet provider of
- ---------------
reasonably priced products. Our strategy is to provide clients with exceptional
personal service and low-cost products. As noted above, however, our marketing
proposals are, at this point, merely proposals and have not yet been commenced.
Key elements of our strategy include plans to:
o negotiate distribution agreements with third-party manufacturers for
our products;
o continue to expand our website;
o increase the number of Internet users to our website;
o increase our relationships with third-party providers of our products;
o provide additional services for consumers; and
o pursue relationships with joint venture candidates. We will attempt to
establish joint ventures with companies that will support our business
development.
Our Competition. See the Risk Factors section of this prospectus for a
- ----------------
discussion on the competition we currently face or may face in the future.
Proprietary Rights. See the Risk Factors section of this prospectus for a
- -------------------
discussion on the intellectual property issues we face in our business.
17
Our Research and Development. We are not currently conducting any research and
- ----------------------------
development activities. We do not anticipate conducting such activities in the
near future. If we generate significant revenues, we may expand our product line
by entering into distribution relationships with third party manufacturers.
Government Regulation. See the Risk Factors section of this prospectus for a
- ----------------------
discussion relevant government regulation and the legal uncertainties related to
our business activities.
Employees. As of October 1, 2001, we have no employees other than our officers.
- ---------
We anticipate that we will not hire any employees in the next six months, unless
we generate significant revenues. We believe our future success depends in large
part upon the continued service of our key senior management personnel and our
ability to attract and retain managerial personnel.
Facilities. Our executive, administrative and operating offices are located at
- ----------
1111 Route 10, Suite 333, East Farmingdale, New York 11735. We lease our
facilities for $250.00 per month under a one year lease. The lease agreement is
secured personally by James P. Butler, our President, Chief Executive Officer
and a member of our Board of Directors.
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------------
Operations
- ----------
Liquidity and Capital Resources. We were incorporated on April 25, 2000 and our
- -------------------------------
only material expense has been legal fees of approximately $15,000.00. From
inception (April 25, 2000) to June 30, 2001, we experienced a net loss of
$36,534.00. Our only current sources of capital are the proceeds from this
offering and cash currently maintained in our bank accounts. We will require
additional financing; however, there is no assurance that such additional
financing will be available. During the period from April 25, 2000 (inception)
to June 30, 2001, we received $30,000.00 as proceeds from subscriptions for
shares. After payment of development and operating expenses, we had cash and
cash equivalents of $1,816.00 at June 30, 2001.
Results of Operations. We have not yet realized any revenue from operations from
- ---------------------
formation through June 30, 2001. Our operating expenses as of June 30, 2001 of
approximately $32,284.00 consisted of: bad debt expense; bank charges;
consulting services expense; lease payments; professional fees; office supplies
and expense; and telephone and utilities.
Our Plan of Operation for the Next Twelve Months. We intend to initiate our
- ---------------------------------------------------
distribution efforts for our products. We hope to negotiate manufacturing
agreements with subcontractors and packagers.
There can be no assurance that additional funding will be available under
favorable terms, if at all. If adequate funds are not available, we may be
required to curtail operations significantly or to obtain funds through entering
into arrangements with collaborative partners or others that may require us to
relinquish rights to certain of the products we intend to retail. We believe
that we are poised to maintain our long-term liquidity. This is based upon cash
flow projections prepared by us. We believe we have raised enough capital to
allow us to meet our financial obligations for a period of at least twelve (12)
months from December 31, 2000. However, our forecast for the period of time
through which our financial resources will be adequate to support our operations
is a forward-looking statement that involves risks and uncertainties, and actual
results could fail as a result of a number of factors.
Our plan of operation for the next 12 months depends on raising sufficient
capital to complete our marketing and manufacturing requirements.
Description of Property
- -----------------------
Property held by Us. As of the date specified in the following table, we held
- -------------------
the following property:
Property December 31, 2000 March 31, 2001 June 30, 2001
- ------------- --------------------- ------------------- ----------------
Cash $13,800.00 $6,050.00 $1,816.00
18
Our Facilities. We currently lease facilities located at 1111 Route 10, Suite
- --------------
333, East Farmingdale, New York 11735. We lease our facilities for $250.00 per
month under a one year lease. The lease agreement is secured personally by James
P. Butler, our President, Chief Executive Officer and a member of our Board of
Directors.
Certain Relationships and Related Transactions
- ----------------------------------------------
Conflicts Related to Other Business Activities. The persons serving as our
- -------------------------------------------------
officers and directors have existing responsibilities and, in the future, may
have additional responsibilities, to provide management and services to other
entities in addition to us. Specifically, James Butler, our President, Chief
Executive Officer and a member of our Board of Directors, is currently employed
as a mechanic. Although he has committed to devote time to us in developing our
business, his other responsibilities may interfere with his ability to devote
significant time and attention to us. Stacey Butler, our Secretary, Chief
Financial Officer and a member of our Board of Directors, is currently employed
as a teacher's assistant. Although she has committed to devote time to us in
developing our business, her other responsibilities may interfere with her
ability to devote significant time and attention to us. As a result, conflicts
of interest between us and the other entities may occur from time to time.
We will attempt to resolve any such conflicts of interest in our favor. Our
officers and directors are accountable to us and our shareholders as
fiduciaries, which requires that such officers and directors exercise good faith
and integrity in handling our affairs. A shareholder may be able to institute
legal action on our behalf or on behalf of that shareholder and all other
similarly situated shareholders to recover damages or for other relief in cases
of the resolution of conflicts in any manner prejudicial to us.
Stock issued to current officers. During the period April 25, 2000, through June
- --------------------------------
30, 2001, we issued 5,100,000 shares of our common stock to our current officers
and directors for services rendered to us which we valued at $5,100. Our Board
of Directors does not have an independent compensation committee.
Advance of funds to former officer and director. During the period April 25,
- -------------------------------------------------
2000 (our inception date) through June 30, 2001, we advanced funds to a former
officer and director of the company in the net amount of $8,050. That person is
no longer affiliated with us and we consider these funds to be uncollectible.
Market for Common Equity and Related Stockholder Matters
- --------------------------------------------------------
Reports to Security Holders. Our securities are not listed for trading on any
- ----------------------------
exchange or quotation service. We are not required to comply with the timely
disclosure policies of any exchange or quotation service. The requirements to
which we would be subject if our securities were so listed typically include the
timely disclosure of a material change or fact with respect to our affairs and
the making of required filings. Although we are not required to deliver an
annual report to security holders, we intend to provide an annual report to our
security holders, which will include audited financial statements.
When we become a reporting company with the Securities and Exchange Commission,
the public may read and copy any materials filed with the Securities and
Exchange Commission at the Security and Exchange Commission's Public Reference
Room at 450 Fifth Street N.W., Washington, D.C. 20549. The public may also
obtain information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
Exchange Commission maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the Securities and Exchange Commission. The address of that
site is http://www.sec.gov.
There are no outstanding options or warrants to purchase, or securities
convertible into, shares of our common stock. There are no outstanding shares of
our common stock that could be sold pursuant to Rule 144 pursuant to the
Securities Act of 1933 or that we have agreed to register under the Securities
Act of 1933 for sale by security holders. The approximate number of holders of
record of shares of our common stock is thirty-two (32).
There have been no cash dividends declared on our common stock. Dividends are
declared at the sole discretion of our Board of Directors.
19
Penny Stock Regulation. Shares of our common stock are subject to rules adopted
- ----------------------
by the Securities and Exchange Commission that regulate broker-dealer practices
in connection with transactions in "penny stocks". Penny stocks are generally
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current price and volume information with respect to
transactions in those securities is provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from those rules, deliver a standardized risk
disclosure document prepared by the Securities and Exchange Commission, which
contains the following:
o a description of the nature and level of risk in the market for penny
stocks in both public offerings and secondary trading;
o a description of the broker's or dealer's duties to the customer and
of the rights and remedies available to the customer with respect to
violation to such duties or other requirements of securities' laws;
o a brief, clear, narrative description of a dealer market, including
"bid" and "ask" prices for penny stocks and the significance of the
spread between the "bid" and "ask" price;
o a toll-free telephone number for inquiries on disciplinary actions;
o definitions of significant terms in the disclosure document or in the
conduct of trading in penny stocks; and
o such other information and is in such form (including language, type,
size and format), as the Securities and Exchange Commission shall
require by rule or regulation.
Prior to effecting any transaction in penny stock, the broker-dealer also must
provide the customer the following:
o the bid and offer quotations for the penny stock;
o the compensation of the broker-dealer and its salesperson in the
transaction;
o the number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the
market for such stock; and
o monthly account statements showing the market value of each penny
stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a
penny stock not otherwise exempt from those rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written acknowledgment of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitably statement. These
disclosure requirements may have the effect of reducing the trading activity in
the secondary market for a stock that becomes subject to the penny stock rules.
Holders of shares of our common stock may have difficulty selling those shares
because our common stock will probably be subject to the penny stock rules.
Executive Compensation
- ----------------------
Any compensation received by our officers, directors, and management personnel
will be determined from time to time by our Board of Directors. Our officers,
directors, and management personnel will be reimbursed for any out-of-pocket
expenses incurred on our behalf.
Summary Compensation Table. The table set forth below summarizes the annual and
- ---------------------------
long-term compensation for services in all capacities to us payable to our
President and our other executive officers whose total annual salary and bonus
are anticipated to exceed $50,000 during the year ending December 31, 2001. Our
Board of Directors may adopt an incentive stock option plan for our executive
officers which would result in additional compensation.
=========================================================================================================
Name and Principal Position Year Annual Bonus ($) Other Annual All Other
Salary ($) Compensation ($) Compensation
- ------------------------------- ---- ---------- --------- ---------------- ------------
James P. Butler
President, Chief Executive 2001 None None None None
Officer, Director
Stacey L. Butler
Secretary, Chief Financial 2001 None None None None
Officer, Director
==========================================================================================================
20
Compensation of Directors. Our directors who are also our employees receive no
- -------------------------
extra compensation for their service on our Board of Directors.
Compensation of Officers. As of June 30, 2001, our officers have received no
- -------------------------
cash compensation for their services provided to us, but have received 5,100,000
shares of our common stock for services rendered valued at $5,100.00.
Employment Contracts. We anticipate that we will enter into employment contracts
- --------------------
with James P. Butler and Stacey L. Butler.
Financial Statements
- --------------------
21
PLUSHZONE, INC.
(A Development Stage Company)
REPORT AND FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
F-1
PLUSHZONE, INC.
(a development stage company)
CONTENTS
PAGE
----
Financial Statements (Unaudited)
Balance Sheet 1
Statements of Operations 2
Statement of Changes in Stockholders' Equity 3
Statements of Cash Flows 4
Notes to Financial Statements 5
F-2
PLUSHZONE, INC.
(a development stage company)
BALANCE SHEET
SEPTEMBER 30, 2001
(UNAUDITED)
ASSETS
------
Current assets
Cash $ 779
Other receivables, net of allowance for doubtful accounts of $8,050 ---
----------------
Total current assets 779
Other assets ---
----------------
Total assets $ 779
================
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities
Accounts payable and accrued expenses $ 3,250
----------------
Total current liabilities 3,250
----------------
Stockholders' Deficit
Preferred stock, $.001 par value;
Authorized shares-- 5,000,000
Issued and outstanding shares-- 0 ---
Common stock, $.001 par value;
Authorized shares-- 50,000,000
Issued and outstanding shares-- 6,395,000 8,100
Additional paid-in capital 27,000
Deficit accumulated during the development stage (37,571)
----------------
Total stockholders' deficit (2,471)
----------------
Total liabilities and stockholders' deficit $ 779
================
See accompanying notes to financial statements.
-1-
F-3
PLUSHZONE, INC.
(a development stage company)
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS NINE MONTHS APRIL 25, 2000
ENDED ENDED (INCEPTION) -
SEPTEMBER 30, 2001 SEPTEMBER 30, 2001 SEPTEMBER 30, 2001
------------------ ------------------ ------------------
Revenues
Sales $ --- $ --- $ ---
Less: returns and allowances --- --- ---
----------------- ----------------- -----------------
Net Revenues --- --- ---
Cost of Goods Sold --- 3,500 4,250
----------------- ----------------- -----------------
Gross Margin --- (3,500) (4,250)
Operating expenses
Bad debt expense --- --- 8,050
Consulting services --- 1,880 6,980
Legal and professional fees --- 3,647 13,282
Occupancy 750 2,619 2,619
Office supplies and expense --- 1,176 1,365
Telephone and utilities 287 794 1,025
----------------- ----------------- -----------------
Total operating expenses 1,037 10,116 33,321
----------------- ----------------- -----------------
Loss from operations (1,037) (10,116) (37,571)
----------------- ----------------- -----------------
Provision for income tax expense (benefit) --- --- ---
----------------- ----------------- -----------------
Net loss/Comprehensive loss $ (1,037) $ (10,116) $ (37,571)
=================== =================== ===================
Net loss per common share-- basic and
diluted $ --- $ --- $ ---
================== ================== ==================
Weighted average of common shares-- basic
and diluted 8,100,000 8,100,000 7,513,900
================== ================== ==================
See accompanying notes to financial statements.
-2-
F-4
PLUSHZONE, INC.
(a development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
APRIL 25, 2000 (INCEPTION) THROUGH SEPTEMBER 30, 2001
(UNAUDITED)
Common Stock Additional
------------ Paid-In Accumulated
Shares Amount Capital Deficit Total
---------- ---------- ---------- ----------- -----------
Balance, April 25, 2000 --- $ --- $ --- $ --- $ ---
Issuance of common stock,
May 28, 2000 5,100,000 5,100 --- --- 5,100
Issuance of common stock,
July 5, 2000 560,000 560 5,040 --- 5,600
Issuance of common stock,
July 10, 2000 710,000 710 6,390 --- 7,100
Issuance of common stock,
August 14, 2000 570,000 570 5,130 --- 5,700
Issuance of common stock,
October 11, 2000 210,000 210 1,890 --- 2,100
Issuance of common stock,
November 15, 2000 830,000 830 7,470 --- 8,300
Issuance of common stock,
November 18, 2000 120,000 120 1,080 --- 1,200
Net loss/Comprehensive loss --- --- --- (23,955) (23,955)
------------ ----------- ----------- ----------- -----------
Balance, December 31, 2000 8,100,000 8,100 27,000 (23,955) 11,145
------------ ----------- ----------- ----------- -----------
Net loss/Comprehensive loss --- --- --- (12,579) (12,579)
------------ ----------- ----------- ----------- -----------
Balance, June 30, 2001 8,100,000 8,100 27,000 (36,534) (1,434)
------------ ----------- ----------- ----------- -----------
Net loss/Comprehensive loss --- --- --- (1,037) (1,037)
------------ ----------- ----------- ----------- -----------
Balance, June 30, 2001 8,100,000 $ 8,100 $ 27,000 $ (37,571) $ (2,471)
============ =========== ============ =========== ===========
See accompanying notes to financial statements.
-3-
F-5
PLUSHZONE, INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS NINE MONTHS MARCH 2, 2001
ENDED ENDED (INCEPTION) -
SEPTEMBER 30, 2001 SEPTEMBER 30, 2001 SEPTEMBER 30, 2001
------------------ ------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,037) $ (13,616) $ (37,571)
Adjustments to reconcile net loss to net cash
used in operating activities
Cost of consulting services paid with
common stock --- --- 5,100
Bad debt expense --- --- 8,050
Changes in operating assets and liabilities
Decrease in prepaid expense --- 2,345 ---
(Increase) in other receivables --- --- (8,050)
Increase in accounts payable and accrued
expenses --- (1,750) 3,250
----------------- ----------------- -----------------
Net cash used in operating activities (1,037) (13,021) (29,221)
----------------- ----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES --- --- ---
------------------ ------------------ ------------------
Net cash provided by investing activities --- --- ---
----------------- ----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock --- --- 30,000
----------------- ----------------- -----------------
Net cash provided by financing activities --- --- 30,000
----------------- ----------------- -----------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,037) (13,021) 779
CASH AND CASH EQUIVALENTS, beginning of period 1,816 13,800 ---
----------------- ----------------- ----------------
CASH AND CASH EQUIVALENTS, end of period $ 779 $ 779 $ 779
================= ================= =================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Income taxes paid $ --- $ --- $ ---
================= ================= =================
Interest paid $ --- $ --- $ ---
================= ================= =================
See accompanying notes to financial statements.
-4-
F-6
PLUSHZONE, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
NOTE 1 - NATURE OF OPERATIONS
Plushzone, Inc. (the "Company") was incorporated in the state of Delaware
on April 25, 2000. The Company promotes, markets, and sells a wide range of
Plush ("stuffed") toys and related products via the Internet. The Company is
headquartered in East Farmingdale, New York.
NOTE 2 - BASIS OF PRESENTATION
The unaudited financial statements included herein have been prepared in
accordance with generally accepted accounting principles for interim financial
information and Item 310(b) of Regulation S-B. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the nine months
ended September 30, 2001 are not necessarily indicative of the results that may
be expected for the year ended December 31, 2001. For further information, these
financial statements and the related notes should be read in conjunction with
the Company's audited financial statements for the year ended December 31, 2000
included in the Company's registration statement filing on Form SB-2, File No.
333-63794, and the amendments thereto.
NOTE 3 - CONTINGENCIES
As shown in the accompanying financial statements, the Company has incurred
a net operating loss of $17,869 since inception for the period ended September
30, 2001.
The Company is subject to those risks associated with development stage
companies. The Company has sustained losses since inception and additional
financing may be required by the Company to fund its development activities and
to support operations. However, there is no assurance that the Company will be
able to obtain additional financing. Furthermore, there is no assurance that
rapid technological changes, changing customer needs and evolving industry
standards associated with the Internet marketplace (e-commerce) will enable the
Company to introduce new products and services on a continual and timely basis
so that profitable operations can be attained.
On February 26, 2001, the Company entered into a Licensing agreement to
occupy office space within the state of New York. Under the terms of the
agreement, monthly occupancy costs are $250 and it is noncancellable for a
period of one year. The agreement is secured personally by the Company's
President and is also subject to typical default provisions including late fees
and interest charges (at 1.25% per month) for late payment.
-5-
F-7
PLUSHZONE, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
SEPTMBER 30, 2001
(UNAUDITED)
NOTE 4 - OTHER RECEIVABLES
Other receivables consisted of amounts advanced to a former director and
officer of the Company. The director and officer is no longer associated with
the Company. At March 31, 2001, the Company considered these amounts to be
uncollectible and accordingly, has allowed for and written off the amounts.
NOTE 5 - COMMON STOCK
On December 31, 2000, the Company completed a "best efforts" offering of
its common stock pursuant to the provisions of Section 4(2) of the Securities
Act of 1933 and Rule 506 of Regulation D promulgated by the Securities and
Exchange Commission. In accordance with the Private Placement Memorandum
Offering, which was initiated on June 5, 2000, the Company issued 3,000,000
shares of its common stock at $0.01 per share for a total of $30,000.
During the period April 25, 2000 (inception) through June 30, 2001, the
Company also issued 5,100,000 shares of its common stock to its current officers
for services rendered and valued at $5,100.
-6-
F-8
PLUSHZONE, INC.
(A Development Stage Company)
REPORT AND FINANCIAL STATEMENTS
DECEMBER 31, 2000
F-9
PLUSHZONE, INC.
(a development stage company)
CONTENTS
PAGE
----
Independent Auditor's Report 1
Financial Statements:
Balance Sheet 2
Statement of Operations 3
Statement of Changes in Stockholders' Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6
F-10
Quintanilla
Accountancy Corporation
- --------------------------------------------------------------------------------
American Institute of Certified Public Accountants
California Society of Certified Public Accountants
Independent Auditor's Report
To the Stockholders of
Plushzone, Inc.
I have audited the accompanying balance sheet of Plushzone, Inc. (a
development stage company) as of December 31, 2000, and the related statements
of operations, changes in stockholders' equity, and cash flows for the period
April 25, 2000 (inception) through December 31, 2000. These financial statements
are the responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Plushzone, Inc. (a
development stage company) as of December 31, 2000, and the results of its
operations and its cash flows for the period April 25, 2000 (inception) through
December 31, 2000 in conformity with generally accepted accounting principles.
/s/ Quintanilla
A Professional Accountancy Corporation
Laguna Niguel, California
May 25, 2001
- --------------------------------------------------------------------------------
30026 Monteras 949.929.6149
Laguna Niguel, California 92677 253.276.6446
F-11
PLUSHZONE, INC.
(a development stage company)
BALANCE SHEET
DECEMBER 31, 2000
ASSETS
------
Current assets
Cash $ 13,800
Prepaid expense 2,345
Other receivables, net of allowance for doubtful accounts of $8,050 ---
----------------
Total current assets 16,145
Other assets ---
----------------
Total assets $ 16,145
================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable and accrued expenses 5,000
----------------
Total current liabilities 5,000
----------------
Contingencies
Stockholders' Equity
Preferred stock, $.001 par value;
Authorized shares -- 5,000,000
Issued and outstanding shares -- 0 ---
----------------
Common stock, $.001 par value;
Authorized shares-- 50,000,000
Issued and outstanding shares-- 8,100,000 $ 8,100
Additional paid-in capital 27,000
Deficit accumulated during the development stage (23,955)
----------------
Total stockholders' equity 11,145
----------------
Total liabilities and stockholders' equity $ 16,145
================
See accompanying notes to financial statements
-2-
F-12
PLUSHZONE, INC.
(a development stage company)
STATEMENT OF OPERATIONS
APRIL 25, 2000 (INCEPTION) THROUGH DECEMBER 31, 2000
Revenues
Sales $ ---
Advertising ---
-----------------
Net revenues ---
-----------------
Direct costs
Cost of goods sold ---
Web site costs 750
-----------------
Total direct costs 750
-----------------
Gross margin (750)
------------------
Operating expenses
Bad debt expense 8,050
Bank charges 189
Consulting services 5,100
Professional fees 9,635
Telephone and utilities 231
-----------------
Total operating expenses 23,205
-----------------
Loss from operations (23,955)
-----------------
Provision for income tax expense (benefit) ---
-----------------
Net loss/Comprehensive loss $ (23,955)
==================
Net loss per common share-- basic and diluted $ (---)
==================
Weighted average of common shares-- basic and diluted 6,774,470
==================
See accompanying notes to financial statements
-3-
F-13
PLUSHZONE, INC.
(a development stage company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
APRIL 25, 2000 (INCEPTION) THROUGH DECEMBER 31, 2000
Common Stock Additional
Paid-In Accumulated
Shares Amount Capital Deficit Total
---------- ---------- ---------- ----------- -----------
Balance, April 25, 2000 --- $ --- $ --- $ --- $ ---
Issuance of common stock,
May 28, 2000 5,100,000 5,100 --- --- 5,100
Issuance of common stock,
July 5, 2000 560,000 560 5,040 --- 5,600
Issuance of common stock,
July 10, 2000 710,000 710 6,390 --- 7,100
Issuance of common stock,
August 14, 2000 570,000 570 5,130 --- 5,700
Issuance of common stock,
October 11, 2000 210,000 210 1,890 --- 2,100
Issuance of common stock,
November 15, 2000 830,000 830 7,470 --- 8,300
Issuance of common stock,
November 18, 2000 120,000 120 1,080 --- 1,200
Net loss/Comprehensive loss --- --- --- (23,955) (23,955)
------------ ----------- ----------- ------------- -----------
Balance, December 31, 2000 8,100,000 $ 8,100 $ 27,000 $ (23,955) $ 11,145
============ =========== =========== ============= ===========
See accompanying notes to financial statements
-4-
F-14
PLUSHZONE, INC.
(a development stage company)
STATEMENT OF CASH FLOWS
APRIL 25, 2000 (INCEPTION) THROUGH DECEMBER 31, 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (23,955)
Adjustments to reconcile net loss to net cash used in operating activities
Cost of services paid with common stock 5,100
Bad debt expense 8,050
Changes in operating assets and liabilities
Increase in prepaid expense (2,345)
Increase in other receivables (8,050)
Increase in accounts payable and accrued expenses 5,000
-----------------
Net cash used in operating activities (16,200)
-----------------
CASH FLOWS FROM INVESTING ACTIVITIES ---
------------------
Net cash provided by investing activities ---
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 30,000
-----------------
Net cash provided by financing activities 30,000
-----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 13,800
CASH AND CASH EQUIVALENTS, beginning of period ---
-----------------
CASH AND CASH EQUIVALENTS, end of period $ 13,800
=================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ ---
=================
Interest paid $ ---
=================
See accompanying notes to financial statements
-5-
F-15
PLUSHZONE, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 1 - BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
Business Description - Plushzone, Inc. (the "Company") was incorporated in
--------------------
the state of Delaware on April 25, 2000 under the name "I-playsports.com". The
name became Plushzone, Inc. in March 2001. The Company promotes, markets, and
sells a wide range of Plush ("stuffed") toys and related products via the
Internet. The Company is headquartered in East Farmingdale, New York.
Cash and Cash Equivalents - For purposes of the balance sheet and statement
-------------------------
of cash flows, the Company considers all highly liquid debt instruments
purchased with maturity of three months or less to be cash equivalents.
Inventories - Inventories, when established, will consist of products
-----------
available for sale and will be stated at the lower of cost or market; cost is to
be determined on the first-in, first-out method.
Depreciation and Amortization - Depreciation and amortization is computed
-------------------------------
on the straight-line method over the estimated useful lives of the assets
acquired.
Fair Value of Financial Instruments - The carrying value of cash on hand,
------------------------------------
other receivables, accounts payable and accrued expenses approximate their fair
value due to the short period to maturity of these instruments.
Recognition of Sales and Costs of Goods Sold - Once revenues are generated,
--------------------------------------------
the Company will record revenues as follows: (1) upon shipment; (2) title passes
to its customers upon shipment; and, (3) collectibility is reasonably assured.
The Company will also provide an allowance for returns when experience is
established. Cost of goods sold consists of the purchase price of products sold
including inbound and outbound shipping charges.
Income Taxes - The Company recognizes deferred tax assets and liabilities
------------
based on differences between the financial reporting and tax bases of assets and
liabilities using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to be recovered. The Company provides a
valuation allowance for deferred tax assets for which it does not consider
realization of such assets to be more likely than not.
Net Loss per Common Share - The Company has adopted the provisions of
--------------------------
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 requires the reporting of basic and diluted earnings/loss per
share. Basic loss per share is calculated by dividing net loss by the weighted
average number of outstanding common shares during the year. As all potential
common shares are anti-dilutive, the effects of options, warrants and
convertible securities are not included in the calculation of diluted loss per
share.
-6-
F-16
PLUSHZONE, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 1 - BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Accounting Estimates - 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.
New Accounting Pronouncements - In March 2000, the Emerging Issues Task
------------------------------
Force (EITF) of the FASB reached a consensus on EITF Issue 00-2, "Accounting for
Web Site Development Costs." This consensus provides guidance on what types of
costs incurred to develop Web sites should be capitalized or expensed. The
Company adopted this consensus on during 2000. Such capitalized costs, if any,
are to be included in "Fixed assets, net" and will be depreciated over a period
of two years.
In September 2000, the EITF reached a final consensus on EITF Issue 00-10,
"Accounting for Shipping and Handling Fees and Costs." This consensus requires
that all amounts billed to a customer in a sale transaction related to shipping
and handling, if any, represent revenue and should be classified as revenue.
NOTE 2 - CONTINGENCIES
As shown in the accompanying financial statements, the Company has incurred
a net operating loss of $23,955 since inception for the year ended December 31,
2000.
The Company is subject to those risks associated with development stage
companies. The Company has sustained losses since inception and additional
financing will be required by the Company to fund its development activities and
to support operations. However, there is no assurance that the Company will be
able to obtain additional financing. Furthermore, there is no assurance that
rapid technological changes, changing customer needs and evolving industry
standards associated with the Internet marketplace (e-commerce) will enable the
Company to introduce new products and services on a continual and timely basis
so that profitable operations can be attained.
On February 26, 2001, the Company entered into a Licensing agreement to
occupy office space within the state of New York. Under the terms of the
agreement, monthly occupancy costs are $250 and it is noncancellable for a
period of one year. The agreement is secured personally by the Company's
President and is also subject to typical default provisions including late fees
and interest charges (at 1.25% per month) for late payment.
-7-
F-17
PLUSHZONE, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 3 - OTHER RECEIVABLES
Other receivables consisted of amounts advanced to a former director and
officer of the Company. The director and officer is no longer associated with
the Company. At December 31, 2000, the Company considered these amounts to be
uncollectible and accordingly, has allowed for and written off the amounts.
NOTE 4 - ACCRUED EXPENSES
Accrued Wages and Compensated Absences - The Company currently does not
----------------------------------------
have any employees. The majority of development costs and services have been
provided to the Company by outside, third party vendors. As such, there is no
accrual for wages or compensated absences as of December 31, 2000.
NOTE 5 - COMMON STOCK
On December 31, 2000, the Company completed a "best efforts" offering of
its common stock pursuant to the provisions of Section 4(2) of the Securities
Act of 1933 and Rule 506 of Regulation D promulgated by the Securities and
Exchange Commission. In accordance with the Private Placement Memorandum
Offering, which was initiated on June 5, 2000, the Company issued 3,000,000
shares of its common stock at $0.01 per share for a total of $30,000.
During the period April 25, 2000 (inception) through December 31, 2000, the
Company also issued 5,100,000 shares of its common stock to its current officers
for services rendered and valued at $5,100.
NOTE 6 - INCOME TAXES
At December 31, 2000, the Company has available for federal income tax
purposes a net operating loss carryforward of approximately $23,955, expiring
2015, that may be used to offset future taxable income. Therefore, no provision
for income taxes has been provided.
In addition, the Company has deferred tax assets of approximately $8,000 at
December 31, 2000. The Company has not recorded a benefit from its net operating
loss carryforward because realization of the benefit is uncertain and,
therefore, a valuation allowance of ($8,000) has been provided for the deferred
tax assets.
-8-
F-18
PLUSHZONE, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 7 - RELATED PARTY TRANSACTIONS
During the period April 25, 2000 (inception) through December 31, 2000, the
Company advanced funds to a former officer and director of the Company in the
net amount of $8,050 as previously discussed in Note 3.
In addition for the same period, the Company issued 5,100,000 shares of its
common stock to it current officers for services as detailed in Note 5.
NOTE 8 - SUBSEQUENT EVENT
On February 26, 2001, the Company entered into a one-year noncancellable
Licensing agreement to occupy office space as previously detailed in Note 2.
-9-
F-19
Changes in and Disagreements with Accountants on Accounting and Financial
- --------------------------------------------------------------------------------
Disclosure
- ----------
On or about February 27, 2001, our Board of Directors appointed Quintanilla
Accountancy Corporation to audit our financials statements from April 25, 2000
(our date of formation) through December 31, 2000.
There have been no disagreements with our accountants since our formation
required to be disclosed pursuant to Item 304 of Regulation S-B.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by the
selling security holders has been passed upon by the law firm of Stepp Law
Group, located in Newport Beach, California.
EXPERTS
Our financial statements for the period April 25, 2000 through (inception)
December 31, 2000 appearing in this prospectus which is part of a Registration
Statement have been audited by Quintanilla Accountancy Corporation and are
included in reliance upon such reports given upon the authority of Quintanilla
Accountancy Corporation, as experts in accounting and auditing. We have also
included financial statements for the fiscal quarter ending March 31, 2001 and
the fiscal quarter ending June 30, 2001.
ADDITIONAL INFORMATION
We have filed a Registration Statement on Form SB-2 with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 with respect to the
common stock offered by the selling security holders. This prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules to the Registration Statement. For further information
regarding us and our common stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed as a part of the
Registration Statement.
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Indemnification of Directors and Officers
- -----------------------------------------
Article Six of our Certificate of Incorporation provides, among other things,
that our directors shall not be personally liable to us or our shareholders for
monetary damages for breach of fiduciary duty as a director, except for:
o any breach of such director's duty of loyalty to us or our security
holders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o liability for unlawful payments of dividends or unlawful stock
purchase or redemption by us; or
o any transaction from which such director derived any improper personal
benefit.
22
Accordingly, our directors may have no liability to our shareholders for any
mistakes or errors of judgment or for any act of omission, unless such act or
omission involves intentional misconduct, fraud, or a knowing violation of law
or results in unlawful distributions to our shareholders.
Our Certificate of Incorporation provides that we will indemnify our directors
to the extent permitted by Delaware General Corporation Law, including
circumstances in which indemnification is otherwise discretionary under the
Delaware General Corporation Law. Our Certificate of Incorporation also provides
that to the extent that Delaware General Corporation Law is amended to permit
further indemnification, we will so indemnify our directors.
Section 145 of the Delaware General Corporation Law provides that a corporation
shall have the power to indemnify any person who was or is a party or is
threatened to be made a party to or is involved in any pending, threatened, or
completed civil, criminal, administrative, or arbitration action, suit, or
proceeding, or any appeal therein or any inquiry or investigation which could
result in such action, suit, or proceeding, because of his or her being or
having been our director, officer, employee, or agent or of any constituent
corporation absorbed by us in a consolidation or merger or by reason of his or
her being or having been a director, officer, trustee, employee, or agent of any
other corporation or of any partnership, joint venture, sole proprietorship,
trust, employee benefit plan, or such enterprise, serving as such at our request
or of any such constituent corporation, or the legal representative of any such
director, officer, trustee, employee, or agent, from and against any and all
reasonable costs, disbursements, and attorney's fees, and any and all amounts
paid or incurred in satisfaction of settlements, judgments, fines, and
penalties, incurred or suffered in connection with any such proceeding.
Article VI of our Bylaws also provides that our officers and directors shall be
indemnified and held harmless by us to the fullest extent permitted by the
provisions of Section 145 of the Delaware General Corporation Law.
Indemnification Agreements. We anticipate that we will enter into
- ----------------------------
indemnification agreements with each of our executive officers pursuant to which
we will agree to indemnify each such officer for all expenses and liabilities,
including criminal monetary judgments, penalties and fines, incurred by such
person in connection with any criminal or civil action brought or threatened
against such person by reason of such person being or having been our officer or
director or employee. To be entitled to indemnification by us, such officer must
have acted in good faith and in a manner such officer believed to be in our best
interests and, with respect to criminal actions, such person must have had no
reasonable cause to believe his or her conduct was unlawful.
(boldface)
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers and controlling persons
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.
(end boldface)
Other Expenses of Issuance and Distribution
- -------------------------------------------
We will pay all expenses in connection with the registration and sale of the
common stock by the selling security holders. The estimated expenses of issuance
and distribution are set forth below.
=========================================================================
Registration Fees Approximately $534.60
Transfer Agent Fees Approximately $200.00
Costs of Printing and Engraving Approximately $0.00
Legal Fees Approximately $10,000.00
Accounting Fees Approximately $6,000.00
=========================================================================
Recent Sales of Unregistered Securities
- ---------------------------------------
There have been no sales of unregistered securities within the last three (3)
years which would be required to be disclosed pursuant to Item 701 of Regulation
S-B, except for the following:
Between in or around August 2000, and November 2000, we issued 3,000,000 shares
of our common stock for $.01 per share. The shares were issued in a transaction
which we believe satisfies the requirements of that exemption from the
23
registration and prospectus delivery requirements of the Securities Act of 1933,
which exemption is specified by the provisions of Section 4(2) of that act and
Rule 506 of Regulation D promulgated pursuant to that act by the Securities and
Exchange Commission. Specifically, the offer was made to "accredited investors",
as that term is defined under applicable federal and state securities laws, and
no more than 35 non-accredited investors. The value of the shares was
arbitrarily set by us and had no relationship to our assets, book value,
revenues or other established criteria of value. There were no commissions paid
on the sale of these shares. The net proceeds to us were $29,400.00.
During the period April 25, 2000 (inception) through June 30, 2001, we issued
5,100,000 shares of our common stock pursuant to Section 4(2) of the Securities
Act of 1933 to our current officers for services rendered which we valued at
$5,100.00.
Exhibits
- --------
Copies of the following documents are filed with this Registration
Statement as exhibits:
Exhibit No.
- -----------
3.1 Certificate of Incorporation * (Charter Document)
3.2 Amendment to Certificate of Incorporation *
3.3 Bylaws *
5. Opinion Re: Legality *
15. Letter on unaudited interim financial information
23.1 Consent of Auditors*
23.2 Consent of Counsel *
* Exhibits which were filed with the original Registration Statement on Form
SB-2
Undertakings
- ------------
A. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and controlling persons
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 Securities Act of 1933 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
our director, officer or controlling person 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 our 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 of 1933 and will be governed by the final adjudication of such issue.
B. We hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
24
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To specify in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth 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
Securities and Exchange Commission pursuant to Rule
424(b) (Section 230.424(b) of Regulation S-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) To include any additional or changed material
information with respect to the plan of distribution
not previously disclosed in the Registration Statement
or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as amended,
we certify that we have reasonable grounds to believe that we meet all of the
requirements of filing on Form SB-2 and authorized this Amendment No. 3 to
Registration Statement on Form SB-2 to be signed on our behalf by the
undersigned, in the city of Patchogue, New York, on January 11, 2002.
PlushZone, Inc.,
a Delaware corporation
By: /s/ James P. Butler
-------------------
James P. Butler
Its: President, Chief Executive
Officer and Director
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 3 to Registration Statement on Form SB-2 was signed on January 11,
2002, by the following persons in the capacities and on the dates stated:
/s/ James P. Butler
- -------------------
James P. Butler
President, Chief Executive Officer and Director
/s/ Stacey L. Butler
- --------------------
Stacey L. Butler
Secretary, Chief Financial Officer and Director
25