U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
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.
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.
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 in private placement
transactions which were exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933. 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.
The selling security holders may from time to time sell the shares on the OTC
Bulletin Board, on any other national securities exchange or automated quotation
system on which the common stock may be listed or traded, in negotiated
transactions or otherwise, at prices then prevailing or related to the then
current market price or at negotiated prices. We will not receive any of the
proceeds from the sale of those shares being offered.
See "Risk Factors" on pages 5 to 12 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.
The date of this prospectus is June 20, 2001
Subject to completion.
2
TABLE OF CONTENTS
Prospectus Summary .........................................................4
Risk Factors................................................................5
Use of Proceeds.............................................................12
Determination of Offering Price.............................................12
Dilution....................................................................12
Selling Security Holder.....................................................12
Plan of Distribution........................................................13
Legal Proceedings...........................................................14
Directors, Executive Officers, Promoters and Control Persons............ .. 14
Security Ownership of Certain Beneficial Owners and Management..............15
Description of Securities...................................................15
Interest of Named Experts and Counsel.......................................15
Disclosure of Commission Position on Indemnification for
Securities Act Liabilities..................................................16
Organization Within Last Five Years.........................................16
Description of Business.....................................................16
Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................19
Description of Property.................................................... 19
Certain Relationships and Related Transactions..............................20
Market for Common Equity and Related Stockholder Matters................... 20
Executive Compensation......................................................21
Financial Statements........................................................21
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure....................................................43
Legal Matters...............................................................43
Experts.....................................................................43
Additional Information......................................................43
Indemnification of Directors and Officers...................................44
Other Expenses of Issuance and Distribution.................................45
Recent Sales of Unregistered Securities.....................................45
Exhibits....................................................................45
Undertakings................................................................46
Signatures ..............................................................47
Power of Attorney...........................................................48
3
Prospectus Summary
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 over the
Internet worldwide. Our principal
business activities are:
o create a website where customers can
review, compare and ultimately purchase
our pre-packaged baskets of plush toys;
o promote, market and sell a wide range
and selection of stuffed animals, plush
toys and related products over the
Internet.
We have not yet generated any revenues
from the sale of our products.
Our proposed website will display
pictures of the pre-packaged baskets of
plush products, stuffed animals and
related products we intend to sell and
distribute.
Our State of Organization We were incorporated in Delaware on
April 25, 2000.
Number of Shares The selling security holders want to
Being Offered: sell 8,100,000 shares 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
Outstanding After the issued and outstanding. We have no other
Offering: securities issued.
Estimated use of We will not receive any of the proceeds
proceeds: from the sale of those shares being
offered.
4
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.
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.
We may not be successful in the implementation of our business strategy or our
business strategy may not be successful, either of which will impede our growth
and operating results.
Our business strategy involves the implementation and operation of our proposed
website from which our pre-packaged baskets of plush toys, stuffed animals and
related products will be retailed. Our ability to implement this business
strategy is dependent on our ability to:
o Develop a functional, user-friendly website through which our products
can be sold;
o Procure licensing agreements with various providers of plush toys,
stuffed animals and related 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
technological change, changing customer needs, frequent new product
introductions and evolving industry standards.
We intend on becoming an Internet based provider of pre-packaged plush items,
stuffed animals and related toy products. 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 proposed
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.
5
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,
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
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
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
measures that we use to protect their personal information, such as credit card
numbers, are ineffective.
6
Any breach in our proposed 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 proposed 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.
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 plush 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
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.
Changing consumer preferences will require periodic product introduction.
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
to federal regulation.
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
competitors will have a material adverse effect on our results of operation.
The toy industry is 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 has certain barriers to entry. Competition is based primarily on
the ability to design and develop new toys, procure licenses for popular
characters and 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 pre-packaged plush products, stuffed animals and
related products will compete with other toy 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.
8
If we experience problems in our distribution operations, we could lose
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
quarterly results will fluctuate and our annual results could be below
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
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
and reputation could be damaged and we could lose customers.
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 proposed 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.
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
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.
9
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 proposed 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
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.
10
DISCLOSURE OF OPINION OF SECURITIES AND EXCHANGE COMMISSION REGARDING
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
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.
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 may engage in other activities. 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 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 and a Director 3,050,000
- -------------------------------------------------------------------------------
Stacey Butler, Secretary 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
- -------------------------------------------------------------------------------
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
===============================================================================
12
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 may sell our common stock at prices then prevailing or related to the
then current market price or at negotiated prices. The shares will not be sold
in an underwritten public offering.
The shares may be sold directly or through brokers or dealers. The methods by
which the shares may be sold include:
o purchases by a broker or dealer as principal and resale by such broker
or dealer for its account;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
o privately negotiated transactions.
Brokers and dealers engaged by selling security holders may arrange for other
brokers or dealers to participate. Brokers or dealers may receive commissions or
discounts from selling security holders (or, if any such broker-dealer acts as
agent for the purchaser of such shares, from such purchaser) in amounts to be
negotiated. Broker-dealers may agree with the selling security holders to sell a
specified number of such shares at a stipulated price per share, and, to the
extent such broker-dealer is unable to do so acting as agent for a selling
security holder, to purchase as principal any unsold shares at the price
required to fulfill the broker-dealer commitment to such selling security
holder. Broker-dealers who acquire shares as principal may resell those shares
from time to time in the over-the-counter market or otherwise at prices and on
terms then prevailing or then related to the then-current market price or in
negotiated transactions and, in connection with such resales, may receive or pay
commissions.
The selling security holders and any broker-dealers participating in the
distributions of the shares 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 and any commissions or discounts given
to any such broker-dealer may be deemed to be underwriting commissions or
discounts. The shares may also be sold pursuant to Rule 144 under the Securities
Act of 1933 beginning one year after the shares were issued.
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 offered shares.
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 holder, any affiliated
purchasers and any broker-dealer 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
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.
13
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 and a Director
- --------------------------------- ------------ --------------------------------
Stacey Butler 29 Secretary and a Director
================================= ============ ================================
James P. Butler. Mr. Butler is our President 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 plush
products, stuffed animals and related items. 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 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 proposed 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 May 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 Beneficial Amount and Nature of Beneficial Percent of Class
Owner Owner
- -------------------------- ----------------------------------- ------------------------------------ -------------------
Common James Butler 3,050,000 37.65%
11 Hayward Street, Patchogue, New
York 11772
Common Stacey Butler 2,050,000 25.31%
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, 62.96% 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 May 1, 2001, 8,100,000 shares of our common stock were
issued and outstanding. As of May 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
- -------------------------------------
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.
15
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.
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.
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
plush toys worldwide. Our principal business activities will be:
o creating a website where customers can review, compare and ultimately
purchase pre-packaged baskets of plush toys. Our proposed website will
display pictures of the pre-packaged baskets of plush products,
stuffed animals and related products, that we intend to sell and
distribute;
o promoting, marketing and selling a wide range and selection of stuffed
animals, plush toys and related products over the Internet.
We have not yet generated any revenues from the sale of our products.
Products and Services. We intend on retailing pre-packaged baskets of plush
products, stuffed animals and related products and making them available to the
retail consumer.
Our Website. Our proposed website will display pictures of the pre-packaged
stuffed plush toys we will offer for sale. If we generate revenues, we intend to
further develop our proposed website to market our products. If we generate
significant revenues from the sale of pre-packaged plush products, stuffed
animals and related products, we plan to expand and design our proposed website
to function as a digital community for consumers. A community website allows
interaction and exchange of information between consumers. For example, our
proposed digital community website would allow consumers and collectors to
interact regarding new products and collectibles.
16
Internet Advertising. If we generate significant revenues, we anticipate that we
will expand and develop our proposed 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 proposed website.
According to the Internet Ad Bureau's article entitled "What Advertising Works,"
which was compiled by Forrester Research, Inc., an independent research firm
that analyzes the future of technology change and its impact on businesses,
consumers, and society, the Internet is emerging as an attractive method for
advertisers, due to the growth in the number of Internet users, the amount of
time Internet users spend on the Internet, the increase in electronic commerce,
the interactive nature of the Internet, the Internet's global reach, the ability
to reach targeted audiences and a variety of other factors.
According to the Internet Ad Bureau's Internet Ad Revenue Report dated April 18,
2000, which is conducted independently by PricewaterhouseCoopers, many of the
largest advertisers in traditional media, including consumer products companies,
automobile manufacturers and others, have increased their use of Internet
advertising. The Internet Ad Revenue Report also specifies that larger companies
will begin to allocate significant portions of their total advertising budgets
for Internet advertising. We believe that significant revenues can be generated
from online advertising, initially from product vendors and, as use of our
proposed website increases, from advertisers, such as consumer toy companies.
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 proposed website on
the Internet. Our marketing strategy is to promote our services and products and
attract individuals and collectors to our website. Our marketing initiatives
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 pre-packaged plush products and related items. Our strategy is
to provide clients with exceptional personal service and low-cost products. Key
elements of our strategy include plans to:
o negotiate distribution agreements with third-party manufacturers for
plush products and stuffed animal 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 plush
products and stuffed animals;
o provide additional services for toy consumers; and
o pursue relationships with joint venture candidates. We will attempt to
establish joint ventures with companies that will support our business
development.
17
Our Competition. The toy industry is highly competitive. Many of our competitors
have longer operating histories, broader product lines and greater financial
resources and advertising budgets than we do. In addition, the toy industry has
nominal barriers to entry. Competition is based primarily on the ability to
design and develop new toys, procure licenses for popular characters and
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
pre-packaged plush products, stuffed animals and related products will compete
with other toy 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.
Proprietary Rights. Our success depends in part upon our ability to preserve our
trade secrets and operate without infringing the proprietary rights of other
parties. We own the Internet domain names "i-playsports.com," and
"plushzone.com". Under current domain name registration practices, no one else
can obtain an identical domain name, but someone might obtain a similar name, or
the identical name with a different suffix, such as ".net", or with a country
designation. The regulation of domain names in the United States and in foreign
countries is subject to change, and we could be unable to prevent third parties
from acquiring domain names that infringe or otherwise decrease the value of our
domain names.
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. We are not currently subject to direct federal, state or
local regulation other than regulations applicable to businesses generally or
directly applicable to electronic commerce. However, the Internet is
increasingly popular. As a result, it is possible that a number of laws and
regulations may be adopted with respect to the Internet. These laws may cover
issues such as user privacy, freedom of expression, pricing, content and quality
of products and services, taxation, advertising, intellectual property rights
and information security. Furthermore, the growth of electronic commerce may
prompt calls for more stringent consumer protection laws. Several states have
proposed legislation to limit the uses of personal user information gathered
online or require online services to establish privacy policies. The Federal
Trade Commission has also initiated action against at least one online service
regarding the manner in which personal information is collected from users and
provided to third parties. We do not provide personal information regarding our
users to third parties. However, the adoption of such consumer protection laws
could create uncertainty in web usage and reduce the demand for our products and
services.
We are not certain how our business may be affected by the application of
existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel, obscenity
and export or import matters. The vast majority of such laws were adopted prior
to the advent of the Internet. As a result, they do not contemplate or address
the unique issues of the Internet and related technologies. Changes in laws
intended to address such issues could create uncertainty in the Internet market
place. Such uncertainty could reduce demand for our services or increase the
cost of doing business as a result of litigation costs or increased service
delivery costs.
In addition, because our services are available over the Internet in multiple
states and foreign countries, other jurisdictions may claim that we are required
to qualify to do business in each such state or foreign country. We are
qualified to do business only in Delaware and New York. Our failure to qualify
in a jurisdiction where we are required to do so could subject us to taxes and
penalties. It could also hamper our ability to enforce contracts in such
jurisdictions. The application of laws or regulations from jurisdictions whose
laws do not currently apply to our business could have a material adverse effect
on our business, results of operations and financial condition.
Employees. As of June 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 and a member of our Board
of Directors.
18
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 $10,000.00. From
inception (April 25, 2000) to March 31, 2001, we experienced a net loss of
$30,300.00. 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 March 31, 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 $6,050.00 at March 31, 2001.
Results of Operations. We have not yet realized any revenue from operations from
formation through March 31, 2000. Our operating expenses of approximately $34,
015.00 consisted of: bad debt expense; bank charges; consulting services
expense; lease payments; professional fees; and telephone and utilities.
Our Plan of Operation for the Next Twelve Months. We intend to initiate our
distribution efforts for our plush products, stuffed animals and related
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
- --------------- ----------------------- -------------------------------------
Cash $13,800.00 $6,050,00
- --------------- ----------------------- -------------------------------------
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 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. 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.
19
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.
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.
20
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, Director 2001 None None None None
- ----------------------------------- ------- ------------- ------------- --------------------- ---------------------
Stacey L. Butler
Secretary, Director 2001 None None None None
=================================== ======= ============= ============= ===================== =====================
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 1, 2001, our officers have received no
compensation for their services provided to us.
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)
BALANCE SHEET
MARCH 31, 2000
ASSETS
------
Current assets
Cash $ 6,050
Other receivables, net of allowance for doubtful accounts of $8,050 ---
----------------
Total current assets 6,050
Other assets ---
----------------
Total assets $ 6,050
================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable and accrued expenses 1,250
----------------
Total current liabilities 1,250
----------------
Commitments and 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 (30,300)
------------------
Total stockholders' equity 4,800
----------------
Total liabilities and stockholders' equity $ 6,050
================
See accompanying notes to financial statements.
24
PLUSHZONE, INC.
(a development stage company)
STATEMENTS OF OPERATIONS
THREE MONTHS APRIL 25, 2000
ENDED (INCEPTION) -
MARCH 31, 2001 MARCH 31, 2001
---------------- -----------------
Revenues
Sales $ --- $ ---
Advertising --- ---
----------------- -----------------
Net revenues --- ---
----------------- -----------------
Direct costs
Cost of goods sold --- ---
Web site costs 1,750 2,500
----------------- -----------------
Total direct costs 1,750 2,500
----------------- -----------------
Gross margin (1,750) (2,500)
------------------ ------------------
Operating expenses
Bad debt expense --- 8,050
Bank charges --- 189
Consulting services --- 5,100
Occupancy 1,000 1,000
Professional fees 3,595 13,230
Telephone and utilities --- 231
----------------- -----------------
Total operating expenses 4,595 27,800
----------------- -----------------
Loss from operations (6,345) (30,300)
------------------ -----------------
Provision for income tax expense (benefit) --- ---
----------------- -----------------
Net loss/Comprehensive loss $ (6,345) $ (30,300)
=================== ===================
Net loss per common share-- basic and diluted $ (.00$) $ (.004)
=================== ==================
Weighted average of common shares-- basic and diluted 8,100,000 8,100,000
=================== ==================
See accompanying notes to financial statements.
25
PLUSHZONE, INC.
(a development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
PERIOD APRIL 25, 2000 (INCEPTION) THROUGH MARCH 31, 2001
Common Stock Additional
------------ Paid-In Accumulated
Shares Amount Capital Deficit Total
------------ ----------- ----------- ----------- -----------
Balance, April 25, 2000 --- $ --- $ --- $ --- $ ---
Issuances of common stock 8,100,000 8,100 27,000 --- 35,100
Net loss/Comprehensive loss --- --- --- (23,955) (23,955)
------------ ----------- ----------- ----------- -----------
Balance, December 31, 2000 8,100,000 $ 8,100 $ 27,000 $ (28,765) $ 11,145
------------- ------------ ------------ ------------- ------------
Net loss/Comprehensive loss --- --- --- (6,345) (6,345)
------------ ----------- ----------- ----------- -----------
Balance, March 31, 2001 8,100,000 $ 8,100 $ 27,000 $ (30,300) $ 4,800
------------- ------------ ------------ ------------- ------------
See accompanying notes to financial statements.
26
PLUSHZONE, INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
THREE MONTHS APRIL 25, 2000
ENDED (INCEPTION) -
MARCH 31, 2001 MARCH 31, 2001
----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (6,345) $ (30,300)
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
Decrease in prepaid expense 2,345 ---
(Increase) in other receivables --- (8,050)
Increase (decrease) in accounts payable and
accrued expenses (3,750) 1,250
------------------ ------------------
Net cash used in operating activities (7,750) (23,950)
----------------- -----------------
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 (7,750) 6,050
CASH AND CASH EQUIVALENTS, beginning of period 13,800 ---
------------------ -----------------
CASH AND CASH EQUIVALENTS, end of period $ 6,050 $ 6,050
================= =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid --- ---
--------------- ---------------
Interest paid --- ---
---------------- ---------------
Non-cash financing activities:
During the period April 25, 2000 (inception) through March 2001, the
Company issued 5,100,000 shares of its common stock to its President and
Treasurer for services valued at $5,100.
See accompanying notes to financial statements.
27
PLUSHZONE, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
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. Acquired web sites are amortized over a five (5) year period.
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 - The Company records
sales of its products upon shipment and title passes to its customers. The
Company provides an allowance for sales returns based on historical experience.
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.
28
PLUSHZONE, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
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
material, 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 - GOING CONCERN AND CONTINGENCIES
As shown in the accompanying financial statements, the Company has
incurred a net operating loss of $30,300 since inception through March 31, 2001.
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.
29
PLUSHZONE, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
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 March 31, 2001, 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 March 31, 2001.
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 March 31, 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.
NOTE 6 - INCOME TAXES
At March 31, 2000, the Company has available for federal income tax
purposes a net operating loss carryforward of approximately $30,300, 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
$10,000 at March 31, 2001. 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 ($10,000) has been provided for the deferred
tax assets.
30
PLUSHZONE, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE 7 - RELATED PARTY TRANSACTIONS
During the period April 25, 2000 (inception) through March 31, 2001,
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 described 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.
31
Quintanilla
Accountancy Corporation
- --------------------------------------------------------------------------------
American Institute of Certified Public Accountants
California Society of Certified Public Accountants
30026 Monteras 949.929.6149
Laguna Niguel, California 92677 253.276.6446
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. and
subsidiaries 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.
The accompanying financial statements were prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, the
continuation of the Company is dependent on its ability to obtain additional
financing to fund its future research and development costs and support
operations.
/s/ Quintanilla
A Professional Accountancy Corporation
Laguna Niguel, California
May 25, 2001
- -------------------------------------------------------------------------------
30026 Monteras 949.929.6149
Laguna Niguel, California 92677 253.276.6446
34
PLUSHZONE, INC.
(a development stage company)
BALANCE SHEET
DECEMBER 31, 2000
ASSETS
------
Current assets
Cash on hand $ 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
----------------
Commitments and 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.
35
PLUSHZONE, INC.
(a development stage company)
STATEMENT OF OPERATIONS
PERIOD 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 $ (.003)
==================
Weighted average of common shares-- basic and diluted 8,100,000
==================
See accompanying notes to financial statements.
36
PLUSHZONE, INC.
(a development stage company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
PERIOD APRIL 25, 2000 (INCEPTION) THROUGH DECEMBER 31, 2000
Common Stock Additional
Paid-In Accumulated
Shares Amount Capital Deficit Total
------------ ----------- ----------- ----------- -----------
Balance, April 25, 2000 --- $ --- $ --- $ --- $ ---
Issuances of common stock 8,100,000 8,100 27,000 --- 35,100
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.
37
PLUSHZONE, INC.
(a development stage company)
STATEMENT OF CASH FLOWS
PERIOD 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 ---
---------------
Non-cash financing activities:
During the period April 25, 2000 (inception) through December 31, 2000,
the Company issued 5,100,000 shares of its common stock to its President
and Treasurer for services valued at $5,100.
See accompanying notes to financial statements.
38
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. Acquired web sites are amortized over a five (5) year period.
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 - The Company records
sales of its products upon shipment and title passes to its customers. The
Company provides an allowance for sales returns based on historical experience.
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.
39
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 - GOING CONCERN AND 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.
40
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.
41
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.
42
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.
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.
43
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.
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.
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.
44
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 $300.00
- --------------------------------------- --------------------- ---------------
Legal Fees Approximately $10,000.00
- --------------------------------------- --------------------- ---------------
Accounting Fees Approximately $5000.00
======================================= ===================== ===============
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 $.001 per share. The shares were issued in a transaction
which we believe satisfies the requirements of that exemption from the
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.
Exhibits
- --------
Copies of the following documents are filed with this Registration
Statement as exhibits:
Exhibit No.
- -----------
1. Underwriting Agreement (not applicable)
3.1 Certificate of Incorporation and All Amendments
Thereto (Charter Document)
3.2 Bylaws
5. Opinion Re: Legality
8. Opinion Re: Tax Matters (not applicable)
11. Statement Re: Computation of Per Share Earnings (found in
financial statements)
15. Letter on unaudited interim financial information
(not applicable)
23.1 Consent of Auditors (found in financial statements)
23.2 Consent of Counsel (see exhibit 5)
24. Power of Attorney (not applicable)
45
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:
(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.
46
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 Registration Statement
to be signed on our behalf by the undersigned, in the city of Patchogue, New
York, on June 20, 2001.
PlushZone, Inc.,
a Delaware corporation
By: /s/ James P. Butler
--------------------------
James P. Butler
Its: President and Director
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed on this 25th day of June, 2001, the following
persons in the capacities and on the dates stated:
/s/ James P. Butler June 20, 2001
- ---------------------------- ----------
James P. Butler
President, Director
/s/ Stacey L. Butler June 20, 2001
- ----------------------------- ----------
Stacey L. Butler
Secretary, Director
47
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and hereby
authorizes James P. Butler with the full power of substitution, as
attorney-in-fact, to sign in such person's behalf, individually and in each
capacity stated below, and to file any amendments, including post-effective
amendments to this Registration Statement.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
PlushZone, Inc.
/s/ James P. Butler June 20, 2001
- --------------------------- ---------------
James P. Butler
President, Director
/s/ Stacey L. Butler June 20, 2001
- ---------------------------- ---------------
Stacey L. Butler
Secretary, Director
48