U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
ZEN RAKU ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Colorado 3269 20-8096131
(State or other jurisdiction (Primary Standard (IRS Employer
of incorporation) Industrial Identification No.)
Classification
Code Number)
77 Lipan Street
Denver, Colorado 80223
(303) 825-4570
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Zen Z. Pool, III
President
Zen Raku Enterprises, Inc.
77 Lipan Street
Denver, Colorado 80223
(303) 825-4570
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
With a Copy to:
Jon D. Sawyer, Esq.
Jin, Schauer & Saad LLC
600 Seventeenth St., Suite 2700S
Denver, Colorado 80202
Office (720) 889-2211
Fax (720) 889-2222
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
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. [ ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Non-accelerated filer [ ]
(Do not check if a smaller reporting company)
Accelerated filer [ ]
Smaller reporting company [ ]
CALCULATION OF REGISTRATION FEE
____________________________________________________________________________
Proposed
Proposed Maximum
Maximum Amount of
Title of Each Class Amount Offering Aggregate
of Securities to to be Price Offering Registration
be Registered (2) Registered Per Share Price (3) Fee(1)
____________________________________________________________________________
Common Stock 400,000 $0.50 $200,000 $ 14.26
____________________________________________________________________________
(1) Represents the minimum registration fee.
(2) We intend to offer a minimum of 100,000 shares of our common stock (the
"Shares") up to a maximum of 400,000 Shares. We will establish an escrow
account and all proceeds will be deposited into said account until such time
as the minimum subscription, or $50,000 is raised, at which time the funds
will be released to us for use in operations. In the event we do not raise
the minimum proceeds before the expiration date of the offering, all funds
raised will be returned promptly to the subscribers without deductions or
interest.
(3) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(o).
________________________
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to such Section 8(a), may determine.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED DECEMBER 23, 2010
PROSPECTUS
ZEN RAKU ENTERPRISES, INC.
100,000 shares of common stock (Minimum Offering)
400,000 shares of common stock (Maximum Offering)
$0.50 Per Share
This is the initial offering of common stock of Zen Raku Enterprises,
Inc. No public market currently exists for these shares. Zen Raku
Enterprises, Inc. is offering for sale a minimum of 100,000 shares, up to a
maximum of 400,000 shares of its common stock on a "self-underwritten," best
efforts basis, which means our officers and directors will attempt to sell
the shares. The shares will be offered at a price of $0.50 per share for a
period of one hundred and twenty (120) days from the date of this prospectus,
subject to a ninety (90) day extension. There is no minimum amount of shares
required to be purchased by any particular investor.
Zen Raku Enterprises, Inc. is a company with a limited operating
history. Any investment in the shares offered herein involves a high degree
of risk. You should only purchase shares if you can afford a complete loss
of your investment. Before investing, you should carefully read this
prospectus and, particularly, the "Risk Factors" section, beginning on page
6.
Neither the U.S. Securities and Exchange Commission nor any state
securities division has approved or disapproved these securities, passed upon
the truthfulness or accuracy, or determined if this prospectus is current or
complete. Any representation to the contrary is a criminal offense.
Public Underwriting Proceeds to
Offering or Sales Zen Raku
Price Commissions Enterprises, Inc.
-------- ----------- -----------------
Common Stock (1)
Total Offering -
Minimum Offering (2)(3) $0.50 $ 0 $ 50,000
Maximum Offering $0.50 $ 0 $200,000
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with
the U.S. 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.
______________________
(1) As of the date of this prospectus, there is no public trading market for
our common stock and no assurance that a trading market for our shares
will ever develop.
(2) Pending the receipt and payment of any checks gathered to satisfy the
$50,000 minimum, all proceeds will be held in a non-interest bearing
escrow account by the Escrow Agent for this offering. The Escrow Agent
is Corporate Stock Transfer, Inc., who has the sole signature authority
over this account and determines whether the minimum offering
requirements are satisfied. Funds will be deposited in this escrow
account no later than noon on the business day following receipt. In
the event the minimum is not sold within the 120-day offering period or
any extension of an additional 90 days at our discretion, this offering
will terminate and all funds will be returned promptly to subscribers by
the Escrow Agent without any deductions or payment of interest.
Subscribers will not be entitled to a return of funds from such escrow
during the 120-day offering period or any extension period, for a
potential total of 210 days. See "Use of Proceeds" and "Plan of
Distribution".
(3) The proceeds to the Company are shown before deduction for legal,
accounting, printing, and other expenses, estimated at $______. See
"Use of Proceeds" and "Dilution".
________________________
Subject to Completion, Dated December 23, 2010
2
TABLE OF CONTENTS
Page
SUMMARY OF PROSPECTUS .............................................. 5
General Information About Our Company ......................... 5
The Offering .................................................. 5
RISK FACTORS ....................................................... 7
Risks Associated with Our Company ............................. 7
Risks Associated with this Offering ........................... 10
USE OF PROCEEDS .................................................... 12
DETERMINATION OF OFFERING PRICE .................................... 13
DILUTION OF THE PRICE YOU PAY FOR YOUR SHARES ...................... 14
INVESTOR SUITABILITY REQUIREMENTS .................................. 15
PLAN OF DISTRIBUTION ............................................... 15
LEGAL PROCEEDINGS .................................................. 16
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS ....... 16
Background Information about Our Officers and Directors ....... 16
EXECUTIVE COMPENSATION ............................................. 18
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ..... 18
Future Sales by Existing Stockholders ......................... 19
DESCRIPTION OF SECURITIES .......................................... 19
Common Stock .................................................. 19
Preferred Stock ............................................... 19
Options ....................................................... 19
Shares Eligible for Future Sale ............................... 19
Rule 144 ...................................................... 20
INDEMNIFICATION .................................................... 20
DESCRIPTION OF BUSINESS ............................................ 21
General Information ........................................... 21
Product Background and Description ............................ 21
Construction of Kiln .......................................... 21
Firing of Kiln ................................................ 22
Industry Overview ............................................. 22
Customers ..................................................... 23
Marketing and Marketing ....................................... 23
Raw Materials ................................................. 23
Competition ................................................... 23
Employees ..................................................... 23
Government and Industry Regulation ............................ 24
3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ........................................ 24
Results of Operations for the year ended December31, 2009
Compared to the year ended December 31, 2008 and for the
nine months ended September 30, 2010 as compared to the
nine months ended September 30, 2009 ......................... 24
Liquidity and Capital Resources ............................... 25
Plan of Operation ............................................. 26
Proposed Milestones to Implement Business Operations .......... 26
Recently Issued Accounting Pronouncements ..................... 27
Seasonality ................................................... 28
DESCRIPTION OF PROPERTY ............................................ 28
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ..................... 28
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ........... 28
Reports ....................................................... 29
Stock Transfer Agent .......................................... 30
SUBSCRIPTION AGREEMENT AND PROCEDURES .............................. 30
EXPERTS AND LEGAL COUNSEL .......................................... 30
AVAILABLE INFORMATION .............................................. 30
FINANCIAL STATEMENTS ............................................... F-1
4
ZEN RAKU ENTERPRISES, INC.
77 Lipan Street
Denver, Colorado 80223
SUMMARY OF PROSPECTUS
General Information about Our Company
Zen Raku Enterprises, Inc. was incorporated in the State of Colorado on
May 28, 2004. References in this document to "us," "we," or "Company" refer
to Zen Raku Enterprises, Inc.
We are in the business of manufacturing and selling a pottery kiln known
as the Zen Raku Kiln. All of our operations are located in the State of
Colorado. Our headquarters are located at 77 Lipan Street, Denver, Colorado
80223. Our phone number at our headquarters is (303) 825-4570. Our fiscal
year end is December 31.
The Offering
Following is a brief summary of this offering. Please see the Plan of
Distribution; Terms of the Offering section for a more detailed description
of the terms of the offering.
Securities Being Offered A minimum of 100,000 shares and up to a
maximum of 400,000 shares of common stock, no
par value.
Offering Price per Share $0.50
Offering Period The shares are being offered for a period not
to exceed 120 days, unless extended by our
board of directors for an additional 90 days.
Gross Proceeds to Our $ 50,000 (Minimum Offering)
Company $200,000 (Maximum Offering)
Use of Proceeds We intend to use the proceeds of this offering
to pay for advertising, research and develop-
ment, general administrative expenses and for
the costs of the offering. See "Use of
Proceeds."
Number of Shares Outstanding 9,500,000
Before the Offering
Number of Shares Outstanding 9,600,000 (minimum offering)
After the Offering 9,900,000 (maximum offering)
Plan of Distribution This is a self-underwritten offering. This
prospectus is part of a registration statement
that permits our officers and directors to
sell the Shares directly to the public, with
no commission or other remuneration payable to
them for any Shares they sell. The officers
and directors will not purchase Shares in this
offering, including, but not limited to,
purchases of Shares in order to reach the
minimum offering amount.
5
Escrow Account Pending sale of the $50,000 minimum, all
proceeds will be held in non-interest bearing
escrow account by the Escrow Agent for this
offering. The Escrow Agent is Corporate Stock
Transfer, Inc. Funds will be deposited in
this escrow account no later than noon on the
business day following receipt. In the event
the minimum is not sold within the 120-day
offering period or any extension of an
additional 90 days at our discretion, this
offering will terminate and all funds will be
returned promptly to subscribers by the Escrow
Agent without any deductions or payment of
interest. Subscribers will not be entitled to
a return of funds from such escrow during the
120-day offering period or any extension
period, for a potential total of 210 days.
See "Use of Proceeds" and "Plan of
Distribution."
Investor Suitability
Requirements This offering is limited to investors resident
in Colorado, ______________ and ____________.
Purchasers in any subsequent trading market
must comply with the applicable securities
laws of the State in which they purchase our
common stock.
Subscription Agreement and
Procedures We will accept no subscriptions or indications
of interest until our registration statement
is effective. At that point, all subscrip-
tions must be made by the execution and
delivery of a subscription agreement, a form
of which is attached to this prospectus as
Annex A. Subscriptions are not binding until
accepted.
Risk Factors An investment in these securities involves an
exceptionally high degree of risk and is
extremely speculative in nature. You should
carefully consider the information set forth
in the "Risk Factors" section.
6
RISK FACTORS
An investment in these securities involves an exceptionally high degree
of risk and is extremely speculative in nature. Following are what we
believe are all of the material risks involved if you decide to purchase
shares in this offering.
Risks Associated With our Company:
We had a net loss of $(7,500) for the twelve months ended December 31, 2009
and a net loss of $(7,963) for the twelve months ended December 31, 2008.
For the twelve month period ended December 31, 2009, we generated a
total of $10,012 in revenue. In addition, for the twelve month period ended
December 31, 2009, we had a net loss of $7,500. For the twelve month period
ended December 31, 2008, we generated a total of $14,697 in revenue. In
addition, for the fiscal year ended December 31, 2008, we had a net loss of
$7,963. Historically, we have sold only minimal numbers of our products. We
have had profitable years, but we have not been profitable in the last two
fiscal years. We are uncertain whether our products will achieve market
acceptance such that our revenues will increase or whether we will be able to
achieve significant revenue. In addition, we currently have no backlog of
orders. Market acceptance for our products and other factors that are beyond
our control make it difficult for us to accurately forecast our quarterly and
annual revenue. However, we use our forecasted revenue to establish our
expense budget. Most of our expenses are fixed in the short term or incurred
in advance of anticipated revenue. As a result, we may not be able to
decrease our expenses in a timely manner to offset any revenue shortfall. We
attempt to keep revenues in line with expenses but cannot guarantee that we
will be able to do so.
Because of the history of minimal sales of our single product, it is
difficult to project the amount of future revenues and we may never generate
significant revenue.
Our product revenue, expense and operating results have varied in the
past and may fluctuate significantly in the future due to a variety of
factors, many of which are outside of our control. These factors include,
among others:
* the willingness and financial ability of schools to purchase our
kilns;
* the timing of orders from our customers and the possibility that these
customers may change their order requirements with little or no
advance notice to us;
* the deferral of customer orders in anticipation of new products from
us or other providers of similar products;
* the ongoing need for our product;
* the uncertainty regarding the adoption of our current and any future
products; and
* the rate of growth of the markets for our products.
7
We have a history of limited operations.
We commenced our operations in May 2004 as a compliment to the business
of Mile Hi Ceramics, a ceramics manufacturer which is owned by Zen Z. Pool,
our founder and President. About 40% of the sales since inception have been
made to Mile Hi Ceramics, which is our largest dealer. During the last two
fiscal years our sales were between $10,000 and $15,000 annually and we lost
between $7,500 and $8,000 each year. During the nine months ended
September 30, 2010 our sales were only $6,236 and we had a net loss of
$15,553.
We may continue to incur net losses for the foreseeable future as we
continue to further develop our business. Our ability to generate and
sustain significant additional revenues or achieve profitability will depend
upon the factors discussed elsewhere in this "Risk Factors" section. We
cannot assure you that we will achieve or sustain profitability or that our
operating losses will not increase in the future. If we do achieve
profitability, we cannot be certain that we can sustain or increase
profitability on a quarterly or annual basis in the future.
Based upon current plans, we expect to operate close to breakeven in the
near term at least until we complete this public offering, and then for the
next 12 months thereafter. We expect approximately $15,000 to $18,000 in
operating costs over the next twelve months. We cannot guarantee that we
will be successful in generating sufficient revenues or other funds in the
future to cover these operating costs. Failure to generate sufficient
revenues will probably cause us to go out of business.
We have no experience as a public company.
We have never operated as a public company. We have no experience in
complying with the various rules and regulations which are required of a
public company. As a result, we may not be able to operate successfully as a
public company, even if our operations are successful. We plan to comply
with all of the various rules and regulations which are required of a public
company. However, if we cannot operate successfully as a public company,
your investment may be materially adversely affected. Our inability to
operate as a public company could be the basis of your losing your entire
investment in us.
We are implementing a strategy to grow and expand our business, which may not
generate increases in our revenues.
We intend to expand our business, and we plan to incur expenses
associated with our growth and expansion. We will need to generate greater
revenues to offset expenses associated with our growth, and we may be
unsuccessful in achieving greater revenues, despite our attempts to grow our
business. If our growth strategies do not result in increased revenues, we
may have to abandon our plans for further growth or may even reduce the
current size of our operations.
Because we are small and do not have much capital, we must limit our
operations. A company in our industry with limited operations has a smaller
opportunity to be successful.
Because we are small and do not have much capital, we must limit our
operations. We must limit our operations to providing a limited range of
8
products and services as the only area in which we operate. Because we may
have to limit our operations, we may not generate sufficient sales to make a
profit. If we do not make a profit, we may have to suspend or cease
operations.
Because our current officers and directors are involved with other
businesses, one of which is in the same industry, the manner in which we
operate may create the possibility of a conflict of interest.
All of our officers and directors are also involved with other
businesses and Mr. Pool also serves as President of Mile Hi Ceramics, Inc.
which is in the same industry. These other arrangements could create
conflicts of interest with respect to our operations. Each of our officers
and directors is aware of their responsibilities with respect to corporate
opportunities and plans to operate our Company in such a manner as to
minimize the effect of any conflict of interest. Each officer and director
has agreed to contract with the Company on the same or better terms and
conditions than each would with unaffiliated third parties. Each of these
officers and directors will use their best judgments to resolve all potential
conflicts. We cannot guarantee that any potential conflicts can be avoided.
Our success will be dependent upon our management.
Our success will be dependent upon the decision making of our directors
and executive officers. These individuals intend to commit as much time as
necessary to our business, but this commitment is no assurance of success.
The loss of any or all of these individuals, particularly Mr. Pool, could
have a material, adverse impact on our operations. We have no written
employment agreements with any officers and directors, including Mr. Pool.
We have not obtained key man life insurance on the lives of any of these
individuals.
Since our President and Chief Executive Officer has other business interests,
he may not be able or willing to devote a sufficient amount of time to our
business operations.
Zen Z. Pool, our President and Chief Executive Officer, currently
devotes approximately five hours per week providing management services to
us. While he presently possesses adequate time to attend to our interests,
it is possible that the demands on him from other obligations could increase,
with the result that he would no longer be able to devote sufficient time to
the management of our business. The loss of Mr. Pool to our business would
negatively impact our business development.
He focuses most of his time as President and Chief Executive Officer of
Mile Hi Ceramics, Inc. which is engaged in the business of manufacturing
various ceramics products.
We are a relatively small company with limited resources compared to some of
our current and potential competitors, which may hinder our ability to
compete effectively.
Some of our current and potential competitors have longer operating
histories, significantly greater resources, broader name recognition, and a
larger installed base of clients than we have. As a result, these
competitors may have greater credibility with our potential new clients.
They also may be able to adopt more aggressive pricing policies and devote
9
greater resources to the development, promotion and sale of their kiln
products than we can to ours, which would allow them to respond more quickly
than us to changes in client requirements. Two of our larger competitors are
Olympic Kilns, Inc. and Paragon Industries, L.P.
We may be unable to hire and retain key personnel.
Our future success depends on our ability to attract qualified sales
personnel. We may be unable to attract these necessary personnel. If we
fail to attract or retain skilled employees, we may be unable to generate
sufficient revenue to offset our operating costs.
We may need to substantially invest in marketing efforts in order to grow our
business, which will be expensive.
In order to grow our business, we will need to develop and maintain
wider spread recognition and acceptance of our company and our products. We
plan to rely primarily on word of mouth from our existing contacts we develop
personally through industry events to promote and market ourselves. To date,
marketing and advertising expenses have been negligible. If we fail to
successfully market and promote our business, we could lose potential clients
to our competitors, or our growth efforts may be ineffective. If we incur
significant expenses promoting and marketing ourselves, it could delay or
completely forestall our profitability.
Our directors have the ability to significantly influence any matters to be
decided by the stockholders, which may prevent or delay a change in control
of our company.
The current members of our Board of Directors beneficially own, in the
aggregate, approximately 95% of our common stock, on a fully diluted basis.
As a result, if they choose to vote in concert, our directors are
collectively able to significantly influence the outcome of any corporate
matters submitted to our stockholders for approval, including any transaction
that might cause a change in control, such as a merger or acquisition. It is
unlikely that stockholders in favor of a matter, which is opposed by the
Board of Directors, would be able to obtain the number of votes necessary to
overrule the vote of the Board of Directors. Further, the control by the
directors means that they may make decisions for us with which you may
disagree or that you may feel are not in our best interests.
Risks Associated with this Offering:
Buying low-priced penny stocks is very risky and speculative.
The shares being offered are defined as a penny stock under the
Securities and Exchange Act of 1934, and rules of the Commission. The
Exchange Act and such penny stock rules generally impose additional sales
practice and disclosure requirements on broker-dealers who sell our
securities to persons other than certain accredited investors who are,
generally, institutions with assets in excess of $5,000,000 or individuals
with net worth in excess of $1,000,000 or annual income exceeding $200,000,
or $300,000 jointly with spouse, or in transactions not recommended by the
broker-dealer. For transactions covered by the penny stock rules, a broker-
dealer must make a suitability determination for each purchaser and receive
the purchaser's written agreement prior to the sale. In addition, the
broker-dealer must make certain mandated disclosures in penny stock
10
transactions, including the actual sale or purchase price and actual bid and
offer quotations, the compensation to be received by the broker-dealer and
certain associated persons, and deliver certain disclosures required by the
Commission. Consequently, the penny stock rules may affect the ability of
broker-dealers to make a market in or trade our common stock and may also
affect your ability to resell any shares you may purchase in this offering in
the public markets.
We are selling this offering without an underwriter and may be unable to sell
any shares.
This offering is self-underwritten, that is, we are not going to engage
the services of an underwriter to sell the shares; we intend to sell them
through our officers and directors, who will receive no commissions. We will
hold investment meetings and invite our friends, acquaintances and relatives
in an effort to sell the shares to them; however, there is no guarantee that
we will be able to sell any of the shares. In the event we are unable to
sell most of the shares in this offering, we will be forced to reduce our
proposed business operations until such time as additional monies can be
obtained, either through loans or financings.
You will incur immediate and substantial dilution of the price you pay for
your shares.
Our existing stockholders acquired their shares at a cost substantially
less than that which you will pay for the shares you purchase in this
offering. Accordingly, any investment you make in these shares will result
in the immediate and substantial dilution of the net tangible book value of
those shares from the $0.50 you pay for them. As of September 30, 2010, our
net tangible book value (assuming that a total of 9,500,000 Common Shares
were issued and outstanding) was $(13,131) or approximately $(0.0014) per
share. Assuming that $165,000 of maximum net proceeds are realized from this
Offering, the dilution to new investors from the Offering price of $0.50 per
share will be approximately $0.4847 per share, and the gain by existing
investors will be approximately $0.167 per share. Assuming that $15,000 of
minimum net proceeds are realized from this Offering, the dilution to new
investors from the Offering price of $0.50 per share will be approximately
$0.4998 per share, and the gain by existing investors will be approximately
$0.0016 per share.
Our common stock currently has no trading market and there is no guarantee a
trading market will ever develop for our securities.
There is presently no demand for our common stock. There is presently
no public market for the shares being offered in this prospectus. While we
do intend to apply for quotation in the Over-the-Counter Bulletin Board, we
cannot guarantee that our application will be approved and our stock listed
and quoted for sale. If no market is ever developed for our common stock, it
will be difficult for you to sell any shares you purchase in this offering.
In such a case, you may find that you are unable to achieve any benefit from
your investment or liquidate your shares without considerable delay, if at
all. In addition, if we fail to have our common stock quoted on a public
trading market, your common stock will not have a quantifiable value and it
may be difficult, if not impossible, to ever resell your shares, resulting in
an inability to realize any value from your investment.
11
The over-the-counter market for stock such as ours has had extreme price and
volume fluctuations.
The securities of companies such as ours have historically experienced
extreme price and volume fluctuations during certain periods. These broad
market fluctuations and other factors, such as new product developments and
trends in the our industry and in the investment markets generally, as well
as economic conditions and quarterly variations in our operational results,
may have a negative effect on the market price of our common stock.
All of our common stock is restricted but could become eligible for resale
under Rule 144; this could cause the market price of our common stock to drop
significantly, even if our business is doing well.
Of our total outstanding shares following this offering, 9,500,000 or
99% (minimum) or 96% (maximum) are restricted from immediate resale but may
be sold into the market subject to volume and manner of sale limitations
under Rule 144 beginning in ____________,2011. This could cause the market
price of our common stock to drop significantly, even if our business is
doing well. After this offering, we will have outstanding 9,900,000 shares
(maximum) or 9,600,000 (minimum) of common stock based on the number of
shares outstanding at September 30, 2010. This includes the common shares we
are selling in this offering, which may be resold in the public market
immediately.
As restrictions on resale end, the market price of our stock could drop
significantly if the holders of restricted shares sell them or are perceived
by the market as intending to sell them.
We do not expect to pay dividends on common stock.
We have not paid any cash dividends with respect to our common stock,
and it is unlikely that we will pay any dividends on our common stock in the
foreseeable future. Earnings, if any, that we may realize will be retained
in the business for further development and expansion.
USE OF PROCEEDS
We have estimated the total proceeds from this offering to be $ 50,000,
assuming a minimum subscription, or $200,000, assuming all shares are sold,
which we cannot guarantee. These proceeds do not include offering costs,
which we estimate to be $35,000. We expect to disburse the proceeds from
this offering in the priority set forth below, during the first 12 months
after successful completion of this offering:
12
Minimum Total Maximum
Offering Proceeds of Offering
($50,000) $100,000 ($200,000)
---------- ----------- ----------
Total Proceeds $50,000 $100,000 $200,000
Less: Estimated Offering Expenses (1) 35,000 35,000 35,000
------- -------- --------
Proceeds to Us: $15,000 $ 65,000 $165,000
======= ======== ========
Development of new models of kiln (2) $10,000 $ 25,000 $ 40,000
Working Capital (3) $ 5,000 $ 40,000 $125,000
_________________________
(1) Offering expenses include legal, accounting, printing, and escrow agent
fees. The escrow agent fees are estimated at $1,000.
(2) We plan to spend these funds on researching and developing new models
for our kiln which include newer, state of the art methods of firing the
kiln and building prototypes of such kilns.
(3) We plan to spend our working capital in the following areas: Some of the
funds will be used to upgrade our website. The remaining funds will be
used for advertising and general and administrative expenses. The
amount and timing of working capital expenditures may vary significantly
depending upon numerous factors such as:
* Sales generated from existing customers,
* The development of new models of our kilns,
* Administrative expenses, and
* Other requirements not now known or estimable.
Until we use the net proceeds for the above purposes, we intend to
invest such funds in short-term interest-bearing investment grade obligations
and deposit accounts.
If we raise an amount between the minimum and maximum, we will use the
excess amount above the minimum but below the maximum to expand our
operations, as discussed above.
We believe that our available cash and existing sources of funding,
together with the minimum proceeds of this offering and interest earned
thereon, will be adequate to maintain our current and planned operations for
at least the next twelve months.
DETERMINATION OF OFFERING PRICE
The offering price of the shares has been determined arbitrarily by us.
We considered no aspect of our capital structure in determining the offering
price or the number of shares to be offered. The price does not bear any
relationship to our assets, book value, earnings, or other established
criteria for valuing a privately held company. Accordingly, the offering
price should not be considered an indication of the actual value of our
securities.
13
DILUTION OF THE PRICE YOU PAY FOR YOUR SHARES
Dilution represents the difference between the offering price and the
net tangible book value per share immediately after completion of this
offering. Net tangible book value is the amount that results from
subtracting total liabilities and intangible assets from total assets.
Dilution arises mainly as a result of our arbitrary determination of the
offering price of the shares being offered. Dilution of the value of the
shares you purchase is also a result of the lower book value of the shares
held by our existing stockholders. As of September 30, 2010, the net
tangible book value of our shares was $(13,131), or approximately $(.0014)
per share, based upon 9,500,000 shares outstanding.
Upon completion of this offering, but without taking into account any
change in the net tangible book value after completion of this offering,
other than that resulting from the sale of the minimum (maximum) Shares and
receipt of the proceeds of $50,000 ($200,000), less offering expenses of
$35,000, the net tangible book value of the 9,900,000 shares to be
outstanding, assuming a maximum subscription, will be $151,869, or
approximately $0.0153 per Share. If the minimum number of Shares are sold,
of which there can be no guarantee, the net tangible book value of the
9,600,000 shares to be outstanding would be $1,869, or approximately $0.0002
per share. Accordingly, the net tangible book value of the Shares held by
our existing stockholders will be increased by $0.0167 per share, assuming a
maximum subscription and by $0.0016 assuming a minimum subscription.
Assuming a maximum subscription, without any additional investment on their
part, and the purchasers of Shares in this Offering will incur immediate
dilution (a reduction in net tangible book value per Share from the offering
price of $0.50 per Share) of $0.4847 per share. If we sell the minimum
amount, they will incur immediate dilution (a reduction in net tangible book
value per Share from the offering price of $0.50 per Share) of $0.4998 per
share.
After completion of the sale of the minimum number of shares in this
offering, the new shareholders will own approximately 1.04% of the total
number of shares then outstanding, for which they will have made a cash
investment of $50,000, or $0.50 per Share. Upon completion of the sale of
the maximum number of Shares in this offering, the new shareholders will own
approximately 4% of the total number of shares then outstanding, for which
they will have made a cash investment of $200,000, or $0.50 per Share. The
existing stockholders will own approximately 99% and 96% based on the minimum
and maximum proceeds received of the total number of shares then outstanding,
for which they have made contributions of cash and/or services and/or other
assets, totaling $15,100 or $0.0016 per share.
The following table illustrates the per share dilution to new investors,
assuming both the minimum and maximum number of shares being offered, and
does not give any effect to the results of any operations subsequent to
September 30, 2010 or the date of this registration statement:
14
Minimum Maximum
Offering Offering
-------- --------
Public Offering Price Per Share $ 0.50 $ 0.50
Net Tangible Book Value Prior to this Offering $-0.0014 $-0.0014
Net Tangible Book Value After Offering $ 0.0002 $ 0.0153
Immediate Dilution Per Share To New Investors $ 0.4998 $ 0.4847
The following table summarizes the number and percentage of shares
purchased, the amount and percentage of consideration paid and the average
price per Share paid by our existing stockholders and by new investors in
this offering:
Total
-------------------------------------------
Price Number of Percent of Consideration
Per Share Shares Held Ownership Paid
--------- ----------- ------------ -------------
Existing Stockholders $ 0.002 9,500,000 99.0% (min.)
96.0% (max.) $ 15,000
Investors in This
Offering (Minimum) $ 0.50 100,000 1.0% $ 50,000
Investors in This
Offering (Maximum) $ 0.50 400,000 4.0% $200,000
INVESTOR SUITABILITY REQUIREMENTS
Geographical Requirements
This offering is limited to investors resident in Colorado, ___________
and ___________.
Purchasers in any subsequent trading market must comply with the
applicable securities laws of the State in which they purchase our common
stock.
PLAN OF DISTRIBUTION
The officers and directors will not purchase Shares in this offering,
including, but not limited to, purchases of Shares in order to reach the
minimum offering amount.
In offering the securities on our behalf, our officers and directors
will rely on the safe harbor from broker dealer registration set out in Rule
3a4-1 under the Securities Exchange Act of 1934. We believe that Messrs.
Zen Z. Pool, III, Walter Nathan and Susan Pool specifically meet the
provisions of Rule 3a4-1(a)(1)-(3) and (4)(ii) because they are not subject
to a statutory disqualification, as that term is defined under Section 3(a)39
of the Securities Exchange Act of 1934; they will not be compensated,
directly or indirectly for their participation in the offering; they will not
be, at the time of his participation, an associated person of a broker or
dealer; and all three will meet all of the elements of Rule 3a4-1(a)(4)(ii).
15
The Shares will be sold at the fixed price of $0.50 per Share until the
completion of this offering. There is no minimum amount of subscription
required by any particular investor.
This offering will commence on the date of this prospectus and continue
for a period of 120 days, unless we extend the offering period for an
additional 90 days, or unless the offering is completed or otherwise
terminated by us for a potential total of 210 days. (the "Expiration Date").
Pending the receipt and payment of any checks gathered to satisfy the
$50,000 minimum, all proceeds will be held in a non-interest bearing escrow
by the Escrow Agent for this offering. The Escrow Agent is Corporate Stock
Transfer, Inc., who has the sole signature authority over this account and
determines whether the minimum offering requirements are satisfied. Funds
will be deposited in this escrow account no later than noon on the business
day following receipt. In the event the minimum is not sold within the 120-
day offering period or any extension of an additional 90 days at our
discretion, this offering will terminate and all funds will be returned
promptly to subscribers by the Escrow Agent without any deductions or payment
of interest. Subscribers will not be entitled to a return of funds from such
escrow during the 120-day offering period or any extension period, for a
potential total of 210 days. Once the minimum offering requirements are
satisfied, the funds will be released to us for use in the implementation of
our business plans. (See "Use of Proceeds".) The offering will then continue
until the maximum offering is sold and the total of $200,000 is received, or
the offering expires, whichever first occurs. Once the maximum amount has
been raised, all funds collected up to the maximum will be deposited directly
into our operating bank account for use in operations. In the event the
minimum offering amount is not sold prior to the Expiration Date, all monies
will be returned to investors, without interest or deduction.
LEGAL PROCEEDINGS
We are not involved in any pending legal proceeding nor are we aware of
any pending or threatened litigation against us.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Each of our directors is elected by the stockholders to a term of one
year and serves until his successor is elected and qualified. Each of our
officers is elected by the board of directors to a term of one year and
serves until his or her successor is duly elected and qualified, or until he
or she is removed from office. The board of directors has no committees.
16
The name, address, age and position of our officers and directors is set
forth below:
Name and Address Age Position(s)
- ---------------- --- -----------
Zen Z. Pool, III 57 President, Chief Executive Officer and
77 Lipan Street Director
Denver, Colorado 80223
Walter C. Nathan 57 Chief Financial Officer, Treasurer, and
77 Lipan Street Director
Denver, Colorado 80223
Susan Pool 55 Secretary and Director
77 Lipan Street
Denver, Colorado 80223
The persons named above are expected to hold said offices/positions
until the next annual meeting of our stockholders. These officers and
directors are our only officers, directors, promoters and control persons.
Background Information about Our Officers and Directors
Zen Z. Pool has been the President, Chief Executive Officer and a
Director of our company since its inception in May 2004. Our company has
been somewhat of a sideline business for him while he worked full time with
Mile Hi Ceramics, Inc. He has been the owner of Mile Hi Ceramics, Inc. and
served as its President since 1990. Mile Hi Ceramics, Inc. was established
in 1954. Mr. Pool started working for Mile Hi Ceramics, Inc. in 1975
working as a kiln repairman and learned every aspect of the business. He has
also served as a Committee and a Board member of the National Ceramic
Manufacturers Association, the Ceramic Institution of Art, Intermountain
Ceramic Association, and the Colorado Art Education Association. He is a
current member of the National Council on the Education of Ceramic Arts.
During the last 3 years Mr. Pool has devoted approximately 15-20 hours per
month to the business of our company and once this offering is completed he
expects to devote approximately 20 hours per month to our business, depending
on the amount of proceeds raised in the offering.
Walter C. Nathan has served as Chief Financial Officer, Treasurer and
director of our company since January 2005. Since February 2003, he has been
employed by Manor Insurance Agency selling both personal and commercial lines
of insurance. From 1990 to 2003, he was an independent insurance agent with
Gold-Mark Insurance Agency where he specialized in all lines of personal
insurance, including auto, home, life, and health. From 1987 to 1990, he was
President of Mile High Investments, Inc., a private company involved in the
acquisition and development of a real estate property. He received his B.S.
Degree in Business Finance from the University of Northern Colorado in 1974.
He will devote approximately ten hours per month to our affairs.
Susan Pool has served as Secretary and as a director of our company
since February 2005. From 1996 until 2003, she owned and operated a small
embroidery company, Rocky Mountain Embroidery. She will devote a minimum of
five hours per week to carry out her responsibilities with us. She is the
wife of Zen Zachariah Pool III.
17
EXECUTIVE COMPENSATION
None of our officers and directors are compensated for the work they
perform on our behalf. However, our officers and directors are reimbursed
for any out-of-pocket expenses they incur on our behalf. In addition, in the
future, we may approve payment of salaries for our management, but currently,
no such plans have been approved. In addition, none of our officers,
directors or employees is a party to any employment agreements.
During the years ended December 31, 2008 and 2009, and for the period
since January 1, 2010, Mr. Pool was not paid any salary directly by the
Company, but for the years ended December 31, 2008 and 2009, the Company has
accrued a liability of $4,500 per year to Mile Hi for Mr. Pool's services,
and for the nine months ended September 30, 2010, the Company accrued a
similar liability of $3,375.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the date of this prospectus, the
total number of shares owned beneficially by each of our directors, officers
and key employees, individually and as a group, and the present owners of 5%
or more of our total outstanding shares. The table also reflects what such
ownership will be assuming completion of the sale of all shares in this
offering, which we can't guarantee. The stockholders listed below have
direct ownership of their shares and possess sole voting and dispositive
power with respect to the shares. A total of 9,500,000 shares are issued and
outstanding.
Percentage of Ownership
Number of Number of ----------------------------
Shares Shares After Offering
Name and Address Before After Before -----------------
of Beneficial Owner (1) Offering Offering Offering Minimum Maximum
- ----------------------- --------- --------- -------- ------- -------
Zen Z. Pool, III
77 Lipan Street
Denver, CO 80223 8,500,000 8,500,000 89.5% 88.5% 85.9%
Susan Pool 0 0
77 Lipan Street
Denver, CO 80223
Walter C. Nathan 500,000 500,000 5.3% 5.2% 5.1%
77 Lipan Street
Denver, CO 80223
Underwood Family Partners, Ltd. 500,000 500,000 5.3% 5.2% 5.1%
1610 Wynkoop Street, Suite 100
Denver, CO 80202
All Officers and Directors
as a Group (three persons) 9,000,000 9,000,000 94.8% 93.8% 90.9%
__________________
(1) All shares owned beneficially and of record.
18
Future Sales by Existing Stockholders
A total of 9,500,000 shares have been issued to the existing
stockholders, all of which are restricted securities, as that term is defined
in Rule 144 of the Rules and Regulations of the SEC promulgated under the
Act. Under Rule 144, such shares can be publicly sold, subject to volume
restrictions and certain restrictions on the manner of sale. Any sale of
shares held by the existing stockholders (after applicable restrictions
expire) and/or the sale of shares purchased in this offering (which would be
immediately resalable after the offering), may have a depressive effect on
the price of our common stock in any market that may develop, of which there
can be no assurance.
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 50,000,000 shares of common
stock, no par value per share and 1,000,000 shares of Preferred Stock, no par
value per share to have such preferences as our board of directors may
determine from time to time. At September 30, 2010, a total of 9,500,000
common shares and no shares of Preferred Stock were issued and outstanding.
Common Stock
The holders of common stock are entitled to one vote for each share
held. The affirmative vote of a majority of votes cast at a meeting which
commences with a lawful quorum is sufficient for approval of most matters
upon which shareholders may or must vote, including the questions presented
for approval or ratification at the Annual Meeting. However, an amendment of
the articles of incorporation requires the affirmative vote of a majority of
the total voting power for approval. Common shares do not carry cumulative
voting rights, and holders of more than 50% of the common stock have the
power to elect all directors and, as a practical matter, to control the
company. Holders of common stock are not entitled to preemptive rights, and
the common stock may only be redeemed at our election.
Preferred Stock
Our preferred shares are entitled to such rights, preferences and
limitations as determined by our board of directors. At the present time, no
rights, preferences or limitations have been established for our preferred
shares.
Options
We have not issued any options or other derivative securities.
Shares Eligible for Future Sale
When we complete the maximum offering, we will have 9,900,000
outstanding shares of common stock. The 400,000 shares of our common stock
sold in this offering will be freely transferable unless they are purchased
by our affiliates, as that term is defined in Rule 144 under the Securities
Act. The remaining outstanding shares of our common stock will be
restricted, which means they were originally issued in offerings that were
not registered on a registration statement filed with the SEC. These
restricted shares may be resold only through registration under the
Securities Act or under an available exemption from registration, including
the exemption provided by Rule 144.
19
Rule 144
In general, under Rule 144, beginning 90 days after the date of this
prospectus, a person, or persons whose shares are aggregated, including a
person who may be deemed our affiliate, who has beneficially owned restricted
shares of common stock for at least one year would be entitled to sell
publicly within any three-month period a number of shares that does not
exceed the greater of:
1% of the number of shares of our common stock then outstanding,
which will equal approximately 99,000 shares immediately after
the maximum offering; or the average weekly trading volume of
our common stock on OTC Bulletin Board during the four calendar
weeks before the filing of a notice on Form 144 relating to the
sale.
Sales under Rule 144 are governed by manner of sale provisions and
notice requirements and to the availability of current public information
about us. Commencing 90 days after the date of this prospectus, Mr. Pool
will be eligible to begin selling up to 8,000,000 shares of our common stock.
As of ________ __, 2011, all of the 9,500,000 restricted shares of our common
stock will be eligible for sale pursuant to Rule 144, if these volume and
manner of sale limitations are complied with. We are unable to estimate
accurately the number of restricted shares that will actually be sold under
Rule 144 because this will depend in part on the market price of our common
stock, the personal circumstances of the sellers and other factors.
INDEMNIFICATION
Pursuant to the Articles of Incorporation and By-Laws of the
corporation, we may indemnify an officer or director who is made a party to
any proceeding, including a law suit, because of his position, if he acted in
good faith and in a manner he reasonably believed to be in our best interest.
In certain cases, we may advance expenses incurred in defending any such
proceeding. To the extent that the officer or director is successful on the
merits in any such proceeding as to which such person is to be indemnified,
we must indemnify him against all expenses incurred, including attorney's
fees. With respect to a derivative action, indemnity may be made only for
expenses actually and reasonably incurred in defending the proceeding, and if
the officer or director is judged liable, only by a court order. The prior
discussion of indemnification in this paragraph is intended to provide
indemnification to the fullest extent permitted by the laws of the State of
Colorado.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons
pursuant to the provisions above, 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, and is,
therefore, unenforceable.
20
In the event that a claim for indemnification against such liabilities,
other than the payment by us of expenses incurred or paid by one of our
directors, officers, or controlling persons in the successful defense of any
action, suit or proceeding, is asserted by one of our directors, officers, or
controlling persons 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 is against public policy as expressed
in the Securities Act, and we will be governed by the final adjudication of
such issue.
DESCRIPTION OF OUR BUSINESS
General Information
We were incorporated in the State of Colorado on May 28, 2004. Our
business was originally started in 1991 and was operated under the name of
Zen Pottery Equipment, Inc. until it transferred the assets and liabilities
to Zen Raku Enterprises, Inc. in October 2004.
We are in the business of manufacturing and selling a pottery kiln known
as the Zen Raku Kiln. We own the tradename to this product. However, none
of the technology is patented. All of our operations are located in the
State of Colorado. We have generated steady but limited revenues over the
past five years, and we had a net loss for the last two years. We plan to
use our status as a public company to expand our operations. However, there
can be no assurance that this objective will be achieved.
Product Background and Description
The raku firing process was developed primarily to produce ware for the
Zen tea ceremony during the late 16th century in Japan. It was introduced in
the West in the early 1900's and it has only recently become popular with
American potters. The raku process involves a rapid firing of unglazed or
low fire glazed pieces. Pots are removed from the red hot kiln and smoked in
an air-tight container of leaves, grass or other combustible material. The
heavy reduction caused by this leaves the unglazed surfaces gray or black.
Glazed areas often have a luster or crackle effect. Raku firing is fast with
the entire process taking about one hour as compared to 12 to 24 hours for a
stoneware firing. The raku process lets you watch the glazes progress from a
dry powder, to bubbles, to a melted glossy glass finish.
Construction of Kiln
The Zen Raku Kiln is constructed of vacuum formed fiber insulation which
is rigid and durable without any seams. This vacuum formed insulation is
custom built for us by our supplier. This gives the kiln excellent
insulating properties and yet the kiln is very lightweight (27 pounds). The
exterior of the kiln is constructed of steel. The inside dimensions are 16
inches by 24 inches. It has a top exhaust port and a side view port. The
burner is a venturi, accompanied by a brass needle valve, automatic safety
shutoff equipment and a burner stand for stability. The size and weight of
the kiln make it very portable and it can be set up in just a few minutes.
21
Firing of Kiln
Firing times for raku are very fast compared to traditional methods.
The first firing takes 15 to 40 minutes. This is the longest time because it
has to heat up the brick stand, shelf, posts, etc. Consecutive firings take
1 to 20 minutes. In classroom sessions the time factor for traditional kilns
can be a problem, but with our raku kiln many pieces can be fired in a short
period. Our short firing times also save on propane gas. A 100 pound bottle
of propane supplies many hours of firing (approximately 50 loads of pots).
Industry Overview
We manufacture our kiln at a 40,000 square foot facility owned by Mile
Hi Ceramics, Inc. ("Mile Hi") in Denver, Colorado. Mile Hi is 51% owned by
our President. Mile Hi conducts its business of manufacturing and selling
ceramics at this facility, and it has verbally agreed to allow us to use a
small area in the facility to store our parts and inventory and to make the
kilns. Our kiln is manufactured under a verbal agreement with Mile Hi. We
also sell products from time to time to Mile Hi which, in turn, resells the
products to its customers. The terms for our sales to Mile Hi are the same
terms we use with our other dealers.
Our kiln is manufactured through an assembly process in our facility by
employees of Mile Hi. There are three primary components to the kiln: the
insulation; the metal shell; and the burner assembly. We purchase the
insulation, already formed, from a third party, Rex Roto, of Flowerville,
Michigan, under an oral contract. We purchase metal sheets for the metal
shells from various third parties as needed from time to time under oral
contracts. We purchase our burner components from Metro Gas, of Denver,
Colorado under an oral contract. We purchase these components in amounts
which we believe are sufficient to have inventory for our assembly process.
All of the component parts are readily available.
Our kiln is suitable for firing most varieties of pottery which may be
produced individually, as opposed to a mass production basis. Our basic plan
is to increase our operations, increase advertising in industry publications,
complete the development of new models for sale, and increase our dealer
base.
All operational decisions will be made solely by our management. Our
management has had extensive experience in this business.
We have no full-time employees. We may hire full-time or part-time
employees in the future, if our business expands to justify such an expense.
We do not believe that the skill level required to manufacture our product
would necessitate extensive experience or training. Therefore, we believe
that potential employees would be readily available. Our President,
Secretary, and Treasurer have agreed to allocate a portion of their time to
our activities, without compensation, as part-time employees. These officers
anticipate that they can implement our business plan by their collectively
devoting approximately 30 hours per month to our business affairs. Their
time will be spent purchasing materials, preparing and collecting invoices,
supervising construction, exhibiting products at trade shows and final
inspections of products.
22
Customers
Our customers are persons and schools who make individual pieces of
pottery as contrasted to those who mass produce pottery. Individual persons
may make pottery as a hobby or they may make it to resell. Sales to schools
have increased to approximately 80% of our total sales and our kiln is now
cataloged by a major school supply chain.
Markets and Marketing
We target the customer who makes pottery on an individual basis and not
using mass production techniques. We emphasize the quality of the product we
have designed and attempt to appeal to a niche market. In this respect, we
believe that we fill markets not generally targeted by most other
manufacturers. We market our products by direct mail and through
manufacturer's representatives. Our kiln is also on several pottery and
ceramic supply companies' websites in addition to the website of Mile Hi
Ceramics. One of our principal representatives is National Art Supply
Company, which advertises our product in their catalogue. In addition, we
place advertisements in national publications, such as Ceramics Monthly and
Clay Times. We sell all of our product through our manufacturer's
representatives, including Mile Hi Ceramics. Our officers and directors are
also available to act as sales representatives for our product.
Raw Materials
The use of raw materials is a material factor in our operations.
However, the raw materials we use are readily available. We do not see any
potential problem in acquiring enough raw materials for our operations. As
of September 30, 2010, we had $1,463 in materials inventory.
Competition
We are in the business of manufacturing and selling our Zen Raku Kiln.
In the past, manufacturers of such a product have had difficulty in competing
with large foreign manufacturers based in various locations but principally
in China, Brazil, Taiwan, and Korea. As a result of this competition, U.S.
manufacturers have generally not been profitable. Because we manufacture for
a targeted, niche market, which is based upon the size of the kiln, we
believe that we can continue to compete. We have successfully competed in
the past because we captured a steady, recurring segment of the market and
have outlasted several of our competitors. However, we have a number of
established competitors, which sell brick kilns, virtually all of which are
larger and better capitalized than we are and/or have greater personnel
resources and technical expertise. These large competitors include Olympic
Kilns, Inc. and Paragon Industries, L.P. In view of our combined limited
financial resources and limited management availability, we believe that we
will continue to be at a significant competitive disadvantage compared to our
competitors. There can be no guarantee that we will be able to compete
successfully in the future.
Employees
At as of the date hereof, our only employees are our three officers and
directors who do not receive a salary. Mile Hi Ceramics, Inc. has charged
the Company $4,500 per year for 2008 and 2009 for the services Mr. Pool
provided to the Company and it is expected that a similar charge will be made
for 2010. We also use employees of Mile Hi to assemble our kilns and we
reimburse Mile Hi based on rates for similar services in the Denver area. We
reimbursed Mile Hi $1,350 during each of the years ended December 31, 2008
and December 31, 2009. We do not plan to hire additional employees in the
future.
23
We will continue to use the services of Mile Hi employees as needed from
time-to-time for specific projects. We reimburse our officers for any out-
of-pocket expenses they incur on our behalf. In addition, in the future, we
may approve the payment of salaries for our management, but currently, no
such plans have been approved. We do not currently pay for vacation,
holidays or provide major medical coverage. None of our officers or
directors is a party to any employment agreement. However, we may adopt such
plans in the future.
Government and Industry Regulation
We are not subject to any material government or industry regulation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This section of the prospectus includes a number of forward-looking
statements that reflect our current views with respect to future events and
financial performance. Forward-looking statements are often identified by
words like: believe, expect, estimate, anticipate, intend, project and
similar expressions, or words which, by their nature, refer to future events.
You should not place undue certainty on these forward-looking statements,
which apply only as of the date of this prospectus. These forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical results or our
predictions.
Results of Operations for the year ended December 31, 2009 compared to the
year ended December 31, 2008
Revenues of $10,012 for the year ended December 31, 2009 were lower than
the revenues of $14,697 for the year ended December 31, 2008. The primary
reason for the decline was the reduced amount available for capital
expenditures in school budgets.
The cost of goods sold for the year ended December 31, 2009 was $7,801
as compared to $12,625 for the year ended December 31, 2008. The decrease in
cost of goods sold was primarily due to the lower level of sales in 2009.
The operating expenses were $9,730 for the year ended December 31, 2009
as compared to $10,002 for the year ended December 31, 2008.
The net loss for the year ended December 31, 2009 was $(7,500) as
compared to the net loss of $(7,963) for the year ended December 31, 2008.
Results of Operation for the nine months ended September 30, 2010 as compared
to the nine months ended September 30, 2009
Revenues of $6,236 for the nine months ended September 30, 2010 were
lower than the revenues of $7,836 for the nine months ended September 30,
2009, primarily due to the fact that schools had a reduced amount available
in their budgets for capital expenditures in the most recent nine month
period.
24
The cost of goods sold for the nine months ended September 30, 2010 was
$4,516 as compared to $$6,685 for the nine months ended September 30, 2009.
The decrease in cost of goods sold was primarily due to the lower level of
sales in the most recent nine months.
The operating expenses were $16,749 for the nine months ended September
30, 2010 as compared to $6,635 for the nine months ended September 30, 2009.
The primary reason for the increase was the $9,150 paid for professional fees
in the most recent nine months for legal and accounting fees related to our
public offering.
The net loss for the nine months ended September 30, 2010 was ($15,553)
as compared to the net loss of ($5,523) for the nine months ended September
30, 2009. The primary reason for the increase was due to the increased legal
and accounting fees in the most recent nine months.
We plan to make every effort to keep operating expenses relatively
constant except for the increase in sales and marketing. If our sales
efforts are unsuccessful, we will reduce or eliminate them. If we are able
to increase sales significantly we may decide to raise additional financing
to help finance the growth. We cannot assure that additional financing will
be available when needed on favorable terms, or at all.
We cannot guarantee that we will be successful in generating sufficient
revenues or other funds in the future to cover our operating costs. Failure
to generate sufficient revenues or additional financing when needed could
cause us to go out of business.
Liquidity and Capital Resources
As of September 30, 2010, we had a negative $14,118 of working capital
compared to a negative $2,578 of working capital as of December 31, 2009.
Net cash used for operating activities was $13,179 during the nine
months ended September 30, 2010 as compared to net cash used for operating
activities of $1,122 during the nine months ended September 30, 2010.
There was $12,446 of cash flows provided by financing activities during
the nine months ended September 30, 2010 as compared to no cash flows
provided or used for financing activities during the nine months ended
September 30, 2009.
We believe that the offering will provide sufficient capital in the
short term for our current level of operations. This is because we believe
that we can generate sufficient sales and services within our present
organizational structure and resources to become profitable in our
operations. Additional resources will be needed to increase our advertising
and marketing, and to develop new models of our kiln.
Otherwise, we do not anticipate needing to raise additional capital
resources in the next twelve months.
25
Until the offering is complete and the operations return to cash flow
positive, our President may be willing to fund the operations on a limited
basis in order to continue the business. Our principle source of liquidity
will be our operations. We expect variation in revenues to account for the
difference between a profit and a loss. Our primary activity will be to seek
to find new customers. If we succeed in expanding our client base and
generating sufficient sales, we will become profitable. We cannot guarantee
that this will ever occur. Our plan is to build our company in any manner
which will be successful.
Plan of Operation
Our plan for the twelve months immediately after the closing of this
offering is to operate at a profit or at break even. Our plan is to generate
sufficient additional sales within our present organizational structure and
resources with the possible development of a new model of our kiln to return
to profitability in our operations.
Currently, we are conducting business in only one location in the Denver
Metropolitan area. We have no plans to expand into other locations or areas.
The timing of the completion of the milestones needed to become profitable
are not directly dependent on the success of this Offering. We believe that
we can return to profitability as we are presently organized with sufficient
business.
Other than the shares offered by this prospectus no other source of
capital has been identified or sought.
If we are not successful in our operations we will be faced with several
options:
1. Cut back operations as much as possible and attempt to wait out the
downturn in the business;
2. Cease operations and go out of business;
3. Continue to seek alternative and acceptable sources of capital;
4. Bring in additional capital that may result in a change of control;
or
5. Identify a candidate for acquisition that seeks access to the
public marketplace and its financing sources
Currently, we have sufficient capital to implement our business
operations or to sustain them for the next twelve months. If we can become
profitable, we could operate at our present level indefinitely.
If we raise less than the maximum in this offering, we will use the
funds raised as disclosed in "Use of Proceeds" as discussed in this
registration statement. If we only raise the minimum offering, we will use
the funds raised as disclosed in "Use of Proceeds" as discussed in this
registration statement. With the proceeds of only the minimum offering, we
believe that we can adjust our sales and expenses to operate for at least one
year before we become profitable or go out of business.
Proposed Milestones to Implement Business Operations
At the present time, we are operating from one location in the Denver
Metropolitan area. Our plan is to return our operation to profitability by
the end of our next fiscal year. We estimate that we must generate
approximately $1,200 - $1,500 in sales per month to return to the level of
profitability.
26
We believe that we can be profitable or at break even by the end of the
fiscal year ending December 31, 2011, because with a renewed effort to market
our business, we believe that we can increase sales back to the target
levels. Based upon our current plans, we believe that we can control our
expenses which are closely tied to our level of business activity so that
cash generated from operations is expected to be sufficient for the
foreseeable future to fund our operations at our currently forecasted levels.
To try to operate at a break-even level based upon our current level of
anticipated business activity, we believe that we must generate approximately
$18,000 in revenue per year. However, if our forecasts are inaccurate, we
will need to raise additional funds. On the other hand, we may choose to
scale back our operations to operate at break-even with a smaller level of
business activity, while adjusting our overhead to meet the revenue from
current operations. In addition, we expect that we will need to raise
additional funds if we decide to pursue more rapid expansion, the development
of new or enhanced services and products, appropriate responses to
competitive pressures, or if we must respond to unanticipated events that
require us to make additional investments. We cannot assure that additional
financing will be available when needed on favorable terms, or at all.
We expect to incur minimal operating losses for one or two more quarters
until we complete this offering. We expect approximately $1,200 to $1,500
per month in operating costs over the next twelve months. We cannot
guarantee that we will be successful in generating sufficient revenues or
other funds in the future to cover these operating costs. Failure to
generate sufficient revenues or additional financing when needed could cause
us to go out of business.
No commitments to provide additional funds have been made by management
or current shareholders. There is no assurance that additional funds will be
made available to us on terms that will be acceptable, or at all, if and when
needed. We expect to continue to generate and increase sales, but there can
be no assurance we will generate sales sufficient to continue operations or
to expand.
We also are planning to rely on the possibility of referrals from
clients and will strive to satisfy our clients. We believe that referrals
will be an effective form of advertising because of the quality of service
that we bring to clients. We believe that satisfied clients will bring more
and repeat clients.
In the next 12 months, we intend to spend a small amount of funds
(depending on amount of offering proceeds) on research and development of new
models of our kiln. We do not intend to purchase any large equipment.
Recently Issued Accounting Pronouncements
We do not expect the adoption of any recently issued accounting
pronouncements to have a significant impact on our net results of operations,
financial position, or cash flows.
27
Seasonality
We do not expect our sales to be impacted by seasonal demands for our
products and services.
DESCRIPTION OF PROPERTY
The Company conducts its business within the facilities of Mile Hi
Ceramics, Inc. ("Mile Hi") and uses their office space and manufacturing
facilities pursuant to an oral arrangement with Mr. Pool, the President of
both entities. The Company incurred annual rent expense of $4,050 during
2008 and 2009. The offices are located at 77 Lipan Street, Denver, Colorado
80223.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In addition to the use of the facilities of Mile Hi Ceramics, Inc.
discussed in the paragraph above, the Company also uses the labor of several
employees of Mile Hi and reimburses Mile Hi at a rate determined by Mr. Pool,
who is President of both entities. The Company paid Mile Hi $1,350 in 2008
and $1,350 in 2009 for labor/assembly work performed by Mile Hi employees.
The Company's Board of Directors has determined that the value of the office
and manufacturing space and the value of the labor are equivalent to rates
for similar rates and services in the Denver area.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
No public market currently exists for shares of our common stock.
Following completion of this offering, we intend to apply to have our common
stock listed for quotation on the Over-the-Counter Bulletin Board. As of
September 30, 2010, we had four holders of our common stock.
The Securities and Exchange Commission has also adopted rules 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 such securities is
provided by the exchange or system).
A purchaser is purchasing penny stock which limits the ability to sell
the stock. The shares offered by this prospectus constitute penny stock
under the Securities and Exchange Act. The shares will remain penny stocks
for the foreseeable future. The classification of penny stock makes it more
difficult for a broker-dealer to sell the stock into a secondary market,
which makes it more difficult for a purchaser to liquidate his/her
investment. Any broker-dealer engaged by the purchaser for the purpose of
selling his or her shares in us will be subject to Rules 15g-1 through 15g-10
of the Securities and Exchange Act. Rather than creating a need to comply
with those rules, some broker-dealers will refuse to attempt to sell penny
stock.
28
The penny stock rules require a broker-dealer, prior to a transaction in
a penny stock not otherwise exempt from those rules, to deliver a
standardized risk disclosure document prepared by the Commission, which:
contains a description of the nature and level of risk in the market
for penny stocks in both public offerings and secondary trading;
contains a description of the broker's or dealer's duties to the
client and of the rights and remedies available to the client with
respect to a violation to such duties or other requirements of the
Securities Act of 1934, as amended;
contains a brief, clear, narrative description of a dealer market,
including "bid" and "ask" prices for penny stocks and the significance
of the spread between the bid and ask price;
contains a toll-free telephone number for inquiries on disciplinary
actions;
defines significant terms in the disclosure document or in the conduct
of trading penny stocks; and
contains 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;
The broker-dealer also must provide, prior to effecting any transaction
in a penny stock, to the client:
the bid and offer quotations for the penny stock;
the compensation of the broker-dealer and its salesperson in the
transaction;
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
monthly account statements showing the market value of each penny stock
held in the client's account.
In addition, the penny stock rules require that prior to a transaction
in a penny stock not otherwise exempt from those rules; the broker-dealer
must make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written
acknowledgment of the receipt of a risk disclosure statement, a written
agreement to transactions involving penny stocks, and a signed and dated copy
of a written suitability statement. These disclosure requirements will have
the effect of reducing the trading activity in the secondary market for our
stock because it will be subject to these penny stock rules. Therefore,
stockholders may have difficulty selling their securities.
Reports
Once our registration statement under Form S-1 has been declared
effective, we will be subject to certain reporting requirements and will
furnish annual financial reports to our stockholders, certified by our
29
independent accountants, and will furnish unaudited quarterly financial
reports in our quarterly reports filed electronically with the SEC. All
reports and information filed by us can be found at the SEC website,
www.sec.gov.
Stock Transfer Agent
The stock transfer agent for our securities is Corporate Stock Transfer,
Inc., of Denver, Colorado. Their address is 3200 Cherry Creek Drive South,
Suite 430, Denver, Colorado 80209. Their phone number is (303) 282-4800.
SUBSCRIPTION AGREEMENT AND PROCEDURES
We will accept no subscriptions or indications of interest until our
registration statement is effective. At that point, all subscriptions must
be made by the execution and delivery of a subscription agreement, a form of
which is attached to this prospectus as Annex A. By executing the
subscription agreement, each purchaser will agree to pay the purchase price
of the shares subscribed for at the closing at which such subscription is
accepted. We have the right to revoke any offers made under this prospectus
and to refuse to sell shares to a particular subscriber if the subscriber
does not promptly supply all information we request or if we disapprove the
sale. Subscriptions are not binding until accepted. We will refuse any
subscription by giving written notice to the subscriber by personal delivery
or first-class mail. We may reject any subscription at any time prior to
acceptance, in whole or in part, in our sole discretion.
In order to subscribe for shares, a prospective investor must deliver
the following documents to us:
1. a complete and executed subscription agreement, in the form
attached to this prospectus as Annex A;
2. a complete and executed investor suitability questionnaire, in the
form provided by us, if we find it necessary; and
3. the full amount of the subscription price paid in United States
dollars in cash or by check, bank draft or money order made payable to Zen
Raku Enterprises, Inc. - Corporate Stock Transfer, Inc. Escrow Account.
EXPERTS AND LEGAL COUNSEL
Our financial statements included in this prospectus have been audited
by independent certified public accountants. We include those financial
statements in reliance on the report of the firm of Cordovano and Honeck LLP,
of Englewood, Colorado, given upon their authority as experts in accounting
and auditing.
The law firm of Jin, Schauer & Saad LLC of Denver, Colorado has passed
upon the validity of the shares being offered and certain other legal matters
and is representing us in connection with this offering.
30
AVAILABLE INFORMATION
We have filed this registration statement on Form S-1, of which this
prospectus is a part, with the U.S. Securities and Exchange Commission.
Upon completion of this registration, we will be subject to the informational
requirements of the Exchange Act and, in accordance therewith, will file all
requisite reports, such as Forms 10-K, 10-Q and 8-K, proxy statements, under
Sec. 15(d) of the Exchange Act, and other information with the Commission.
Such reports, proxy statements, this registration statement and other
information, may be inspected and copied at the public reference facilities
maintained by the Commission at 100 F. Street N.E., Washington, D.C. 20549.
Copies of all materials may be obtained from the Public Reference Section of
the Commission's Washington, D.C. office at prescribed rates. The
Commission also maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission at http://www.sec.gov.
31
ZEN RAKU ENTERPRISES, INC.
Index to Financial Statements
Page
Report of Independent Registered Public Accounting Firm ............... F-2
Balance Sheets at September 30, 2010 (unaudited) and 2009
(unaudited), and at December 31, 2009 and 2008 ...................... F-3
Statements of Operations for the nine months ended September 30,
2010 (unaudited) and 2009 (unaudited), and for the years ended
December 31, 2009 and 2008 .......................................... F-4
Statement of Changes in Shareholders' Equity (Deficit) for the
period from January 1, 2008 through December 31, 2009, and for
the nine months ended September 30, 2010 (unaudited)................. F-5
Statements of Cash Flows for the nine months ended September 30,
2010 (unaudited) and 2009 (unaudited), and for the years ended
December 31, 2009 and 2008 .......................................... F-6
Notes to Financial Statements ......................................... F-7
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Zen Raku Enterprises, Inc.:
We have audited the accompanying balance sheets of Zen Raku Enterprises, Inc.
as of December 31, 2009 and 2008, and the related statements of operations,
changes in shareholders' equity, and cash flows for the years ended December
31, 2009 and 2008. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express
no such opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Zen Raku Enterprises, Inc.
as of December 31, 2009 and 2008, and the results of its operations and its
cash flows for the years ended December 31, 2009 and 2008 in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 2 to the financial statements, a significant portion of
the Company's sales are conducted with a related party. In addition, the
Company incurs rent, labor, and management services to this same related
party. Related party transactions are not considered to be arm's length
transactions under generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has a limited operating history and has
suffered operating losses since inception, which raises substantial doubt
about its ability to continue as a going concern. Management's plan in
regard to these matters is also discussed in Note 1. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ Cordovano and Honeck LLP
Cordovano and Honeck LLP
Englewood, Colorado
July 2, 2010
F-2
ZEN RAKU ENTERPRISES, INC.
Balance Sheets
September 30, December 31,
2010 2009 2009 2008
-------- -------- -------- --------
(Unaudited) (Unaudited)
Assets
Current assets:
Cash $ 139 $ 3,067 $ 1,939 $ 2,010
Account receivable:
Trade 1,691 - - 609
Related party (Note 2) 4,085 1,409 2,659 10,983
Due to related party (Note 2
and Note 3) - - - 4,971
Inventory 1,463 5,102 3,926 2,023
Prepaid expenses 5,677 646 8,958 -
-------- -------- -------- --------
Total current assets 13,055 10,224 17,482 20,596
Equipment, net of accumulated
depreciation of $80 (unaudited),
$-0- (unaudited), $-0-, and $-0-,
Respectively 987 - - -
-------- -------- -------- --------
Total assets $ 14,042 $ 10,224 $ 17,482 $ 20,596
======== ======== ======== ========
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable $ 571 $ 809 $ 904 $ 3,337
Indebtedness to related parties
(Note 2) 26,602 20,016 19,156 22,337
-------- -------- -------- --------
Total current liabilities 27,173 20,825 20,060 25,674
-------- -------- -------- --------
Shareholders' deficit (Note 3):
Preferred stock, no par value;
1,000,000 shares authorized,
-0- (unaudited), -0- (unaudited),
-0-, and -0- shares issued
and outstanding - - - -
Common stock, no par value;
50,000,000 shares authorized,
9,500,000 (unaudited), 8,000,000
(unaudited), 9,500,000 and
8,000,000 shares issued and
outstanding, respectively 29,155 14,155 29,155 14,155
Common stock subscription
Receivable - - (5,000) -
Retained deficit (42,286) (24,756) (26,733) (19,233)
-------- -------- -------- --------
Total shareholders'
Deficit (13,131) (10,601) (2,578) (5,078)
-------- -------- -------- --------
Total liabilities and
shareholders' deficit $ 14,042 $ 10,224 $ 17,482 $ 20,596
======== ======== ======== ========
See accompanying notes to financial statements.
F-3
ZEN RAKU ENTERPRISES, INC.
Statements of Operations
For the
Nine Months Ended For the Year Ended
September 30, December 31,
-------------------- --------------------
2010 2009 2009 2008
-------- -------- -------- --------
(Unaudited) (Unaudited)
Product sales:
Related party (Note 2) $ 1,704 $ 2,629 $ 3,879 $ 5,809
Other 4,532 5,207 6,133 8,888
Cost of sales:
Related party (Note 2) 1,013 1,013 1,350 1,350
Other 3,503 5,672 6,451 11,275
-------- -------- -------- --------
Gross profit 1,720 1,151 2,211 2,072
-------- -------- -------- --------
Operating expenses:
Professional fees 9,150 - 750 1,050
Rent, related party (Note 2) 3,038 3,038 4,050 4,050
Management, related party
(Note 2) 3,375 3,375 4,500 4,500
Other 1,186 222 430 402
-------- -------- -------- --------
Total operating expenses 16,749 6,635 9,730 10,002
Loss from operations (15,029) (5,484) (7,519) (7,930)
Other income and (expense):
Interest income - 101 101 273
Interest expense (524) (140) (82) (306)
-------- -------- -------- --------
(15,553) (5,523) (7,500) (7,963)
Income tax provision (Note 4) - - - -
-------- -------- -------- --------
Net loss $(15,553) $ (5,523) $ (7,500) $ (7,963)
======== ======== ======== ========
Basic and diluted loss per share $ (0.00) $ (0.00) $ (0.00) $ (0.00)
======== ======== ======== ========
Basic and diluted weighted
average common shares
outstanding 9,500,000* 8,000,000 8,125,000* 8,000,000
========= ========= ========= =========
* Restated for common stock split (see Note 3)
See accompanying notes to financial statements.
F-4
ZEN RAKU ENTERPRISES, INC.
Statement of Changes in Stockholders' Deficit
Preferred Stock Common Stock
--------------- ----------------- Common Stock Retained
Shares Amount Shares Amount Subscription Deficit Total
------ ------ --------- ------- ------------ -------- --------
Balance at
January 1, 2008 - $ -* 8,000,000 $14,155 $ - $(11,270) $ 2,885
Net loss for the year
ended December 31,
2008 - - - - - (7,963) (7,963)
------ ------ --------- ------- -------- -------- --------
Balance at December 31,
2008 - -* 8,000,000 14,155 - (19,233) (5,078)
November 2009, common
shares sold in private
placement offering
($.01 per share)
(Note 3) - - 1,500,000 15,000 (5,000) - 10,000
Net loss for the year
ended December 31, 2009 - - - - (7,500) (7,500)
------ ------ --------- ------- -------- -------- --------
Balance at December 31,
2009 - - 9,500,000 29,155 (5,000) (26,733) (2,578)
January 2010, collection
of 2009 common stock
subscription (Note 3) - - - - 5,000 - 5,000
Net loss for the nine
months ended September
30, 2010 (unaudited) - - - - - (15,553) (15,553)
------ ------ --------- ------- -------- -------- --------
Balance at September 30,
2010 (unaudited) - $ - 9,500,000 $29,155 $ - $(42,286) $(13,131)
====== ====== ========= ======= ======== ======== ========
* Restated for common stock split (see Note 3)
See accompanying notes to financial statements.
F-5
ZEN RAKU ENTERPRISES, INC.
Statements of Cash Flows
For the
Nine Months Ended For the Year Ended
September 30, December 31,
-------------------- --------------------
2010 2009 2009 2008
-------- -------- -------- --------
(Unaudited) (Unaudited)
Cash flows from operating
activities:
Net loss $(15,553) $ (5,523) $ (7,500) $ (7,963)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation 80 - - -
Changes in operating assets
and liabilities:
Accounts and other
receivables (3,117) 10,654 8,434 (1,181)
Inventory 2,463 (3,079) (1,903) 1,069
Prepaid expenses 3,281 (646) (8,957) 167
Accounts payable (333) (2,528) (2,427) 3,253
-------- -------- -------- --------
Net cash used in operating
activities (13,179) (1,122) (12,353) (4,655)
-------- -------- -------- --------
Cash flows from Investing
activities:
Purchases of equipment (1,067) - - -
Proceeds from collection of
related party loan - 2,179 4,500 -
-------- -------- -------- --------
Net cash provided by (used
in) investing activities (1,067) 2,179 4,500 -
-------- -------- -------- --------
Cash flows from financing
activities:
Proceeds from sale of common
stock (Note 3) 5,000 - 10,000 -
Proceeds from shareholder loan 7,446 - - 9,900
Payments on shareholder loan - - (2,218) (3,395)
-------- -------- -------- --------
Net cash provided by
financing activities 12,446 - 7,782 6,505
-------- -------- -------- --------
Net change in cash (1,800) 1,057 (71) 1,850
Cash, beginning of period 1,939 2,010 2,010 160
-------- -------- -------- --------
Cash, end of period $ 139 $ 3,067 $ 1,939 $ 2,010
======== ======== ======== ========
Supplemental disclosure of cash
flow information:
Cash paid during the period for:
Income taxes $ - $ - $ - $ -
======== ======== ======== ========
Interest $ 524 $ 76 $ 76 $ 305
======== ======== ======== ========
See accompanying notes to financial statements.
F-6
ZEN RAKU ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Summary of Significant Accounting Policies
Organization and Basis of Presentation
Zen Raku Enterprises, Inc. (the "Company") was incorporated in the state of
Colorado on May 28, 2004. The Company manufactures a pottery kiln for sale to
the public under the name "Zen Raku Kiln." The Company maintains an inventory
of materials to produce the kilns. The Company's pottery kilns are
manufactured as orders are received.
The Company's office space and its manufacturing facilities are provided by
an affiliate, Mile Hi Ceramics, Inc. ("Mile Hi"), under an arrangement with
their common shareholder. In addition, the Company's principle shareholder
provides management services to the Company (See Note 2).
Unaudited Financial Statements
The financial data presented as of and for the nine months ended September
30, 2010 and 2009 are unaudited. In the opinion of management, the unaudited
financial statements include all adjustments which are necessary in order to
make the unaudited interim financial statements not misleading.
Going Concern
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. As shown in the accompanying
financial statements, the Company has incurred recurring losses and has
negative working capital and a net capital deficiency at September 30, 2010
(unaudited), and December 31, 2009 and 2008. These factors, among others, may
indicate that the Company will be unable to continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability of assets and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis and
ultimately to attain profitability. The Company plans to generate the
necessary cash flows with increased sales revenue and a reduction of general
and administrative expenses over the next 12 months. However, should the
Company's operations not provide sufficient cash flow; the Company has plans
to raise additional working capital through equity financings. There is no
assurance the Company will be successful in producing increased sales
revenues, attaining profitability, or obtaining additional funding through
equity financings.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of financial statements and
F-7
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid securities with original maturities
of three months or less when acquired to be cash equivalents. There were no
cash equivalents at September 30, 2010 (unaudited) and 2009 (unaudited), and
December 31, 2009 and 2008.
Accounts Receivable
Accounts receivable consists of amounts due from customers related to the
Company's sale of its Zen Raku Kiln. The Company considers accounts more than
30 days old to be past due. The Company maintains no allowances for potential
losses on uncollectible accounts receivable as it considers all accounts
receivable to be fully collectible. For the nine months ended September 30,
2010 (unaudited) and 2009 (unaudited), and the years ended December 31, 2009
and 2008, the Company experienced no losses on uncollectible trade accounts
receivable. The Company generally does not require collateral for its
accounts receivable.
Inventory
Inventory, consisting of materials used to manufacture the Zen Raku Kiln, is
stated at the lower of cost (first-in, first out method) or market.
Equipment and Depreciation
Equipment is stated at cost. Depreciation is calculated using the straight-
line method over the estimated useful lives of the related assets, currently
set at five years. Expenditures for additions and improvements are
capitalized, while repairs and maintenance costs are expensed as incurred.
The cost and related accumulated depreciation of property and equipment sold
or otherwise disposed of are removed from the accounts and any gain or loss
is recorded in the year of disposal.
Earnings (Loss) per Common Share
Basic net income per share is computed by dividing the net income available
to common shareholders (the numerator) for the period by the weighted average
number of common shares outstanding (the denominator) during the period. The
computation of diluted earnings is similar to basic earnings per share,
except that the denominator is increased to include the number of additional
common shares that would have been outstanding if potentially dilutive common
shares had been issued.
At September 30, 2010 (unaudited) and 2009 (unaudited), and December 31, 2009
and 2008, there was no variance between basic and diluted loss per share as
there were no potentially dilutive common shares outstanding.
Income Taxes
The Company accounts for income taxes under the provisions of ASC 740 -
"Accounting for Income Taxes", formerly SFAS 109 and FIN 48. ASC 740
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
F-8
The Company has analyzed filing positions in all of the federal and state
jurisdictions where it is required to file income tax returns, as well as all
open tax years in these jurisdictions. The Company has identified its
federal tax return and its state tax return in Colorado as "major" tax
jurisdictions, as defined. We are not currently under examination by the
Internal Revenue Service or any other jurisdiction. The Company believes
that its income tax filing positions and deductions will be sustained on
audit and does not anticipate any adjustments that will result in a material
adverse effect on the Company's financial condition, results of operations,
or cash flow. Therefore, no reserves for uncertain income tax positions have
been recorded.
Fair Value of Financial Instruments
ASC subtopic 825-10 requires disclosure of the fair value of certain
financial instruments. The carrying value of cash and cash equivalents,
accounts payable and short-term obligations, as reflected in the balance
sheets, approximate fair value because of the short-term maturity of these
instruments.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. The fair value should be based on assumptions that
market participants would use, including a consideration of non-performance
risk.
In determining fair value, the Company uses various valuation methodologies
and prioritizes the use of observable inputs. The availability of observable
inputs varies by instrument and depends on a variety of factors including the
type of instrument, whether the instrument is actively traded, and other
characteristics particular to the transaction. For many financial
instruments, pricing inputs are readily observable in the market, the
valuation methodology used is widely accepted by market participants, and the
valuation does not require significant management discretion. For other
financial instruments, pricing inputs are less observable in the marketplace
and may require management judgment.
The Company assesses the inputs used to measure fair value using a three-tier
hierarchy based on the extent to which inputs used in measuring fair value
are observable in the market:
* Level 1 - inputs include quoted prices for identical instruments and
are the most observable.
* Level 2 - inputs include quoted prices for similar assets and
observable inputs such as interest rates, currency exchange rates and
yield curves.
* Level 3 - inputs are not observable in the market and include
management's judgments about the assumptions market participants
would use in pricing the asset or liability.
F-9
Revenue Recognition Policy
Sales revenue is recognized when the shipment of product is made to the
customer and collection is probable.
Concentration of Credit Risk
The Company operates in one industry segment and sells one product with
customers located in the continental United States. Financial instruments
that subject the Company to credit risk consist principally of trade accounts
receivable. As of September 30, 2010 and 2009, and December 31, 2009 and
2008; 71% (unaudited), 100% (unaudited), 100% and 95%, respectively, of the
Company's accounts receivables were owed from one related party (see Note 2).
Recent Accounting Standards
In August 2010, the FASB (Financial Accounting Standards Board) issued
Accounting Standards Update 2010-22 (ASU 2010-22), Accounting for Various
Topics -- Technical Corrections to SEC Paragraphs - An announcement made by
the staff of the U.S. Securities and Exchange Commission. This Accounting
Standards Update amends various SEC paragraphs based on external comments
received and the issuance of SAB 112, which amends or rescinds portions of
certain SAB topics. The Company does not expect the provisions of ASU 2010-
22 to have a material effect on the financial position, results of operations
or cash flows of the Company.
In August 2010, the FASB (Financial Accounting Standards Board) issued
Accounting Standards Update 2010-21 (ASU 2010-21), Accounting for Technical
Amendments to Various SEC Rules and Schedules: Amendments to SEC Paragraphs
Pursuant to Release No. 33-9026: Technical Amendments to Rules, Forms,
Schedules and Codification of Financial Reporting Policies. The Company does
not expect the provisions of ASU 2010-21 to have a material effect on the
financial position, results of operations or cash flows of the Company.
In July 2010, the FASB (Financial Accounting Standards Board) issued
Accounting Standards Update 2010-20 (ASU 2010-20), Receivables (Topic 310):
Disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses. The amendments in this Update are to provide
financial statement users with greater transparency about an entity's
allowance for credit losses and the credit quality of its financing
receivables. The disclosures about activity that occurs during the reporting
period are effective for interim and annual reporting periods beginning on or
after December 15, 2010. The Company does not expect the provisions of ASU
2010-20 to have a material effect on the financial position, results of
operations or cash flows of the Company.
In April 2010, the FASB (Financial Accounting Standards Board) issued
Accounting Standards Update 2010-17 (ASU 2010-17), Revenue Recognition-
Milestone Method (Topic 605): Milestone Method of Revenue Recognition. The
amendments in this Update are effective on a prospective basis for milestones
achieved in fiscal years, and interim periods within those years, beginning
on or after June 15, 2010. Early adoption is permitted. If a vendor elects
early adoption and the period of adoption is not the beginning of the
entity's fiscal year, the entity should apply the amendments retrospectively
from the beginning of the year of adoption. The Company does not expect the
provisions of ASU 2010-17 to have a material effect on the financial
position, results of operations or cash flows of the Company.
F-10
In April 2010, the FASB (Financial Accounting Standards Board) issued
Accounting Standards Update 2010-13 (ASU 2010-13), Compensation-Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the
Underlying Equity Security Trades - a consensus of the FASB Emerging Issues
Task Force. The amendments in this Update are effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2010. Earlier application is permitted. The Company does not expect the
provisions of ASU 2010-13 to have a material effect on the financial
position, results of operations or cash flows of the Company.
In February 2010, the FASB issued ASU No. 2010-09 "Subsequent Events (ASC
Topic 855) Amendments to Certain Recognition and Disclosure Requirements"
("ASU No. 2010-09"). ASU No. 2010-09 requires an entity that is an SEC filer
to evaluate subsequent events through the date that the financial statements
are issued and removes the requirement for an SEC filer to disclose a date,
in both issued and revised financial statements, through which the filer had
evaluated subsequent events. The adoption did not have an impact on the
Company's financial position and results of operations.
In January 2010, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 2010-06, Improving Disclosures about
Fair Value Measurements. ASU No. 2010-06 amends FASB Accounting Standards
Codification ("ASC") 820 and clarifies and provides additional disclosure
requirements related to recurring and non-recurring fair value measurements
and employers' disclosures about postretirement benefit plan assets. This ASU
is effective for interim and annual reporting periods beginning after
December 15, 2009. The adoption of ASU 2010-06 did not have a material impact
on the Company's condensed consolidated financial statements.
(2) Related Party Transactions
Rent and Services
The Company conducts its operations within the headquarters of Mile Hi and
uses Mile Hi's office space, manufacturing facilities and labor. The Board
of Directors of the Company has estimated the value of such an arrangement to
be $9,900 per year, based on rates for similar space and services in the
local area. Such estimates were approved by the board of directors. The
Company reimburses Mile Hi through an arrangement with its common
shareholder.
During the nine months ended September 30, 2010 and 2009, the Company
recorded $3,038 (unaudited)and $3,038 (unaudited), respectively as rent
expense, related party in the accompanying financial statements.
During the year ended December 31, 2009 and 2008, the Company recorded $4,050
and $4,050, respectively as rent expense, related party in the accompanying
financial statements.
During the years ended December 31, 2009 and 2008 and the nine months ended
September 30, 2010, the Company's principle shareholder charged his time and
effort to the Company at the rate of $4,500 per year.
The Company recognized labor expense of $1,013 (unaudited) during each of the
nine month periods ended September 30, 2010 and 2009 in order to allocate
assembling charge by Mile Hi's employees. Labor expenses are included in cost
of goods sold.
F-11
The Company recognized labor expense of $1,350 during each of the years ended
December 31, 2009 and 2008 in order to allocate assembling charge by Mile
Hi's employees. Labor expenses are included in cost of goods sold. The
Company periodically reviews the estimated rate.
At September 30, 2010 and 2009, the Company owed Mile Hi $26,602 (unaudited)
and $20,016 (unaudited), respectively, for unpaid rent, labor, and management
fees. These amounts are included as Indebtedness to related parties in the
accompanying financial statements.
At December 31, 2009 and 2008, the Company owed Mile Hi $5,337 and $19,800,
respectively, for unpaid rent, labor, and management fees. These amounts are
included as Indebtedness to related parties in the accompanying financial
statements.
Product Sales
The Company's sales to Mile Hi totaled $1,704 (unaudited) and $2,629
(unaudited), respectively, for the nine months ended September 30, 2010 and
2009. These sales made up 27% (unaudited) and 34% (unaudited) of the
Company's total sales for the nine months ended September 30, 2010 and 2009,
respectively. Such sales are reflected as related party transactions in the
accompanying financial statements. In addition, accounts receivable owed
from Mile Hi totaled $1,691 (unaudited) and $-0- (unaudited), respectively,
as of September 30, 2010 and 2009 and are reflected in the accompanying
financial statements as Accounts receivable, related party.
The Company's sales to Mile Hi totaled $3,879 and $5,809, respectively, for
the years ended December 31, 2009 and 2008. These sales made up 39% and 40%
of the Company's total sales for the years ended December 31, 2009 and 2008,
respectively. Such sales are reflected as related party transactions in the
accompanying financial statements. In addition, accounts receivable owed
from Mile Hi totaled $2,659 and $10,983, respectively, as of December 31,
2009 and 2008 and are reflected in the accompanying financial statements as
Accounts receivable, related party.
Due From Related Party
The Company loaned $6,000 to Mile Hi for working capital in July 2007. During
2008, Mile Hi paid the balance down to $4,971. As of December 31, 2009, the
balance was paid in full.
Working Capital Loans
The Company's CEO loaned $9,379 to the Company for working capital in 2006.
The loan carries a six percent interest rate and is due on demand. As of
December 31, 2008, the obligation was reduced to $2,537. During 2009, the CEO
loaned the Company an additional $10,000. As of December 31, 2009, the total
balance owed to the Company's CEO was $13,819. During the nine months ended
September 30, 2010, the CEO loaned the Company an additional $7,446
(unaudited). As of September 30, 2010, the total balance owed to the
Company's CEO was $21,265 (unaudited), which is included as Indebtedness to
related parties in the accompanying financial statements.
F-12
(3) Shareholders' Equity
Preferred Stock
According to its Articles of Incorporation, (1) the Company may issue up to
1,000,000 shares of no par value preferred stock; and (2) the preferences,
rights and restrictions are to be fixed by the Board of Directors prior to
issuance.
Common Stock
According to its Articles of Incorporation, (1) the Company may issue up to
50,000,000 shares of one class, with unlimited voting rights, all with no par
value stock.
On November 1, 2009, Board of Directors authorized an 8,000 for 1 split of
the Corporation's common stock with a record date of October 31, 2009. The
stock split increased the number of issued and outstanding common shares from
1,000 to 8,000,000. Shares issued prior to October 31, 2009 have been
retroactively restated to reflect the impact of the stock split.
On November 1, 2009, the Board of Directors authorized sale of 1,500,000
shares of the Corporation's no par value common stock at a price of $0.01 per
share to three accredited investors; two of which are directors of the
Company. The Company received $10,000 in proceeds from the stock sale as of
December 31, 2009. The remaining $5,000 is reported as Common stock
subscription receivable at December 31, 2009. The $5,000 subscription was
collected in January 2010.
(4) Income Taxes
A reconciliation of the U.S. statutory federal income tax rate to the
effective tax rate is as follows:
September 30,
2010 2009 2008
------------- ------- -------
(Unaudited)
U.S. statutory federal rate ............. 15.00% 15.00% 15.00%
State rate, net of federal benefits ..... 3.94% 3.94% 3.94%
Permanent differences ................... - - -
Net operating loss for which no
tax benefit is currently available ..... -18.94% -18.94% -18.94%
------ ------ ------
- - -
====== ====== ======
At September 30, 2010, deferred tax assets consisted of a net tax asset of
$8,007, due to operating loss carryforwards of $42,286 which was fully
allowed for in the valuation allowance of $8,007. The valuation allowance
offsets the net deferred tax asset for which there is no assurance of
recovery. The change in the valuation allowance for the nine months ended
September 30, 2010 totaled $2,945. The current tax benefit also totaled
$2,945 for the nine months ended September 30, 2010.
F-13
At December 31, 2009, deferred tax assets consisted of a net tax asset of
$5,062, due to operating loss carryforwards of $26,733 which was fully
allowed for in the valuation allowance of $5,062. The valuation allowance
offsets the net deferred tax asset for which there is no assurance of
recovery. The change in the valuation allowance for the years ended December
31, 2009 and 2008 totaled $1,420 and $1,508, respectively. The current tax
benefit also totaled $1,420 and $1,508, respectively, for the years ended
December 31, 2009 and 2008. The net operating loss carryforward expires
through the year 2029.
The valuation allowance will be evaluated at the end of each year,
considering positive and negative evidence about whether the deferred tax
asset will be realized. At that time, the allowance will either be increased
or reduced; reduction could result in the complete elimination of the
allowance if positive evidence indicates that the value of the deferred tax
assets is no longer impaired and the allowance is no longer required.
Should we undergo an ownership change as defined in Section 382 of the
Internal Revenue Code, our net tax operating loss carryforwards generated
prior to the ownership change will be subject to an annual limitation, which
could reduce or defer the utilization of these losses.
F-14
ANNEX A
Form of Common Stock Subscription Agreement
Zen Raku Enterprises, Inc.
77 Lipan Street
Denver, Colorado 80223
Gentlemen:
This subscription agreement relates to the offer made by Zen Raku
Enterprises, Inc., a Colorado corporation (the "Company"), to sell between
$50,000 (the "Minimum Offering") and $200,000 (the "Maximum Offering") in
shares of Company's common stock (the "Shares"), pursuant to the prospectus
filed with the SEC, and as same may be amended or supplemented from time to
time (the "Prospectus"). The undersigned has received a copy of the
Prospectus and wishes to purchase Shares on the terms, and subject to the
conditions, set forth below and in the Prospectus. The undersigned
understands that pending sale of the $50,000 minimum, all proceeds will be
held in a non-interest bearing escrow account by the Escrow Agent for this
offering.
1. Subscription
1.1 The undersigned hereby irrevocably subscribes, in accordance with
the terms and conditions of this Subscription Agreement (the "Agreement"),
for the purchase of the number of Shares, at the price per Share, set forth
on the signature page to the Agreement. The undersigned hereby delivers to
the Company (i) an executed copy of this Agreement, and (ii) personal, bank,
cashier's check or wire transfer for the aggregate purchase price, as
reflected on the signature page to this Agreement (the "Purchase Price")
payable to "Corporate Stock Transfer, Inc., Escrow Agent, for Zen Raku
Enterprises, Inc., as Escrow Agent", as follows:
[Escrow Agent]
[Bank]
[ABA Routing No.]
[Account No.]
[Reference]
1.2 The Purchase Price and the executed Agreement will be held, for the
benefit of the undersigned until accepted by the Company. If the Agreement is
not accepted by _____ , 2011 (the "Termination Date"), then, the Purchase
Price will be promptly returned to the undersigned.
1.3 After a determination has been made by the Company to accept this
subscription, the payment will be retained in the Escrow Account until such
time as the $50,000 minimum has been reached, at which time the funds will be
released to the Company. If the minimum amount is not raised before the
Termination Date, the funds will be returned promptly to the undersigned.
2. Acceptance of Agreement. It is understood and agreed that the Company
shall have the right to accept or reject this Agreement, in whole or in part,
for any reason whatsoever. The shares will be offered at a price of $0.50 per
share for a period of one hundred and twenty (120) days from the date of the
Prospectus, subject to a ninety (90) day extension, for a potential total of
210 days.
A-1
3. Representations and Warranties of Subscriber. The undersigned hereby
represents and warrants to the Company that the undersigned has received the
Prospectus.
4. The type of ownership in which the undersigned is applying to purchase
Shares is as follows: (Check One)
_______ INDIVIDUAL OWNERSHIP (One signature required)
_______ JOINT TENANTS WITH RIGHT OF SURVIVORSHIP (Both parties must sign)
_______ TRUST (Please include name of trustee, date trust was formed and
a copy of the Trust Agreement or other authorization)
_______ CORPORATION (Please include Certified Corporate Resolution
authorizing signature)
_______ PARTNERSHIP (Please include a copy of the Statement of
Partnership or Partnership Agreement authorizing signature)
_______ COMMUNITY PROPERTY (Two signatures required)
_______ TENANTS-IN-COMMON (Both parties must sign)
5. Miscellaneous.
5.1 Survival. The representations and warranties made herein shall
survive the consummation of the transaction contemplated hereby.
5.2 Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Colorado, without
regard to principles of conflicts of laws.
6. The undersigned hereby subscribes for __________ Shares at $.50 per
Share for an aggregate purchase price of $__________.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
A-2
IN WITNESS WHEREOF, the undersigned has executed this Agreement this
_______ day of ______________________, 2010.
________________________________________
Name(s) of Subscriber(s)
Address
_____________________________
_____________________________
_____________________________
_____________________________
Social Security or Tax I.D. No.
_____________________________
Purchaser Representative (if any)
_____________________________
Name and Address
_____________________________
_____________________________
_____________________________
ACCEPTANCE
The foregoing subscription is hereby accepted and receipt of payment is
hereby acknowledged with respect to Shares.
Dated: ____________ Zen Raku Enterprises, Inc.
By_____________________________
Authorized Officer
A-3
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Expenses incurred or (expected) relating to this Registration Statement
and distribution are as follows:
Legal fees and costs $25,000.00
Accounting 7,500.00
Registration fees 14.26
Printing of Prospectus 1,000.00
Miscellaneous 1,485.74
----------
TOTAL $35,000.00
==========
Item 14. Indemnification of Directors and Officers.
Pursuant to the Articles of Incorporation and By-Laws of the
corporation, we may indemnify an officer or director who is made a party to
any proceeding, including a law suit, because of his position, if he acted in
good faith and in a manner he reasonably believed to be in our best interest.
In certain cases, we may advance expenses incurred in defending any such
proceeding. To the extent that the officer or director is successful on the
merits in any such proceeding as to which such person is to be indemnified,
we must indemnify him against all expenses incurred, including attorney's
fees. With respect to a derivative action, indemnity may be made only for
expenses actually and reasonably incurred in defending the proceeding, and if
the officer or director is judged liable, only by a court order. The prior
discussion of indemnification in this paragraph is intended to be to the
fullest extent permitted by the laws of the State of Colorado.
Indemnification for liabilities arising under the Securities Act of
1933, as amended, may be permitted to directors or officers pursuant to the
foregoing provisions. However, we are informed that, in the opinion of the
Commission, such indemnification is against public policy, as expressed in
the Act and is, therefore, unenforceable.
Item 15. Recent Sales of Unregistered Securities.
Set forth below is information regarding the issuance and sales of
securities without registration since inception. No such sales involved the
use of an underwriter; no advertising or public solicitation were involved;
the securities bear a restrictive legend; and no commissions were paid in
connection with the sale of any securities.
On January 31, 2005, we issued 1,000 shares of our common stock to Zen
Z. Pool, III Living Trust for $100. On November 1, 2009 we completed an
eight thousand for one forward stock split and increased the shares owned by
Mr. Pool to a total of 8,000,000.
During December 2009, we issued common shares at $0.01 per share for
cash to the following persons and entities:
II-1
Name Number of Shares Consideration
---- ---------------- ---------------
Zen Z. Pool 500,000 $ 5,000 in cash
Underwood Family Partners 500,000 $ 5,000 in cash
Walter C. Nathan 500,000 $ 5,000 in cash
--------- ------
Total 1,500,000 $15,000 in cash
In all of the transactions shown above, the issuance, delivery and sale
of our common stock were made pursuant to the private offering exemption
within the meaning of Section 4(2) of the Act because the offers were made to
a limited number of accredited investors, all of whom received all material
information concerning the investment and all of whom have had sophistication
and ability to bear economic risk based upon their representations to us and
their prior experience in such investments.
In all of the transactions shown above, we have issued stop transfer
orders concerning the transfer of certificates representing all the common
stock issued and outstanding as reported in this section.
There have been no further issuances of securities through the date of
this Registration Statement.
Item 16. Exhibits and Financial Statement Schedules.
The following exhibits are filed as part of this Registration Statement:
Exhibit
Number Description
- ------- -----------
3.1 Articles of Incorporation
3.2 Bylaws
5.1 Opinion re: Legality
9.0 Form of Escrow Agreement
23.1 Consent of Independent Auditors
23.2 Consent of Counsel (See Exhibit 5.1)
Item 17. Undertakings
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to:
(a) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information
set forth in this registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered(if the total dollar
value of securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
II-2
(c) Include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in the registration statement.
2. For determining liability under the Securities Act, treat each such
post-effective amendment as a new registration statement of the securities
offered, and the offering of such securities at that time to be the initial
bona fide offering.
3. File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
4. For determining liability of the undersigned registrant under the
Securities Act to any purchaser in the initial distribution of the
securities, the undersigned registrant undertakes that in a primary offering
of securities of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the securities
to the purchaser, if the securities are offered or sold to such purchaser by
means of any of the following communications, the undersigned registrant will
be a seller to the purchaser and will be considered to offer or sell such
securities to the purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned
registrant relating to the offering required to be filed pursuant to Rule
424;
(ii) Any free writing prospectus relating to the offering prepared
by or on behalf of the undersigned registrant or used or referred to by the
undersigned registrant;
(iii) The portion of any other free writing prospectus relating to
the offering containing material information about the undersigned registrant
or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made
by the undersigned registrant to the purchaser
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons
pursuant to the provisions above, 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, 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 one of our
directors, officers, or controlling persons in the successful defense of any
action, suit or proceeding) is asserted by one of our directors, officers, or
controlling persons 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 is against public policy as expressed
in the Securities Act, and we will be governed by the final adjudication of
such issue.
II-3
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-1 and authorized this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City Denver, State of Colorado.
Zen Raku Enterprises, Inc.
Date: December 23, 2010 By:/s/ Zen Z. Pool
Zen Z. Pool, III, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Date: December 23, 2010 By:/s/ Zen Z. Pool, III
Zen Z. Pool, III, President and Chief
Executive Officer and Director
(Chief Executive Officer)
Date: December 23, 2010 By:/s/ Walter C. Nathan
Walter C. Nathan
Treasurer and Director
(Principal Accounting Officer and
Principal Financial Officer)
Date: December 23, 2010 By:/s/ Susan Pool
Susan Pool, Secretary and Director
II-4