United States
                       Securities and Exchange Commission
                              Washington, DC 20549

                                   FORM 10-QSB

                  Quarterly Report Under Section 13 or 15(d) of
                       the Securities Exchange Act of 1934


For the Quarter Ended                                     Commission File Number
 September 30, 2006                                              333-119234


                             THE FLOORING ZONE, INC.
             (Exact name of registrant as specified in its charter)

                                     NEVADA
          (State or other jurisdiction of incorporation or organization

                                   20-0019425
                      (I.R.S. Employer Identification No.)


                   3219 Glynn Avenue, Brunswick, Georgia 31520
                    (Address of principal executive offices)

                                 (912) 264-0505
              (Registrant's telephone number, including area code)


Securities registered pursuant to Section 12 (b) of the Act:  None.

Securities registered pursuant to section 12(g) of the Exchange Act: Common,
$0.001 par value

Check whether the Issuer filed all reports required to be filed by section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such report(s) Yes [X] No [ ]

Check whether the Issuer has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act.) Yes [ ] No [X]

As of November 9, 2006 we had 19,569,750 shares of our $0.001 par value, common
stock outstanding.

<PAGE>

                             THE FLOORING ZONE, INC.
                                   FORM 10-QSB
                                TABLE OF CONTENTS


PART I -- FINANCIAL INFORMATION

     Item 1.  Financial Statements

         Condensed Consolidated Balance Sheet (Unaudited) as of
            September 30, 2006 ..............................................  3

         Condensed Consolidated Statements of Operations (Unaudited) for
           the three and nine months ended September 30, 2006 and 2005.......  5

         Condensed Consolidated Statements of Cash Flows (Unaudited) for
           the nine months ended September 30, 2006 and 2005.................  6

         Notes to Condensed Consolidated Financial Statements (Unaudited)....  7

     Item 2.  Management's Discussion and Analysis of Financial Condition
              and Results of Operations......................................  8

     Item 3.  Controls and Procedures........................................ 16


PART II -- OTHER INFORMATION

     Item 6.  Exhibits....................................................... 17

     Signatures.............................................................. 17

                                       2
<PAGE>

                          PART I FINANCIAL INFORMATION

Item 1.  Financial Statements
<TABLE>
<CAPTION>
                                     The Flooring Zone, Inc.
                              Condensed Consolidated Balance Sheet
                                       September 30, 2006
                                           (Unaudited)


                                             ASSETS



Current assets:
<S>                                                                        <C>
    Cash                                                                   $            32,137
    Accounts receivable, net                                                           142,639
    Inventory                                                                          303,164
    Prepaid expense                                                                      4,230
                                                                           --------------------
          Total current assets                                                         482,170

Property & equipment, net                                                              224,964

Other assets:
     Intangible assets, net                                                              5,158
     Deposits                                                                            6,031
                                                                           --------------------
          Total other assets                                                            11,189
                                                                           --------------------

TOTAL ASSETS                                                               $           718,323
                                                                           ====================


                      See accompanying notes to financial statements

                                           3
<PAGE>
<CAPTION>
                                     The Flooring Zone, Inc.
                        Condensed Consolidated Balance Sheet-[continued]
                                       September 30, 2006
                                           (Unaudited)

                           LIABILITIES AND STOCKHOLDERS' DEFICIT



Current liabilities:
<S>                                                                        <C>
    Accounts payable                                                       $          255,008

    Related party loans                                                              1,604,925

    Customer deposits                                                                   42,366

    Accrued liabilities                                                                 11,415

    Current portion long-term debt                                                     102,259
                                                                           --------------------
          Total current liabilities                                                  2,015,973

Long-term liabilities:

    Note payable-related party                                                          71,928

    Long-term debt                                                                     474,133

    Current portion long-term debt                                                    (102,259)
                                                                           --------------------
          Total long-term liabilities                                                  443,802

              Total liabilities                                                      2,459,775

Stockholders' deficit:-Note 2

    Preferred Stock, 10,000,000 shares authorized $.001 par value
       value: No shares issued and outstanding                                               -

    Common stock, 100,000,000 shares authorized $.001 par
       value; 19,569,750 shares issued and outstanding                                  19,570

    Additional paid in capital                                                         627,257

    Accumulated deficit                                                             (2,388,279)
                                                                           --------------------

          Total stockholders' deficit                                               (1,741,452)
                                                                           --------------------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                $           718,323
                                                                           ====================


                          See accompanying notes to financial statements

                                                  4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                     The Flooring Zone, Inc.
                                              Condensed Consolidated Statements of
                                   Operations For the three month and nine month periods ended
                                                  September 30, 2006 and 2005.
                                                           (Unaudited)


                                                    Three months ended                     Nine months ended
                                                        September 30,                         September 30,
                                                  2006               2005               2006               2005
                                            -----------------  -----------------  -----------------  -----------------
<S>                                         <C>                <C>                <C>                <C>
Revenues:
 Sales                                      $         639,151  $         788,714  $       2,034,729  $       2,573,395
 Licensing Fees                                             -                  -                  -              2,500
                                            -----------------  -----------------  -----------------  -----------------
Net revenues                                          639,151            788,714          2,034,729          2,575,895

 Less cost of sales                                   417,403            669,427          1,521,498          1,761,256
                                            -----------------  -----------------  -----------------  -----------------

Gross profit                                          221,748            119,287            513,231            814,639
General and administrative expenses                   208,995            310,856            587,175            952,160
                                            -----------------  -----------------  -----------------  -----------------
    Net income (loss) from operations                  12,753           (191,569)           (73,944)          (137,521)


Other income (expense):
  Interest expense                                    (55,755)           (18,712)          (143,048)           (62,592)
                                            -----------------  -----------------  -----------------  -----------------

       Total other income(expense)                    (55,755)           (18,712)          (143,048)           (62,592)
                                            -----------------  -----------------  -----------------  -----------------

Net income (loss) before taxes                        (43,002)          (210,281)          (216,992)          (200,113)
       Income taxes                                         -                  -                  -                  -
                                            -----------------  -----------------  -----------------  -----------------

 Net income (loss)                          $         (43,002) $        (210,281) $        (216,992) $        (200,113)
                                            =================  =================  =================  =================

Income (loss) per share-basic and diluted   $           (0.01) $           (0.01) $           (0.01) $           (0.01)
                                            =================  =================  =================  =================

Weighted average shares outstanding-
  basic and diluted                                19,569,750         38,560,572         31,095,485         38,494,636
                                            =================  =================  =================  =================


                                      See accompanying notes to financial statements

                                                             5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                             The Flooring Zone, Inc.
                                 Condensed Consolidated Statements of Cash Flows
                          For the nine month periods ended September 30, 2006 and 2005
                                                   (Unaudited)


                                                                                  9/30/2006             9/30/2005
                                                                               ---------------       ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                            <C>                   <C>
Net income (loss)                                                              $      (216,992)      $      (200,113)

Adjustments to reconcile net income (loss) to net cash used
  in operating activities:

  Depreciation and amortization                                                         17,871                32,070
  Decrease (increase) in accounts receivable                                           (13,431)                1,381
  Decrease (increase) in inventories                                                   (72,557)             (242,971)
  Decrease (increase) in prepaid expenses                                                    -                65,571
  Increase (decrease) in accounts payable                                              (42,466)              (17,143)
  Increase (decrease) in accrued liabilities                                            (4,206)                 (295)
  Increase (decrease) in customer deposits                                             (31,694)               18,052
                                                                               ---------------       ---------------
      Net cash used in operating activities                                           (363,475)             (343,448)

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of property and equipment                                                         -                (7,748)
                                                                               ---------------       ---------------
      Net cash used in investing activities                                                  -                (7,748)

CASH FLOWS FROM FINANCING ACTIVITIES

Net borrowing(payments) on line of credit-related party                                399,200               210,361
Net borrowing(payments) on  long term debt                                             (67,870)             (127,823)
Proceeds from the issuance of common stock (less costs)                                      -               201,593
                                                                               ---------------       ---------------
      Net cash provided by financing activities                                        331,330               284,131
                                                                               ---------------       ---------------

                         NET INCREASE IN CASH                                           32,145               (67,065)

CASH AT BEGINNING OF PERIOD                                                             64,282                90,092
                                                                               ---------------       ---------------

CASH AT END OF PERIOD                                                          $        32,137       $        23,027
                                                                               ===============       ===============

SUPPLEMENTAL DISCLOSURES
 Cash paid for interest                                                        $       143,103       $        58,589
 Cash paid for income taxes                                                                  -                     -


                                         See accompanying notes to financial statements

                                                              6
</TABLE>
<PAGE>

                             The Flooring Zone, Inc.
              Notes to Condensed Consolidated Financial Statements
                               September 30, 2006


Note 1   ORGANIZATION AND INTERIM FINANCIAL STATEMENTS

         Organization-The Flooring Zone, Inc. (the "Company") is a corporation
         organized under the laws of the State of Nevada on May 5, 2003. The
         company's business operations provide for full-service retail floor
         covering products and services.

         Interim financial statements-The accompanying condensed consolidated
         financial statements are unaudited and have been prepared in accordance
         with generally accepted accounting principles for interim financial
         information. Accordingly, they do not include all of the information
         and footnotes required by accounting principles for complete financial
         statements generally accepted in the United States of America. In the
         opinion of management, the accompanying consolidated financial
         statements contain all adjustments, consisting of normal recurring
         accruals, necessary for a fair presentation of our financial position
         as of September 30, 2006. There has not been any change in the
         significant accounting policies of The Flooring Zone, Inc. for the
         periods presented. The results of operations for the three months and
         nine months ended September 30, 2006 and 2005 are not necessarily
         indicative of the results for a full-year period. It is suggested that
         these unaudited condensed consolidated financial statements be read in
         conjunction with the consolidated financial statements and the notes
         thereto included in the Company's Annual Report on Form 10-KSB for the
         fiscal year ended December 31, 2005 filed with the Securities and
         Exchange Commission (the "SEC").

         Stock based compensation- On January 1, 2006, the Company adopted the
         fair value recognition provisions of Statement of Financial Accounting
         Standards (SFAS) No. 123R, "Share-Based Payment," using the modified
         prospective method. However, for the three and nine months ended June
         30, 2006, the Company's results of operations do not reflect any
         compensation expense because the Company had no new stock options
         granted under its stock incentive plans during the first nine months of
         fiscal year 2006 and no previous stock option grants which vested
         during the first nine months of fiscal year 2006.

         Prior to the first quarter of fiscal year 2006, the Company accounted
         for its stock-based employee compensation arrangements in accordance
         with the provisions and related interpretations of Accounting
         Principles Board Opinion No. 25, "Accounting for Stock Issued to
         Employees." Had compensation cost for stock-based compensation been
         determined consistent with SFAS No. 123R, the net loss and net loss per
         share for the nine months ended September 30, 2005 would have been
         adjusted to the following pro forma amounts:

                                                                    9/30/2005
                                                              ------------------

         Net income, as reported                                   $ (200,113)

         Compensation cost under fair value-based accounting
           method, net of tax                                               -
                                                              ------------------
         Net income, pro forma                                     $ (200,113)

         Net income per share-basic and diluted:
             As reported                                           $    (0.01)
             Pro forma                                             $    (0.01)

                                       7
<PAGE>

                             The Flooring Zone, Inc.
              Notes to Condensed Consolidated Financial Statements
                               September 30, 2006
                                   (Unaudited)


Note 2   INVENTORY

         Inventories are stated at lower of cost or market and consist of the
following:


                                                         9/30/06
                                                   ---------------------

                       Flooring material                        303,164
                                                   ---------------------

                                    Total          $            303,164
                                                   =====================

Note 3   GOING CONCERN

         The accompanying financial statements have been prepared on a going
         concern basis, which contemplates the realization of assets and the
         satisfaction of liabilities in the normal course of business. As shown
         in the financial statements, the Company has an accumulated deficit of
         $2,388,279, and a negative working capital of $1,533,803. These factors
         raise substantial doubt about the Company's ability to continue as a
         going concern.

         Management plans include obtaining additional debt financing to cover
         the shortfalls in revenue and allowing the Company to begin purchasing
         inventory at a discount, and making changes in operations to reduce
         expenses. The Company may also seek additional equity financing through
         the sale of its shares, although the Company currently has no
         commitments for additional equity financing and there is no guarantee
         that the Company can obtain equity financing on acceptable terms or at
         all. The financial statements do not include any adjustments that might
         result from the outcome of this uncertainty.


    Item 2. Management's Discussion and Analysis of Financial Condition and
                              Results of Operations

         This discussion summarizes the significant factors affecting our
consolidated operating results, financial condition, liquidity and capital
resources during the three and nine months ended September 30, 2006 and 2005.
This discussion should be read in conjunction with the financial statements and
financial statement footnotes included in this registration statement.

Forward-Looking Statements

         Certain statements of our expectations contained herein, including, but
not limited to statements regarding sales growth, increases in comparable store
sales, commodity price, inflation and deflation, and capital expenditures
constitute "forward-looking statements." Such statements are based on currently
available operating, financial and competitive information and are subject to
various risks and uncertainties that could cause actual results to differ

                                       8
<PAGE>

materially from our historical experience and our present expectations. These
risks and uncertainties include but are not limited to, fluctuations in and the
overall condition of the U.S. economy, stability of costs and availability of
sourcing channels, consumer confidence, our ability to negotiate favorable terms
with suppliers, unanticipated weather conditions and the impact of competition.
Undue reliance should not be placed on such forward-looking statements, as such
statements speak only as of the date on which they are made.

General

         The Flooring Zone, Inc. is a Nevada corporation organized on May 5,
2003, to operate full service retail floorcovering stores. We have a
wholly-owned subsidiary, The Flooring Zone of Georgia, Inc. The Georgia
corporation was formed in 2000, by the founders of The Flooring Zone, Inc., and
was established to develop our business concept in the retail floorcovering
industry. Through our subsidiary we operate two retail stores. We have stores in
Brunswick, Georgia and Yulee, Florida. We also maintain administrative offices
and warehouse facilities in Brunswick, Georgia.

Results of Operations

Comparison of the three months ended September 30, 2006 and 2005.

         During the three months ended September 30, 2006, we realized a net
loss of $43,002, or $0.01 per share compared to a net loss of $210,281, or $0.01
per share during the three months ended September 30, 2005.

         Revenues

         We generate revenue primarily from the sale of flooring products. We
sell flooring products to two groups - retail customers and contractors. Retail
customers generally pay higher prices for product than contractors.
Historically, about 60% to 70% of our product sales have been to retail
customers. In the current fiscal year we have experienced a shift in our
traditional customer mix. To date this year, contractors have accounted for
approximately 50% of our product sales. We believe this shift in our customer
mix is, at least, partially due to Mr. Carroll taking a more active role in the
day-to-day operations of the Company following his appointment as CEO. Mr.
Carroll has been involved in the construction industry in Georgia for a number
of years and we believe the increase in product sales to contractors has
resulted from his relationships within the industry. While we realize smaller
margins on products sold to contractors, we believe such decreases in net
revenue are being partially offset by decreases in other expenses, including
advertising and display costs. Unlike most retail customers, contractors
represent routine repeat business. Contractors buy product often and in larger
quantities than do retail customers. As our customer mix shifts to a higher
percentage of contractor sales we have and may continue to decrease our
advertising and display expenses as we decrease our need to constantly drive new
retail customers to our stores.

         During the three months ended September 30, 2006 average retail product
prices were fairly constant, although prices for supplies such as carpet pad,
glue, etc., are approximately 10% higher as compared to the same quarter of
2005. Despite higher retail prices for supplies, overall we realized a 19%
decrease in revenue from product sales. This decrease in revenue from product
sales in the three months ended September 30, 2006 is primarily the result of
the closing of our St. Mary's store. As discussed above, another contributing
factor to our decreased revenue from sales is the shift in our customer mix

                                       9
<PAGE>

because contractors typically pay lower prices for product than do retail
customers. We expect that revenue from product sales will continue to be lower
throughout the rest of the 2006 fiscal year as compared to the 2005 fiscal year
because of the closing of the St. Mary's store.

         Gross Profit

         Our gross profit is directly affected by our costs of sales. Cost of
sales includes all direct costs of floor coverings, materials used in
installation and installation labor. As with revenues, our cost of sales and
gross profit are directly affected by changes in the percentage of products sold
to retail customers versus contractors. It is also affected by fluctuations in
the prices we pay for the floor covering products we sell. As discussed above,
the prices we can charge contractors are lower than the prices we can charge
retail customers therefore our profit margin on product sales to retail
customers is greater. Moreover, we often realize profit from providing
installation services to retail customers. Contractors, on the other hand,
typically use their own subcontractors to install the floor covering products
they purchase. These subcontractors provide the materials used in installation
and the installation labor.

         Gross profit during the third fiscal quarter of 2006, was $221,748, an
86% increase compared to the third fiscal quarter of 2005. As discussed above,
during the three months ended September 30, 2006 we realized a 19% decrease in
revenues compared to the three months ended September 30, 2007. During the same
time frame, we reduced costs of sales nearly 38%. The decrease in revenue we
realized in the current fiscal year was more than offset by the reduction in
cost of sales. Cost of sales as a percentage of net revenues decreased from 85%
during the third quarter 2005 to 65% during the third quarter 2006. This
decrease in cost of sales is attributable to several factors. During the current
fiscal year, we have made a conscious effort to hire better subcontractors who
install with fewer problems and more efficiently. We have sought to improve our
relationships with vendors and to reduce our accounts payable to obtain better
pricing for inventory. We have limited the discounts given to customers.
Finally, we have realized some reduction in cost of sales resulting from
decreasing fuel prices

         General and Administrative Expenses

         General and administrative expenses for the three months ended
September 30, 2006, decreased $101,861, or 33% to $208,995 compared to the three
months ended September 30, 2005. As a percentage of sales revenue general and
administrative expenses decreased to 33% during the quarter ended September 30,
2006, compared to 39% during the quarter ended September, 30, 2005. During the
three months ended September 30, 2006 and 2005, general and administrative costs
consisted of:

                                                 Three Months Ended
                                     September 30, 2006     September 30, 2005
                                     ------------------     ------------------

Salaries & benefits costs               $     88,858           $    133,803
Advertising & display costs                    2,319                 24,211
Occupancy costs & utilities                   78,294                 84,018
Legal & accounting costs                       5,000                  5,697
Other                                         34,524                 63,127
                                        ------------           ------------
                                        $    208,995           $    310,856
                                        ============           ============

                                       10
<PAGE>

         The 34% reduction in salaries and benefits costs in the three months
ended September 30, 2006 compared to the same three month period 2005 is
primarily the result of a reduction in our work force. This reduction in our
work force resulted from the closing of our St. Mary's store and a reduction in
our retails sales and accounts payable departments. In anticipation of
expansion, we had hired more retail sales and accounts payable personnel than we
needed to operate our current locations. With the decision not to expand at the
current time, we laid off several persons. We do not expect significant
additional changes salaries and benefits throughout the balance of 2006.

         During the quarter ended September 30, 2006, advertising and display
costs decreased by 90% compared to the same period of 2005. As explained above,
this decrease is primarily attributable to the closing of our St. Mary's store.
We anticipate the advertising and display costs will continue at lower rates
during the balance of the 2006 fiscal year as a result of closing of the St.
Mary's store and as a result of reduced marketing costs as we focus more
attention on product sales to contractors rather than retail buyers

         Occupancy costs and utilities during the second quarter 2006 compared
to the same quarter 2005, decreased 7% as a result of the closing of the St.
Mary's store. We had an increase in waste services because in previous periods
we shared these costs with a neighbor. This arrangement no longer exists. We
expect these costs to remain constant in the upcoming quarters.

         Legal and accounting costs remained relatively constant during the
three months ended September 30, 2006 and the three months ended September 30,
2005. We anticipate legal and accounting costs to continue at levels consistent
with or higher than the third quarter 2006 as we begin to incur legal and
accounting costs in connection with our ongoing public reporting obligations.

         Other costs decreased 45% during the quarter ended September 30, 2006
as compared to the quarter ending September 30, 2005 as we continued our efforts
to control expenses. We anticipate other costs will to remain fairly constant in
upcoming quarters.

         Net Income from Operations

         For the reasons discussed above, we realize net income from operations
during the three months ended September 30, 2006 of $12,753 compared to a net
loss from operations during the three months ended September 30, 2005 of
$191,569. We believe that if product sales remain constant or improve and we are
able to continue to reduce costs and expenses we will continue to realize net
income from operations.

         Interest Expense

         As a result of carrying additional debt due to prior year losses and in
an effort to improve its relationships with its vendors and to take advantage of
vendor discounts, the Company carried more debt during the quarter ended
September 30, 2006 than during the quarter ended September 30, 2005. During the
third fiscal quarter 2006, the Company recognized interest expense of $55,755,
which represents a 198% increase in interest expense compared to the third
fiscal quarter 2005.

                                       11
<PAGE>

         For the nine months ended September 30, 2006 and 2005

         We incurred a net loss of $216,992, or $0.01 per share through the nine
months ended September 30, 2006, compared to a net loss of $200,113, or $0.01
per share during the nine months ended September 30, 2005.

         Revenues

         During the first nine months of fiscal 2006 average retail product
prices were fairly constant, although we increased prices for supplies such as
carpet pad, glue, etc., approximately 10% higher as compared to the same period
of 2005. Despite higher retail prices for supplies, overall we have realized a
21% decrease in revenue from product sales. This decrease in revenue from
product sales in the first three quarters of 2006 is primarily the result of the
closing of our St. Mary's store. As discussed above, another contributing factor
to our decreased revenue from sales is the shift in our customer mix because
contractors typically pay lower prices for product than do retail customers. We
expect that revenue from product sales will continue to be lower throughout the
rest of the 2006 fiscal year as compared to the 2005 fiscal year because of the
closing of the St. Mary's store.

         Gross Profit

         Gross profit during the first nine months of 2006 was $513,231, 37%
lower than the $814,639 gross profits realized during the first nine months of
2005. During the first nine months of 2006, we realized a 21% decrease in net
revenue. We also realized a 14% decrease in cost of sales during the first nine
months of 2006 compared to the first nine months of 2005. Through the first nine
months of fiscal 2006, cost of sales as a percentage of net revenues increased
to 75%. By comparison, during the nine months ended September 30, 2005, cost of
sales as a percentage of net revenue was 68%. While we have made efforts to
control costs in hopes of offsetting some of the reduction in net revenue
during the nine months ended September 30, 2006, decreases in cost of sales were
insufficient to offset the decrease in net revenue. As discussed above, we have
made a conscious effort to hire better subcontractors who install product with
fewer problems and more efficiently. We have sought to improve our relationships
with vendors and to reduce our accounts payable to obtain better pricing for
inventory. We have limited the discounts given to customers, and we have
realized some reduction in cost of sales resulting from decreasing fuel prices.
We will continue this course of action as we seek to realize a gross profit in
future periods.

         General and Administrative Expenses

         General and administrative expenses for the nine months ended September
30, 2006, decreased $364,985, or 38% to $587,175 compared to the nine months
ended September 30, 2005, and as a percentage of sales revenue it decreased from
37% during the nine months ended September 30, 2005 to 29% for the nine months
ended September 30, 2005. During the nine months ended September 30, 2006 and
2005, general and administrative costs consisted of:

                                       12
<PAGE>

                                                    Nine Months Ended
                                     September 30, 2006     September 30, 2005
                                     ------------------     ------------------
Salaries & benefits costs               $    235,349           $    383,949
Advertising & display costs                   18,325                 73,647
Occupancy costs & utilities                  212,263                235,010
Legal & accounting costs                      29,505                 41,505
Other                                         91,733                218,049
                                        ------------           ------------
                                        $    587,175           $    952,160
                                        ============           ============

         The 39% reduction in salaries and benefits costs in the nine months
ended September 30, 2006 compared to 2005 is the result of a reduction in our
work force. This reduction in our work force resulted from the closing of our
St. Mary's store and a reduction in our retails sales and accounts payable
departments. In anticipation of expansion, we had hired more retail sales and
accounts payable personnel than we needed to operate our current locations. With
the decision not to expand at the current time, we laid off several persons. We
do not expect significant additional changes salaries and benefits throughout
the balance of 2006.

         During the nine months ended September 30, 2006 we decreased our
advertising and display costs by 75% compared to the same period of 2005. As
explained above, this decrease is primarily attributable to the closing of our
St. Mary's store and a reduction in advertising as our traditional customer mix
continues to shift to focus more attention on product sales to contractors
rather than retail buyers.

         Occupancy costs and utilities during the nine months ended September
30, 2006 compared to the same period of 2005, decreased by 10%. This decrease
was the result of a decrease in occupancy and utility costs as a result of the
closing of the St. Mary's store, which decreases were partially offset by
increased waste services costs because in previous periods we shared these costs
with a neighbor. We expect occupancy and utilities costs to remain relatively
constant in the upcoming quarters.

         Legal and accounting costs decreased 29% to $29,505 during the nine
month period ended September 30, 2006 compared to the nine month period ended
September 30, 2005. We believe this decrease in legal and accounting costs is
more an issue of timing than a reflection of any long-term reduction in legal
and accounting costs and we expect legal and accounting costs to continue at
levels consistent with or higher than the amounts incurred during the prior
fiscal year.

         Other costs decreased 58% to $91,733 during the nine month period ended
September 30, 2006 compared to the nine month period ended September 30, 2005 as
we continued our efforts to control expenses. We anticipate other costs will to
remain fairly consistent with those experienced in the current fiscal year in
upcoming quarters.

         Net Loss from Operations

         For the reasons disclosed above, during the nine months ended September
30, 2006 we realized a net loss from operations of $73,944 compared to a net
loss of $137,521 during the first nine months of 2005. While we expect net
losses to decrease in upcoming quarters, we do expect to continue to realize net
losses through the balance of the current fiscal year.

                                       13
<PAGE>

         Interest Expense

         As a result of the Company carrying more debt during the nine months
ended September 30, 2006, the Company recognized interest expense of $143,048,
which represents a 129% increase in interest expense compared to the nine months
ended Septembers 30, 2005.

         Liquidity and Capital Resources

         Our capital resources have consisted of revenues from operations, funds
raised through the sale of our common stock and debt. During the fourth quarter
2005 we completed a public offering of our securities pursuant to an effective
SB-2 registration statement. The funds raised in the SB-2 have since been used
to fund our operations. As shown in our financial statements, we have an
accumulated deficit of $2,388,279, and negative working capital of $1,533,803.
These factors raise substantial doubt about our ability to continue as a going
concern.

         During the current fiscal quarter we realized net income from
operations before interest payments. As noted above, we have also been making
changes in operations to reduce expenses and improve our margins. We have been
working to obtain additional debt financing to help cover shortfalls in revenue.
We may also seek additional equity financing through the sale of our shares as
we deem appropriate, although we currently have no commitments for additional
equity financing and there is no guarantee that we can obtain equity financing
on acceptable terms or at all.

         During the first nine months of 2006 and 2005 cash was primarily used
to fund operations. See below for additional discussion and analysis of cash
flow.

                                                     Nine Months Ended
                                         September 30, 2006  September 30, 2005
                                         ------------------  ------------------

Net cash used in operating activities         ($363,475)         ($343,448)
Net cash used in investing activities                 -            ($7,748)
Net cash provided by financing activities      $331,330           $284,131
                                               --------           --------

NET INCREASE (DECREASE) IN CASH                $ 32,137           $ 23,027
                                               ========           ========

         As discussed herein, during the nine months ended September 30, 2006
compared to the nine months ended September 30, 2005 product sales decreased
leading to a reduction in net income of $16,879, from a net loss of $200,113. In
addition to the reduction in cash from operating activities resulting from the
net loss of $216,992, we also realized decreases in accounts payable, accrued
liabilities and customer deposits and an in increase in accounts receivable.
These factors resulted in an increase in net cash used in operating activities
of $20,027 during the nine months ended September 30, 2006 as compared to the
nine months ended September 30, 2005.

                                       14
<PAGE>

         We used $0 net cash in investing activities during the nine months
ended September 30, 3006. By comparison, we spent $7,748 to acquire equipment
during the first nine months of 2005.

         Net cash provided from financing activities was $331,330 during the
nine months ended September 30, 2006 compared to $284,131 during the nine months
ended September 30, 2005, a 17% increase. During the current year we have
borrowed $399,200 from a related party, through the first nine months of fiscal
2005, we had borrowed $210,361. During the nine months ended September 30, 2006
we repaid $67,870 in long term debt compared to $127,823 during the first nine
months of 2005. During the first nine months of 2005 $201,593 of the cash
provided from financing activities came from the sale of our equity securities.
By contrast, during the nine months ended September 30, 2006, cash flow from
financing activities was the result of borrowing on a line of credit extended by
a related party.

         At September 30, 2006 and 2005, we had cash on hand of $32,137 and
$23,027, respectively.

Summary of Material Contractual Commitments

         The following table lists our significant commitments as of September
30, 2006.
<TABLE>
<CAPTION>
                                                              Payments Due by Fiscal Year
Contractual Commitments                Total          2006          2007        2008        2009     Thereafter
----------------------------------------------------------------------------------------------------------------
<S>                                 <C>           <C>            <C>         <C>         <C>        <C>
Related Party Loans                  1,604,925     1,604,925           --          --          --         --
Note Payable-Related Party              71,928        20,555       51,373          --          --         --
Notes Payable                          474,133        22,593       47,344      50,575     353,621         --
Capital Leases                          11,156         2,377        8,819          --          --         --
Operating Leases                       657,160        42,444      149,338     152,170     155,098    158,110
                                    ----------    ----------     --------    --------    --------   --------
         TOTAL                      $2,819,302    $1,692,854     $256,874    $202,745    $508,719   $158,110
                                    ==========    ==========     ========    ========    ========   ========
</TABLE>

Off-Balance Sheet Financing Arrangements

         As of September 30, 2006 we had no off-balance sheet financing
arrangements.

Critical Accounting Policies

         Revenue Recognition

         We recognize revenues in accordance with the Securities and Exchange
Commission, Staff Accounting Bulletin (SAB) number 104, "Revenue Recognition in
Financial Statements." SAB 104 clarifies application of U. S. generally accepted
accounting principles to revenue transactions. Accordingly, revenue is
recognized when an order has been received, the price is fixed and determinable,

                                       15
<PAGE>

the order is shipped and installed, collection is reasonably assured and we have
no significant obligations remaining. Licensing fees are royalties paid to us
for licensing the use of the name The Flooring Zone. The royalties range from
1-2% of the licensee's commercial sales volume.

         We record accounts receivable for sales which have been delivered but
for which money has not been collected. An allowance for doubtful accounts is
provided for accounts deemed potentially uncollectible based on analysis and
aging of accounts. For customer purchases or deposits paid in advance, we record
a liability until products are shipped or installed.

         Merchandise Inventory

         We record inventory at the lower of cost or market, cost being
determined on a first-in, first-out method. We do not believe our merchandise
inventories are subject to significant risk of obsolescence in the near-term,
and we have the ability to adjust purchasing practices based on anticipated
sales trends and general economic conditions.

         Vendor Funds

         We receive funds from vendors in the normal course of business for
purchase-volume-related rebates. Our accounting treatment for these
vendor-provided funds is consistent with Emerging Issues Task Force (EITF) 02-16
"Accounting by a Customer (Including a Reseller) for Certain Consideration
Received From a Vendor." Under EITF 02-16, purchase volume rebates should be
treated as a reduction of inventory cost, unless they represent a reimbursement
of specific, incremental and identifiable costs incurred by the customer to sell
the vendor's product. The purchase volume rebates that we receive do not meet
the specific, incremental and identifiable criteria in EITF 02-16. Therefore,
they are treated as a reduction in the cost of inventory and we recognize these
funds as a reduction of cost of sales when the inventory is sold.

         Item 3.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

         Our principal executive officers and our principal financial officer
(the "Certifying Officers") are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e). Such officers have concluded (based upon their evaluations of
these controls and procedures as of the end of the period covered by this
report) that our disclosure controls and procedures are effective to ensure that
information required to be disclosed by it in this report is accumulated and
communicated to management, including the Certifying Officers as appropriate, to
allow timely decisions regarding required disclosure. Based on this evaluation,
our Certifying Officers have concluded that our disclosure controls and
procedures are effective as of September 30, 2006.

Changes in Internal Control over Financial Reporting

         There were no changes in our internal controls over financial reporting
during the quarter ended September 30, 2006 that materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

                                       16
<PAGE>

                           PART II - OTHER INFORMATION

Item 6.  Exhibits

         Exhibits. The following exhibits are included as part of this report:

                  Exhibit 31.1      Certification of Principal Executive Officer
                                    Pursuant to Section 302 of the
                                    Sarbanes-Oxley Act of 2002

                  Exhibit 31.2      Certification of Principal Financial Officer
                                    Pursuant to Section 302 of the
                                    Sarbanes-Oxley Act of 2002

                  Exhibit 32.1      Certification of Principal Executive Officer
                                    Pursuant to Section 906 of the
                                    Sarbanes-Oxley Act of 2002

                  Exhibit 32.2      Certification of Principal Executive Officer
                                    Pursuant to Section 906 of the
                                    Sarbanes-Oxley Act of 2002

                                   SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this to be signed on its behalf by the undersigned
thereunto duly authorized.

                                        THE FLOORING ZONE, INC.



November 13, 2006                        /s/ Michael Carroll
                                        ----------------------------------------
                                        Michael Carroll, Chief Executive Officer



November 13, 2006                        /s/ Michael Carroll
                                        ----------------------------------------
                                        Michael Carroll, Chief Financial Officer

                                       17