**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-KSB**

 

| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                            SECURITIES |
|---|--------------------------------------------------------------------------------------------|

EXCHANGE ACT OF 1934

|   | For the fiscal year ended:December 31, 2007 |
|--------|---------------------------------------------|

 

| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE                            SECURITIES EXCHANGE ACT OF 1934 |
|---|---------------------------------------------------------------------------------------------------------------------|

|   | For the transition period from | to |
|--------|--------------------------------|----|

 

Commission File Number333-119234

 

**THE FLOORING ZONE, INC.**

(Exact name of registrant as specified in its charter)

                

| **Nevada**                                                   |   | **20-0019425**      |
|--------------------------------------------------------------|--------|---------------------|
| (State or other jurisdiction of                              |   | (I.R.S. Employer    |
| incorporation or organization)                               |   | Identification No.) |
|                                                         |   |                |
| **1245 Brickyard Road, Suite 590**

**Salt Lake City, Utah** |   | **84106**           |
| (Address of principal executive offices)                     |   | (Zip Code)          |
|                                                         |   |                |

**(801) 433-2000**

(Registrant's telephone number, including area code)

 

Securities registered pursuant to section 12(b) of the Exchange            Act:**None**

 

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

 

Check            whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of            the Exchange Act.o

 

Check            whether the issuer (1) 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 reports), and (2) has been subject to such filing            requirements for the past 90 days.            (1)        

|   | YesxNoo |
|--------|---------|

 

Check            if there is no disclosure of delinquent filers in response to Item 405 of Regulation            S-B is contained in this form, and no disclosure will be contained, to the best of            registrant's knowledge, in definitive proxy or information statements incorporated by            reference in Part III of this form 10-KSB or any amendment to this Form 10-KSB.o

 

Indicate by check mark whether the registrant is a shell company (as            defined in Rule 12b-2 of the Exchange Act).

|   | YesoNox |
|--------|---------|

The            issuer’s revenue for its most recent fiscal year was: $-0-.

 

The            aggregate market value of the voting and non-voting common equity held by            non-affiliates computed by reference to the the average bid and asked price of such            common equity as of April 14, 2008 was $256,388.

 

As of            April 14, 2008, the issuer had 19,569,750 shares of its $0.001 par value common stock            outstanding.

 

| Transitional Small Business Disclosure                            Format. | Yeso | Nox |
|---------------------------------------------------------------------------|------|-----|

Documents incorporated by reference: none

 

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**Table of Contents**

 

| **PART I**                                  |                                                                                                                                                                                        | Page       |
|---------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                        |                                                                                                                                                                                        |       |
| Item 1.                                     | Description of Business                                                                                                                                                                     | 3          |
|                                        |                                                                                                                                                                                        |       |
| Item 2.                                     | Description of Property                                                                                                                                                                     | 6          |
|                                        |                                                                                                                                                                                        |       |
| Item 3.                                     | Legal Proceedings                                                                                                                                                                           | 6          |
|                                        |                                                                                                                                                                                        |       |
| Item 4.                                     | Submission of Matters to a Vote of Security                            Holders                                                                                                              | 6          |
|                                        |                                                                                                                                                                                        |       |
| **PART II**                                 |                                                                                                                                                                                        |       |
|                                        |                                                                                                                                                                                        |       |
| Item 5.                                     | Market for Common Equity and Related Stockholder Matters                            and Small Business Issuer Purchases of Equity Securities                                                |  

6  |
|                                        |                                                                                                                                                                                        |       |
| Item 6.                                     | Management's Discussion and Analysis                                                                                                                                                        | 8          |
|                                        |                                                                                                                                                                                        |       |
| Item 7.                                     | Financial Statements                                                                                                                                                                        | 13         |
|                                        |                                                                                                                                                                                        |       |
| Item 8.

                              | Changes in and Disagreements with Accountants on                            Accounting and Financial Disclosure                                                                             |  

29 |
|                                        |                                                                                                                                                                                        |       |
| Item 8A.(T)                                 | Controls and Procedures                                                                                                                                                                     | 29         |
|                                        |                                                                                                                                                                                        |       |
| Item 8B.                                    | Other Information                                                                                                                                                                           | 30         |
|                                        |                                                                                                                                                                                        |       |
| **PART III**                                |                                                                                                                                                                                        |       |
|                                        |                                                                                                                                                                                        |       |
| Item 9.                                     | Directors, Executive Officers, Promoters, Control                            Persons and Corporate Governance; Compliance with Section 16(a) of the                            Exchange Act |  

31 |
|                                        |                                                                                                                                                                                        |       |
| Item 10.                                    | Executive Compensation                                                                                                                                                                      | 34         |
|                                        |                                                                                                                                                                                        |       |
| Item 11.                                    | Security Ownership of Certain Beneficial Owners and                            Management and Related Stockholder Matters                                                                   |  

36 |
|                                        |                                                                                                                                                                                        |       |
| Item 12.                                    | Certain Relationships and Related Transactions, and                            Director Independence                                                                                        |  

37 |
|                                        |                                                                                                                                                                                        |       |
| Item 13.                                    | Exhibits                                                                                                                                                                                    | 38         |
|                                        |                                                                                                                                                                                        |       |
| Item 14.                                    | Principal Accountant Fees and Services                                                                                                                                                      | 38         |
|                                        |                                                                                                                                                                                        |       |
|                                        | SIGNATURES                                                                                                                                                                                  | 39         |
|                                        |                                                                                                                                                                                        |       |

 

3

 

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**PART I**

 

INTRODUCTION

 

Throughout this annual report, the terms, “we,”            “us,” “our” or “the Company” refer to The Flooring            Zone, Inc., a Nevada corporation and our wholly-owned subsidiary The Flooring Zone of            Georgia, Inc.

 

FORWARD-LOOKING STATEMENTS

 

This annual report contains forward-looking statements as that term is            defined in Section 27A of the United States Securities Act of 1933 and Section 21E of            the Securities and Exchange Act of 1934. These statements relate to future events or            our future financial performance. In some cases, you can identify forward-looking            statements by terminology such as “may”, “should”,            “expects”, “plans”, “anticipates”,            “believes”, “estimates”, “predicts”,            “potential” or “continue” or the negative of these terms or            other comparable terminology. Such statements are based on currently available            financial and competitive information and are subject to various risks and            uncertainties that could cause actual results to differ materially from our historical            experience and our present expectations. 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. These statements are only predictions and involve known and unknown risks,            uncertainties and other factors that may cause our or our industry's actual results,            levels of activity, performance or achievements to be materially different from any            future results, levels of activity, performance or achievements expressed or implied by            these forward-looking statements.

 

Although we believe that the expectations reflected in the            forward-looking statements are reasonable, we cannot guarantee future results, levels            of activity, performance or achievements. Except as required by applicable law,            including the securities laws of the United States, we do not intend to update any of            the forward-looking statements to conform these statements to actual            results.

 

**ITEM 1. DESCRIPTION OF BUSINESS**

 

**Company History**

 

We incorporated in the State of Nevada on May 5, 2003. On May 13, 2003,            pursuant to a Share Exchange Agreement, we acquired all of the outstanding common stock            of The Flooring Zone of Georgia, Inc., in exchange for 38,125,000 shares of our common            stock. The Flooring Zone of Georgia, Inc., was founded in 2000, and had been operating            in the retail floor covering industry since its inception.

 

From May 2003 through the fourth quarter 2007 we were engaged in the            retail floor covering business through our wholly owned subsidiary. During the fourth            quarter 2007, we determined to discontinue our retail floor covering operations. The            determination to discontinue operations was based on several factors,            including:

 

4

 

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|   | **•** | we had generated significant operating and net losses                            each year since inception; |
|--------|------------|-------------------------------------------------------------------------------------------------------------|

|   | **•** | we had realized steadily declining revenues since                            2004; |
|--------|------------|------------------------------------------------------------------------------------|

|   | **•** | our wholly owned subsidiary, The Flooring Zone of                            Georgia had substantial debt; |
|--------|------------|------------------------------------------------------------------------------------------------------------|

|   | **•** | we had no prospects for a significant reversal of these                            trends; and |
|--------|------------|------------------------------------------------------------------------------------------------|

|   | **•** | to meet its operating needs, limit ongoing losses and                            satisfy its debts, management of The Flooring Zone of Georgia had                            liquidated nearly all of its assets and sold its inventory during                            fiscal 2007. |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Additionally, as management investigated the opportunities and            challenges in the retail floor covering business in the southeastern United States,            management felt that the business did not present the best opportunity for our Company            to realize value for our shareholders.

 

In connection with the decision to discontinue our retail floor covering            operations, we sold our inventory to customers and other vendors. We also sold certain            inventory, property and equipment to an employee of the Company in exchange for $52,500            and assumption of certain Company obligations totaling $270,239.

 

With the closing of our final remaining retail location, we moved our            executive offices from Brunswick, Georgia to Salt Lake City, Utah. Our executive            offices are located at 1245 Brickyard Road, Suite 590, Salt Lake City, Utah 84106. Our            telephone number is (801) 433-2000.

 

**Current Business of the Company**

 

With the termination of the operations of The Flooring Zone of Georgia,            we are not currently engaged in any business. It is the intention of management to            investigate opportunities to increase shareholder value. While management has engaged            in preliminary discussions regarding potential business opportunities, we have not            entered into agreements with other parties. We anticipate that we will engage in            discussions with third parties and management of other companies in which we may            suggest or take a position with respect to potential changes in the operations,            management or capital structure of such companies as a means of enhancing shareholder            value for our shareholders. Such suggestions or positions may relate to or could            include, among other things:

             

|   | **•** | the possible acquisition by any person of additional                            shares of our securities, or the possible disposition of our                            securities; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | possible extraordinary corporate transactions (such as a                            merger, reorganization or liquidation) involving the Company or any of                            its subsidiaries; |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | the possible sale or transfer of the Company or any of                            its subsidiaries; |
|--------|------------|-----------------------------------------------------------------------------------------------------|

|   | **•** | making or seeking to make changes in or affecting the                            board of directors or management of the Company, including plans or                            proposals to change the number or term of directors or to fill any                            existing vacancies on the board of directors; |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | making or seeking to make changes in the capitalization                            or dividend policy of the Company; |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------|

 

5

 

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|   | **•** | making or seeking to make any other material change in                            the Company’s business or corporate structure; |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | making or seeking to make changes in the Company’s                            articles of incorporation or bylaws or other actions which may impede                            the acquisition of control of the Company by any person, including the                            soliciting of votes of the Company’s shareholders in any annual                            or special meeting of shareholders of the Company; |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | causing or seeking to cause a class of securities of the                            Company to be delisted from a national securities exchange or to cease                            to be authorized to be quoted in and inter-dealer quotation system of a                            registered national securities association; |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | causing or seeking to cause a class of equity securities                            of the Company to become eligible for termination of registration                            pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934;                            or |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | any action similar to any of those enumerated                            above. |
|--------|------------|---------------------------------------------------------------------------------|

 

**Competition**

 

While we are not currently engaged in any particular business, we            anticipate as we investigate ways to increase shareholder value we will face            significant competition from other persons and entities who are likewise seeking            business opportunities. We expect that many such persons and entities may be better            capitalized, more experienced or may otherwise better positioned or more attractive            than the Company. As a result, there is no guarantee we will be successful in our            efforts to attract business opportunities that will allow us to increase shareholder            values.

 

**Trademarks, Service Marks, Trade Names and Commercial            Symbols**

 

We have registered marks with the U.S. Trademark Office including:            “The Flooring Zone” and “Save A Comma.” At this time, we know            of no infringing uses that could materially affect the use of our service marks, logos            or slogans in any state in which stores are or are proposed to be located. We are not            the owner or licensee of any patents or copyrights.

 

**Research and Development**

 

|   | We have spent no funds on research and development                            during the past two years. |
|--------|----------------------------------------------------------------------------------------------------------|

 

**Employees**

 

We do not currently have any full time employees. Our sole officer            provides services to the Company on an as needed basis. We do not anticipate hiring            employees until such time as we undertake new operations.

 

**Going Concern Issues**

 

As shown in our financial statements, we have accumulated losses from            operations and have a working capital deficit. These issues raise substantial doubt            about our ability to continue as a going concern. Our ability to continue as a going            concern will depend on many factors,

 

6

 

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including, in the short-term, our ability to satisfy and/or resolve the            debt obligations of our wholly-owned subsidiary and to obtain additional capital to            fund the efforts of management to identify new business opportunities. In the longer            term, we anticipate we will need to raise capital to fund an acquisition or other            business transaction to improve liquidity and develop operations.

 

**ITEM 2. DESCRIPTION OF PROPERTY**

 

As of the date of this report, we do not own any real property. Our            Chief Executive Officer, Andrew Limpert, allows us to utilize a portion of his offices            1245 Brickyard Road, Suite 590, Salt Lake City, Utah for our executive offices. We            currently pay no rent to Mr. Limpert and he is under no obligation to make this space            available to the Company. We believe the space we currently use is and will be            sufficient for our needs until we undertake active business operations.

 

We currently have no policies regarding investments or interests in real            estate, real estate mortgages, or securities of or interests in persons primarily            engaged in real estate activities.

 

**ITEM 3. LEGAL PROCEEDINGS**

 

We are involved in various claims and legal actions arising in the            ordinary course of business. In the opinion of management, the ultimate disposition of            these matters will not have a material adverse effect on our financial position.            However, an unfavorable outcome in these claims could result in a possible judgment            against us of as much as $10,000. Together with our legal counsel, we have determined            that there is a possibility of loss in these legal proceedings, but consider such            losses to be possible and not probable.

 

**ITEM 4. SUBMISSION OF MATTERS TO A VOTE**

**OF            SECURITIES HOLDERS**

 

No matters were submitted to a vote of our shareholders during the            fiscal year ended December 31, 2007.

 

**PART II**

 

**ITEM 5.MARKET FOR COMMON EQUITY, RELATED            STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY            SECURITIES**

 

Our shares began trading on the Over-the-Counter Bulletin Board            (“OTCBB”) under the symbol FZON on April 12, 2007. Prior to April 12, 2007            our securities were not traded publicly. As of April 14, 2008, we had approximately 96            shareholders holding 19,569,750 common            shares.

 

The published bid and ask quotations from April 12, 2007, through            December 31, 2007, are included in the chart below. This information was obtained from            Pink OTC Markets Inc. These quotations represent prices between dealers and do not            include retail markup, markdown or commissions. In addition, these quotations do not            represent actual transactions.

 

7

 

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|   | **BID PRICES** | **ASK PRICES** |
|--------|----------------|----------------|

|   | **HIGH** | **LOW** | **HIGH** | **LOW** |
|--------|----------|---------|----------|---------|

             

**2007**

|   | Fourth Quarter | .55 | .35 | .95 | .45 |
|--------|----------------|-----|-----|-----|-----|

|   | Third Quarter | 1.16 | .35 | 1.65 | .505 |
|--------|---------------|------|-----|------|------|

|   | Second Quarter | 1.25 | .25 | 1.05 | 1.50 |
|--------|----------------|------|-----|------|------|

             

             

**Unregistered Sales of Equity Securities**

 

No instruments defining the rights of the holders of any class of            registered securities have been materially modified, limited or qualified.

             

During the quarter ended December 31, 2007, we did not sell any equity            securities.

             

**Repurchases of Equity Securities**

 

During the quarter ended December 31, 2007, we did not repurchase any of            our equity securities.

 

**Dividends**

 

We have not declared a cash dividend on any class of common equity in            the last three fiscal years. There are no restrictions on our ability to pay cash            dividends, other than state law that may be applicable; those limit the ability to pay            out all earnings as dividends. Our board of directors does not anticipate paying any            dividends in the foreseeable future; it intends to retain the earnings that could be            distributed, if any, for the operations.

 

**Securities for Issuance Under Equity Compensation            Plans**

 

| Plan category

                                                                  | Number of securities

to be issued upon

exercise of

outstanding options,

warrants and rights

                             

                             

(a) | Weighted-average

exercise price of

outstanding

options, warrants

and rights

                             

                             

(b) | Number of securities

remaining available for future issuance under                            equity

compensation plans

(excluding securities reflected in columns                            (a))

                             

(c) |
|---------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Equity compensation plans approved by security                            holders     |  

                             

-0-                                                                                                                              |  

                             

$0.00                                                                                                            |  

                             

455,000                                                                                                                                                                                            |
| Equity compensation plans not approved by security                            holders |  

                             

-0-                                                                                                                              |  

                             

$0.00                                                                                                            |  

                             

-0-                                                                                                                                                                                                |
|  

Total                                                                         |  

-0-                                                                                                                                                                  |  

$0.00                                                                                                                                                |  

455,000                                                                                                                                                                                                                                |

 

 

8

 

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On May 13, 2003 we adopted The Flooring Zone, Inc., 2003 Stock Incentive            Plan (the “Plan”). The Plan allow us to grant options to our key employees,            officers, directors, consultants, advisors and sales representatives to purchase up to            500,000 shares of its $.001 par value restricted common stock at an exercise price to            be determined by the Stock Option Committee of the board at the time of            grant.

             

On June 18, 2003 we granted options under the Plan to 26 employees to            purchase an aggregate of 45,000 shares of our common stock at an exercise price of            $1.25. The options were exercisable for a period of two years from the date of grant            and vested immediately. Between June 20, 2003 and September 30, 2003 all of the options            were exercised.

             

There are currently no options, warrants or rights outstanding under the            Plan.

 

**ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS            OF**

**OPERATIONS AND FINANCIAL CONDITION**

 

As noted above, as a result of continuing poor performance and ongoing            operating losses, coupled with management’s evaluation of the long-term outlook            of the business and management’s desire to improve shareholder value, during the            fourth quarter 2007 the Company determined to discontinue its retail floor covering            operations. As a result of this decision, our results of operations have been            retroactively restated as discontinued operations. Therefore, the presentation of the            result of operations in our financial statements and the discussion of the result of            operations in this Management’s Discussion and Analysis may differ from prior            fiscal periods. This discussion should be read in conjunction with the financial            statements and financial statement footnotes included in this annual report.

 

**Going Concern**

 

The*Report of Independent Registered Public            Accounting Firm*included in this report contains an opinion            that we will need additional working capital to service our debts and fund our            activities, which raises substantial doubt about our ability to continue as a going            concern. We have not historically generated sufficient revenue from operations to meet            our operating expenses and with the termination of our retail floor covering business,            currently have no way to generate revenue to satisfy these obligations. We have            accumulated a deficit of $3,177,940 since inception and have a negative working capital            of $1,218,067. This raises substantial doubt about our ability to continue as a going            concern. To service our debt obligations and continue our efforts to identify new            business opportunities, we will need to obtain additional funding. This funding may be            sought by means of equity or debt financing. We currently have no commitments from any            party to provide funding and there is no way to predict when, or if, any such funding            could materialize. There is no assurance that we will be successful in obtaining            additional funding on attractive terms or at all.

 

9

 

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**Results of Operations**

 

|   | *General and Administrative                            Expenses* |
|--------|------------------------------------------------------------------|

 

General and administrative expenses for the year ended December 31, 2007            was flat compared to general and administrative expenses for the year ended December            31, 2006 increasing $144 to $58,280. We anticipate general and administrative expenses            will remaining relatively consistent until such time as we identify a new business            opportunity and commence active operations.

 

|   | *Interest                            Expense* |
|--------|-----------------------------------------------|

 

Interest expense during fiscal 2007 was $131,742, or 30% lower than            fiscal 2006. Interest expense decreased in 2007 for several reasons including decreases            to the prime rate, which decreased interest expense on our adjustable rate obligations            and the assumption by a Company employee of certain debt obligations in connection with            his acquisition from us of certain inventory, equipment and displays.

 

|   | *Loss from Continuing                            Operations* |
|--------|--------------------------------------------------------------|

 

Loss from continuing operations decreased from $245,711 during the year            ended December 31, 2006 to $190,022 during the year ended December 31, 2007. This            decrease in loss from continuing operations was largely the result of the decrease in            interest expense discussed in the preceding paragraph.

 

|   | *Gain (Loss) From Discontinued Operations, Net of                            Tax* |
|--------|-----------------------------------------------------------------------------------|

 

During the year ended December 31, 2007 we realized a gain from            discontinued operations net of tax of $14,749, compared to a loss during 2006 of            $585,669. This gain was largely the result of our efforts to limit costs and expenses            during fiscal 2007 coupled with the termination of our lease obligation on the            Brunswick store during the third quarter 2007 and gains recognized on the sale of            certain fixed assets of the Company during 2007.

 

|   | *Net Loss* |
|--------|------------|

 

For the foregoing reasons, our net loss in fiscal 2007 was $175,273            compared to a net loss in fiscal 2006 of $831,380.

 

With the discontinuance of our retail floor covering business we            currently have no ability to generate revenue. It is our intention to keep operating            expenses at a minimum until such time as we identify and undertake a new business            opportunity that will allow us to generate revenue to meet our operational            needs.

 

11

 

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|   | **Liquidity and Capital                            Resources** |
|--------|----------------------------------------------------------------|

 

Our capital resources have consisted of revenues from operations, funds            raised through the sale of our common stock and debt. As shown in our financial            statements, we have an accumulated deficit of $3,177,940, and negative working capital            of $1,218,067. These factors raise substantial doubt about our ability to continue as a            going concern.

 

As of December 31, 2007 we had total assets of $6,090, including cash of            $607. At December 31, 2007 total liabilities were $2,403,951. As we currently have no            way to generate income from operations to service our debt obligations, we anticipate            we will need to raise additional capital to service those obligations or otherwise            negotiate the satisfaction of those debts. We may seek additional equity financing            through the sale of our shares or debt financing to try to meet these obligations. We            currently have no commitments for additional equity or debt financing and there is no            guarantee that we can obtain equity or debt financing on acceptable terms or at all. As            noted above, these factors raise substantial doubt about our ability to continue as a            going concern.

 

During fiscal 2007 and 2006 cash was primarily used to fund operations.            See below for additional discussion and analysis of cash flow.

 

|                                      | Fiscal 2007 |         | Fiscal 2006 |
|-------------------------------------------|-------------|--------------|-------------|
|                                      |        |         |        |   |   |
| Net cash used in operating activities     | $           | (98,979)     |        | $ | (777,847) |
| Net cash from investing activities        | $           | 58,500  |        | $ | 45,020  |
| Net cash provided by financing activities | $           | 15,606  |        | $ | 694,025  |
|                                      |        |         |        |   |   |
| NET INCREASE/(DECREASE) IN CASH           | $           | (24,873)     |        | $ | (38,802) |

 

As discussed herein, the primary reason for the decrease in net cash            used in operating activities is the decrease in net loss from discontinued            operations.

 

During fiscal 2006, we received $74,813 from the sale of the assets of            our Yulee store and we purchased additional equipment for $29,793. By comparison in            fiscal 2007, we purchased no equipment and received $58,500 from the sale of certain            equipment of our Brunswick, Georgia store.

 

Net cash from financing activities during the year ended December 31,            2007 was $15,606 as we borrowed $151,008 on a related-party line of credit and repaid            $135,402 on long term debts. By comparison, during the twelve months ended December 31,            2006 net cash from financing activities was $694,028. During the 2006 fiscal year we            repaid $305,725 on a line of credit with a related party and net borrowed $623,137 in            long-term debt.

 

12

 

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**Summary of Material Contractual Commitments**

 

|   | The                            following table lists our significant commitments as of December 31,                            2007. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------|

 

| Contractual Commitments             |  

Total    | Payments Due by Fiscal Year |
|-------------------------------------|------------------|-----------------------------|
| Less than 1 year                    | 2-3 years        | 4-5 years                   | After

5 years |
|                                |             |                        |   |   |   |
| Lines of Credit-Related Party       | $ 1,051,008 | $ 1,051,008            | $        -0- | $         -0- | $           -0- |
| Notes Payable – Related Party | 1,047,492        | 15,313                      | 33,964 | 38,050 | 960,165 |
| Long-Term Debt                      | 160,549          | 7,451                       | 153,098 | -0- | -0- |
|  

Total                       | $ 2,259,049      | $ 1,073,772            | $ 187,062 | $  38,050 | $  960,165 |

 

**Off-Balance Sheet Financing Arrangements**

 

|   | As of December 31, 2007 and 2006, we had no off-balance                            sheet financing arrangements. |
|--------|------------------------------------------------------------------------------------------------------------------|

 

**Critical Accounting Policies**

 

|   | *Revenue Recognition* |
|--------|-----------------------|

 

We recognize revenue according to Staff Accounting Bulletin 104,*Revenue Recognition*which clarifies U.S.            generally accepted accounting principles for revenue            transactions*.*Accordingly, revenue            is recognized when an order has been received, the price is fixed and determinable, the            order is shipped and installed, collection is reasonably assured and we have no            significant obligations remaining. Licensing fees are royalties paid to us for            licensing the use of the name The Flooring Zone. The royalties range from 1-2% of the            licensee’s commercial sales volume. We currently have no royalty            income.

 

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

 

13

 

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

 

**Recently Issued Financial Accounting Standards**

 

In September 2006, the Financial Accounting Standards Board            (“FASB”) issued SFAS No. 157,*Fair Value            Measurements,*which defines fair value, establishes a            framework for measuring fair value in U.S. generally accepted accounting principles,            and expands disclosures about fair value measurements. SFAS No. 157 does not            require any new fair value measurements, but provides guidance on how to measure fair            value by providing a fair value hierarchy used to classify the source of the            information. This statement is effective for the Company beginning January 1,            2008. The Company is currently assessing the potential impact that adoption of SFAS            No. 157 will have on its financial statements.

             

In February 2007, the FASB issued SFAS No. 159,*The Fair Value Option for Financial Assets and Financial            Liabilities-Including an Amendment of SFAS No. 115*. SFAS No.            159 permits entities to choose to measure many financial instruments and certain other            items at fair value. Most of the provisions of this statement apply only to entities            that elect the fair value option. This statement is effective for the Company beginning            January 1, 2008. The Company is currently assessing the potential impact that            adoption of SFAS No. 159 will have on its financial statements.

             

In December 2007, the FASB issued SFAS No. 141R,*Business Combinations,*the purpose of which            is to improve the relevance, representational faithfulness, and comparability of the            information that a reporting entity provides in its financial reports about a business            combination and its effects. SFAS No. 141R retains the fundamental provisions of SFAS            No. 141, which it replaces, but is broader in scope than SFAS No. 141. This statement            is effective for the Company beginning January 1, 2009. Earlier application is            prohibited. The Company is currently assessing the potential impact that adoption of            SFAS No. 141R will have on its financial statements.

 

15

 

----

**ITEM 7. FINANCIAL STATEMENTS**

 

 

 

|   | **The Flooring Zone, Inc.** |
|--------|-----------------------------|

 

|   | Report of Independent Registered Public Accounting                            Firm |
|--------|------------------------------------------------------------------------------------|

|   | And |
|--------|-----|

|   | Consolidated Financial Statements |
|--------|-----------------------------------|

 

|   | December 31, 2007 |
|--------|-------------------|

 

15

 

----

                

|   | **The Flooring Zone, Inc.** |  

                              |
|--------|-----------------------------|--------------------------------------------|

                                                                                                                              

|   | TABLE OF CONTENTS |
|--------|-------------------|

             

             

|                                                                                                                                                                 |   | Page                                           |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|
|  

Report of Independent Registered Public Accounting                            Firm                                                                           |   |  

15                                     |
|  

Consolidated Balance Sheet-December 31, 2007                                                                                                                 |   |  

16-17                                  |
|  

Consolidated Statements of Operations for the Years                            Ended                             December 31, 2007 and 2006                  |   |  

                             

18 |
|  

Consolidated Statements of Stockholders’ Deficit                            for the Years                             Ended December 31, 2007 and 2006 |   |  

                             

19 |
|  

Consolidated Statements of Cash Flows for the Years                            Ended                             December 31, 2007 and 2006                  |   |  

                             

20 |
|  

Notes to Consolidated Financial Statements                                                                                                                   |   |  

21-28                                  |

 

 

 

16

 

----

 

|   | Report of Independent Registered Public Accounting                            Firm |
|--------|------------------------------------------------------------------------------------|

 

The            Board of Directors and Shareholders

The            Flooring Zone, Inc.

 

We            have audited the accompanying consolidated balance sheet of The Flooring Zone, Inc. as            of December 31, 2007 and the related consolidated statements of operations,            stockholders’ deficit, and cash flows for the years ended December 31, 2007 and            2006. These financial statements are the responsibility of the Company's management.            Our responsibility is to express an opinion on these consolidated financial statements            based on our audit.

 

We            conducted our audit in accordance with the standards of the Public Company Accounting            Oversight Board (United States). Those standards require that we plan and perform an            audit 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 audit 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 also 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 audit provides a reasonable basis for our            opinion.

 

In            our opinion, the financial statements referred to above present fairly, in all material            respects, the consolidated financial position of The Flooring Zone, Inc. as of December            31, 2007 and the results of operations and cash flows for the years ended December 31,            2007 and 2006, in conformity with accounting principles generally accepted in the            United States of America.

 

The            accompanying financial statements have been prepared assuming the Flooring Zone, Inc.            will continue as a going concern. As discussed in Note 11 to the financial statements,            the Company has accumulated losses from operations and a deficit in working capital.            These issues raise substantial doubt about its ability to continue as a going concern.            Management’s plans in regard to these matters are also described in Note 11. The            financial statements do not include any adjustments that might result from the outcome            of this uncertainty.

 

*Mantyla*McReynolds

Salt            Lake City, Utah

April            14, 2008

 

17

 

----

|   | **The Flooring Zone, Inc.** |
|--------|-----------------------------|

|   | Consolidated Balance Sheet |
|--------|----------------------------|

|   | December 31, 2007 |
|--------|-------------------|

             

 

|   | ASSETS |
|--------|--------|

|  

                                                                                                                                                           |  

                              |  

                              |  

                                     |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------|--------------------------------------------|---------------------------------------------------|
|  

Current assets:                                                                                                                                                 |  

                              |  

                              |  

                                     |
|  

Cash                                                                                                                                                            |  

                              |  

$                                  |  

607                                       |
|  

Total current assets                                                                                                                                            |  

                              |  

                              |  

607                                       |
|  

                                                                                                                                                           |  

                              |  

                              |  

                                     |
|  

                                                                                                                                                           |  

                              |  

                              |  

                                     |
|  

Other assets:                                                                                                                                                   |  

                              |  

                              |  

                                     |
|  

Intangible assets, net of accumulated amortization of                            $3,393

                             

                              |  

                              |  

                              |  

3,890

                              |
|  

Deposits                                                                                                                                                        |  

                              |  

                              |  

1,593                                     |
|  

Total other assets                                                                                                                                              |  

                              |  

                              |  

5,483

                              |
|  

                                                                                                                                                           |  

                              |  

                              |  

                                     |
|  

TOTAL ASSETS                                                                                                                                                    |  

                              |  

$                                  |  

6,090                                     |

 

             

|   | See accompanying notes to financial                            statements |
|--------|---------------------------------------------------------------------------|

 

18

 

----

|   | **The Flooring Zone, Inc.** |
|--------|-----------------------------|

|   | Consolidated Balance Sheet [continued] |
|--------|----------------------------------------|

|   | December 31, 2007 |
|--------|-------------------|

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

|  

Current liabilities:                                                               |  

                              |  

                              |  

                                               |
|--------------------------------------------------------------------------------------------|--------------------------------------------|--------------------------------------------|-------------------------------------------------------------|
|  

Accounts payable                                                                   |  

                              | $                                          |  

98,403                                         |
|  

Line of credit-related party                                                       |  

                              |  

                              |  

1,051,008                                      |
|  

Bank Overdraft                                                                     |  

                              |  

                              |  

14,532                                         |
|  

Accrued liabilities                                                                |  

                              |  

                              |  

31,967 

                                 |
|  

Current portion long-term debt                                                     |  

                              |  

                              |  

22,764                                         |
|  

Total current liabilities                                                          |  

                              |  

                              |  

1,218,674                                      |
|  

Long-term liabilities:                                                             |  

                              |  

                              |  

                                               |
|  

Note payable-related party                                                         |  

                              |  

                              |  

1,047,492 

                              |
|  

Long-term debt                                                                     |  

                              |  

                              |  

160,549 

                                |
|  

Current portion long-term debt                                                     |  

                              |  

                              |  

(22,764)                                            |
|  

Total long-term liabilities                                                        |  

                              |  

                              | 1,185,277                                              |
|  

Total liabilities                                                                  |  

                              |  

                              |  

2,403,951                                      |
|  

Stockholders’ deficit:                                                       |  

                              |  

                              |  

                                               |
|  

Preferred Stock, 10,000,000 shares authorized $.001                            par |  

                              |  

                              |  

                                               |
|  

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                                                         |  

                              |  

                              |  

760,509                                        |
|  

Accumulated deficit                                                                |  

                              |  

                              |  

(3,177,940)                                         |
|  

Total stockholders deficit                                                         |  

                              |  

                              |  

(2,397,861)                                         |
|  

TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT                                         |  

                              |  

$                                  |  

6,090                                          |

             

             

See            accompanying notes to financial statements

 

19

 

----

|   | **The Flooring Zone, Inc.** |
|--------|-----------------------------|

|   | Consolidated Statements of Operations |
|--------|---------------------------------------|

|   | For the years ended December 31, 2007 and                            2006 |
|--------|---------------------------------------------------------------------------|

 

|  

                             

                             

                              |  

                              |  

                             

                             

2007                                                                                      |  

                              |  

                             

                             

2006                                                                          |
|--------------------------------------------------------------------------------------------------------------------|--------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  

Sales

Cost of goods sold                                                                                  |  

                              |  

$                        - 

-  |  

                              |  

$                      - 

-  |
| Gross profit (loss)                                                                                                |                                       | -                                                                                                                                                                    |                                       | -                                                                                                                                                        |
|  

General and administrative expenses                                                                        |  

                              |  

58,280                                                                                                                                                       |  

                              |  

58,136                                                                                                                                           |
|  

Operating income (loss)                                                                                    |  

                              |  

(58,280)                                                                                                                                                          |  

                              |  

(58,136)                                                                                                                                              |
|  

Other income and expense:                                                                                  |  

                              |  

                                                                                                                                                             |  

                              |                                                                                                                                                          |
| Interest expense                                                                                                   |                                       | 131,742                                                                                                                                                              |                                       | 187,575                                                                                                                                                  |
| Loss from continuing operations before income                            taxes                                     |  

                              |  

(190,022)                                                                                                                                                         |  

                              |  

(245,711)                                                                                                                                             |
|  

Provision for income taxes                                                                                 |  

                              |  

-                                                                                                                                                            |  

                              |  

-                                                                                                                                                |
|  

Loss from continuing operations                                                                            |                                       |  

(190,022)

                                                                                                                                                  |                                       |  

(245,711)

                                                                                                                                      |
|  

Gain (loss) from discontinued operations, net of                            tax                            |  

                              |  

                             

14,749                                                                                                                   |  

                              |  

                             

(585,669)                                                                                                         |
|  

Net loss                                                                                                   |  

                              |  

$        (175,273)                                                                                                        |  

                              |  

$      (831,380)                                                                                                        |

 

|  

Loss per share from continuing operations                                      |  

                              |  

                             

$                (0.01)         |  

                              |  

                             

$              (0.01) |
|----------------------------------------------------------------------------------------|--------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------|
|  

Income (loss)per share from discontinued                            operations |  

                              |  

                             

$                                        0.00  |  

                              |  

                             

$             (0.02)       |
|  

Net loss per share-basic and diluted                                           |  

                              |  

$ (0.01)                                                                                                                                            |  

                              | $             (0.03)                                                   |

 

|  

Weighted average shares outstanding-basic and                            diluted |  

                              |  

                             

19,569,750  |  

                              |  

                             

28,182,387  |
|------------------------------------------------------------------------------------------|--------------------------------------------|--------------------------------------------------------------|--------------------------------------------|--------------------------------------------------------------|

                                       

             

             

See accompanying notes to financial statements

 

20

 

----

|   | **The Flooring Zone, Inc.** |
|--------|-----------------------------|

|   | Consolidated Statements of Stockholders'                            Deficit |
|--------|-----------------------------------------------------------------------------|

For            the Years Ended December 31, 2007 and 2006

             

                                                                                                                               

|  

                                                           |  

Shares

Issued                     |  

Common

Stock                      | Additional Paid in Capital                                               |  

Accumulated

Deficit                          | Total

Stockholders’

Deficit                                    |
|-------------------------------------------------------------------------|--------------------------------------------|--------------------------------------------|--------------------------------------------------------------------------|-------------------------------------------------------|------------------------------------------------------------------------|
|  

Balance, January 1, 2006                                        |  

38,428,700                    |  

$ 38,570                 |  

$ 608,257                                                   |  

$  (2,171,287)                      |  

$    (1,524,460)                           |
|  

Cancellation of Shares                                          |  

(19,000,000)                       |  

(19,000)                           |  

                             

19,000                  |                                                  |  

                                                          |
|  

Net loss for year ended December 31, 2006                       |  

                              |  

                              |  

                                                            |  

                             

(831,380) |  

                             

(831,380)                  |
|  

Balance, December 31, 2006

Disposal of discontinued operations | 19,569,750                            | 19,570                                |  

627,257 

                             

133,252  |  

(3,002,667)                                   |  

(2,355,840)

                             

133,252  |
|  

Net loss for year ended

December 31, 2007                      |  

                              |  

                              |  

                                                            |  

                             

(175,273) |  

                             

(175,273)                  |
|  

Balance, December 31, 2007                                      |  

19,569,750                    |  

$ 19,570                 |  

$   760,509                                  |  

$  (3,177,940)                      |  

$    (2,397,861)                           |

 

 

 

See            accompanying notes to financial statements

 

21

 

----

**The Flooring Zone, Inc.**

Consolidated Statements of Cash Flows

For            the years ended December 31, 2007 and 2006

 

|  

                                                                                                                                 |  

                              |  

2007                               |  

                              |  

2006                               |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------|--------------------------------------------|--------------------------------------------|--------------------------------------------|
|  

CASH FLOWS FROM OPERATING ACTIVITIES                                                                                                  |  

                              |  

                              |  

                              |  

                              |
|  

Net loss                                                                                                                              |  

$                                  |  

(175,273)                          |  

$                                  |  

(831,380)                          |
|  

(Gain) loss from discontinued operations                                                                                              |  

                              |  

(14,749)                           |  

                              |  

585,669                       |
|  

Loss from continuing operations                                                                                                       |  

                              |  

(190,022)                          |  

                              |  

(245,711)                          |
|  

Adjustments to reconcile loss from continuing operations                            to net cash from continuing operating activities: |  

                              |                                       |                                       |                                       |
|  

Decrease (increase) in deposits                                                                                                       |  

                              | 4,438                                 |  

                              | -                                     |
| Increase (decrease) in accounts payable                                                                                                       |  

                              | (21,596)                                   |  

                              | 18,412                                |
| Increase (decrease) in accrued liabilities                                                                                                    |  

                              | (8,039)                                    |  

                              | 1,385                                 |
| Net cash from continuing operating activities

                                                                                          |  

                              | (215,219)                                  |  

                              | (225,914)                                  |
|  

Net cash from discontinued operating                            activities                                                            |  

                              | 116,240                               |  

                              | (551,933)                                  |
|  

Net cash used in operating activities                                                                                                 |  

                              | (98,979)                                   |  

                              | (777,847)                                  |
|                                                                                                                                          |                                       |                                       |                                       |                                       |
|  

CASH FLOWS FROM INVESTING ACTIVITIES                                                                                                  |  

                              |  

                              |  

                              |  

                              |
|  

Net cash from continuing investing activities                                                                                         |  

                              |  

-                             |  

                              | -                                     |
| Net cash from discontinued investing                            activities                                                                    |  

                              | 58,500                                |  

                              | 45,020                                |
| Net cash from investing activities                                                                                                            |  

                              |  

58,500                        |  

                              |  

45,020                        |
|  

CASH FLOWS FROM FINANCING ACTIVITIES                                                                                                  |  

                              |  

                              |  

                              |  

                              |
|  

Borrowing (payments) on line of credit-related                            party                                                       |  

                              |  

151,008                       |  

                              |  

(305,725)                          |
|  

Borrowing (payments) on long term debt                                                                                                |  

                              | (135,402)                                  |  

                              | 623,137                               |
| Net cash from continuing financing activities                                                                                                 |  

                              |  

15,606                        |  

                              | 317,412                               |
| Net cash from discontinued financing                            activities                                                                    |  

                              |  

-                             |  

                              | 376,613                               |
|  

Net cash from financing activities                                                                                                    |  

                              |  

15,606                        |  

                              |  

694,025                       |
|  

NET INCREASE (DECREASE) IN CASH                                                                                                       |  

                              |  

(24,873)                           |  

                              |  

(38,802)                           |
|  

CASH AT BEGINNING OF YEAR                                                                                                             |  

                              |  

25,480                        |  

                              |  

64,282                        |
|  

CASH AT END OF YEAR                                                                                                                   |  

$                                  |  

607                           |  

$                                  |  

25,480                        |

             

|  

SUPPLEMENTAL DISCLOSURES   |  

                              |  

                              |  

                              |  

                              |
|------------------------------------|--------------------------------------------|--------------------------------------------|--------------------------------------------|--------------------------------------------|
|  

Cash paid for interest     |  

$                                  |  

131,742                       |  

$                                  |  

178,607                       |
|  

Cash paid for income taxes |  

                              |  

-                             |  

                              |  

-                             |
|                               |                                       |                                       |                                       |                                       |

 

See            accompanying notes to financial statements

 

22

 

----

**The Flooring Zone, Inc.**

|   | **Notes to Consolidated Financial                                Statements** |
|--------|-------------------------------------------------------------------------------|

|   | **December 31, 2007** |
|--------|-----------------------|

| Note 1 | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING                            POLICIES |
|--------|----------------------------------------------------------------------------------------|

             

***Organization***-The Flooring Zone, Inc.            (the Company) is a corporation organized under the laws of the State of Nevada on May            5, 2003. On May 13, 2003 pursuant to a Share Exchange Agreement, the Company acquired            all of the outstanding common stock of The Flooring Zone of Georgia, Inc (the Georgia            Company), a Georgia Corporation, in exchange for 38,125,000 shares of common stock of            the Company. In 2006, the company cancelled 19,000,000 shares of its common stock.            Until December 2007, the Company’s business operations provided for full-service            retail floor covering products and services. In December 2007, the Company discontinued            its full-service retail floor covering business.

             

The financial statements of the Company have been prepared in accordance            with generally accepted accounting principles. The following summarizes the more            significant of such policies:

             

***Principles of Consolidation***-The            accompanying consolidated financial statements include the accounts of The Flooring            Zone, Inc. and its wholly owned subsidiary, The Flooring Zone of Georgia, Inc. All            significant intercompany balances and transactions are eliminated.

             

***Revenue Recognition*****-**The Company recognizes revenue according to Staff Accounting Bulletin            104,*Revenue Recognition*which            clarifies U.S. generally accepted accounting principles for revenue            transactions*.*Accordingly, revenue            is recognized when an order has been received, the price is fixed and determinable, the            order is shipped and installed, collection is reasonably assured and the Company has no            significant obligations remaining. Licensing fees are royalties paid to the Company for            licensing the use of the name The Flooring Zone. The royalties range from 1-2% of the            licensee’s commercial sales volume.

             

***Use of Estimates in Preparation of Financial            Statements-***The preparation of financial statements in            conformity with generally accepted accounting principles requires management to make            estimates and assumptions that affect the reported amounts of assets and liabilities,            and disclosure of contingent assets and liabilities at the date of the financial            statements, and the reported amounts of revenues and expenses during the reporting            period. Actual results could differ from those estimates.

             

***Cash and Cash Equivalents-***The            Company considers all highly liquid investments with original maturities at the date of            purchase of three months or less to be cash equivalents.

             

***Bad Debt and Allowance for Doubtful            Accounts**-*The allowance for            doubtful accounts is maintained at a level sufficient to provide for estimated credit            losses based on evaluating known and inherent risks in the receivables portfolio. The            Company provides an allowance for doubtful accounts which, based upon            management’s evaluation of numerous factors, including economic conditions, a            predictive analysis of the outcome of the current portfolio and prior credit loss            experience, is deemed adequate to cover reasonably expected losses inherent in            outstanding            receivables.      

             

***Concentrations of Credit            Risk**-*Financial instruments which            potentially subject the Company to concentrations of credit risk consist principally of            trade receivables. The Company provides credit to its customers in the normal course of            business, and accordingly performs ongoing credit evaluations and maintains allowances            for potential credit losses. Concentrations of credit with respect to trade receivables            are limited due to the Company requiring a deposit from customers.

 

23

 

----

**The Flooring Zone, Inc.**

|   | **Notes to Consolidated Financial                            Statements** |
|--------|---------------------------------------------------------------------------|

|   | **December 31, 2007** |
|--------|-----------------------|

 

 

***                          Inventory-***Inventories are stated at the lower of cost or            market, cost being determined on a                                       first-in, first-out method.

             

***Property and            Equipment*****-**Property and            equipment are stated at cost. Expenditures for maintenance and repairs are charged to            expense as incurred.

             

***Intangible Assets**-*Intangible assets include trademarks that have been registered with the            United States Patent and Trademarks office. Intangible assets also include the closing            costs for refinancing a portion of the Company’s debt with a bank. The costs of            obtaining trademarks and closing costs are capitalized as incurred and are amortized            over their estimated useful lives of fifteen years and five years, respectively, using            the straight-line method. Amortization expense for the years ended December 31, 2007            and 2006 were $1,014 and $1,014, respectively. Amortization expense for the next five            year is expected to be as follows:

                

| Year |  

                              | Amount |
|------|--------------------------------------------|--------|
| 2008 |  

                              | 1,014  |
| 2009 |  

                              | 726    |
| 2010 |  

                              | 323    |
| 2011 |  

                              | 323    |

***Income Taxes-***The Company applies            the provisions of Statement of Financial Accounting Standards(SFAS) No. 109,*Accounting for Income Taxes*which requires            an asset and liability approach for financial accounting and reporting for income            taxes, and the recognition of deferred tax assets and liabilities for the temporary            differences between the financial reporting basis and tax basis of the Company’s            assets and liabilities at enacted tax rates expected to be in effect when such amounts            are realized or settled.

In July 2006, the FASB issued Interpretation No. 48 (FIN No. 48),            “Accounting for Uncertainty in Income Taxes.” This interpretation requires            recognition and measurement of uncertain income tax positions using a            “more-likely-than-not” approach. FIN No. 48 is effective for fiscal years            beginning after December 15, 2006. The Company adopted the provisions of FIN No. 48,            “Accounting for Uncertainty in Income Taxes –an Interpretation of FASB            Statement No. 109” on January 1, 2007. FIN No. 48 requires the recognition and            measurement of uncertain tax positions taken or expected to be taken in a tax return.            Adoption of this new standard did not have a material impact on our financial position,            results of operations or cash            flows.         

***Net Loss Per Common share-***In            accordance with SFAS No. 128, Earnings Per Share, basic loss per common share is            computed using the weighted average number of common shares outstanding. Diluted            earnings per share is computed using weighted average number of common shares plus            dilutive common share equivalents outstanding during the period using the treasury            stock method. At December 31, 2007 there are no common stock equivalents outstanding,            thus, basic and diluted loss per share calculations are the same.

             

24

             

----

**The Flooring Zone, Inc.**

|   | **Notes to Consolidated Financial                            Statements** |
|--------|---------------------------------------------------------------------------|

|   | **December 31, 2007** |
|--------|-----------------------|

 

 

***Stock based compensation-***Effective            January 1, 2006, the Company adopted Statement of Financial Accounting Standards            (“SFAS”) SFAS No. 123(R),*Share-Based            Payment*, (“SFAS No. 123(R)”). SFAS No. 123(R)            requires that the fair value compensation cost relating to share-based payment            transactions be recognized in financial statements. Under the provisions of SFAS No.            123(R), share-based compensation cost is measured at the grant date, based on the fair            value of the award, and is recognized over the employee’s requisite service            period. The fair value of the Company’s stock options is estimated using a            Black-Scholes option valuation model. The Company adopted the fair value recognition            provisions of SFAS No. 123(R) using the modified prospective transition method.             Under this transition method, stock-based compensation cost is recognized beginning            January 1, 2006 for all options granted after the date of adoption as well as the            unvested portion of previously granted options based on the estimated fair value. Prior            to January 1, 2006 the Company accounted for employee stock option grants using the            intrinsic method in accordance with APB Opinion No. 25,*Accounting for Stock Issued to Employees,*and accordingly associated compensation expense, if any, was measured as            the excess of the underlying stock price over the exercise price on the date of grant.            The Company also complied with the disclosure option of SFAS No. 123,*Accounting for Stock Based Compensation*,            and SFAS No. 148,*Accounting for Stock-Based            Compensation—Transition and Disclosure,*and included            disclosures of pro forma information in its footnotes to the consolidated financial            statements. Pro forma net income and pro forma net income per share disclosed in the            footnotes to the consolidated financial statements were estimated using a Black-Scholes            option valuation model. As the Company issued no stock options and none vested during            the year the impact of adopting SFAS No. 123(R) resulted in no additional compensation            expense in 2007 or 2006.

             

***Advertising Costs-***Advertising costs            of the Company are charged to expense as incurred. Advertising expense amounted to            $7,419 and $22,057 in 2007 and 2006, respectively.

             

***Recently Issued Financial Accounting            Standards***— In September 2006, the Financial            Accounting Standards Board (“FASB”) issued SFAS No. 157,*Fair Value Measurements,*which defines fair            value, establishes a framework for measuring fair value in U.S. generally accepted            accounting principles, and expands disclosures about fair value measurements. SFAS            No. 157 does not require any new fair value measurements, but provides guidance on            how to measure fair value by providing a fair value hierarchy used to classify the            source of the information. This statement is effective for the Company beginning            January 1, 2008. The Company is currently assessing the potential impact that            adoption of SFAS No. 157 will have on its financial statements.

 

In February 2007, the FASB issued SFAS No. 159,*The Fair Value Option for Financial Assets and Financial            Liabilities-Including an Amendment of SFAS No. 115*. SFAS No.            159 permits entities to choose to measure many financial instruments and certain other            items at fair value. Most of the provisions of this statement apply only to entities            that elect the fair value option. This statement is effective for the Company beginning            January 1, 2008. The Company is currently assessing the potential impact that            adoption of SFAS No. 159 will have on its financial statements.

 

In December 2007, the FASB issued SFAS No. 141R,*Business Combinations,*the purpose of which            is to improve the relevance, representational faithfulness, and comparability of the            information that a reporting entity provides in its financial reports about a business            combination and its effects. SFAS No. 141R retains the fundamental provisions of SFAS            No. 141, which it replaces, but is broader in scope than SFAS No. 141. This statement            is effective for the Company beginning January 1, 2009.

             

25

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**The Flooring Zone, Inc.**

|   | **Notes to Consolidated Financial                            Statements** |
|--------|---------------------------------------------------------------------------|

|   | **December 31, 2007** |
|--------|-----------------------|

 

 

Earlier application is prohibited. The Company is currently assessing            the potential impact that adoption of SFAS No. 141R will have on its financial            statements.

             

| Note 2 | INCOME TAXES |
|--------|--------------|

 

|   | The provision for income taxes consists of the                            following: |
|--------|--------------------------------------------------------------------------------------|

 

|                             | 12/31/2007 |   | 12/31/2006      |
|----------------------------------|------------|--------|-----------------|
| Provision for Income Taxes       |       |   |            |
| Current Taxes                    | $ —  |   | $ —  |
| Deferred Taxes                   | —    |   | —         |
| Total Provision for Income Taxes | $ —  |   | $ —       |

                

The Company uses the asset/liability method, where deferred tax assets            and liabilities are determined based on the expected future tax consequences of            temporary differences between the carrying amounts of assets and liabilities for            financial and income tax reporting purposes. The net deferred tax asset generated by            the loss carry-forward has been fully reserved.

 

|   | At December 31, 2007, deferred taxes consisted of the                            following: |
|--------|---------------------------------------------------------------------------------------------|

 

|                     | Current   |   | Noncurrent                                                                       |
|--------------------------|-----------|--------|----------------------------------------------------------------------------------|
| Deferred tax assets      |      |   |                                                                             |
| Net operating losses     | $ — |   | $ 1,139,357                                                                 |
| Valuation allowance      | —   |   | (1,139,357)                                                                      |
| Net deferred tax asset   | —   |   | —                                                                     |
|                     |      |   |                                                                             |
| Deferred tax liabilities | —   |   | —                                                                     |
|                     |      |   |                                                                             |
| Net deferred taxes       | $ — |   | $           —  |

             

A valuation allowance is provided when it is more likely than not that            some portion of the deferred tax asset will not be realized. Because of the lack of            visibility as to the Company’s earning ability in the near future, the Company            has established a valuation allowance for all future deductible net operating loss            carry forwards. The valuation allowance has increased $143,844 from $995,513, as of            December 31, 2007.

 

|   | Net operating loss (“NOL”) carryforwards                            expire according to the following: |
|--------|--------------------------------------------------------------------------------------------------------------------|

 

| **Year of NOL** | **NOL**     | **Expires** |
|-----------------|-------------|-------------|
| 2007            | $ 175,273   | 2027        |
| 2006            | 831,380     | 2026        |
| 2005            | 1,172,526   | 2025        |
| 2004            | 209,565     | 2024        |
| 2003            | 459,649     | 2023        |
| Total           | $ 2,848,393 |        |

 

 

26

             

----

**The Flooring Zone, Inc.**

|   | **Notes to Consolidated Financial                            Statements** |
|--------|---------------------------------------------------------------------------|

|   | **December 31, 2007** |
|--------|-----------------------|

 

 

A reconciliation between income taxes at statutory tax rates (34%) and            the actual income tax provision for continuing operations as of December 31, 2007 and            2006 follows:

             

|  

                              |                                                                                                   |   |    |          |   |
|--------------------------------------------|--------------------------------------------------------------------------------------------------------|--------|---------|---------------|--------|
|                                       |                                                                                                   |   |    | 12/31/2007    |   |   | 12/31/2006 |
|                                       | Expected Provision(Benefit) (based on statutory                            rate)                       |   | $       | (59,593)      |   | $ | (282,669) |
|                                       | Effect of:                                                                                             |   |    |          |   |   |   |
|                                       | State taxes, net of federal benefit                                                                    |   |    | (10,516)      |   |   | (49,883) |
|                                       | Difference between prior year estimated                            NOL’s

and actual NOL’s |   |    | 73,735   |   |   | —  |
|                                       | Increase/(decrease) in valuation allowance                                                             |   |    | 143,844  |   |   | 332,552  |
|                                       | Total actual provision                                                                                 |   | $  | 0        |   | $  | 0  |
|                                            |                                                                                                        |        |         |               |        |  |  |  |  |

 

The Company adopted the provisions of FIN No. 48 on January 1, 2007. As            a result of this adoption, we have not made any adjustments to deferred tax assets or            liabilities. We did not identify any material uncertain tax positions of the Company on            returns that have been filed or that will be filed. The Company continues to incur net            operating losses as disclosed above. Since it is not thought that these net operating            loss carry forwards will ever produce a tax benefit, even if examined by taxing            authorities and disallowed entirely, there would be no effect on the financial            statements. A reconciliation of our unrecognized tax benefits for 2007 is presented as            follows:

 

| Balance as of January 1, 2007                                                           | $      | — |
|-----------------------------------------------------------------------------------------|--------|---------|
| Additions based on tax positions related to the current                            year |   | — |
| Additions based on tax positions related to prior                            years      |   | — |
| Reductions for tax positions of prior years                                             |   | — |
| Reductions due to expiration of statute of                            limitations  |   | — |
| Settlements with taxing authorities                                                     |   | — |
|                                                                                    |   |    |
| Balance as of December 31, 2007                                                         | $      | — |

 

The Company has filed income tax returns in the U.S. federal            jurisdiction and Georgia state jurisdictions. The Company is no longer subject to U.S.            federal tax examinations of any tax returns for years before 2004.

 

The Company recognizes interest accrued related to unrecognized tax            benefits in interest expense and penalties in operating expenses. During the years            ended December 31, 2007 and 2006, the Company recognized no interest and penalties. The            Company had no payments of interest and penalties accrued at December 31, 2007, and            2006, respectively.

 

| Note 3 | COMMON STOCK/PREFERRED STOCK |
|--------|------------------------------|

             

The Company’s preferred stock may be issued from time to time in            one or more series. The Board of Directors is to establish by resolution(s) the number            of shares to be included in each series, and to fix the designation, powers,            preferences and rights of the shares of each such series and the qualifications,            limitations or restrictions thereof. As of December 31, 2007 no shares of preferred            stock have been issued by the Company.

             

 

27

             

----

**The Flooring Zone, Inc.**

|   | **Notes to Consolidated Financial                            Statements** |
|--------|---------------------------------------------------------------------------|

|   | **December 31, 2007** |
|--------|-----------------------|

 

 

On November 29, 2007, pursuant to a Stock Purchase Agreement between            Michael Carroll, the sole executive officer and a member of board of directors of the            Company, and Andrew Limpert, Mr. Carroll sold 11,550,000 shares of his common            stock to Mr. Limpert for $112,750. Mr. Limpert used personal funds to            acquire the shares.

             

Following the transaction Mr. Limpert owns 11,550,100 shares or 59%            of the 19,569,750 shares of outstanding common stock and Mr. Carroll owns            7,449,900 shares or 38% of the outstanding common stock of the Company.

             

| Note 4 | STOCK INCENTIVE PLAN |
|--------|----------------------|

 

On May 13, 2003 the Company’s Board of Directors adopted the            Company’s 2003 Stock Incentive Plan (the “Plan”). The Plan provides            for the granting of equity incentive awards to its key employees, officers, directors,            consultants, advisors and sales representatives to purchase up to 500,000 shares of its            $.001 par value restricted common stock. The Stock Option Committee of the board of            directors shall determine the terms and conditions of any award under the Plan,            including price, vesting, exchange, surrender, termination, exercise or forfeiture            provisions, etc. The Company granted 45,000 options in 2003. These options vested            immediately and were exercised in 2003. 455,000 options are still available for            granting. No stock options were granted, exercised or outstanding during the years            ended December 31, 2007 and 2006.

             

| Note 5 | RELATED PARTY TRANSACTIONS |
|--------|----------------------------|

 

During the year ended December 31, 2003 the Company obtained a line of            credit with a shareholder and his related companies for the purpose of meeting cash            flow needs. The interest rate on the lines of credit is prime plus 1%. As of December            31, 2007 and 2006, the outstanding balances on this line were $1,051,008 and $900,000,            respectively all maturing within twelve (12) months. During the years ended December            31, 2007 and 2006, the Company had sales to two entities owned by the Company’s            Former President and C.E.O. amounting to $257,920 and $287,239, respectively. These            numbers are included in discontinued operations.

             

During the years ended December 31, 2007 and 2006 the Company paid Joel            Arline, a Company director $10,650 and $9,112 for accounting and tax preparation and            consulting services provided to the Company.

             

| Note 6 | LONG-TERM DEBT |
|--------|----------------|

             

The following is a summary of the Company’s indebtedness as of            December 31, 2007:

 

|  

Note payable to a bank with interest at 6.50% due in                            monthly installments of $1,471.29 through October 2009, secured by                            property owned by the Company’s former president and current                            shareholder. |  

                              |  

                             

                             

$                                  |  

                             

                             

160,549   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------|--------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------|
|  

Note payable to a shareholder with interest at 6.875%                            due in monthly installments of $7,155.73 through November 2036,                            unsecured.                                                                                                   |  

                              |  

                             

                             

                              |  

                             

                             

1,047,492 |
|  

Total                                                                                                                                                                                                                                                                                    |  

                              |  

$                                                                                                          |  

1,208,041                                                                         |

             

             

28

             

----

**The Flooring Zone, Inc.**

|   | **Notes to Consolidated Financial                            Statements** |
|--------|---------------------------------------------------------------------------|

|   | **December 31, 2007** |
|--------|-----------------------|

 

 

Maturities of debt are as follows:

 

|  

Year Ending December 31:           |  

                              |  

Amount    |
|--------------------------------------------|--------------------------------------------|-------------------|
|  

2008                               |  

$                                  |  

22,764    |
|  

2009                               |  

                              |  

169,498   |
|  

2010                               |  

                              |  

17,564    |
|  

2011                               |  

                              |  

18,810    |
|  

Thereafter                         |  

                              |  

979,405   |
|  

                              |  

$                                  |  

1,208,041 |

             

| Note 7 | LEASES |
|--------|--------|

 

The Company had an operating lease with an unrelated party for its            retail store, warehouse and office facilities. The lease was terminated in 2007. During            the year ended December 31, 2007, and 2006 the Company paid lease payments in the            amount of $58,389 and $189,377, respectively. In November 2006, the Company sold the            assets of the Yulee store and terminated the lease on that Store.

             

| Note 8 | CONTINGENCIES |
|--------|---------------|

             

The Company is involved in various claims and legal actions arising in            the ordinary course of business. In the opinion of management, the ultimate disposition            of these matters will not have a material adverse effect on the Company's financial            position. However, an unfavorable outcome in these claims could result in a possible            judgment against the Company of as much as $10,000.

             

The Company records contingent losses when they are probable and            reasonably estimable. The Company and their legal council have determined that these            liabilities are possible but no probable.

 

| Note 9 | CLOSED OPERATIONS |
|--------|-------------------|

 

The Company sold the remaining assets of the Yulee, Florida store in            November 2006, due to poor performance. The Company sold the assets for net proceeds of            $74,813 and recognized a gain on the sale of $27,746. Any inventory not sold was            transferred to the Brunswick Store. The Company terminated its lease.

             

| Note 10 | DISCONTINUED OPERATIONS |
|---------|-------------------------|

 

In connection with the decision to discontinue its retail floor covering            operations because of poor performance and continuing operating losses, the Company            sold certain equipment and inventory to a related party during the fourth quarter 2007.            The Company sold the equipment and inventory for proceeds of $52,500. The Company sold            net assets of $189,487 and the purchaser assumed net liabilities of the Company of            $270,239. Due to the related party nature of the transaction, no gain was recognized            and additional paid in capital was increased by $133,252. The result of operations of            the Company have been retroactively restated as discontinued operations.

 

29

             

----

**The Flooring Zone, Inc.**

|   | **Notes to Consolidated Financial                            Statements** |
|--------|---------------------------------------------------------------------------|

|   | **December 31, 2007** |
|--------|-----------------------|

 

 

| Note 11 | 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 $3,177,940, and a negative working capital of            $1,218,067. These factors raise substantial doubt about the Company’s ability to            continue as a going concern.

 

Management plans to attempt to renegotiate or otherwise restructure its            debt obligations in such a way that will make it possible for the Company to service            its debt obligations. The Company also plans to seek additional equity or debt            financing to help satisfy its debt service and operating needs. The Company currently            has no commitments for additional equity or debt financing and there is no guarantee            that the Company can obtain equity or debt financing on acceptable terms or at all.            Should the Company be unable to obtain additional financing it may have to discontinue            efforts to identify and pursue other opportunities to enhance shareholder value. The            financial statements do not include any adjustments that might result from the outcome            of this uncertainty.

 

30

             

----

**ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS**

**ON            ACCOUNTING AND FINANCIAL DISCLOSURE**

 

|   | None. |
|--------|-------|

 

**ITEM 8A(T). CONTROLS AND PROCEDURES**

 

*Management’s Report on Internal Control over Financial            Reporting*

             

Management is responsible for establishing and maintaining adequate            internal control over financial reporting as defined in Rules 13a-15(f) and            15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control            over financial reporting is designed to

Ensure            that information required to be disclosed in reports filed under the Securities            Exchange Act of 1934, as amended (the “Exchange Act”), is recorded,            processed, summarized and reported within the time periods specified in the rules and            forms of the Securities and Exchange Commission, and that such information is            accumulated and communicated to management, including our Chief Executive Officer and            Chief Financial Officer, as appropriate, to allow timely decisions regarding required            disclosure and to provide reasonable assurance regarding the reliability of financial            reporting and the preparation of financial statements for external purposes in            accordance with U.S. generally accepted accounting principles.

 

As of December 31, 2007 we conducted an evaluation, under the            supervision and with the participation of our president (also our principal executive            officer and principal financial officer), of the effectiveness of our internal control            over financial reporting based on the criteria for effective internal control over            financial reporting established in “Internal Control — Integrated            Framework,” issued by the Committee of Sponsoring Organizations (COSO) of the            Treadway Commission. Based upon this assessment, we determined that there are material            weaknesses affecting our internal control over financial reporting

 

The matters involving internal controls and procedures that the            Company’s management consider to be  material weaknesses under COSO and SEC            rules are: (1) lack of a functioning audit committee and lack of independent directors            on the Company’s board of directors, resulting in ineffective oversight in the            establishment and monitoring of required internal controls and procedures; (2)            inadequate segregation of duties consistent with control objectives; (3) insufficient            written policies and procedures for accounting and financial reporting with respect to            the requirements and application of US GAAP and SEC disclosure requirements; and (4)            ineffective controls over period end financial disclosure and reporting processes. The            aforementioned potential material weaknesses were identified by the Company’s            Chief Financial Officer in connection with the preparation of our financial statements            as of December 31, 2007 and communicated the matters to our management and board of            directors.

 

31

 

 

----

Management believes that the material weaknesses set forth in items (2),            (3) and (4) above did not have an affect on the Company’s financial results.            However, the lack of a functioning audit committee and lack of a majority of            independent directors on the Company’s board of directors, resulting in            ineffective oversight in the establishment and monitoring of required internal controls            and procedures, can impact the Company’s financial statements for the future            years.

 

*Management’s Remediation Initiatives* 

 

Although the Company is unable to meet the standards under COSO because            of the limited funds available to a company of our size, we are committed to improving            our financial organization. As funds become available, we will undertake to: (1) create            a position to segregate duties consistent with control objectives, (2) increase our            personnel resources and technical accounting expertise within the accounting function            (3) appoint one or more outside directors to our board of directors who shall be            appointed to the audit committee of the Company resulting in a fully functioning audit            committee who will undertake the oversight in the establishment and monitoring of            required internal controls and procedures; and (4) prepare and implement sufficient            written policies and checklists which will set forth procedures for accounting and            financial reporting with respect to the requirements and application of US GAAP and SEC            disclosure requirements.  

 

We will continue to monitor and evaluate the effectiveness of our            internal controls and procedures and our internal control over financial reporting on            an ongoing basis and are committed to taking further action and implementing additional            enhancements or improvements, as necessary and as funds allow.  However, because            of the inherent limitations in all control systems, no evaluation of controls can            provide absolute assurance that misstatements due to error or fraud will not occur or            that all control issues and instances of fraud, if any, within the Company have been            detected.  These inherent limitations include the realities that judgments in            decision making can be faulty and that breakdowns can occur because of simple error or            mistake. The design of any system of controls is based in part on certain assumptions            about the likelihood of future events, and there can be no assurance that any design            will succeed in achieving its stated goals under all potential future conditions.             Projections of any evaluation of controls effectiveness to future periods are            subject to risks.  

 

This annual report does not include an attestation report of the            Company’s registered public accounting firm regarding internal control over            financial reporting. Management’s report was not subject to attestation by the            Company’s registered public accounting firm pursuant to temporary rules of the            Securities and Exchange Commission that permit the company to provide only            management’s report in this annual report.

             

**ITEM 8B. OTHER INFORMATION**

             

None.

 

32

 

 

----

**PART III**

 

**ITEM 9.DIRECTORS, EXECUTIVE OFFICERS,            PROMOTERS, CONTROL**

**PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH**

**SECTION 16(a) OF THE EXCHANGE ACT**

 

The following table sets forth our directors, executive officers,            promoters and control persons, their ages, and all offices and positions held.            Directors are elected for a period of one year and thereafter serve until their            successors are duly elected by the stockholders. Officers and other employees serve at            the will of the Board of Directors.

 

|   | Name | Age | Positions Held | Director Since |
|--------|------|-----|----------------|----------------|

 

|   | Andrew Limpert | 38 | CEO, Interim CFO |
|--------|----------------|----|------------------|

|   | Secretary and Director | November 2007 |
|--------|------------------------|---------------|

|   | Joel Arline | 38 | Director | November 2005 |
|--------|-------------|----|----------|---------------|

 

 

There is currently one vacancy on our board of directors. We hope to            fill the vacancy with an independent director. Our ability to locate an independent            director may be unsuccessful because we do not have errors and omissions insurance for            officers and directors. The above individuals will serve as officers and/or directors.            A brief description of their positions, proposed duties and their background and            business experience follows:

 

**Andrew Limpert**. Mr. Limpert graduated from            the University of Utah with a Bachelors of Science degree in Finance in 1994. He earned            a Masters of Business Administration with an emphasis in Finance in 1998. Since 1998,            he has been an investment advisor with Belsen Getty, LLC, providing wealth management            direction and strategic and financial advice for several investment banks.  For            the past 15 years he has founded, consulted on and funded numerous businesses in the            private and public arenas.  Mr. Limpert has been associated with Axxess Funding            Group, LLC since 2004 as its marketing manager.  Mr. Limpert serves as a director            of BBM Holdings, Inc. a New York based provider of ship-to-shore internet connectivity            technology. BBM Holdings, Inc. is an SEC reporting issuer. In 2007 he became chairman            of Nine Mile Software Inc a rebalancing and mutual fund trading software            developer.

 

**Joel Arline**. Mr. Arline is a Certified            Public Accountant in Brunswick, GA. He is the President and Owner of Joel K. Arline,            CPA, PC, an accounting firm he founded in 1997. Mr. Arline earned a BBA from Valdosta            State University. The CPA firm owned by Mr. Arline, performs audit, review and            compilation engagements and also performs tax preparation and consulting for its broad            base of clients. Mr. Arline is not a director of any other SEC reporting            company.

 

|   | There are no family relationships among any of our                            officers and directors. |
|--------|-------------------------------------------------------------------------------------------------------|

 

33

 

 

----

 

**Involvement in Certain Legal Proceedings**

 

To our knowledge, during the past five years none of the directors or            executive officers has been convicted or is currently the subject of a criminal            proceeding, excluding traffic violations or similar minor offenses, or has been a party            to any judicial or administrative proceeding that resulted in a judgment, decree or            final order enjoining the person from future violations of, or prohibiting activities            subject to, federal or state securities laws, or a finding of any violation of federal            or state securities laws, except for matters that were dismissed without sanction or            settlement. In the past five years none of our directors or executive officers, or any            business in which they were a general partner or executive officer, have been the            subject of a bankruptcy proceeding.

 

**Compliance with Section 16(a) of the Exchange Act**

 

Section 16(a) of the Exchange Act requires our executive officers and            directors, and persons who own more than 10% of a registered class of our equity            securities (“Reporting Persons”), to file reports of ownership and changes            in ownership with the SEC. Reporting Persons are required by SEC regulations to furnish            us with copies of all forms they file pursuant to Section 16(a). Based solely on our            review of the copies of such reports received by it, and written representations from            certain Reporting Persons that, other than as described below, no other reports were            required for those persons, we believe that, during the year ended December 31, 2007,            the Reporting Persons complied with all Section 16(a) filing requirements applicable to            them.

 

No one with a principal position has failed to file, on a timely basis,            the identified reports required by section 16(a) of the Exchange Act during the most            recent fiscal year.

 

**Committees of the Board of Directors**

 

*Audit Committee*

 

We do not currently have a standing audit committee or other committee            performing similar functions, nor have we adopted an audit committee charter. Given the            size of the Company, its available resources and the fact that the our common stock is            not listed on any exchange or automated quotation system that requires us to have an            audit committee, our board of directors has determined that it is in the            Company’s best interest to have the full board fulfill the functions that would            be performed by the audit committee, including selection, review and oversight of the            Company’s independent accountants, the approval of all audit, review and attest            services provided by the independent accountants, the integrity of the our reporting            practices and the evaluation of our internal controls and accounting procedures. The            board is also responsible for the pre-approval of all non-audit services provided by            its independent auditors. Non-audit services are only provided by our independent            accountants to the extent permitted by law. Pre-approval is required unless a “de            minimus” exception is met. To qualify for the “de minimus”

 

34

 

 

----

exception, the aggregate amount of all such non-audit services provided            to us must constitute not more than 5% of the total amount of revenues paid by us to            our independent auditors during the fiscal year in which the non-audit services are            provided; such services were not recognized by us at the time of the engagement to be            non-audit services; and the non-audit services are promptly brought to the attention of            the board and approved prior to the completion of the audit by the board or by one or            more members of the board to whom authority to grant such approval has been            delegated.

 

As we do not currently have a standing audit committee, we do not, at            this time have an “audit committee financial expert” as defined under the            rules of the Securities and Exchange Commission.

 

*Nominating Committee*

 

We do not currently have a standing nominating committee or other            committee performing similar functions, nor have we adopted a nominating committee            charter for the same reasons we do not have an audit committee. In general, when the            board determines that expansion of the board or replacement of a director is necessary            or appropriate, the board will review through candidate interviews with management,            consult with the candidate’s associates and through other means determine a            candidate’s honesty, integrity, reputation in and commitment to the community,            judgment, personality and thinking style, residence, willingness to devote the            necessary time, potential conflicts of interest, independence, understanding of            financial statements and issues, and the willingness and ability to engage in            meaningful and constructive discussion regarding Company issues. The board would review            any special expertise, for example, that qualifies a person as an audit committee            financial expert, membership or influence in a particular geographic or business target            market, or other relevant business experience. To date we have not paid any fee to any            third party to identify or evaluate, or to assist it in identifying or evaluating,            potential director candidates.

 

Until such time as we appoint a nominating committee, the board of            directors will consider director candidates nominated by shareholders during such times            as the Company is actively considering obtaining new directors. Candidates recommended            by shareholders will be evaluated based on the same criteria described above.            Shareholders desiring to suggest a candidate for consideration should send a letter to            the Company’s Secretary and include: (a) a statement that the writer is a            shareholder (providing evidence if the person's shares are held in street name) and is            proposing a candidate for consideration; (b) the name and contact information for the            candidate; (c) a statement of the candidate’s business and educational            experience; (d) information regarding the candidate’s qualifications to be            director, including but not limited to an evaluation of the factors discussed above            which the board would consider in evaluating a candidate; (e) information regarding any            relationship or understanding between the proposing shareholder and the candidate; (f)            information regarding potential conflicts of interest; and (g) a statement that the            candidate is willing to be considered and willing to serve as director if nominated and            elected. Because of our small size and the limited need to seek additional directors,            there is no assurance that all shareholder proposed candidates will be fully            considered,

 

35

 

 

----

that            all candidates will be considered equally, or that the proponent of any candidate or            the proposed candidate will be contacted by the Company or the board, and no            undertaking to do so is implied by the willingness to consider candidates proposed by            shareholders.

 

*Compensation Committee*

 

We do not have a standing compensation committee or a charter; moreover,            as we have discontinued our retail floor covering business, we now have no full-time            employees, and our only employee is our Chief Executive Officer who provides services            on a part-time as needed basis. Currently, to the extent there are any            compensation-related issues to be considered, such is determined by the full board of            directors. The compensation of Chief Executive Officer is determined and approved            directly by board of directors. Neither the Chief Executive Officer nor the board of            directors engaged compensation consultants during the year.

 

**Code            of Ethics**

             

Our board of directors has adopted a code of ethics that applies to our            principal executive officer, principal financial officer and principal accounting            officer or controller and to persons performing similar functions. The code of ethics            is designed to deter wrongdoing and to promote honest and ethical conduct, full, fair,            accurate, timely and understandable disclosure, compliance with applicable laws, rules            and regulations, prompt internal reporting of violations of the code and accountability            for adherence to the code. We will provide a copy of our code of ethics, without            charge, to any person upon receipt of written request for such delivered to our            corporate headquarters. All such requests should be sent care of The Flooring Zone,            Inc., Attn. Corporate Secretary, 1245 Brickyard Road, Suite 590, Salt Lake City, Utah            84106.

 

**ITEM 10. EXECUTIVE COMPENSATION**

 

The following table summarizes the total compensation paid to the            individuals serving as our principal executive officer (the “named executive            officers”) during the fiscal years ending December 31, 2007 and 2006. No officer            or employee of the Company exceeded $100,000 in either fiscal year.

 

**SUMMARY COMPENSATION TABLE**

 

|  

**Name and**

**Principal Position** |  

**Year** | **Salary**

**($)** |  

**Bonus**

**($)** | **Option**

**Awards**

**($)** | **All Other**

**Compensation**

**($)** | **Total**

**($)** |
|----------------------------------------------|------------------|---------------------|----------------------------|---------------------------------|------------------------------------------|--------------------|
|  

*Andrew Limpert*(1)                  |  

2007     |  

-0-         |  

-0-                |  

-0-                     |  

-0-                              |  

-0-        |
| CEO, CFO and Director                        |             |                |                       |                            |                                     |               |
|                                         |             |                |                       |                            |                                     |               |
| *Mike Carroll*(2)                            | 2007             | -0-                 | -0-                        | -0-                             | -0-                                      | -0-                |
| Former CEO and Former CFO                    | 2006             | -0-                 | -0-                        | -0-                             | -0-                                      | -0-                |

 

 

36

 

 

----

 

(1)Mr. Limpert became Chief Executive            Officer and Chief Financial Officer on November 29, 2007.

(2)Mr. Carroll resigned as the            Company’s Chief Executive Officer and Chief Financial Officer on November 29,            2007.

 

**Employment Agreements**

 

During the fourth quarter we discontinued our retail floor covering            operations. Our only employee is our sole officer Andrew Limpert who provides services            to the Company on an as needed basis. We do not have an employment agreement with Mr.            Limpert. The compensation of our executive officers is determined by our board of            directors on an annual basis.

 

**Termination of Employment and Change of Control            Arrangement**

 

There are no compensatory plans or arrangements, including payments to            be received from us, with respect to any person named in cash compensation set forth            above that would in any way result in payments to any such person because of his            resignation, retirement, or other termination of such person's employment with the            Company or its subsidiary, or any change in control, or a change in the person's            responsibilities following a change in control of the Company.

 

**Employer Benefit Plans**

 

We do not provide any health care, retirement, pension, or other benefit            plans to our named executive officer at the present time; however, the board of            directors may adopt plans as it deems to be reasonable under the            circumstances.

**Stock Option Plan**

             

On May 13, 2003 we adopted The Flooring Zone, Inc., 2003 Stock Incentive            Plan (the “Plan”). The Plan allow us to grant options to our key employees,            officers, directors, consultants, advisors and sales representatives to purchase up to            500,000 shares of its $.001 par value restricted common stock at an exercise price to            be determined by the Stock Option Committee of the board at the time of grant. In 2003            the Company granted 45,000 options, none of which were granted to any of the named            executive officers. These options vested immediately and were exercised in 2003.            455,000 options are still available for granting.

             

**Employee Stock Purchase Plan**

 

|   | We do not currently have an employee stock purchase plan                            in place. |
|--------|-----------------------------------------------------------------------------------------------|

 

 

37

 

 

----

**OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END**

 

None of the named executive officers held an outstanding equity award at            our fiscal year end.

 

**DIRECTOR COMPENSATION**

 

|  

**Name**  |   | **Fees Earned or Paid in Cash ($)** |   | **All Other**

**Compensation** |  

                              |  

**Total****($)** |
|-------------------|--------|-------------------------------------|--------|---------------------------------|--------------------------------------------|--------------------------|
| Joel Arline       |   |  

-0-                         |   |  

10,650(1)               |  

                              | -0-                      |
| Andrew Limpert(2) |   | -0-                                 |   |  

-0-                     |                                       | -0-                      |
| Mike Carroll(3)   |   | -0-                                 |   |  

-0-                     |  

                              | -0-                      |

 

| (1) | Mr. Arline is a certified public accountant. This amount                            represents fees paid to Mr. Arline in connection with certain                            accounting and tax preparation and consulting services provided to the                            Company. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Mr. Limpert was appointed to the board of directors on                            November 29, 2007. |
|-----|------------------------------------------------------------------------------------------------------|

| (3) | Mr. Carroll resigned from the board of directors on                            November 29, 2007. |
|-----|---------------------------------------------------------------------------------------------------|

**Director Stock Purchase Plan**

 

|   | We do not currently have a director stock purchase plan                            in place. |
|--------|----------------------------------------------------------------------------------------------|

 

 

**ITEM 11. SECURITY OWNERSHIP OF CERTAIN**

**BENEFICIAL OWNERS AND MANAGEMENT**

 

The term “beneficial owner” refers to both the power of            investment (the right to buy and sell) and rights of ownership (the right to receive            distributions from the company and proceeds from sales of the shares). Inasmuch as            these rights or shares may be held by more than one person, each person who has a            beneficial ownership interest in shares is deemed the beneficial owners of the same            shares because there is shared power of investment or shared rights of            ownership.

 

The following table sets forth as of April 11, 2008 the name and the            number of shares of our common stock, par value of $0.001 per share, held of record or            beneficially by each person who held of record, or was known by us to own beneficially,            more than 5% of the 19,569,750 issued and outstanding shares of our common stock, and            the name and shareholdings of each director and of all officers and directors as            group.

 

38

 

 

----

 

| **Type of Security**                                                                 | **Name and Address**                                         | **Amount & Nature of Beneficial                            Ownership** | **% of Class** |
|--------------------------------------------------------------------------------------|--------------------------------------------------------------|----------------------------------------------------------------------------|----------------|
|                                                                                 |                                                         |                                                                       |           |
| Common                                                                               | Joel Arline(1)                                               | -0-                                                                        | *              |
|                                                                                 | 1606 Reynolds Street                                         |                                                                       |           |
|                                                                                 | Brunswick, Georgia 31520

                              |                                                                       |           |
| Common                                                                               | Michael Carroll                                              | 7,449,900                                                                  | 38%            |
|                                                                                 | 408 Brewster Lane                                            |                                                                       |           |
|                                                                                 | Saint Simmons Island, Georgia 31522                          |                                                                       |           |
|                                                                                 |                                                         |                                                                       |           |
| Common                                                                               | Andrew Limpert(1)                                            | 11,550,100                                                                 | 59%            |
|                                                                                 | 1245 Brickyard Road, Suite 590                               |                                                                       |           |
|                                                                                 | Salt Lake City, Utah 84106                                   |                                                                       |           |
|  

All officers and directors as a group (2                            persons) |                                                         |  

11,550,100                                                         |  

59%    |
|                                                                                 |  

**TOTAL**                                            |  

19,000,000                                                         |  

97%    |
|                                                                                      |                                                              |                                                                            |                |  |

 

|   | * | Less than 1% |
|--------|---|--------------|

|   | (1) | Mr. Limpert is currently the sole officer of the                            Company. Mr. Limpert and Mr. Arline are directors of the                            Company. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**ITEM 12. CERTAIN RELATIONSHIPS AND RELATED            TRANSACTIONS,**

**AND DIRECTOR INDEPENDENCE**

 

During the years ended December 31, 2007 and 2006 we paid Joel Arline, a            Company director, $10,650 and $9,112 for accounting and tax preparation and consulting            services provided to the Company.

             

During the year ended December 31, 2003 the Company obtained a line of            credit with Mike Carroll, the Company’s former CEO and CFO, and his related            companies for the purpose of meeting cash flow needs. The interest rate on the line of            credit is prime plus 1%. As of December 31, 2007 and 2006, the outstanding balances on            this line were $1,051,008 and $900,000, respectively all maturing within twelve (12)            months.

 

The Company also entered into a long-term note payable with Mr. Carroll.            The total amount due under the note at December 31, 2007 and December 31, 2006 was            $1,047,492 and $1,061,714, respectively. This note bears interest at rate of 6.875%            annually. We make monthly installments of $638, which run through November 2036. The            note is unsecured.               

 

39

 

 

----

 

During the years ended December 31, 2007 and 2009 we made sales to two            entities owned by Mr. Carroll amounting to $257,920 and $287,239,            respectively.

 

We believe that each of the above-described transactions was negotiated            on terms at least as favorable to us as those available to us on an arms-length basis.            As with the above transactions, all future material transactions entered into with            related parties shall be on terms no less favorable to us than we can obtain from an            unaffiliated third party on an arms-length basis and will be approved by a majority of            our disinterested directors.

 

The board has determined that none of the current board members would            qualify as independent directors as that term is defined in the listing standards of            the American Stock Exchange.

 

**ITEM 13. EXHIBITS**

 

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

             

|   | Exhibit                            21.1                                       List of  S | ubsidiaries |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|-------------|

|   | 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 Financial Officer Pursuant to                            Section 906 of the Sarbanes-Oxley Act of 2002. |
|--------|--------------|------------------------------------------------------------------------------------------------------------------------------------|

 

**ITEM 14. PRINCIPAL ACOUNTANT FEES AND SERVICES**

 

Mantyla McReynolds has served as our independent registered public            accounting firm for the fiscal years ended December 31, 2007 and 2006. Principal            accounting fees for professional services rendered for us by Mantyla McReynolds for the            fiscal years ended December 31, 2007 and 2006, are summarized as follows:

 

40

 

 

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|          | 2007     | 2006     |
|---------------|----------|----------|
|          |     |     |
| Audit         | $ 25,372 | $ 24,737 |
| Audit related | -        | -        |
| Tax           | -        | -        |
| All other     | -        | -        |
| **Total**     | $ 25,372 | $ 24,737 |

             

             

*Audit Fees*. Audit fees were for            professional services rendered in connection with our annual financial statement            audits and quarterly reviews of financial statements for filing with the Securities and            Exchange Commission.

             

*Board of Directors Pre-Approval Policies and            Procedures*. At its regularly scheduled and special meetings,            our Board of Directors, in lieu of an established audit committee, considers and            pre-approves any audit and non-audit services to be performed by our independent            registered public accounting firm. Our board of directors has the authority to grant            pre-approvals of non-audit services.

 

**SIGNATURES**

 

In accordance with Section 13 or 15(d) of the Exchange Act, the            Registrant caused this report to be signed on its behalf of the undersigned, thereunto            duly authorized.

 

|   | **THE FLOORING ZONE, INC.** |
|--------|-----------------------------|

 

 

 

| Date: April 15, 2008 | /s/ Andrew Limpert                                                                                |   |
|----------------------|---------------------------------------------------------------------------------------------------|--------|
|                 | Andrew Limpert                                                                                    |
|                 | Chief Executive Officer, Interim Chief Financial                            Officer

and Director |

 

 

| Date: April 15, 2008 | /s/ Joel Arline |   |
|----------------------|-----------------|--------|
|                 | Joel Arline     |
|                 | Director        |

 

 

41

 

 

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