As filed with the Securities and Exchange Commission on December 29, 2000
Registration No. __________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRANTS OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
E. J. NAK MATTRESS COMPANY
(Name of Small Business Issuer in its charter)
Utah 87-0369125
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1782 South Main, Bountiful, Utah 84010
(Address of principal executive officers) (Zip Code)
Issuer's telephone number: (801) 292-9777
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
N/A N/A
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
E. J. NAK MATTRESS COMPANY
FORM 10-SB
TABLE OF CONTENTS
PAGE
PART I
Item 1. Description of Business. . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis or
Plan of Operation. . . . . . . . . . . . . . . . . . . 8
Item 3. Description of Property. . . . . . . . . . . . . . . . . 11
Item 4. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . . . . . 12
Item 5. Directors, Executive Officers, Promoters
and Control Persons. . . . . . . . . . . . . . . . . . 12
Item 6. Executive Compensation . . . . . . . . . . . . . . . . . 13
Item 7. Certain Relationships and Related Transactions . . . . . 14
Item 8. Description of Securities. . . . . . . . . . . . . . . . 15
PART II
Item 1. Market Price of and Dividends on Registrant's
Common Equity and Other Shareholder Matters. . . . . . 16
Item 2. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 18
Item 3. Changes in and Disagreements with Accountants. . . . . . 18
Item 4. Recent Sales of Unregistered Securities. . . . . . . . . 18
Item 5. Indemnification of Directors and Officers. . . . . . . . 18
PART F/S
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 20
PART III
Item 1. Index to Exhibits. . . . . . . . . . . . . . . . . . . . S-1
Item 2. Description of Exhibits. . . . . . . . . . . . . . . . . S-1
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
FORM 10-SB
PART I
Item 1. Description of Business
Business Development
E. J. Nak Mattress Company, a Utah corporation ("E. J. Nak" or
the "Company"), operates a retail outlet for the sale of mattresses
and related bedding products. The Company has entered into an
arrangement with Simmons Mattress Company to develop retail
mattress outlets selling Simmons products exclusively throughout
the State of Utah and surrounding areas.
History
The Company was organized on January 29, 1981 under the laws
of the State of Utah as Union Investments, with the initial purpose
of acquiring, exploring and developing mineral ore prospects.
On April 16, 1981, the Company commenced an intrastate public
offering of its common stock pursuant to a registration statement
filed with the Utah Securities Commission (now known as the Utah
Division of Securities). The offering was closed on October 6,
1981 following the sale of 20,000,000 shares (pre-split) of common
stock at Two Cents ($.02) per share, with gross proceeds of
$400,000. The offering was not registered with the Securities and
Exchange Commission (the "SEC") in reliance upon exemptions
provided by Section 3(a)(11) and Rule 147 of the Securities Act of
1933, as amended (the 1933 Act), in effect at that time.
Following completion of its public offering, the Company
engaged in sporadic mining operations until approximately 1983. At
that time the Company became inactive and had only nominal
activities until early 1999. In March 1999, the shareholders
approved certain proposals to reorganize the business of the
Company and to change its corporate name to E. J. Nak Mattress
Company. Also, the shareholders ratified the proposal to effect a
reverse stock split of the Company's issued and outstanding shares
of common stock on a one (1) share for one hundred (100) shares
basis, effective in October 2000.
Initially, the Company's planned reorganization included the
acquisition of the Furniture Gallery, a retail furniture outlet
located in Bountiful, Utah. The Company had planned to liquidate
the store and then open new retail outlets specializing in
mattresses and related bedding supplies and products. However, it
was subsequently decided to not acquire the Furniture Gallery and,
in the alternative, open a new mattress store in connection with an
arrangement with Simmons. In August 1999, the Company opened its
first mattress store in Bountiful Utah.
Exclusive Agreement with Simmons
In September 1999, the Company entered into an exclusive
agreement with Simmons whereby Simmons will be the sole provider of
all mattresses and related bedding products for each of the
Company's retail locations. Under the agreement, the Company must
display a minimum of 30 sets of Simmons bedding at each Company
location. The parties must mutually agree upon geographical
locations for all future Company outlets. Simmons will also
provide the Company with (i) co-op advertising funds, (ii) point of
purchase advertising displays, (iii)comprehensive and ongoing sales
training, and (iv)assistance in developing advertising campaigns.
The agreement may be terminated at any time by either party.
Under the agreement, the Company is permitted to open new
retail outlets in any community, with the provision that it may not
be within a close proximity to certain other retail outlets that
are authorized Simmons dealers.
Retail Outlet
The Company's retail outlet consists of approximately 5,080
square feet and is located in the Five Points Mall in Bountiful,
Utah, ten miles north of Salt Lake City. Approximately 1,000
square feet is used for storage and the balance is used for the
sales area and displays. The store displays up to 30 mattresses
and related bedding products. The space is subject to a five-year
lease agreement entered into in September 1999. The lease expires
in September 2004 and provides an option to extend for an
additional three year period. Basic annual rent will escalate
yearly from $17,500 for the first year to $31,800 for the fifth
year.
Under its agreement with Simmons, the Company offers Simmons
mattresses exclusively together with other related bedding
products. The Company is permitted to sell related accessories
marketed by other companies which are not offered by Simmons. The
Simmons line of products is headed by the "BeautyrestTM Pocketed
Coil" spring mattresses, which is available in all customary sizes.
Because of the retail outlet's enclosed mall location, it
depends primarily on mall traffic and local advertising. The
Company also maintains an Internet web-site (http://www.EJNAK.com)
providing visitors information about the store and its location and
information about products offered. As provided by the Company's
agreement with Simmons, Simmons will accrue 10% of all Simmons
related net sales for co-op advertising. The Company is liable for
payment of all its advertising and must submit proof of the
advertising expense to Simmons. Simmons will then reimburse the
Company 50% of the advertising invoice based on sufficient funds
accrued in the Company's co-op account. Simmons also provides
point-of-purchase advertising and sales displays for the Company's
store. Simmons also provides the Company with ongoing support in
developing advertising campaigns.
Competition
The Company is in direct competition with numerous retail
outlets that offer both Simmons products and other comparable
competing bedding products. Although some of these competitors are
relatively small locally owned stores, many are large furniture
stores and retailers that are associated with national chains.
Most of these competitors have established a market share in the
market in which the Company will be competing. The ability of the
Company to penetrate these markets will depend on many factors
including, but not limited to, its ability to obtain sufficient
capital to enhance and broaden its ability to market its products
and advertise its location, to obtain and retain necessary
management and advisory personnel, and the establishment of a
comprehensive marketing plan.
The Company's agreement with Simmons provides that the Company
may not open new retail outlets within the close proximity (within
approximately 5 miles) of any authorized Simmons dealer or
furniture or other specialty store that Simmons products and is an
authorized Simmons dealer. This may precluded the Company from
opening stores in locations considered to be desirable or in
certain small communities. This could have an adverse effect on
the Company's future business if it unable to open new stores in
desirable locations.
Because the store will offer Simmons products exclusively, it
will compete with other furniture stores and other specialty or
mattress stores that offer other brands. Management believes that
in addition to Simmons, there are three other primary manufacturers of
mattresses, Sealy, Serta and Spring Air. Because the Company will
only offer Simmons products, it will therefore compete directly
with outlets for these primary competitors as well as other stores
offering several brands.
Employees
As of the date hereof, the Company has two full-time employees
consisting of one full-time sales person and one administrative
person who is also a part-time sales person. The Company also uses
part-time persons, on an as-needed-basis, to deliver products. The
Company has not entered into any employment agreements, although it
will consider such agreements as its business expands. Management
intends to hire additional qualified employees only as business
conditions warrant and as funds are available.
Risk Factors Relating to the Company's Business
Because of the nature of the Company's business, it encounters
certain risk factors. Each of these factors could adversely affect
the business, operating results and financial condition of the
Company.
Competition Could Negatively Effect Sales
The retail sale of mattresses and related bedding products is
highly competitive. These products are offered not only by small
specialized retail stores, but also in large furniture and
department type stores. The Company will face stern local
competition in any jurisdiction in which it operates. Additional
competitors may also enter the market and future competition may
intensify. Many of these competitors have substantially greater
financial resources than the Company and may be able to accept more
financial risk than the Company prudently can manage.
Short Operating History - No Assurance of Profitability
The Company has a short operating history and opened its first
retail outlet in August 1999. The Company is in the early phases
of operation and its likelihood of success must be considered in
light of the many unforeseen costs, expenses, problems,
difficulties and delays frequently associated with new ventures.
Also, there is no assurance that the Company's business ventures
will be successful or that it will be able to attract and retain
sufficient customers to attain its goals. The Company anticipates
that its operating expenses will increase substantially as its
business expands and new outlets are opened and there will be a
greater need to generate significantly more revenues to achieve
profitability. There is also the probability that the Company will
have to secure future funding, either debt or equity, in order to
finance its activities. There can be no assurance that any such
funding will be available to the Company or, that if it is, it will
be available on terms favorable to the Company.
Concentration of Share Ownership Gives Insiders Control
The Company's directors, executive officers and other
principal shareholders own approximately 55% of the Company's
outstanding common stock as of October 23, 2000. As a result,
these persons possess significant influence over the Company on
matters including the election of directors. This concentration of
share ownership may: (i) delay or prevent a change in control of
the Company; (ii) impede a merger, consolidation, takeover, or
other business involving the Company; or (iii) discourage a
potential acquirer from making a tender offer or otherwise
attempting to obtain control of the Company.
Possible Difficulties in Securing Future Funding
Since the Company commenced it current business operations in
1999, it has financed much of its operations from borrowing,
primarily from its officers and directors. It is unlikely that
these funding sources will be sufficient to satisfy the Company's
future, increasing financing demands. Accordingly, the Company may
have to seek additional funding from other outside sources. There
can be no assurance that outside funding will be available to the
Company at the time and in the amount to satisfy the Company's
needs, or, that if such funds are available, they will be available
on terms favorable to the Company. If the Company issues
additional shares of common stock, current shareholders may
experience immediate and substantial dilution in their ownership of
Company shares. In the event the Company issues securities or
instruments other than common stock, it may be required to issue
such instruments with greater rights than that currently possessed
by holders of the Company's common stock.
Possibility That the Company May Not Be Able to Continue as a
Going Concern
The Company has realized only nominal operating income since
it commenced its current operations in August 1999 and, to date,
has not established a source of revenues sufficient to cover its
operating costs. For the year ended March 31, 2000 and six months
ended September 30, 2000, the Company had a net operating profit of
$5,461 and $3,134, respectively. The Company's management has
included a footnote in the Company's consolidated financial
statements for the periods ended March 31 and September 30, 2000
stating that because of the Company's accumulated deficit, lack of
cash and a working capital deficit, there is substantial doubt as
to whether the Company can continue as a going concern. See Note
1 to the consolidated financial statements.
Possibility No Public Market or a Only Limited Public Market
will be Established for the Common Stock
Presently, the Company's common stock is not being traded in
a recognized public market nor has it traded in several years.
Contemporaneously with the filing of this registration statement,
the Company intends to submit to the NASD an application to have
its shares traded in the over-the-counter market and included on
the OTC Bulletin Board and/or "pink sheets". However, unless this
registration statement becomes effective in a timely manner, there
is a risk that the Company's common stock may not be eligible for
trading on the OTC Bulletin Board. In this event, the company will
have to apply for and be accepted to the "pink sheet" in order to
have its securities quoted and traded by broker-dealers. This
could severely limit the liquidity of the trading market in the
Company's shares and have an adverse effect on the price of the
shares. Accordingly, there can be no assurance that an active
trading market in the Company's shares will be established or, if
established, sustained.
Risk Factors and Cautionary Statements
This Registration Statement contains certain forward-looking
statements and cautionary words such as "may," "will," "expect,"
"anticipate," "estimate" and "intend." The Company wishes to
advise readers that actual results may differ substantially from
such forward-looking statements. Forward-looking statements
involve risks and uncertainties that could cause actual results to
differ materially from those expressed in or implied by the
statements, including, but not limited to, the following: the
possible success of the Company's retail outlet, the ability of the
Company to fund its current and future projects and its ability to
meet its cash and working capital needs, and other risks detailed
in the Company's periodic report filings with the Securities and
Exchange Commission.
Item 2. Management's Discussion and Analysis or Plan of Operation
The following information should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in
the Form 10-SB.
Overview
The Company opened its first retail outlet in August 1999
offering mattresses and related bedding products. The Company
realized a net operating profit for the fiscal year ended March 31,
2000 and six month period ended September 30, 2000. Through an
arrangement with Simmons Mattress, the Company intends to open
additional retail outlets offering Simmons products as business
conditions warrant and necessary funds are available.
Results of Operations
Information is presented for the Company's most recent fiscal
years ended March 31, 2000 and 1999, and the six month period ended
September 30, 2000. Because the Company has been inactive for
several years prior to opening its retail outlet in August 1999,
there are no results during the fiscal 1999 period with which to
compare fiscal 2000 results.
For the fiscal year ended March 31, 2000 ("fiscal 2000"), the
Company had revenues of $98,309. Cost of sales were $29,207, or
30%, and total operating expenses were $63,641, consisting of
general and administrative expenses of $36,080, selling expenses of
$17,325 and depreciation of $10,236. The Company's net operating
income for fiscal 2000 was $5,461 and, after deducting interest
expense of $4,155, the net income was $1,306.
For the six month period ended September 30, 2000 ("first half
of 2001"), the Company had revenues of $116,471. Cost of sales
were $45,881, or 39%, and total operating expenses were $67,456,
consisting primarily of general and administrative expenses of
$40,933 and selling expenses of $18,625. The Company's net
operating income for six months ended September 30, 2000 was $3,134
and, after deducting interest expense of $2,792, the net income was
$342.
Net Operating Losses
The Company has accumulated approximately $5,238 of net
operating loss carryforwards as of March 31, 2000, that may be
offset against future taxable income through 2019 when the
carryforwards expire. The use of these losses to reduce future
income taxes will depend on the generation of sufficient taxable
income prior to the expiration of the net operating loss
carryforwards. In the event of certain changes in control of the
Company, there will be an annual limitation on the amount of net
operating loss carryforwards which can be used. No tax benefit has
been reported in the financial statements, because the Company
believes there is a 50% or greater chance the carryforwards will
expire unused. Accordingly, the potential tax benefits of the loss
carryforwards is offset by valuation allowance of the same amount.
Liquidity and Capital Resource
The Company has relied upon funding advanced by its directors
to open its first retail outlet. It is anticipated that additional
funds may be necessary to meet working capital requirements for the
store. If such funds are required, it is anticipated that the
directors will provide additional funds or the Company will seek
out a short term borrowing arrangement. As of the date hereof, no
agreement or arrangement has been entered into for any future
funding. The Company also intends to explore at some future date
the possibility of raising capital from the sale of its securities,
either in a private of public transaction. Such future funding
will be done only as the Company's initial retail outlet has
developed its business to an acceptable level and, more likely, as
the Company decides to open additional stores. There are no
agreements or other arrangements presently in effect for any future
sale of the Company securities and there can be no assurance that
the Company will indeed make an offering, or that if such an
offering is made, that it will be successful.
At September 30, 2000, the Company had a working capital
deficit of $1,445 compared to a working capital deficit at March
31, 2000 of $2,570. This modest increase is primarily attributed
to the 43% increase in inventory, partially offset by the 101%
increase in accounts payable during the period. As of September
30, 2000, the Company had total assets of $110,333 and total
stockholders' equity of $896 compared with total assets of $104,789
and total stockholders' equity of $554 at March 31, 2000.
During fiscal 2000, John A. Nak, a director of the Company,
advanced $3,120 to the Company, of which $600 was repaid by March
31, 2000. There are no stated terms for interest or repayment of
the remaining balance and no interest has been accrued on the
advance. Also the Company's directors paid Company expenses of
$9,866 during fiscal 2000. At March 31, 2000, the Company owed Mr.
Nak $30,866, of which $15,866 represented expenses paid during
fiscal 2000. $15,000 was due Mr. Nak from the purchase by the
Company of various office equipment from Mr. Nak, which he had
acquired from the liquidation of the Furniture Gallery. The
Company has a verbal agreement with Mr. Nak for the debt whereby
interest is to accrue at the rate of 6% per annum. Accrued
interest and principal are to be repaid after the Company is
generating sufficient revenues. As of September 30, 2000,
principal payments of $1,303 have been paid and interest in the
amount of $1,744 has accrued.
Effect of Inflation
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
Plan of Operation
Upon entering into its exclusive agreement with Simmons the
Company began to develop its plan for opening retail outlets
offering exclusively Simmons products. As revenues from the
Company's initial outlet in Bountiful, Utah reach a level which
will provide the Company sufficient capital to open additional
stores, it plans to explore potential sites through the State of
Utah and in surrounding states. It is the Company's goal to open
up to five stores during the next two years, given that it can
generate sufficient capital to fund the creation and operation of
the stores, and that it can secure suitable locations. The Company
intends to open only one additional store at a time and curtail
additional openings until it has sufficient capital. There can be
no assurance that the Company's initial retail outlet will provide
sufficient capital to open any new stores, or that the Company will
be able to secure additional financing to fund the creation and
operation of new stores.
As business warrants and funds become available, the Company
will explore potential new sites for additional stores. It is
anticipated that each new store will be located in a high traffic
area and in a community of sufficient size to support such a store.
Any potential location will have to be mutually agreed upon by
Simmons and may not be located within a close proximity to certain
other retail outlets that are authorized Simmons dealers.
Additional stores will be of the same approximate size as the
Company's initial store. After a new site is determined and
funding has been secured for the site, the Company will seek out
qualified persons to operate the store. Based on the Company's
first store in Bountiful, it is anticipated that each additional
store will have to be staffed by a minimum of two persons, either
full or part-time. Additional staff, such as accounting and
delivery persons, will most likely be contracted on an as-needed
basis. The Company will own its stores and has no current plans
for creating any franchise operations.
During the next twelve months, management expects that the
Company will be able to satisfy its monthly working capital needs
from revenues. Because the Company does not currently have readily
available cash reserves, it will have to depend on revenues and/or
additional financing to fund its operations. In the event the
Company does not have sufficient revenues to fund its operations,
it will seek other sources of financing, either debt or equity.
The Company presently does not have any agreement or arrangement
for any potential funding. Further, there can be no assurance that
the Company will be able to obtain additional funding, if and when
needed, or that such funding, if available, can be obtained on
terms acceptable to the Company.
The Company does not have any immediate plans for material
capital expenditures during the next twelve months. If management
believes that the Company is in a financial position to open one or
more additional retail outlets, it is estimated that $100,000 of
capital will be required to open each new store. This initial
capital will be used to secure a location, acquire fixtures and
improvements to the facility as needed, and acquire initial
inventory. The Company has not made any initial plans to obtain
future funding in the event it does not have sufficient cash
reserves to open the store.
Recent Accounting Pronouncements
In June 1999, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which requires
companies to record derivatives as assets or liabilities, measured
at fair market value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Management believes the adoption of this statement
will have no material impact on the Company's financial statements.
Item 3. Description of Property
The Company does not presently own any real property. Its
principle offices are located in its sole retail outlet located in
Bountiful, Utah. The Company believes that its current facilities
are adequate for its current needs and anticipates securing
additional facilities only as it is able to proceed with plans to
open additional retail outlets. The decision to open new outlets
will be governed by business conditions and the Company's ability
to finance expansion.
Item 4. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth information, to the best of the
Company's knowledge, as of October 23, 2000 with respect to each
person known by the Company to own beneficially more than 5% of the
outstanding common stock, each director and all directors and
officers as a group.
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class(1)
John A. Nak * 162,000(2) 32.9%
1782 South Main
Bountiful, UT 84010
Ernest B. Nak * 107,500(3) 21.9%
1782 South Main
Bountiful, UT 84010
All directors and executive
officers as a group 269,500 54.8%
__________________
* Director and/or executive officer
Note: Unless otherwise indicated in the footnotes below, the
Company has been advised that each person above has sole
voting power over the shares indicated above.
(1) Based upon 491,992 shares of common stock outstanding on
October 23, 2000.
(2) Includes 112,000 shares in the name of Martha J. Nak, wife
of John A. Nak.
(3) Includes 40,000 shares in the name of Marci J. Nak, wife of
Ernest B. Nak.
Item 5. Directors, Executive Officers, Promoters and Control
Persons
Executive Officers and Directors
The executive officers and directors of the Company are as
follows:
Name Age Position
John A. Nak 74 Chairman, Secretary /
Treasurer and Director
Ernest B. Nak 48 President, Chief Financial
Officer and Director
All directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and
qualified. Directors will be elected at the annual meetings to
serve for one year terms. There are no agreements with respect to
the election of directors. The Company has not compensated its
directors for service on the Board of Directors or any committee
thereof. Any non-employee director of the Company shall be
reimbursed for expenses incurred for attendance at meetings of the
Board of Directors and any committee of the Board of Directors. The
Executive Committee of the Board of Directors, to the extent
permitted under Utah law, exercises all of the power and authority
of the Board of Directors in the management of the business and
affairs of the Company between meetings of the Board of Directors.
Each executive officer is appointed by and serves at the discretion
of the Board of Directors.
None of the officers and/or directors of the Company are
currently officers or directors of any other publicly traded
corporation. None of the directors, officers, affiliates or
promoters of the Company have filed any bankruptcy petition, been
convicted in or been the subject of any pending criminal
proceedings, or the subject of any order, judgment, or decree
involving the violation of any state or federal securities laws
within the past five years.
The business experience of each of the persons listed above
during the past five years is as follows:
John A. Nak became a director and President of the Company in
1982 and was designated Chairman in 1999. In 1999 he was
instrumental in the Company's reorganization and opened the
Company's retail outlet under the name of E. J. Nak Mattress
Company. He served as President of the Furniture Gallery from 1989
to 1999 and was in charge of directing the daily operations of the
retail furniture outlet. From 1971 to 1989, he was the President
of Beauty Mold Furniture in Salt Lake City. Mr. Nak has several
years of experience in operating and managing retail furniture
businesses and is a graduate of the University of Leeawarden with
a BA degree in interior design. Mr. Nak is the father of the
Company's President, Ernest B. Nak.
Ernest B. Nak became a director and Vice President of the
Company in 1982 and was designated President in 1999. From 1993 to
1999, he was Vice President of the Furniture Gallery and involved
in the day-to-day operations of the business. Previously from 1978
to 1992, he was the Vice President and sales manager of Beauty Mold
Furniture in Salt Lake City. Mr. Nak is a graduate of the
University of Utah with a BS degree in economics and human
resources. He is the son of the Company's Chairman, John A. Nak.
Item 6. Executive Compensation
The Company does not have a bonus, profit sharing, or deferred
compensation plan for the benefit of its employees, officers or
directors. As of March 31, 2000, no employee of the Company has
earned in excess of $100,000 per annum.
Presently, the Company is paying a draw to the Company's
President, Ernest Nak, in the amount of $1,500 per month. John
Nak, the Company's Chairman, is not presently drawing a regular
salary, although it is expected that he will begin receiving a
regular salary as business conditions warrant.
The following table sets forth all cash compensation paid by
the Company for services rendered to the Company for the fiscal
years ended March 31, 2000 and 1999 to the Company's Chief
Executive Officer. No executive officer of the Company has earned
a salary greater than $100,000 annually for the period depicted.
Summary Compensation Table
Other All
Annual Other
Name and Compen- Compen-
Principal Position Year Salary Bonus sation sation
Ernest B. Nak, 2000 $20,000 $ -0- $ -0- $ -0-
President, C.E.O. 1999 3,000 -0- -0- -0-
_______________
The preceding table does not include any amounts for noncash
compensation, including personal benefits, paid to the Company's
C.E.O. The Company believes that the value of such noncash
benefits and compensation paid during the periods presented did not
exceed the lesser of $50,000 or 10% 0f the cash compensation
reported for them.
Employment Agreements
As of the date thereof, the Company has not entered into any
employment contracts with any of its employees, officers or
directors, nor has the Company had a bonus, profit sharing, or
deferred compensation plan for the benefit of its employees,
officers or directors.
Item 7. Certain Relationships and Related Transactions
There have been no transactions during the last two years
between the Company and any officer, director, nominee for election
as director, or any shareholder owning greater than five percent
(5%) of the Company's outstanding shares, nor any member of the
above referenced individuals' immediate family, except as set forth
below.
During the fiscal year ended March 31, 1999, the Company
issued to its two current directors an aggregate of 212,000 shares
of authorized, but previously unissued common stock. The shares
were issued in connection with the Company's reorganization and
upon conversion of debt in the amount of $21,200.
At September 30, 2000, the Company had an obligation to its
Chairman in the amount of $30,866. Of this amount, $15,000 is owed
for the purchase of certain office equipment from the Chairman.
The balance of $15,866 is owed for Company expenses paid by the
Chairman during fiscal 2000. Pursuant to a verbal agreement,
interest is to accrue on the debt at the rate of 6% per annum.
Principal and interest are to be repaid at such time as the Company
is generating sufficient revenues to repay the debt. As of March
31 and September 30, 2000, principal payments of $0 and $1,302,
respectively, were made by the Company and interest in the amount
of $926 and $1,744 was accrued, respectively.
During fiscal year 2000, the Company's Chairman assigned four
automobiles to the Company in exchange for the Company's assumption
of the notes payable related to the vehicles. The automobiles were
recorded at cost to the Company based on the amount of the
liability assumed by the Company.
Item 8. Description of Securities
Common Stock
The Company is authorized to issue 50,000,000 shares of common
stock, no par value, of which 491,992 shares are issued and
outstanding as of October 23, 2000. All shares of common stock
have equal rights and privileges with respect to voting,
liquidation and dividend rights. Each share of common stock
entitles the holder thereof to (i) one non-cumulative vote for each
share held of record on all matters submitted to a vote of the
stockholders; (ii) to participate equally and to receive any and
all such dividends as may be declared by the Board of Directors out
of funds legally available therefore; and (iii) to participate pro
rata in any distribution of assets available for distribution upon
liquidation of the Company. Stockholders of the Company have no
preemptive rights to acquire additional shares of common stock or
any other securities. The common stock is not subject to
redemption and carries no subscription or conversion rights. All
outstanding shares of common stock are fully paid and non-
assessable.
Preferred Stock
The Company's Articles of Incorporation authorize the issuance
of 10,000,000 shares of preferred stock, with a par value of $.001
per share.
The preferred stock may be issued in various series and shall
have preference as to dividends and to liquidation of the
Corporation. The Board of Directors of the Company shall establish
the specific rights, preferences, voting privileges and
restrictions of such preferred stock, or any series thereof.
Holders of preferred stock have no cumulative voting rights
The Company does not have any provisions in its charter or By-
Laws that would delay, defer or prevent a change in control.
PART II
Item 1. Market Price of And Dividends on the Registrant's Common
Equity and Other Shareholder Matters
No shares of the Company's common stock have previously been
registered with the Commission. In 1981, the Company did make a
public offering of common stock pursuant to a registration
statement filed with the State of Utah. The Company intends to
make an application to the NASD for the Company's shares to be
quoted on the OTC Bulletin Board. The Company's application to the
NASD will consist of current corporate information, financial
statements and other documents as required by Rule 15c2-11 of the
Securities Exchange Act of 1934, as amended. Inclusion on the OTC
Bulletin Board permits price quotations for the Company's shares to
be published by such service. The Company is not aware of any
established trading market for its common stock nor is there any
record of any reported trades in the public market in recent years.
Although the Company intends to submit its application to the OTC
Bulletin Board contemporaneously with the filing of this
registration statement, the Company does not anticipate its shares
to be traded in the public market until such time as a merger or
acquisition can be consummated. Also, secondary trading of the
Company's shares may be subject to certain state imposed
restrictions regarding shares of shell companies. Except for the
application to the OTC Bulletin Board, there are no plans,
proposals, arrangements or understandings with any person
concerning the development of a trading market in any of the
Company's securities. There has not been an active public trading
market in the Company's common stock for several years.
The ability of an individual shareholder to trade their shares
in a particular state may be subject to various rules and
regulations of that state. A number of states require that an
issuer's securities be registered in their state or appropriately
exempted from registration before the securities are permitted to
trade in that state. Presently, the Company has no plans to
register its securities in any particular state. Further, most
likely the Company's shares will be subject to the provisions of
Section 15(g) and Rule 15g-9 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), commonly referred to as the
"penny stock" rule. Section 15(g) sets forth certain requirements
for transactions in penny stocks and Rule 15g-9(d)(1) incorporates
the definition of penny stock as that used in Rule 3a51-1 of the
Exchange Act.
The Commission generally defines penny stock to be any equity
security that has a market price less than $5.00 per share, subject
to certain exceptions. Rule 3a51-1 provides that any equity
security is considered to be a penny stock unless that security is:
registered and traded on a national securities exchange meeting
specified criteria set by the Commission; authorized for quotation
on The NASDAQ Stock Market; issued by a registered investment
company; excluded from the definition on the basis of price (at
least $5.00 per share) or the issuer's net tangible assets; or
exempted from the definition by the Commission. If the Company's
shares are deemed to be a penny stock, trading in the shares will
be subject to additional sales practice requirements on broker-
dealers who sell penny stocks to persons other than established
customers and accredited investors, generally persons with assets
in excess of $1,000,000 or annual income exceeding $200,000, or
$300,000 together with their spouse.
For transactions covered by these rules, broker-dealers must
make a special suitability determination for the purchase of such
securities and must have received the purchaser's written consent
to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules
require the delivery, prior to the first transaction, of a risk
disclosure document relating to the penny stock market. A broker-
dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, and current
quotations for the securities. Finally, monthly statements must be
sent disclosing recent price information for the penny stocks held
in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of
broker-dealers to trade and/or maintain a market in the Company's
common stock and may affect the ability of shareholders to sell
their shares.
As of October 23, 2000, there were approximately 366 holders
of record of the Company's common stock, which figure does not take
into account those shareholders whose certificates are held in the
name of broker-dealers or other nominees.
As of October 23, 2000 the Company has issued and outstanding
491,992 shares of common stock. Of this total, 269,500 shares are
deemed "restricted securities" as defined by the Act and
certificates representing such shares bear an appropriate
restrictive legend.
Of the Company's total outstanding shares, approximately
222,492 shares may be sold, transferred or otherwise traded in the
public market without restriction, should a trading market be
established, unless held by an affiliate or controlling shareholder
of the Company. None of these shares have been identified as being
held by affiliates.
In general, under Rule 144 as currently in effect, a person
(or persons whose shares are aggregated) who has beneficially owned
restricted shares of the Company for at least one year, including
any person who may be deemed to be an "affiliate" of the Company
(as the term "affiliate" is defined under the Act), is entitled to
sell, within any three-month period, an amount of shares that does
not exceed the greater of (i) the average weekly trading volume in
the Company's common stock, as reported through the automated
quotation system of a registered securities association, during the
four calendar weeks preceding such sale or (ii) 1% of the shares
then outstanding. A person who is not deemed to be an "affiliate"
of the Company and has not been an affiliate for the most recent
three months, and who has held restricted shares for at least two
years would be entitled to sell such shares without regard to the
resale limitations of Rule 144.
Dividend Policy
The Company has not declared or paid cash dividends or made
distributions in the past, and the Company does not anticipate that
it will pay cash dividends or make distributions in the foreseeable
future. The Company currently intends to retain and invest future
earnings to finance its operations.
Item 2. Legal Proceedings
There are presently no material pending legal proceedings to
which the Company or any of its subsidiaries is a party or to which
any of its property is subject and, to the best of its knowledge,
no such actions against the Company are contemplated or threatened.
Item 3. Changes in and Disagreements With Accountants
There have been no changes in or disagreements with
accountants.
Item 4. Recent Sales of Unregistered Securities
During the past three years, the Company has issued the
following securities.
In March 1999, the Company issued 212,000 shares to its two
current directors in connection with the Company's resignation.
The shares were issued upon conversion of debt in the amount of
$21,200. Also, the directors arranged for the Company to enter
into the arrangement with Simmons.
The above issuance of securities was not registered under the
Securities Act of 1933, as amended (the "Act"). The Company
believes that issuance of common stock was made in private,
isolated transactions with affiliates of the Company and,
therefore, was exempt from registration pursuant to the provisions
of Section 4(2) of the Act.
Item 5. Indemnification of Directors and Officers
As permitted by the provisions of the Utah Revised Business
Corporation Act (the "Utah Act"), the Company has the power to indemnify
an individual made a party to a proceeding because they are or were a
director, against liability incurred in the proceeding, if such
individual acted in good faith and in a manner reasonably believed to be
in, or not opposed to, the best interest of the Company and, in a
criminal proceeding, they had no reasonable cause to believe their
conduct was unlawful. Indemnification under this provision is limited
to reasonable expenses incurred in connection with the proceeding. The
Company must indemnify a director or officer who is successful, on the
merits or otherwise, in the defense of any proceeding, or in the defense
of any claim, issue, or matter in the proceeding, to which they are a
party because they are or were a director or officer of the Company,
against reasonable expenses incurred by them in connection with the
proceeding or claim with respect to which they have been successful. The
Company's Articles of Incorporation empower the Board of Directors to
indemnify its officers, directors, agents or employees against any loss
or damage sustained when acting in good faith in the performance of
their corporate duties.
The Company may pay for or reimburse reasonable expenses incurred
by a director, officer, employee, fiduciary or agent of the Company who
is a party to a proceeding in advance of final disposition of the
proceeding provided the individual furnishes the Company with a written
affirmation that their conduct was in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interest of the
Company, and undertake to repay the advance if it is ultimately
determined that they did not meet such standard of conduct.
Also pursuant to the Utah Act, a corporation may set forth in its
articles of incorporation, by-laws or by resolution, a provision
eliminating or limiting, in certain circumstances, liability of a
director to the corporation or its shareholders for monetary damages for
any action taken or any failure to take any action, as a director. This
provision does not eliminate or limit the liability of a director (i) for
the amount of a financial benefit received by a director to which they
are not entitled; (ii) for an intentional infliction of harm on the
corporation or its shareholders; (iii) for liability for a violation of
Section 16-10a-842 of the Utah Act (relating to distributions made in
violation of the Utah Act); and (iv) for any intentional violation of
criminal law. To date, the Company has not adopted such a provision in
its Articles of Incorporation, By-Laws or by resolution. A corporation
may not eliminate or limit the liability of a director for any act or
omission occurring prior to the date when such provision becomes
effective. The Utah Act also permits a corporation to purchase and
maintain liability insurance on behalf of its directors, officers,
employees, fiduciaries or agents.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to officers,
directors or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the
Securities and Exchange Commission, such indemnification is against
public policy as expressed in such Act and is therefore unenforceable.
Transfer Agent
The Company has designated Fidelity Transfer Company,1800
South West Temple, Suite 301, Salt Lake City, Utah 84115, as its
transfer agent.
PART F/S
The Company's financial statements for the fiscal years ended
March 31, 2000 and 1999 and the six month period ended September
30, 2000 have been examined to the extent indicated in their
reports by Hansen, Barnett & Maxwell, independent certified public
accountants, and have been prepared in accordance with generally
accepted accounting principles and pursuant to Regulation S-B as
promulgated by the Securities and Exchange Commission and are
included herein in response to Part F/S of this Form 10-SB.
E. J. NAK MATTRESS COMPANY
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
AND
FINANCIAL STATEMENTS
September 30, 2000
Hansen, Barnett & Maxwell
A Professional Corporation
Certified Public Accountants
E. J. NAK MATTRESS COMPANY
TABLE OF CONTENTS
Page
Report of Independent Certified Public Accountants 1
Financial Statements:
Balance Sheet - September 30, 2000 (Unaudited) and March 31, 2000 2
Statements of Operations for the Six Months Ended September 30,
2000 and 1999 (Unaudited) and for the Years Ended March 31,
2000 and 1999 4
Statement of Stockholders' Equity (Deficit) for the Period
March 31, 1998 through September 30, 2000 (Unaudited) 5
Statements of Cash Flows for the Six Months Ended September 30,
2000 and 1999 (Unaudited) and for the Years Ended March 31,
2000 and 1999 6
Notes to Financial Statements 7
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East 300 South, Suite 200
Member of Summit International Associates Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
E. J. Nak Mattress Company
We have audited the accompanying balance sheet of E. J. Nak
Mattress Company, formerly Union Investments, Inc., as of March 31,
2000, and the related statements of operations, stockholders'
equity and cash flows for each of the two years in the period ended
March 31, 2000. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of E. J.
Nak Mattress Company as of March 31, 2000, and the results of its
operations and its cash flows for each of the two years in the
period ended March 31, 2000 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in
Note 1 in the financial statements, the Company has an accumulated
deficit, no cash and a working capital deficit. These factors raise
substantial doubt about the Company's ability to continue as a
going concern. Management's plan in regard to these matters are
also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
June 16, 2000
E. J. NAK MATTRESS COMPANY
BALANCE SHEETS
ASSETS
September 30, March 31,
2000 2000
(Unaudited)
Current Assets
Cash $ 1,830 $
Inventory 44,458 31,083
Prepaid expenses 1,596 3,581
Total Current Assets 47,884 34,664
Equipment
Office equipment 15,000 15,000
Transportation equipment 63,983 63,983
78,983 78,983
Less: Accumulated depreciation (18,134) (10,236)
Net Equipment 60,849 68,747
Other Assets
Cash surrender value of life insurance - 878
Deposit 1,600 500
Total Other Assets 1,600 1,378
Total Assets $ 110,333 $ 104,789
E. J. NAK MATTRESS COMPANY
BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, March 31,
2000 2000
(Unaudited)
Current Liabilities
Bank overdraft $ - $ 5,276
Accounts payable - trade 26,717 13,305
Sales tax payable 5,299 2,515
Interest payable 2,014 1,600
Debt to related party 2,520 2,520
Notes payable - current portion 12,779 12,018
Total Current Liabilities 49,329 37,234
Long-Term Liabilities
Notes payable 30,544 36,135
Debt to related parties 29,564 30,866
Total Long-Term Liabilities 60,108 67,001
Total Liabilities 109,437 104,235
Stockholders' Equity
Preferred stock - $0.001 par value;
10,000,000 shares authorized; no
shares issued or outstanding - -
Common stock $0.001 par value;
50,000,000 shares authorized;
491,992 shares issued and outstanding
at September 30, 2000 (Unaudited) and
March 31, 2000 492 492
Additional paid-in capital 462,790 462,790
Accumulated deficit (462,386) (462,728)
Total Stockholders' Equity 896 554
Total Liabilities and Stockholders' Equity $ 110,333 $ 104,789
E. J. NAK MATTRESS COMPANY
STATEMENTS OF OPERATIONS
For the Six Months For the Year Ended
Ended September 30, March 31,
2000 1999 2000 1999
(Unaudited) (Unaudited)
Revenues $ 116,471 $ 13,514 $ 98,309 $ -
Cost of Revenues 45,881 4,054 29,207 -
Gross Profit 70,590 9,460 69,102 -
Operating Expenses
Selling expenses 18,625 2,736 17,325 -
Depreciation expense 7,898 2,365 10,236 -
General and administrative
expenses 40,933 4,580 36,080 -
Total Operating Expenses 67,456 9,681 63,641 -
Income (Loss) From Operations 3,134 (221) 5,461 -
Interest Expense (2,792) (419) (4,155) -
Net Income (Loss) $ 342 $ (640) $ 1,306 $ -
Basic and Diluted Income (Loss)
Per Common Share $ 0.00 $ 0.00 $ 0.00 $ -
Weighted Average Number of
Common Shares Used in Per
Share Calculation 491,992 491,992 491,992 288,132
E. J. NAK MATTRESS COMPANY
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
Balance at March 31, 1998 280,000 $ 280 $ 441,802 $(464,034) $(21,952)
Issuance upon conversion of
related party debt 211,992 212 20,988 - 21,200
Net income for the year - - - - -
Balance at March 31, 1999 491,992 492 462,790 (464,034) (752)
Net income for the year - - - 1,306 1,306
Balance at March 31, 2000 491,992 492 462,790 (462,728) 554
Net income for the period
(unaudited) - - - 342 342
Balance at September 30, 2000
(unaudited) 491,992 $ 492 $ 462,790 $(462,386) $ 896
E. J. NAK MATTRESS COMPANY
STATEMENTS OF CASH FLOWS
For the Six Months Ended For the Year Ended
September 30, March 31,
2000 1999 2000 1999
(Unaudited)(Unaudited)
Cash Flows From Operating Activities
Net income (loss) $ 342 $ (640) $1,306 $ -
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation 7,898 2,365 10,236 -
Expenses paid by Officer/Director - - 9,866 -
Changes in current assets and liabilities:
Inventories (13,375) (10,251) (31,083) -
Prepaid expenses and other assets 1,763 (1,000) (4,959) -
Accounts payable 13,413 2,500 12,553 -
Accrued liabilities 3,198 1,018 4,115 -
Net Cash Provided By (Used In)
Operating Activities 13,239 (6,008) 2,034 -
Cash Flows From Investing Activities
Purchase of equipment - (77,883) (1,100) -
Net Cash Used In Investing
Activities - (77,883) (1,100) -
Cash Flows From Financing Activities
Net change in bank overdraft (5,276) - 5,276 -
Proceeds from related party debt - 30,867 3,120 -
Proceeds from notes payable - 62,598 - -
Principal payments on related party debt (1,303) (380) (600) -
Principal payments on notes payable (4,830) (8,367) (8,730) -
Net Cash Provided By (Used In)
Financing Activities (11,409) 84,718 (934) -
Net Increase In Cash 1,830 827 - -
Cash at Beginning of Period - - - -
Cash at End of Period $ 1,830 $ 827 $ - $ -
Supplemental Disclosures of Cash Flow Information - Note 7
E. J. NAK MATTRESS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Information with Respect to September 30, 2000 and for the Six Months
Ended September 30, 2000 and 1999 Is Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - E. J. Nak Mattress Company (the Company) is
a mattress retail store. The Company was originally incorporated on
January 29, 1981 under the laws of the state of Utah as Union
Investments, Inc. with the business purpose to invest in real and
personal property. The Company discontinued its operations in
investing in 1983 and began seeking other business opportunities.
On March 31, 1999, the shareholders of the Company approved an
amendment to its Articles of Incorporation to change the Company's
name from Union Investments Inc. to E. J. Nak Mattress Company and
to adopt a general business purpose in order to pursue the retail
sales of mattresses and other various home decoration items. Prior
to the year ended March 31, 2000, the Company had no operations and
was considered to be a development stage enterprise.
Business Condition - The financial statements have been prepared
on the basis of the Company continuing as a going concern. The
Company had accumulated a deficit at March 31, 2000 in the amount
of $462,728, no cash, and a working capital deficit of $2,570. The
Company had an accumulated deficit of $462,386 at September 30,
2000 and a working capital deficit of $1,445. These conditions
raise substantial doubt regarding the Company's ability to continue
as a going concern. Management's plan to mitigate the impact of
these conditions is to obtain additional equity financing through
the issuance of the Company's common stock. These financial
statements do not include any adjustments relating to the
recoverability and classification of recorded assets or amounts and
classifications of liabilities that might be necessary should the
Company be unable to continue as a going concern.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities 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.
Inventories - Inventories are stated at the lower of cost or
market, cost being determined by the first-in, first-out (FIFO)
method.
Equipment and Depreciation - Equipment is recorded at cost.
Maintenance, repairs, and minor replacements are charged to expense
as incurred. When depreciable assets are retired, sold, or
otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and the resulting gain
or loss is reflected in earnings.
Depreciation is calculated by using the straight-line method over
a useful life of five years.
Depreciation expense on property and equipment for the years ended
March 31, 2000 and 1999 was $10,236 and $0, respectively.
Depreciation expense on property and equipment for the six months
ended September 30, 2000 and 1999 was $7,898 and $2,365,
respectively.
Revenue Recognition - Revenue is recognized when merchandise is
shipped or otherwise accepted by the customer.
Advertising Costs - Advertising costs are expensed when incurred.
Advertising expense was $10,521 and $0 for the years ended March
31, 2000 and 1999, respectively, and $2,519 and $631 for the six
months ended September 30, 2000 and 1999, respectively.
Financial Instruments - The amounts reported as inventory, bank
overdrafts, accounts payable and notes payable are considered to be
reasonable approximations of their fair values. The fair value
estimates presented herein were based on estimated future cash
flows.
E. J. NAK MATTRESS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Information with Respect to September 30, 2000 and for the Six Months
Ended September 30, 2000 and 1999 Is Unaudited)
Income Taxes - The Company recognizes the amount of income taxes
payable or refundable for the current year and recognizes deferred
tax assets and liabilities for the future tax consequences
attributable to differences between the financial statement amounts
of certain assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years those
temporary differences are expected to be recovered or settled.
Deferred tax assets are reduced by a valuation allowance to the
extent that uncertainty exists as to whether the deferred tax
assets will ultimately be realized.
Earnings Per Share - Earnings per common share is computed by
dividing net income available to common stockholders by the
weighted-average number of common shares outstanding during the
period. Diluted earnings per share reflects the potential dilution
which could occur if all contracts to issue common stock were
exercised or converted into common stock or resulted in the
issuance of common stock. At March 31, 2000 and 1999 and at
September 30, 2000 and 1999, there were no potentially issuable
common shares.
NOTE 2 - RELATED PARTY TRANSACTIONS
As described in Note 5 - Capital Stock, during the year ended March
31, 1999, the Company issued 212,000 shares of common stock, post-
split, in conversion of related party debt in the amount of
$21,200.
During the year ended March 31, 2000, the Company received cash
advances from an Officer/Director in the amount of $3,120 of which
$600 in principal was repaid by March 31, 2000. There are no stated
terms for interest or repayment of the remaining $2,520 of
principal. No interest has been accrued on this advance.
At March 31, 2000, the Company had an obligation to an
Officer/Director in the amount of $30,866. Of this amount, $15,866
was owed to the Officer/Director for expenses paid during the year
ended March 31, 2000 by the Officer/Director on behalf of the
Company and $15,000 was owed from the purchase of various office
equipment from the Officer/Director which had been acquired by the
Officer/Director from an affiliated company upon liquidation.
According to verbal agreement, interest is accrued at a rate of 6%.
Accrued interest and principal are to be repaid after the Company
is established and generating sufficient revenues. As of March 31,
2000 and September 30, 2000, interest in the amount of $926 and
$1,744 was accrued, respectively.
During the year ended March 31, 2000, an Officer/Director of the
Company assigned four automobiles to the Company in exchange for
the Company's assumption of the notes payable related to those
automobiles. The automobiles were recorded at cost to the Company
based on the amount of liability assumed by the Company.
NOTE 3 - NOTES PAYABLE
As described in Note 2, during the year ended March 31, 2000, the
Company incurred notes payable in the amount of $62,883 related to
the acquisition of vehicles from an Officer/Director. Notes
payable to third parties consisted of the following:
September 30, March 31,
2000 2000
Note payable to a bank; interest payable at 11.99%
with monthly installments of $286, secured by equipment. $ 11,162 $ 12,330
Note payable to a bank; interest payable at 9.0% with
monthly installments of $232, secured by equipment. 2,862 3,654
Note payable to a bank; interest payable at 9.41% with
monthly installments of $420, secured by equipment. 16,203 17,499
E. J. NAK MATTRESS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Information with Respect to September 30, 2000 and for the Six Months
Ended September 30, 2000 and 1999 Is Unaudited)
Note payable to a bank; interest payable at 9.5% with
monthly installments of $426, secured by equipment. 13,096 14,670
Total Notes Payable 43,323 48,153
Less: Current Portion 12,779 12,018
Total Notes Payable - Long-Term $ 30,544 $ 36,135
Annual maturities of long-term debt as of March 31, 2000 for each
of the next five years are as follows:
Year Ending March 31:
2001 $ 12,018
2002 11,778
2003 11,684
2004 9,344
2005 3,329
NOTE 4 - INCOME TAXES
No benefit for income taxes has been recorded during the six months
ended September 30, 2000 and 1999 or the years ended March 31, 2000
and 1999. Certain risks exist with respect to the Company's future
profitability, and management has concluded that, due to these
uncertainties, the related net deferred tax asset may not be
realized. Accordingly, a valuation allowance has been recorded to
offset the deferred tax asset in its entirety.
The components of the net deferred tax assets at March 31, 2000 are as follows:
Deferred Income Tax Assets
Tax net operating loss carryforward $ 1,952
Reserves and accrued liabilities 597
Total Deferred Income Tax Assets 2,549
Valuation allowance (476)
Net Deferred Income Tax Assets 2,073
Deferred Income Tax Liability
Depreciation in excess of book (2,073)
Total deferred income tax liability (2,073)
Net Deferred Income Tax $ -
During the years ended March 31, 2000 and 1999, the valuation
allowance decreased by $476 and $0, respectively.
As of March 31, 2000, the Company has net operating loss
carryforwards for federal income tax reporting purposes of
approximately $5,238 that may be offset against future taxable
income through the fiscal year 2019.
E. J. NAK MATTRESS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Information with Respect to September 30, 2000 and for the Six Months
Ended September 30, 2000 and 1999 Is Unaudited)
The following is a reconciliation of the income tax at the federal
statutory rate of 34% with the provision for income taxes for the
years ended March 31, 2000 and 1999:
2000 1999
Income tax expense at statutory rate $ 444 $ -
Change in deferred tax valuation account (476) -
State taxes, net of federal benefit 32 -
Provision for Income Taxes $ - $ -
NOTE 5 - CAPITAL STOCK
The Company's Articles of Incorporation authorize the board of
directors, without shareholder approval, to issue up to 10,000,000
shares of preferred stock with such rights and preferences as the
board of directors may determine at its discretion. The board of
directors has the authority to issue shares of preferred stock
having rights prior to the common stock with respect to dividends,
voting and liquidation.
During the year ended March 31, 2000, the Company approved a 100-
for-1 reverse stock split. The accompanying financial statements
have been restated for all periods presented to reflect the effects
of the stock split. The Company approved the stock split by vote
of its shareholders on April 6, 1999, however, the stock transfer
agent was not notified until October 4, 2000.
During March 1999, the Company issued 212,000 shares, post-split,
of common stock upon conversion of related party debt owed to an
Officer/Director in the amount of $21,200 or $0.10 per share. No
interest was accrued on this debt and no common shares were issued
as compensation for interest.
NOTE 6 - LEASE COMMITMENTS
During September 1999, the Company entered into a five year lease
agreement for its store. This lease agreement expires September
2004 and provides an option to extend for an additional 3 year
period. Under the terms of the lease, monthly payments for the
period March 2000 through November 2000 are $2,000. This amount
increases by $150 for each subsequent year of the lease. Rent
expense for the years ended March 31, 2000 and 1999 was $12,250 and
$0, respectively. Rent expense for the six months ended September
30, 2000 and 1999 was $13,735 and $3,000, respectively.
The following is a schedule by years of future minimum rental
payments required under the operating leases described above as of
March 31, 2000:
Year Ending March 31:
2001 $ 26,700
2002 28,500
2003 30,600
2004 15,900
NOTE 7 - SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the years ended March 31, 2000 and 1999 was
$2,182 and $0, respectively. Interest paid during the six months
ended September 30, 2000 and 1999 was $2,379 and $418,
respectively. No income tax was paid during the year ended March
31, 2000 and 1999, or during the six months ended September 30,
2000 and 1999.
Non-Cash Investing and Financing Activities - As described in
Note 2 - Related Party Transactions, the Company purchased four vehicles
totaling $62,883 from an Officer/Director in exchange for the
assumption of liabilities in the same amount. The Company also
purchased various office equipment from the Officer/Director for a
note payable in the amount of $15,000.
PART III
Item 1. Index to Exhibits
The following exhibits are filed with this Registration Statement:
Exhibit No. Exhibit Name
3.1 Restated Articles of Incorporation
3.2 By-Laws
4. Instrument defining rights of holders (See Exhibit No.
3.1, Restated Articles of Incorporation - Article IV)
10.1 Agreement with Simmons
10.2 Town Center, LLC - The Lease - Modified Gross Lease
27. Financial Data Schedule
________________
2. Description of Exhibits
See Item I above.
SIGNATURES
In accordance with Section 12 of the Securities and Exchange
Act of 1934, the registrant caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly
organized.
E. J. Nak Mattress Company
(Registrant)
Date: December 29, 2000 By: /S/ John A. Nak
John A. Nak
President, C.E.O.
