Washington,
D.C. 20549
FORM 10-QSB/A
Amendment Number 1
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
Quarterly period ended June 30,
2007
Commission
File No. 000-52690
Art Design,
Inc.
(Exact
Name of Small Business Issuer as specified in its charter)
Colorado
|
86-1061005
|
(State
or other jurisdiction
|
(IRS
Employer File Number)
|
of
incorporation)
|
|
|
|
3636 S.
Jason
|
|
Englewood,
Colorado
|
80113
|
(Address
of principal executive offices)
|
(zip
code)
|
(303)
781-7280
(Registrant's
telephone number, including area code)
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. Yes
[X] No [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes
[] No [ X ]
As
of August 15, 2007, registrant had outstanding 10,820,600 shares of the
registrant’s common stock. The securities of this Company do not
trade in a public market.
Transitional
Small Business Disclosure Format (check one): Yes [
] No [X]
FORM 10-QSB
Art Design, Inc.
TABLE OF
CONTENTS
|
Page
|
PART
I FINANCIAL INFORMATION
|
|
Item
1. Financial Statements for the period ended June 30, 2007
|
3
|
Consolidated
Balance Sheet(Unaudited)
|
4
|
Consolidated
Statements of Operations (Unaudited)
|
5
|
Consolidated
Statements of Cash Flows (Unaudited)
|
6
|
Notes
to Consolidated Financial Statements
|
7
|
|
|
Item
2. Management’s Discussion and Analysis and Plan of
Operation
|
9
|
|
|
Item
3. Controls and Procedures
|
19
|
|
|
PART
II OTHER INFORMATION
|
|
|
|
Item
1. Legal Proceedings
|
20
|
Item
2. Changes in Securities
|
20
|
Item
3. Defaults Upon Senior Securities
|
20
|
Item
4. Submission of Matters to a Vote of Security Holders
|
20
|
Item
5. Other Information
|
20
|
Item
6. Exhibits and Reports on Form 8-K
|
20
|
|
|
Signatures
|
21
|
|
|
PART I FINANCIAL
INFORMATION
References
in this document to "us," "we," or "Company" refer to Art Design,
Inc.
ITEM 1. FINANCIAL
STATEMENTS
ART DESIGN, INC.
BALANCE SHEET
(Unaudited)
|
|
June 30,
2007
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
Cash
|
|
$ |
127,233
|
|
Accounts
receivable
|
|
|
10,478
|
|
Total current
assets
|
|
|
137,711
|
|
|
|
|
|
|
Fixed
assets
|
|
|
13,269
|
|
Less
accumulated depreciation
|
|
|
(10,346 |
) |
Other
assets
|
|
|
2,759
|
|
|
|
|
5,682
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
143,393
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Accounts payable -
related party
|
|
$ |
15,646
|
|
Note
payable - related party
|
|
|
34,201
|
|
Total current
liabilties
|
|
|
49,847
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
49,847
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
Preferred
stock, $.10 par value;
|
|
|
|
|
1,000,000
shares authorized;
|
|
|
|
|
No
shares issued & outstanding
|
|
|
-
|
|
Common
stock, $.001 par value;
|
|
|
|
|
50,000,000
shares authorized;
|
|
|
|
|
10,820,600
shares
|
|
|
|
|
issued
& outstanding
|
|
|
10,821
|
|
Additional
paid in capital
|
|
|
160,165
|
|
Accumulated
deficit
|
|
|
(77,440 |
) |
|
|
|
|
|
Total Stockholders'
Equity
|
|
|
93,546
|
|
|
|
|
|
|
Total Liabilities and
Stockholders' Equity
|
|
$ |
143,393
|
|
The
accompanying notes are an integral part of the financial
statements.
ART DESIGN, INC.
STATEMENTS OF
OPERATIONS
(Unaudited)
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
2006
|
|
|
June 30,
2007
|
|
|
June 30,
2006
|
|
|
June 30,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
- net of returns
|
|
$ |
9,922
|
|
|
$ |
36,068
|
|
|
$ |
16,135
|
|
|
$ |
36,068
|
|
Cost
of goods sold
|
|
|
9,328
|
|
|
|
22,541
|
|
|
|
15,227
|
|
|
|
22,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
594
|
|
|
|
13,527
|
|
|
|
908
|
|
|
|
13,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
& depreciation
|
|
|
629
|
|
|
|
444
|
|
|
|
888
|
|
|
|
888
|
|
General
and administrative
|
|
|
6,294
|
|
|
|
12,232
|
|
|
|
8,535
|
|
|
|
26,364
|
|
|
|
|
6,923
|
|
|
|
12,676
|
|
|
|
9,423
|
|
|
|
27,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) from operations
|
|
|
(6,329 |
) |
|
|
851
|
|
|
|
(8,515 |
) |
|
|
(13,725 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
(1,241 |
) |
|
|
|
|
|
|
(1,241 |
) |
|
|
|
-
|
|
|
|
(1,241 |
) |
|
|
-
|
|
|
|
(1,241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
provision
for income taxes
|
|
|
(6,329 |
) |
|
|
(390 |
) |
|
|
(8,515 |
) |
|
|
(14,966 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
$ |
(6,329 |
) |
|
$ |
(390 |
) |
|
$ |
(8,515 |
) |
|
$ |
(14,966 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Basic
and fully diluted)
|
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
shares outstanding
|
|
|
6,167,000
|
|
|
|
10,473,533
|
|
|
|
3,084,000
|
|
|
|
10,386,767
|
|
The
accompanying notes are an integral part of the financial
statements.
ART DESIGN, INC.
STATEMENTS OF CASH
FLOWS
(Unaudited)
(Continued
On Following Page)
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
2006
|
|
|
June 30,
2007
|
|
Cash Flows From Operating
Activities:
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(8,515 |
) |
|
$ |
(14,966 |
) |
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to
|
|
|
|
|
|
|
|
|
net
cash provided by (used for)
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
Amortization
& depreciation
|
|
|
888
|
|
|
|
888
|
|
Donated
services
|
|
|
3,500
|
|
|
|
3,000
|
|
Accounts
receivable
|
|
|
(2,730 |
) |
|
|
5,092
|
|
Accrued
payables - related party
|
|
|
3,000
|
|
|
|
(4,525 |
) |
Accrued
payables
|
|
|
4,099
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
(2,759 |
) |
Net cash provided by (used
for)
|
|
|
|
|
|
|
|
|
operating
activities
|
|
|
242
|
|
|
|
(13,270 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Net
cash provided by (used for)
|
|
|
|
|
|
|
|
|
investing
activities
|
|
|
-
|
|
|
|
-
|
|
The
accompanying notes are an integral part of the financial
statements.
ART DESIGN, INC.
STATEMENTS OF CASH
FLOWS
(Unaudited)
(Continued
From Previous Page)
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
2006
|
|
|
June 30,
2007
|
|
|
|
|
|
|
|
|
Cash Flows From Financing
Activities:
|
|
|
|
|
|
|
Deferred
offering costs
|
|
|
(7,500 |
) |
|
|
|
Issuance
of common stock
|
|
|
54,400
|
|
|
|
109,330
|
|
Net cash provided by (used
for)
|
|
|
|
|
|
|
|
|
financing
activities
|
|
|
46,900
|
|
|
|
109,330
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) In
Cash
|
|
|
47,142
|
|
|
|
96,060
|
|
|
|
|
|
|
|
|
|
|
Cash At The Beginning Of The
Period
|
|
|
6,090
|
|
|
|
31,173
|
|
|
|
|
|
|
|
|
|
|
Cash At The End Of The
Period
|
|
$ |
53,232
|
|
|
$ |
127,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schedule Of Non-Cash
Investing And Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
2006 the Company issued 4,899,000 shares valued at $9,799
for
|
|
|
|
|
|
related
party debt relief.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
-
|
|
|
$ |
1,241
|
|
Cash
paid for income taxes
|
|
$ |
-
|
|
|
$ |
-
|
|
The
accompanying notes are an integral part of the financial
statements.
ART DESIGN, INC.
NOTES TO FINANCIAL
STATEMENTS
(Unaudited)
NOTE 1. ORGANIZATION, OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Art
Design, Inc. (the “Company”), was incorporated in the State of Colorado on
January 16, 2002. The Company sells art work and interior decorating to
professional and business offices.
Basis of
Presentation
The
accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-QSB and do not include all of the information
and disclosures required by generally accepted accounting principles for
complete financial statements. All adjustments which are, in the opinion of
management, necessary for a fair presentation of the results of operations for
the interim periods have been made and are of a recurring nature unless
otherwise disclosed herein. The results of operations for such interim periods
are not necessarily indicative of operations for a full year.
Cash and cash
equivalents
The
Company considers all highly liquid investments with an original maturity of
three months or less as cash equivalents.
Accounts
receivable
The
Company reviews accounts receivable periodically for collectability and
establishes an allowance for doubtful accounts and records bad debt expense when
deemed necessary. At June 30, 2007 the Company had no balance in its allowance
for doubtful accounts.
Property and
equipment
Property
and equipment are recorded at cost and depreciated under accelerated methods
over each item's estimated useful life, which is five years for vehicles,
computers and other items.
Revenue
recognition
Revenue
is recognized on an accrual basis after services have been performed under
contract terms, the event price to the client is fixed or determinable, and
collectibility is reasonably assured. Standard contract policy calls for partial
payment up front with balance due upon receipt of final
billing.
ART DESIGN, INC.
NOTES TO FINANCIAL
STATEMENTS
(Unaudited)
NOTE 1. ORGANIZATION,
OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued):
Use of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect 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.
Income
tax
The
Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 (“SFAS 109”). Under SFAS 109 deferred taxes are provided on a
liability method whereby deferred tax assets are recognized for deductible
temporary differences and operating loss carryforwards and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
Net income (loss) per
share
The net
income (loss) per share is computed by dividing the net income (loss) by the
weighted average number of shares of common outstanding. Warrants, stock
options, and common stock issuable upon the conversion of the Company's
preferred stock (if any), are not included in the computation if the effect
would be anti-dilutive and would increase the earnings or decrease loss per
share.
Financial
Instruments
The
carrying value of the Company’s financial instruments, including cash and cash
equivalents and accrued payables, as reported in the accompanying balance sheet,
approximates fair value.
ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
The
following discussion of our financial condition and results of operations should
be read in conjunction with, and is qualified in its entirety by, the
consolidated financial statements and notes thereto included in, Item 1 in this
Quarterly Report on Form 10-QSB. This item contains forward-looking statements
that involve risks and uncertainties. Actual results may differ materially from
those indicated in such forward-looking statements.
Forward-Looking
Statements
This Quarterly Report on Form 10-QSB and the documents
incorporated herein by reference contain forward-looking statements that have
been made pursuant to the provisions of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are based on current
expectations, estimates, and projections about our industry, management beliefs,
and certain assumptions made by our management. Words such as
“anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates”,
variations of such words, and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of
future performance and are subject to certain risks, uncertainties, and
assumptions that are difficult to predict; therefore, actual results may differ
materially from those expressed or forecasted in any such forward-looking
statements. Unless required by law, we undertake no obligation to
update publicly any forward-looking statements, whether as a result of new
information, future events, or otherwise. However, readers should
carefully review the risk factors set forth herein and in other reports and
documents that we file from time to time with the Securities and Exchange
Commission, particularly the Report on Form 10-SB, and Annual Reports on Form
10-KSB, Quarterly reports on Form 10-QSB and any Current Reports on Form
8-K.
Risk Factors
You
should carefully consider the risks and uncertainties described below; and all
of the other information included in this document. Any of the following risks
could materially adversely affect our business, financial condition or operating
results and could negatively impact the value of your investment.
The occurrence of any of the
following risks could materially and adverselyaffect our business, financial
condition and operating result. In this case,the trading price of our common
stock could decline and you might lose all orpart of your
investment.
We have had a history of losses and
may not be able to develop profitability.
We had a
net loss of $14,966 on revenues of $36,068 for the six months ended June 30,
2007, compared to a net loss of $8,515 on revenues of $16,135 for the six months
ended June 30, 2006. We had a net loss of $13,021 on revenues of $34,316
for the fiscal year ended December 31, 2006, compared to a net loss of $8,953 on
revenues of $62,009 for the fiscal year ended December 31, 2005. We cannot
assure you that we will generate profits in the future, even if our sales
increase dramatically. We will need to generate greater revenues and improved
margins to achieve and maintain profitability in the future. If our operating
losses continue on a long-term basis, we may experience a shortage of working
capital that could adversely affect our business or our ability to continue our
business, in which case our stock price may decline, perhaps significantly, and
you could lose the value of your investment.
We have had a history of fluctuating
revenues, including declining revenues from year to year and may not be able to
develop profitability.
We had
revenues of $34,316 for the fiscal year ended December 31, 2006 compared to
revenues of $62,009 for the fiscal year ended December 31, 2005, compared to
revenues of $73,558 for the fiscal year ended December 31, 2004. For the six
months ended June 30, 2007, we had revenues of $36,068 , compared to
revenues of $16,135 for the six months ended June 30, 2006.. For the
three months ended June 30, 2007, we had revenues of $36,068 ,
compared to revenues of $9,922 for the three months ended June 30,
2006. We cannot assure you that our sales will increase. We must generate
greater revenues and improved margins to achieve and maintain profitability in
the future. If our revenues continue to decline, we may experience a shortage of
working capital that could adversely affect our business or our ability to
continue our business, in which case our stock price may decline, perhaps
significantly, and you could lose the value of your
investment.
Because we had incurred continuing
operating losses, our accountants have expressed doubts about our ability to
continue as a going concern.
For the
fiscal year ended December 31, 2005, our accountants have expressed doubt about
our ability to continue as a going concern as a result of our continued net
losses. Our ability to achieve and maintain profitability and positive cash flow
is dependent upon:
|
our
ability to locate clients who will purchase our products and use our
services; and
|
|
our
ability to generate revenues.
|
Based
upon current plans, we expect to incur operating losses in future periods
because we will be incurring expenses and not generating sufficient revenues. We
expect approximately $33,000 in operating costs over the next twelve months. We
cannot guarantee that we will be successful in generating sufficient revenues or
other funds in the future to cover these operating costs. Failure to generate
sufficient revenues will cause us to go out of business.
Our limited operating history makes
it difficult for us to evaluate our future business prospects and make decisions
based on those estimates of our future performance.
The
concept for our business model was developed in 2002. Even though we have
operated as a corporation for some time, we have a limited operating history,
based upon limited revenues and a lack of profitability. These factors make it
difficult to evaluate our business on the basis of historical operations. As a
consequence, our past results may not be indicative of future results. Although
this is true for any business, it is particularly true for us because of our
limited operating history. Reliance on historical results may hinder our ability
to anticipate and timely adapt to increases or decreases in sales, revenues or
expenses. For example, if we overestimate our future sales for a particular
period or periods based on our historical growth rate, we may increase our
overhead and other operating expenses to a greater degree than we would have if
we correctly anticipated the lower sales level for that period and reduced our
controllable expenses accordingly. If we make poor budgetary decisions as a
result of unreliable historical data, we could be continue to incur losses,
which may result in a decline in our stock price.
We have no experience as a public
company.
We have
never operated as a public company. We have no experience in complying with the
various rules and regulations which are required of a public company. As a
result, we may not be able to operate successfully as a public company, even if
our operations are successful. We plan to comply with all of the various rules
and regulations which are required of a public company. However, if we cannot
operate successfully as a public company, your investment may be materially
adversely affected. Our inability to operate as a public company could be the
basis of your losing your entire investment in us.
Our clients have no obligation to
purchase from us, which may result in sudden declines in
sales.
Our
client mix currently consists of approximately ninety percent commercial and
professional business offices, and ten percent high-end residential homes. We do
not have supply agreements or other volume commitments that are binding on our
clients, and our sales originate solely from individual purchase orders that we
negotiate with our individual clients. As a consequence, our clients are not
obligated to purchase any amount of our products and they may choose to stop or
decrease their level of product purchases from us at any time, without giving us
prior notice. This could cause our sales to fluctuate, and we could experience a
sudden and unexpected decline in sales. We could experience unexpected
operational losses if our client sales were to decline significantly without
notice.
We currently rely upon two clients
for a majority of our sales, which means that we could be severally impacted by
the loss of one or both of them.
Our
revenue projections are subject to greater uncertainty than if we had volume
commitments from one or more of our largest clients. Our two top clients in
fiscal year 2004 accounted for approximately 26% of our revenues, in fiscal year
2005 accounted for approximately 52% of our revenues, and approximately 62% of
our revenues for the nine months ended September 30, 2006. We could be severally
impacted by the loss of one or both of them. As long as we rely upon a few
clients for a majority of our sales, we could be subject to uncertain revenue
results, if we lose a major client. We cannot assure you that these clients, or
any of our clients, will continue to purchase our products in significant
volume, or at all.
We are implementing a strategy to
grow and expand our business, which is expensive and may not generate increases
in our revenues.
We intend
to expand our business, and we plan to incur expenses associated with our growth
and expansion. Although we recently raised funds through private offerings to
implement our growth strategy, these funds may not be adequate to offset all of
the expenses we incur in expanding our business. We will need to generate
greater revenues to offset expenses associated with our growth, and we may be
unsuccessful in achieving greater revenues, despite our attempts to grow our
business. If our growth strategies do not result in increased revenues, we may
have to abandon our plans for further growth or may even reduce the current size
of our operations.
We may need to raise additional
funds, and these funds may not be available when we need
them.
Based on
our current plans, we have adjusted our operating expenses so that cash
generated from operations and from working capital financing is expected to be
sufficient for the foreseeable future to fund our operations at our currently
forecasted levels. This has not always been the case, since we have had a
history of losses. To try to operate at a break-even level based upon our
current level of anticipated business activity, we believe that we must generate
approximately $132,000 in revenue per year. However, if our forecasts are
inaccurate, we will need to raise additional funds. On the other hand, we may
choose to scale back our operations to operate at break-even with a smaller
level of business activity, while adjusting our overhead to meet the revenue
from current operations. In addition, we expect that we will need to raise
additional funds if we decide to pursue more rapid expansion, the development of
new or enhanced services and products, appropriate responses to competitive
pressures, or the acquisition of complementary businesses or technologies, or if
we must respond to unanticipated events that require us to make additional
investments. . We cannot assure that additional financing will be available when
needed on favorable terms, or at all. If these funds are not available when we
need them, then we may need to change our business strategy and reduce our rate
of growth.
We must effectively manage the growth
of our operations, or we may outgrow our current
infrastructure.
As of
June 30, 2007, we had two employees. If we experience rapid growth of our
operations, we could see a backlog of client orders. We can resolve these
capacity issues by hiring additional personnel and upgrading our infrastructure.
However, we cannot guarantee that sufficient additional personnel will be
available or that we will find suitable technology to aid our growth. In any
case, we will continue pursuing additional sales growth for our company.
Expanding our infrastructure will be expensive, and will require us to train our
workforce, and improve our financial and managerial controls to keep pace with
the growth of our operations.
Because we are small and do not have
much capital, we must limit our operations. A company in our industry with
limited operations has a smaller opportunity to be
successful.
Because
we are small and do not have much capital, we must limit our operations. We must
limit our operations to the State of Colorado as the only geographical area in
which we operate. Because we may have to limit our operations, we may not
generate sufficient sales to make a profit. If we do not make a profit, we may
have to suspend or cease operations.
Because our current officers and
directors are involved with other businesses in the same industry, the manner in
which we operate may create the possibility of a conflict of
interest.
All of
our officers and directors are also involved with other businesses in the same
industry. Mr. and Mrs. Sheehan own the Accessory Warehouse, Inc. Mrs. Gregarek
is an independent contractor for interior design work. These other arrangements
could create conflict of interest with respect to our operations. Each of our
officers and directors is aware of their responsibilities with respect to
corporate opportunities and plans to operate our Company in such a manner as to
minimize the effect of any conflict of interest. Each officer and director has
agreed to contract with the Company on the same or better terms and conditions
than each would with unaffiliated third parties and to deal with the public for
interior design work only through the Company. Each of these officers and
directors will use their best judgments to resolve all potential conflicts. The
other related business activities of our officers and directors involve sales
limited to design professionals. We cannot guarantee that any potential
conflicts can be avoided.
Our success will be dependent upon
our management.
Our
success will be dependent upon the decision making of our directors and
executive officers. These individuals intend to commit as much time as necessary
to our business, but this commitment is no assurance of success. The loss of any
or all of these individuals, particularly Mr. and Mrs. Sheehan, could have a
material, adverse impact on our operations. We have no written employment
agreements with any officers and directors, including Mr. and Mrs. Sheehan. We
have not obtained key man life insurance on the lives of any of these
individuals.
We face substantial competition from
numerous sources, many of which have access to better
resources.
Competition
in sale of art work and interior design services is intense. We compete with a
diverse group of competitors ranging from internet businesses to traditional
brick-and-mortar companies, many of which have greater resources than we do. We
believe that barriers to entry in this business are not significant and start-up
costs are relatively low, so our competition may increase in the future. Our
belief that there are minimal barriers to entry is based on our observation that
operations such as ours do not require the ownership of warehouses, showrooms or
factories to operate, which we think is because (i) our direct ship business can
be operated with minimal warehousing needs and costs, which are significantly
less than traditional models, (ii) wholesale product orders can be placed after
receipt of client orders, in order to further reduce warehousing needs, (iii)
samples can be shown to clients at little or no cost, without the necessity of
showroom space for actual product, (iv) if a competitor wants showroom space, it
is typically available for lease at competitive rates in most United States
markets, and (v) all manufacturing can be done by third party suppliers, so
there is no need to own or lease a manufacturing facility. New competitors may
be able to launch new businesses similar to ours, and current competitors
may replicate our business model, at a relatively low cost. If
competitors with significantly greater resources than ours decide to replicate
our business model, they may be able to quickly gain recognition and acceptance
of their business methods, products and services through marketing and
promotion. We may not have the resources to compete effectively with current or
future competitors. If we are unable to effectively compete, we will lose sales
to our competitors and our revenues will decline.
Our directors have the ability to
significantly influence any matters to be decided by the stockholders, which may
prevent or delay a change in control of our company.
The
current members of our Board of Directors beneficially own, in the aggregate,
approximately 83% of our common stock, on a fully diluted basis. As a result, if
they choose to vote in concert, our directors are collectively able to
significantly influence the outcome of any corporate matters submitted to our
stockholders for approval, including any transaction that might cause a change
in control, such as a merger or acquisition. It is unlikely that stockholders in
favor of a matter, which is opposed by the Board of Directors, would be able to
obtain the number of votes necessary to overrule the vote of the Board of
Directors. Further, the control by the directors means that they may make
decisions for us with which you may disagree or that you may feel is not in our
best interests.
We may need to substantially increase
our marketing efforts in order to grow our business, which is
expensive.
In order
to grow our business, we will need to develop and maintain widespread
recognition and acceptance of our company, our business model, our services and
our products. We believe that we have presented our service and product offering
to only a small percentage of the potential market. Currently, we rely primarily
on word of mouth from our existing clients and contacts we develop personally
through industry events to promote and market ourselves. In order to
successfully grow our company, we may need to significantly increase our
financial commitment to creating awareness and acceptance of our company among
retailers, which would be expensive. In fiscal year 2005, marketing and
advertising expenses were negligible. If we fail to successfully market and
promote our business, we could lose current clients to our competitors, or our
growth efforts may be ineffective. If we incur significant expenses promoting
and marketing ourselves, it could cause our profitability to
decline.
Our business is not diversified,
which could result in significant fluctuations in our operating
results.
All of
our business is involved in the marketing of art work products and interior
design services, and, accordingly, is dependent upon trends in the interior
design sector. Downturns in the interior design sector could have a material
adverse effect on our business. A downturn in the interior design sector may
reduce our stock price, even if our business is successful.
Buying low-priced penny stocks is
very risky and speculative.
Our
common stock is defined as a penny stock under the Securities and Exchange Act
of 1934, and rules of the Commission. The Exchange Act and such penny stock
rules generally impose additional sales practice and disclosure requirements on
broker-dealers who sell our securities to persons other than certain accredited
investors who are, generally, institutions with assets in excess of $5,000,000
or individuals with net worth in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 jointly with spouse, or in transactions not recommended by
the broker-dealer. For transactions covered by the penny stock rules, a
broker-dealer must make a suitability determination for each purchaser and
receive the purchaser's written agreement prior to the sale. In addition, the
broker-dealer must make certain mandated disclosures in penny stock
transactions, including the actual sale or purchase price and actual bid and
offer quotations, the compensation to be received by the broker-dealer and
certain associated persons, and deliver certain disclosures required by the
Commission. Consequently, the penny stock rules may affect the ability of
broker-dealers to make a market in or trade our common stock and may also affect
your ability to resell any shares you may purchase in the public
markets.
Our common stock currently has no
trading market and there is no guarantee a trading market will
ever develop for our securities.
There is
presently no demand for our common stock. While we do intend to apply for
quotation in the Over-the-Counter Bulletin Board, we cannot guarantee that our
application will be approved and our stock listed and quoted for sale. If no
market is ever developed for our common stock, it will be difficult for you to
sell any shares you purchase. In such a case, you may find that you are unable
to achieve any benefit from your investment or liquidate your shares without
considerable delay, if at all. In addition, if we fail to have our common stock
quoted on a public trading market, your common stock will not have a
quantifiable value and it may be difficult, if not impossible, to ever resell
your shares, resulting in an inability to realize any value from your
investment.
The over-the-counter market for stock
such as ours has had extreme price and volume fluctuations.
The
securities of companies such as ours have historically experienced extreme price
and volume fluctuations during certain periods. These broad market fluctuations
and other factors, such as new product developments and trends in the our
industry and in the investment markets generally, as well as economic conditions
and quarterly variations in our operational results, may have a negative effect
on the market price of our common stock.
All of our common stock is restricted
but could become eligible for resale under Rule 144; this could cause the market
price of our common stock to drop significantly, even if our business is doing
well.
Of our
total outstanding shares, 10,300,000 or approximately 95% are restricted from
immediate resale but may be sold into the market subject to volume and manner of
sale limitations under Rule 144 beginning in May, 2007. This could cause the
market price of our common stock to drop significantly, even if our business is
doing well. We have outstanding 10,820,600 shares of common stock outstanding at
August 15, 2007. This includes the common shares which we sold to the public in
our recent public offering, which may be resold in the public market
immediately.
As
restrictions on resale end, the market price of our stock could drop
significantly if the holders of restricted shares sell them or are perceived by
the market as intending to sell them.
We do not expect to pay dividends on
common stock.
We have
not paid any cash dividends with respect to our common stock, and it is unlikely
that we will pay any dividends on our common stock in the foreseeable future.
Earnings, if any, that we may realize will be retained in the business for
further development and expansion.
Overview and
History
Art
Design, Inc. was incorporated in the State of Colorado on January 16, 2002. We
are a provider of custom framed artwork, accessories and interior design
consulting. We market and sell our products and services to commercial and
professional business offices, along with residential clients. We believe we
have developed a presence in the State of Colorado for creating custom framed
mirrors, art, and design furnishings.
On June
18, 2007 we closed our public offering. We sold a total of 520,600 shares at a
price of $.25 per share, for a total of $130,150.
Our
headquarters are located at 3636 S. Jason, Englewood, Colorado 80113. Our phone
number at our headquarters is (303) 781-7280. Our fiscal year end is December
31.
We have
not been subject to any bankruptcy, receivership or similar
proceeding.
Results of
Operations
The
following discussion involves our results of operations for the three months and
six months ending June 30, 2007 and June 30, 2006.
We had
sales-net of returns of $36,068 for the three months ended June 30, 2007.
This compares with sales-net of returns of $9,922 for the three months
ended June 30, 2006.
Our costs
of goods for the three months ended June 30, 2007 was $22,541, or approximately
62.5% of sales-net of returns. Our costs of goods for the three months
ended June 30, 2006 was $9,328, or approximately
94% of sales-net of returns. Costs of goods sold include all direct costs
incurred in selling products. We do not separate sales of different product
lines into operating segments.
The
difference between total sales-net of returns and costs of goods is gross
profit. Our gross profit for the three months ended June 30, 2007 was
$13,527. This compares with gross profit for the three months ended June 30,
20067 of $594.
Operating
expenses, which includes depreciation and general and administrative expenses
for the three
months ended June 30, 2007 was $12,676. This compares to operating expenses for
the three months ended June 30, 2006 of $6,923. The major components of
operating expenses include professional fees, salaries and associated payroll
costs, rent and telephone expenses.
We had a
net loss of $390 for the three months ended June 30, 2007. This compares
with a net loss of $6,329 for the three months ended June 30,
2006.
Comparing
our operations for the six months ended June 30, 2007, we had sales-net of
returns of $36,068. This compares with sales-net of returns of
$16,135 for the six months ended June 30, 2006.
Our costs
of goods for the six months ended June 30, 2007 was $22,541 or approximately
62.5% of sales-net of returns. Our costs of goods for the six months ended
June 30, 2006 was$15,227, or approximately 94% of sales-net of returns. Costs of
goods sold include all direct costs incurred in selling products. We do not
separate sales of different product lines into operating segments.
The
difference between total sales-net of returns and costs of goods is gross
profit. Our gross profit for the six months ended June 30, 2007 was
$13,527, or approximately 37.5%. This compares with gross profit for
the six months ended June 30, 2007 of $908, or approximately
6%.
Operating
expenses, which includes depreciation and general and administrative expenses
for the six months
ended June 30, 2007 was $27,252. This compares to operating expenses for
the six months ended June 30, 2006 of $9,423. The major components of
operating expenses include professional fees, salaries and associated payroll
costs, rent and telephone expenses.
We had a
net loss of $14,966 for the six months ended June 30, 2007. This
compares with a net loss of $8,515 for the six months ended June 30,
2006.
To the
extent that we market more products and fewer consulting services in connection
with our sales, our cost of goods is a much larger factor, which tends to reduce
our gross profitability. We make a higher gross profit from our consulting
services than from our product sales. In addition, some product sales have
higher profit margins.
We
believe that operating expenses in current operations should remain fairly
constant as product sales and consulting services improve. Each additional sale
or service and correspondingly the gross profit of such sale or service have
minimal offsetting operating expenses. Thus, additional sales could become
profit at a higher return on sales rate as a result of not needing to expand
operating expenses at the same pace.
Based
upon our current plans, we have adjusted our operating expenses so that cash
generated from operations and from working capital is expected to be sufficient
for the foreseeable future to fund our operations at our currently forecasted
levels. This has not always been the case, since we have had a history of
losses. To try to operate at a break-even level based upon our current level of
anticipated business activity, we believe that we must generate approximately
$132,000 in revenue per year. However, if our forecasts are inaccurate, we will
need to raise additional funds. On the other hand, we may choose to scale back
our operations to operate at break-even with a smaller level of business
activity, while adjusting our overhead to meet the revenue from current
operations. In addition, we expect that we will need to raise additional funds
if we decide to pursue more rapid expansion, the development of new or enhanced
services and products, appropriate responses to competitive pressures, or the
acquisition of complementary businesses or technologies, or if we must respond
to unanticipated events that require us to make additional investments. We
cannot assure that additional financing will be available when needed on
favorable terms, or at all.
We have a
history of losses. Furthermore, our losses may continue into the future. We have
never had a profitable fiscal year, including the fiscal year ended December 31,
2006.
The
changes in revenues from year to year have been a direct result of our marketing
efforts, or lack thereof, and the number of clients and projects we
generate.
Our
ability to achieve and maintain profitability and positive cash flow is
dependent upon our ability to locate clients who will purchase our products and
use our services and our ability to generate revenues.
We expect
to incur operating losses in future periods because we will be incurring
expenses and not generating sufficient revenues. We expect approximately $33,000
in operating costs over the next three months. We cannot guarantee that we
will be successful in generating sufficient revenues or other funds in the
future to cover these operating costs. Failure to generate sufficient revenues
or additional financing when needed could cause us to go out of
business
Liquidity and Capital
Resources
As of
June 30, 2007, we had cash or cash equivalents of $127,233 compared to cash or
cash equivalents of $53,232 at June 30, 2006.
Net cash
used for operating activities was $13,270 for the six months ended June 30,
2007, compared to net cash used for operating activities of $242 for the period
ended June 30, 2006.
Cash
provided by financing activities was $109,330 for the six months ended June 30,
2007, compared to cash provided by financing activities of $46,900 for the
period ended June 30, 2006. These activities were all related to our recent
public offering.
Cash
flows used or provided by investing activities were $-0-for both
periods.
Over the
next three months our capital costs will be approximately $10,000 to $12,000
primarily to expand our current operations.
We
believe that our recent public offering will provide sufficient capital in the
short term for our current level of operations. This is because we believe that
we can attract sufficient additional product sales and services within our
present organizational structure and resources to become profitable in our
operations. Additional resources will be needed to expand into additional
locations, which we have no plans to do at this time.
Otherwise,
we do not anticipate needing to raise additional capital resources in the next
three months.
Until
current operations become cash flow positive, our officers and directors may be
required to fund the operations to continue the business. Other than our cash,
at this time we have no other resources on which to get funds if needed without
their assistance.
Our
principle source of liquidity is our operations. Our variation in revenues is
based upon the level of our sales activity and will account for the difference
between a profit and a loss. Also business activity is closely tied to the
economy of Denver and the U.S. economy. A slow down in interior design work will
have a negative impact to our business. In any case, we try to operate with
minimal overhead. Our primary activity will be to seek to expand the interior
design projects and, consequently, our sales. If we succeed in expanding our
client base and generating sufficient sales, we will become profitable. We
cannot guarantee that this will ever occur. Our plan is to build our company in
any manner which will be successful.
Plan of Operation
Our plan
for the twelve months immediately after the closing of our recent public
offering is to operate at a profit or at break even. Our plan is to attract
sufficient additional product sales and services within our present
organizational structure and resources to become profitable in our
operations.
Currently,
we are conducting business in only one location in the Denver Metropolitan area.
We have no plans to expand into other locations or areas. The timing of the
completion of the milestones needed to become profitable are not directly
dependent on the success of our recent public Offering. We believe that we can
achieve profitability as we are presently organized with sufficient
business.
Other
than the shares offered by this prospectus no other source of capital has been
identified or sought.
If we are
not successful in our operations we will be faced with several
options:
|
1.
|
Cease
operations and go out of business;
|
|
2.
|
Continue
to seek alternative and acceptable sources of
capital;
|
|
3.
|
Bring
in additional capital that may result in a change of control;
or
|
|
4.
|
Identify
a candidate for acquisition that seeks access to the public marketplace
and its financing sources.
|
Currently,
we have sufficient capital to implement our proposed business operations or to
sustain them for the next three months. If we can become profitable, we could
operate at our present level indefinitely.
With the
proceeds of our recent public offering, we believe that we can adjust our sales
and expenses to operate for at least one year before we become profitable or go
out of business.
To date,
we have never had any discussions with any possible acquisition candidate.
However, if we cannot operate our business in a profitable manner, we may seek
other opportunities, including, but not limited to, one or more
acquisitions.
Proposed Milestones to Implement
Business Operations
At the
present time, we are operating from one location in the Denver Metropolitan
area. Our plan is to make our operation profitable by the end of our next fiscal
year. We estimate that we must generate approximately $3,000 in sales per month
to be profitable.
We
believe that we can be profitable or at break even by the end of the current
fiscal year, assuming sufficient sales. Based upon our current plans, we have
adjusted our operating expenses so that cash generated from operations and from
working capital financing is expected to be sufficient for the foreseeable
future to fund our operations at our currently forecasted levels. This has not
always been the case, since we have had a history of losses. To try to operate
at a break-even level based upon our current level of anticipated business
activity, we believe that we must generate approximately $132,000 in revenue per
year. However, if our forecasts are inaccurate, we will need to raise additional
funds. On the other hand, we may choose to scale back our operations to operate
at break-even with a smaller level of business activity, while adjusting our
overhead to meet the revenue from current operations. In addition, we expect
that we will need to raise additional funds if we decide to pursue more rapid
expansion, the development of new or enhanced services and products, appropriate
responses to competitive pressures, or the acquisition of complementary
businesses or technologies, or if we must respond to unanticipated events that
require us to make additional investments. We cannot assure that additional
financing will be available when needed on favorable terms, or at
all.
We expect
to incur operating losses in future periods because we will be incurring
expenses and not generating sufficient revenues. We expect approximately $33,000
in operating costs over the next three months. We cannot guarantee that we will
be successful in generating sufficient revenues or other funds in the future to
cover these operating costs. Failure to generate sufficient revenues or
additional financing when needed could cause us to go out of
business
No
commitments to provide additional funds have been made by management or current
shareholders. There is no assurance that additional funds will be made available
to us on terms that will be acceptable, or at all, if and when needed. We expect
to continue to generate and increase sales, but there can be no assurance we
will generate sales sufficient to continue operations or to expand.
We also
are planning to rely on the possibility of referrals from clients and will
strive to satisfy our clients. We believe that referrals will be an effective
form of advertising because of the quality of service that we bring to clients.
We believe that satisfied clients will bring more and repeat
clients.
In the
next 12 months, we do not intend to spend any funds on research and development
and do not intend to purchase any large equipment.
Critical Accounting
Policies
We have
identified the following policies below as critical to our business and results
of operations. For further discussion on the application of these and other
accounting policies, see Note 1 to the accompanying audited financial statements
for the periods
ended June 30, 2007. Our reported results are impacted by the application of the
following accounting policies, certain of which require management to make
subjective or complex judgments. These judgments involve making estimates about
the effect of matters that are inherently uncertain and may significantly impact
quarterly or annual results of operations. For all of these policies, management
cautions that future events rarely develop exactly as expected, and the best
estimates routinely require adjustment. Specific risks associated with these
critical accounting policies are described in the following
paragraphs.
Use of Estimates in the 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 revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Recently Issued Accounting
Pronouncements
We do not
expect the adoption of any recently issued accounting pronouncements to have a
significant impact on our net results of operations, financial position, or cash
flows.
Seasonality
We do not
expect our sales to be impacted by seasonal demands for our products and
services.
Trends
There are
no known trends, events or uncertainties that have had or that are reasonably
expected to have a material impact on the net sales or revenues or income from
our proposed operations. Our management has not made any commitments, which will
require any material financial resources.
ITEM 3. CONTROLS AND
PROCEDURES
As of the
end of the period covered by this report, based on an evaluation of our
disclosure controls and procedures (as defined in Rules 13a -15(e) and
15(d)-15(e) under the Exchange Act), our Chief Executive Officer and the Chief
Financial Officer has concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in our
Exchange Act reports is recorded, processed, summarized, and reported within the
applicable time periods specified by the SEC’s rules and forms.
There
were no changes in our internal controls over financial reporting that occurred
during our most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART II. OTHER
INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
There are
no legal proceedings, to which we are a party, which could have a material
adverse effect on our business, financial condition or operating
results.
ITEM 2. CHANGES IN
SECURITIES
None
ITEM 3. DEFAULTS UPON
SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER
INFORMATION
None
ITEM 6. EXHIBITS AND
REPORTS ON FORM 8-K
Exhibit
Number
|
Description
|
3.1*
|
Articles
of Incorporation
|
3.2*
|
Amended
and Restated Articles of Incorporation
|
3.3*
|
Bylaws
|
31.1
|
Certification
of CEO/CFO pursuant to Sec. 302
|
32.1
|
Certification
of CEO/CFO pursuant to Sec. 906
|
*
Previously filed with Form SB-2 Registration Statement, July 25,
2006.
Reports on Form
8-K
We filed
no under cover of Form 8K for the fiscal quarter ended June 30,
2007.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized on February 21, 2008.
|
|
Art Design,
Inc.
|
Date: February
21, 2008
|
By:
|
/s/
Kathy Sheehan
|
|
|
Kathy
Sheehan, President and Chief Executive and Financial
Officer
|