U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from: to:
Commission file number: 000-26361
Creative Beauty Supply, Inc.
(Exact name of Small Business Issuer in its charter)
NEW JERSEY 22-3392051
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
380 Totowa Road, Totawa, NJ 07512
(Address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code: 973-904-0004
Check mark whether the Issuer (1) has filed all
reports required by Section 13 or 15(d) of the
Exchange Act during the preceding 12 months
(or for such shorter period that the Registrant
was required to file such reports), and (2) has
been subject to the filing requirements for at
least the past 90 days. YES: X NO:
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PREVIOUS FIVE YEARS
Check whether the registrant filed all documents
and reports required to be filed by Section 12,
13, or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed
by the court. YES: X NO:
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of
the issuer's classes of common stock, as of the
last practicable date: 1,864,650
Transitional Small Business Disclosure Format.
YES: NO: X
2
PART I FINANCIAL INFORMATION
CREATIVE BEAUTY SUPPLY, INC.
BALANCE SHEETS
ASSETS
December 31, March 31,
2001 2001
----------- -----------
(Unaudited)
<s> <c> <c>
CURRENT ASSETS:
Cash and cash equivalents $ 246,350 $ 235,507
Marketable securities 116,000 178,125
Accounts receivable 3,178 2,406
Inventory 59,200 62,721
Prepaid expenses 1,300 3,637
---------- ----------
TOTAL CURRENT ASSETS 426,028 482,396
PROPERTY AND EQUIPMENT, net of accumulated
depreciation 214 375
---------- ----------
TOTAL ASSETS $ 426,242 $ 482,771
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 15,320 $ 18,759
Payroll taxes withheld and accrued 2,987 821
Accrued expenses 1,049 2,452
Deferred income taxes 34,307 55,093
---------- ----------
TOTAL CURRENT LIABILITIES 53,663 77,125
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.001,
authorized 10,000,000 shares, issued
and outstanding -0- shares - -
Common stock, par value $.001,
authorized 100,000,000 shares, issued
and outstanding 1,864,650 shares 1,865 1,865
Additional paid-in-capital 954,811 646,291
Accumulated deficit (632,457) (315,542)
Accumulated other comprehensive income 48,360 73,032
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 372,579 405,646
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 426,242 $ 482,771
========== ==========
The accompanying note is an integral part
of these financial statements
3
CREATIVE BEAUTY SUPPLY, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
NINE MONTHS ENDED DEC.31, THREE MONTHS ENDED DEC. 31,
----------------------------------------------------
2001 2000 2001 2000
------------- ----------- ---------- -----------
<s> <c> <c> <c> <c>
NET SALES $ 166,354 $ 183,451 $ 55,248 $ 59,219
COST OF GOODS SOLD 130,587 130,617 43,369 42,169
---------- ---------- --------- -----------
GROSS PROFIT 35,767 52,834 11,879 17,050
---------- ---------- --------- -----------
OPERATING EXPENSES:
Salaries - officers 161,050 45,975 144,680 15,975
Payroll taxes 2,141 2,001 667 604
Auto and delivery 6,478 6,059 2,518 2,333
Consulting fees 171,990 - 171,990
Employee welfare 5,143 5,462 2,100 2,300
Insurance 2,849 2,438 1,297 876
Office 1,483 2,235 54 644
Professional fees 26,851 25,678 2,917 1,399
Rent 11,403 11,403 3,801 3,801
Store supplies 667 1,061 218 304
Taxes 240 240 - 0
Telephone 1,450 1,917 527 648
Utilities 1,235 1,388 223 313
Miscellaneous 907 674 - 293
Depreciation and amortization 161 1,258 54 176
---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES 394,048 107,789 331,046 29,666
---------- ---------- ---------- ----------
LOSS FROM OPERATIONS BEFORE
OTHER INCOME (358,281) (54,955) (319,167) (12,616)
---------- ---------- ---------- ----------
OTHER INCOME
Gain on sale of securities 33,333 - 33,333 0
Interest income 8,033 12,212 2,191 3,875
---------- ---------- ---------- ----------
TOTAL OTHER INCOME 41,366 12,212 35,524 3,875
---------- ---------- ---------- ----------
NET LOSS (316,915) (42,743) (283,643) (8,741)
4
OTHER COMPREHENSIVE LOSS, NET
OF TAXES Unrealized holding
loss arising during the period,
net of income taxes benefit
of $20,786 (24,672) - (12,606) 0
---------- ---------- ---------- ----------
TOTAL COMPREHENSIVE LOSS $ (341,587) $ (42,743) $ (296,249) $ (8,741)
========== ========== ========== ==========
LOSS PER COMMON SHARE, BASIC
AND DILUTED $ (0.17) $ (0.02) $ (0.15) $ (0.00)
========== =========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,864,650 1,864,650 1,864,640 1,864,650
========== =========== ========== ==========
The accompanying note is an integral part
of these financial statements.
5
CREATIVE BEAUTY SUPPLY, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31 2001 AND 2000
(UNAUDITED)
2001 2000
---- ------
<s> <c> <c>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (316,915) $(42,743)
Adjustments to reconcile net loss to
net cash from operating activities:
Depreciation and amortization 161 1,258
Gain on sale of marketable securities (33,333)
Operating expenses through issuance
of stock options 308,490
(Increase) decrease in operating assets:
Accounts receivable (772) 233
Inventory 3,521 (11,818)
Prepaid expenses 2,337 143
Increase (decrease) in operating liabilities:
Accounts payable (3,439) 3,361
Payroll taxes withheld and accrued 2,166 945
Accrued expenses (1,403) 21,539
-------- --------
Net cash used in operating activities (39,187) (27,082)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities 50,000 -
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of stock options 30 -
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 10,843 (27,082)
CASH AND CASH EQUIVALENTS - beginning of period 235,507 321,509
-------- --------
CASH AND CASH EQUIVALENTS - end of period $246,350 $294,427
======== ========
The accompanying note is an integral part
of these financial statements.
6
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements
have been prepared in accordance with generally
accepted accounting principles for interim
financial information and with the instructions to
Form 10QSB and Article 10 of Regulation S-X.
Accordingly, they do not include all of the
information and footnotes required by generally
accepted accounting principles for complete
financial statements. In the opinion of
management, all adjustments (consisting of
normal recurring accruals) considered necessary
for a fair presentation have been included.
Operating results for the nine months ending
December 31, 2001 are not necessarily indicative
of the results that may be expected for the year
ended March 31, 2002. The unaudited financial
statements should be read in conjunction with the
financial statements and footnotes thereto
included in the Company's Form 10KSB for the year
ended March 31, 2001.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Trends and Uncertainties. Demand for the
Company's products will be dependent on, among
other things, market acceptance of the Company's
concept and general economic conditions, which are
cyclical in nature. Inasmuch as a major portion
of the Company's activities is the receipt of
revenues from the sales of its products, the
Company's business operations may be adversely
affected by the Company's competitors and
prolonged recessionary periods.
Hair styles in the industry change drastically
from season to season. The recent trend away
from straight hair will have a favorable impact on
the sales of the Company's hair products such as
perms, etc. although the extent of this impact is
indeterminable.
Capital and Source of Liquidity. In April 1999,
the Company renewed its lease for a term of three
(3) years commencing May 1, 1999 at a monthly
rental of $1,200 per month for the first twelve
(12) months and $1,300 a month for each of the
remaining twenty four (24) months.
For the nine months ended December 31, 2001, the
Company received $30 from the issuance of stock
options. For the nine months ended December 31,
2000, the Company pursued no financing activities.
For the nine months ended December 31, 2001, the
Company received $50,000 from the sale of
marketable securities. For the nine months ended
December 31, 2000, the Company pursued no
investing activities.
Results of Operations.
The Company sells approximately 1,000 different
products at varying mark ups ranging from 15 to 35
percent. The Company has two types of customers,
beauty salons and the general public. The gross
profit margin on sales of merchandises to the
general public ranges from 20 to 35 percent
depending on the product sold. The gross margin
on sales of merchandise to beauty salons is
somewhat less ranging from 15 to 25 percent
depending on the product sold and the discount
given.
8
December 31, 2001 compared to December 31, 2000
For the nine months ended December 31, 2001, the
Company had a net loss of $(316,915). The Company
had net sales of $166,354 with a cost of goods
sold of $130,587 resulting in gross profit of
$35,767 for the nine months ended December 31,
2001.
The Company had operating expenses of $394,048 for
the nine months ended December 31, 2001. These
expenses primarily consisted of officer's salaries
of $161,050, auto and delivery of $6,478,
consulting fees of $171,990, employee welfare of
$5,143, insurance of $2,849, office expense of
$1,483, professional fees of $26,851, rent of
$11,403, taxes of $240, telephone of $1,450, store
supplies of $667, utilities of $1,235,
miscellaneous of $907 and depreciation and
amortization of $161.
For the nine months ended December 31, 2000, the
Company had a net loss of $(42,743). The Company
had net sales of $183,451 with a cost of goods
sold of $130,617 resulting in gross profit of
$52,834 for the nine months ended December 31,
2000.
The Company had operating expenses of $107,789 for
the nine months ended December 31, 2000. These
expenses primarily consisted of officer's salaries
of $45,975, payroll taxes of $2,001, auto and
delivery of $6,059, employee welfare of $5,462,
insurance of $2,438, office of $2,235,
professional fees of $25,678, rent of $11,403,
store supplies of $1,061, taxes of $240, telephone
of $1,917, utilities of $1,388, miscellaneous of
$674 and depreciation and amortization of $1,258.
The Company's product margin decreased from nine
months ended December 31, 2000 to December 31,
2001 by approximately 7.3% (from 28.8% to 21.5%).
This decrease represents an approximately 25%
decrease in gross margin. The decrease is a
direct result from the change in sales mix, lower
volume purchases from suppliers resulting in
higher unit cost, and increased competition. The
Company did not take advantage of purchase
discounts offered. The Company raised its prices
in 2000 that resulted in lower sales in 2001.
Wholesale sales have decreased by approximately
15% and retail sales decreased by approximately 5%
during 2001 as compared to 2000.
9
Salary increased from $45,975 for the nine months
ended December 31, 2000 to $161,050 for the nine
months ended December 31, 2001 due to the issuance
of stock options valued at $136,500and net of a
reduction for one full time employee.
Consulting fees were increased during the nine
months ended December 31, 2001 through the
issuance of stock options valued at $171,900.
The major cause of the Company's losses from
operations have been the low sales volume and the
issuance of stock options for salaries and
consulting fees. Management is looking for new
suppliers at more favorable prices and to
increase their customer base and sales volume.
The Company is actively seeking new customers to
increase its volume which will have a favorable
impact on the Company's results of operation
within the next 12 months.
Plan of Operation. During the next twelve months,
the Company may obtain new product lines by
negotiating with various manufacturers. The
Company does not intend to hire any additional
employees.
The Company's liquidity will be decreased due to
little or no increase in revenue and higher
operating costs.
The Company is not delinquent on any of its
obligations even though the Company has had
limited operating revenues. The Company intends
to market its products utilizing cash made
available from the sale of its products. The
Company is of the opinion that revenues from the
sales of its products and the proceeds from the
sale of its securities will be sufficient to pay
its expenses.
The Company does not have nor does it intend to
have pension and/or other post-retirement benefits
in the future.
The Company does not have any or intends to have
any derivative instruments or hedging activities.
10
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Not applicable.
(b) Not applicable.
11
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.
Creative Beauty Supply, Inc.
(Registrant)
Dated: February 12, 2001
By: /s/ Carmine Catizone
----------------------------
Carmine Catizone, President