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: June 30, 2002
[ ] 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, Totowa, 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: 3,494,650
Transitional Small Business Disclosure Format.
YES: NO: X
2
CREATIVE BEAUTY SUPPLY, INC.
BALANCE SHEETS
ASSETS
JUNE 30, MARCH 31,
2002 2002
-------- ---------
(Unaudited)
<s> <c> <c>
CURRENT ASSETS:
Cash and cash equivalents $ 398,842 $ 383,108
Marketable securities 210,000 364,500
Accounts receivable 2,577 2,123
Inventory 68,385 66,353
Prepaid expenses 2,965 2,494
--------- ---------
TOTAL CURRENT ASSETS 682,769 818,578
PROPERTY AND EQUIPMENT ,
net of accumulated depreciation 9,423 161
--------- ---------
TOTAL ASSETS $ 692,192 $ 818,739
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 45,259 $ 10,887
Payroll taxes withheld and
accrued 1,264 1,188
Accrued expenses 1,316 825
Deferred income taxes 4,300 63,569
--------- ---------
TOTAL CURRENT LIABILITIES 52,139 76,469
--------- ---------
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 3,494,650 shares 3,495 3,495
Additional paid-in-capital 1,288,781 1,288,781
Accumulated deficit (657,923) (634,271)
Accumulated other comprehensive
income 5,700 84,265
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 640,053 742,270
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 692,192 $ 818,739
========= =========
The accompanying note is an integral part
of these financial statements
3
CREATIVE BEAUTY SUPPLY, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
---------------------------
2002 2001
-------- --------
<s> <c> <c>
NET SALES $ 53,729 $ 60,406
COST OF GOODS SOLD 40,566 47,420
--------- ---------
GROSS PROFIT 13,163 12,986
--------- ---------
OPERATING EXPENSES:
Salaries - officers 8,170 8,505
Payroll taxes 687 746
Auto and delivery 2,669 2,176
Employee welfare 2,214 1,643
Insurance 829 766
Office 851 765
Professional fees 27,635 15,295
Rent 3,855 3,801
Store supplies 271 155
Taxes 240 240
Telephone 965 482
Utilities 477 444
Miscellaneous 281 151
Depreciation and amortization 132 54
--------- ---------
TOTAL OPERATING EXPENSES 49,276 35,223
--------- ---------
LOSS FROM OPERATIONS (36,113) (22,237)
--------- ---------
OTHER INCOME:
Gain on sale of securities 8,333 -
Interest income 4,127 3,128
--------- ---------
TOTAL OTHER INCOME 12,460 3,128
--------- ---------
NET LOSS (23,653) (19,109)
========= =========
LOSS PER COMMON SHARE, BASIC
AND DILUTED $ (0.01) $ (0.01)
========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 3,494,650 1,864,650
========= =========
The accompanying note is an integral part
of these financial statements
4
CREATIVE BEAUTY SUPPLY, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
2002 2001
------ ------
<s> <c> <c>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(23,653) $(19,109)
Adjustments to reconcile net loss to net cash
provided by ( used in) operating activities:
Depreciation and amortization 132 54
Gain on sale of marketable securities (8,333)
Changes in operating assets and liabilities:
Accounts receivable (454) (550)
Inventory (2,032) (5,709)
Prepaid expenses (471) 776
Accounts payable 34,372 15,072
Payroll taxes withheld and accrued 76 (1,182)
Accrued expenses 491 470
-------- --------
Net cash provided by (used in) operating
activities 128 (10,178)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (9,394)
Proceeds from sale of marketable securities 25,000 -
-------- --------
Net cash provided by investing activities 15,606 -
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 15,734 (10,178)
CASH AND CASH EQUIVALENTS - beginning of period 383,108 235,507
-------- --------
CASH AND CASH EQUIVALENTS - end of period $398,842 $225,329
======== ========
The accompanying note is an integral part
of these financial statements
5
CREATIVE BEAUTY SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002
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 three months ending
June 30, 2002 are not necessarily indicative of
the results that may be expected for the year
ended March 31, 2003. 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, 2002.
Note 2 - INVENTORY
The Company's policy is to compute inventory for
interim reporting on the gross profit method
using the gross profit for the prior fiscal
year.
Note 3 - COMPREHENSIVE LOSS
Other comprehensive loss for the three months
ended June 30, 2002 consisted of unrealised
holding loss arising during the period (net of
income tax benefit of $59,269) in the amount of
$78,564.
Other comprehensive loss for the three months
ended June 30, 2001 consisted of unrealized
holding loss arising during the period (net of
income tax benefit of $5,644) in the amount of
$7,481.
Note 4 - MARKETABLE SECURITIES
The cost and fair value of marketable equity
securities that are available-for-sale are as
follows:
6
June 30, 2002 March 31, 2002
------------- --------------
<s> <c> <c>
Cost $200,000 $216,666
Gross unrealized gains 10,000 147,834
-------- --------
Fair values $210,000 $364,500
======== ========
The unrealized appreciation of marketable equity
securities that are available for sale is as
follows:
June 30, 2002 March 31, 2002
------------- --------------
<s> <c> <c>
Net unrealized gains $ 10,000 $147,834
Deferred income taxes (4,300) (63,569)
-------- --------
$ 5,700 $ 84,265
======== ========
These amounts are presented as accumulated other
comprehensive income.
During the three months ended June 30, 2002 and
2001, sales proceeds and gross realized gains and
losses on securities classified as available-for-
sale were:
2002 2002
------------- --------------
<s> <c> <c>
Sales proceeds $ 25,000 -
======== ========
Gross realized gains $ 8,333 -
======== ========
The method used to determine the costs of
securities sold was actual cost per share.
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.
Hairstyles 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 2002,
the Company renewed its lease for a term of two (2)
years commencing May 1, 2002 at a monthly rental of
$1,300 per month.
For the three months ended June 30, 2002 and 2001,
the Company pursued no financing activities.
For the three months ended June 30, 2002, the
Company acquired property and equipment of $9,394
and received proceeds from the sale of marketable
securities of $25,000.
For the three months ended June 30, 2001, the
Company pursued no investing activities.
Results of Operations.
The Company sells approximately 1,000 different
products at varying mark ups ranging from 20 to 40
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 30 to 40 percent
depending on the product sold. The gross margin
on sales of merchandise to beauty salons is
somewhat less ranging from 20 to 28 percent
depending on the product sold and the discount
given. The Company's product margin increased
for June 30, 2002 over June 30, 2001 due to a
change in sales mix. Although sales decreased
(wholesale decreased by 1% and retail decreased by
8
13%) products sold were sold at higher margins
resulting in a higher gross margin for the three
months ended June 30, 2002.
June 30, 2002 compared to June 30, 2001
For the three months ended June 30, 2002, the
Company had a net loss of $(23,653). The Company
had net sales of $53,729 with a cost of goods sold
of $40,566 resulting in gross profit of $13,163
for the three months ended June 30, 2002.
The Company had operating expenses of $49,276 for
the three months ended June 30, 2002. These
expenses primarily consisted of officer's salaries
of $8,170, auto and delivery of $2,669, employee
welfare of $2,214, professional fees of $27,635,
rent of $3,855, telephone of $965, utilities of
$477, store supplies of $271, insurance of $829,
office expenses of $851, payroll and other taxes
of $927 and other miscellaneous expenses of $413.
For the three months ended June 30, 2001, the
Company had a net loss of $(19,109). The Company
had net sales of $60,406 with a cost of goods sold
of $47,420 resulting in gross profit of $12,986
for the three months ended June 30, 2001.
The Company had operating expenses of $35,223 for
the three months ended June 30, 2001. These
expenses primarily consisted of officer's salaries
of $8,505, auto and delivery of $2,176, employee
welfare of $1,643, professional fees of $15,295,
rent of $3,801, telephone of $482, utilities of
$444, store supplies of $155, insurance of $766,
office expenses of $765, payroll and other taxes
of $986 and other miscellaneous expenses of $205.
The Company's product margin increased from three
months ended June 30, 2001 to June 30, 2002 by
approximately 3% (from 24.5% to 21.5%). This
increase represents an approximately 1% increase
in gross margin. The increase is a direct result
from a change in sales mix and higher volume
purchases from suppliers resulting in lower unit
cost. For the three months ended June 30, 2002,
the Company had 408 invoices to customers while in
2001, the Company had only 453 invoices, a
decrease of 10%, resulting in a decrease of $6,677
in sales for the three months ended June 30, 2002
as compared to the same three months period in
2001.
9
Professional fees increased due to higher annual
audit fees associated with the annual filing of
Form 10KSB, higher fees charged by stock transfer
agent and normal fee increases by all
professionals.
The major cause of the Company's losses from
operations have been the low sales volume.
Management is looking for new suppliers at more
favorable prices and to increase their customer
base and sales volume.
Management believes that if it can increase its
customer base significantly and obtain products
from new sources at favorable pricing, it will
have a favorable impact on the Company's results
of operations 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: August 12, 2002
By: /s/ Carmine Catizone
----------------------------
Carmine Catizone, President
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