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: September 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
SEPTEMBER 30, MARCH 31,
2002 2002
------------- ------------
<s> <c> <c>
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 378,901 $ 383,108
Marketable securities 40,000 364,500
Accounts receivable 1,585 2,123
Inventory 67,094 66,353
Prepaid expenses 2,660 2,494
---------- ----------
TOTAL CURRENT ASSETS 490,240 818,578
PROPERTY AND EQUIPMENT , net of accumulated
depreciation 8,730 161
---------- ----------
TOTAL ASSETS $ 498,970 $ 818,739
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 38,092 $ 10,887
Payroll taxes withheld and accrued 1,236 1,188
Accrued expenses 1,886 825
Deferred income taxes - 63,569
---------- ---------
TOTAL CURRENT LIABILITIES 41,214 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 (674,520) (634,271)
Accumulated other comprehensive income (loss) (160,000) 84,265
---------- ---------
TOTAL STOCKHOLDERS' EQUITY 457,756 742,270
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 498,970 $ 818,739
========== =========
The accompanying notes are an integral part
of these financial statements
3
CREATIVE BEAUTY SUPPLY, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30,
----------------------------- -------------------------------
2002 2001 2002 2001
------------ ----------- ------------- ------------
<s> <c> <c> <c> <c>
NET SALES $ 103,193 $ 111,106 $ 49,464 $ 50,700
COST OF GOODS SOLD 77,459 87,218 36,893 39,798
--------- --------- --------- --------
GROSS PROFIT 25,734 23,888 12,571 10,902
--------- --------- --------- --------
OPERATING EXPENSES:
Salaries - officers 16,190 16,370 8,020 7,865
Payroll taxes 1,361 1,474 674 728
Auto and delivery 4,308 3,960 1,639 1,784
Employee welfare 4,655 3,043 2,441 1,400
Insurance 2,320 1,552 1,491 776
Office 1,277 1,155 426 390
Professional fees 40,233 23,934 12,598 8,639
Rent 7,755 7,602 3,900 3,801
Store supplies 675 449 404 294
Taxes 240 240 - -
Telephone 1,696 923 731 441
Utilities 1,096 1,012 619 568
Miscellaneous 558 1,181 277 1,040
Depreciation 824 107 692 53
--------- --------- --------- ---------
TOTAL OPERATING
EXPENSES 83,188 63,002 33,912 27,779
--------- --------- --------- ---------
LOSS FROM OPERATIONS
BEFORE OTHER INCOME (57,454) (39,114) (21,341) (16,877)
--------- --------- --------- ---------
OTHER INCOME:
Gain on sale of
securities 8,333 - - -
Gain on sale of assets 700 - 700 -
Interest income 8,172 5,842 4,052 2,714
--------- --------- --------- ---------
TOTAL OTHER INCOME 17,205 5,842 4,752 2,714
--------- --------- --------- ---------
NET LOSS $ (40,249) $ (33,272) $ (16,596) $ (14,163)
========= ========= ========= =========
4
LOSS PER COMMON SHARE,
BASIC AND DILUTED $ (0.01) $ (0.02) $ NIL $ (0.01)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 3,494,650 1,864,650 3,494,650 1,864,640
========= ========= ========= =========
The accompanying notes are an integral part
of these financial statements
5
CREATIVE BEAUTY SUPPLY, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
2002 2001
--------- ----------
<s> <c> <c>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(40,249) $(33,272)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 824 107
Gain on sale of marketable securities (8,333) -
Gain on sale of assets (700) -
(Increase) decrease in operating assets:
Changes in operating assets and liabilities:
Accounts receivable 538 663
Inventory (741) (3,513)
Prepaid expenses (166) 1,040
Accounts payable 27,205 5,694
Payroll taxes withheld and accrued 48 853
Accrued expenses 1,061 (1,457)
--------- ---------
Net cash used in operating
activities (20,513) (29,885)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (9,394) -
Proceeds from sale of marketable securities 25,000 -
Proceeds from sale of assets 700 -
--------- ---------
Net cash provided by investing activities 16,306 -
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,207) (29,885)
CASH AND CASH EQUIVALENTS - beginning of period 383,108 235,507
--------- ---------
CASH AND CASH EQUIVALENTS - end of period $ 378,901 $ 205,622
========= =========
The accompanying notes are an integral part
of these financial statements
6
CREATIVE BEAUTY SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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 six months ending
September 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 - DEFERRED INCOME TAXES
The Company has a deferred tax asset at
September 30, 2002 of $148,867 resulting from
net operating loss carry forwards and unrealized
loss from marketable securities. A valuation
allowance has been recorded for the full amount
of the deferred tax asset
NOTE 4 - COMPREHENSIVE LOSS
Six Months Ended September 30,
--------------------------------
2002 2001
------ ------
<s> <c> <c>
Net Loss $(40,249) $(33,272)
Unrealized holding loss arising during
the period net of income tax benefit
of $63,569 and $8,560. (392,099) (12,066)
CREATIVE BEAUTY SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
NOTE 4 - COMPRENSIVE LOSS continued
Reclassifications 147,834 -
--------- ---------
Total Comprehensive Loss $(284,514) $ (45,338)
========= =========
</TABLE
NOTE 5 - MARKETABLE SECURITIES
The cost and fair value of marketable equity
securities that are available-for-sale are as
follows:
September 30, 2002 March 31, 2002
------------------ --------------
<s> <c> <c>
Cost $ 200,000 $ 216,666
Gross unrealized gain (loss) (160,000) 147,834
--------- ---------
$ 40,000 $ 364,500
========= =========
The change in gross unrealized gain (loss) of $307,834 has been
reported as other comprehensive loss net of income tax benefit of
$63,569 for the six months ended September 30, 2002.
8
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.
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
September 30, 2002 over September 30, 2001 due to a
change in sales mix. Although sales decreased
(wholesale decreased by 1% and retail decreased by
13%) products sold were sold at higher margins
resulting in a higher gross margin for the six
months ended September 30, 2002.
Nine Months Ended September 30, 2002 compared to
September 30, 2001
For the six months ended September 30, 2002, the
Company had a net loss of $(40,249). The Company
had net sales of $103,193 with a cost of goods sold
of $77,459 resulting in gross profit of $24,734 for
the six months ended September 30, 2002.
The Company had operating expenses of $83,188 for
the six months ended September 30, 2002. These
expenses primarily consisted of officer's salaries
of $16,190, auto and delivery of $4,308, employee
welfare of $4,655, professional fees of $40,233,
9
rent of $7,755, telephone of $1,696, utilities of
$1,096, store supplies of $675, insurance of
$2,320, office expenses of $1,277, payroll taxes of
$1,361 and other miscellaneous expenses of $798.
Depreciation was $824 for the six months ended
September 30, 2002.
For the six months ended September 30, 2001, the
Company had a net loss of $(33,272). The Company
had net sales of $111,106 with a cost of goods sold
of $87,218 resulting in gross profit of $23,888 for
the six months ended September 30, 2001.
The Company had operating expenses of $63,002 for
the six months ended September 30, 2001. These
expenses primarily consisted of officer's salaries
of $16,370, auto and delivery of $3,960, employee
welfare of $3,043, professional fees of $23,934,
rent of $7,602, telephone of $923, utilities of
$1,012, store supplies of $449, insurance of
$1,552, office expenses of $1,155, payroll taxes of
$1,474 and other miscellaneous expenses of $1,421.
Depreciation was $107 for the six months ended
September 30, 2002
Assets for the six months ended September 30, 2002
decreased by approx. $319,769. This was a direct
result of a sales of marketable securities and the
decline in the market value of securities held for
sale.
Liabilities for the six months ended September 30,
2002 decreased by approx. $35,255. This was a
direct result of a decrease in deferred income tax
liability from the decline in unrealized gains from
securities held for sale.
Working capital at September 30, 2002 was approx.
$449,026 and at March 31, 2002 it was $742,109, a
decrease approx. $293,083. The decrease was a
direct result from a decrease in current assets of
$319,769 net of a decrease of current liabilities
of $35,255. Cash decreased by $4,207, market value
of securities held for sale decreased by $324,500
and inventory increased by $741. Accounts payable
increased by $27,205 while deferred tax liabilities
decreased by $63,569.
Stockholders Equity decreased by the loss for the
six months. There were no equity transactions
during the period.
Sales for the six months ended September 30, 2002
were $103,193 as compared to $111,106 for the six
months ended September 30, 2001, a 7% decrease.
Gross profit for the six months ended September 30,
2002 was 25,734 as compared to $23,888 for the six
months ended September 30, 2001, a 7% increase.
Operating expenses for the six months ended
September 30, 2002 were $83,188 as compared to
$63,002 for the six months ended September 30,
2001, an increase of 32%.
Sales for the two periods were as follows:
2002 2001
----------- ------------
Wholesale 45,441 44% 46,340 42%
Retail 57,752 56% 64,766 58%
------- -------
103,193 111,106
======= =======
Sales are decreasing due to loss of customers
causing a decrease in sales volume. Wholesale
sales have decreased by approx. 2% and retail sales
have decreased by approx. 11%.
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 our
professionals.
Three Months ended September 30, 2002 compared
to September 30, 2001:
Sales for the three months ended September 30,
2002 decreased by $1,236, a 2% decrease, as
compared to the same three month period ended
September 30, 2001. Gross profit for the three
months ended September 30, 2002 increased by
$1,669, a 15% increase, as compared to the same
three months period ended September 30, 2001.
Operating expenses for the three month period
ended September 30, 2002 increased by $6,133, a
22% increase, as compared to the same three
month period ended September 30, 2001.
Sales decreased due to a lower sales volume.
Gross profit increased due to the sales mix,
higher gross profit items were sold during the
three month period ended September 30, 2002 as
compared to the items sold in the same period in
2001. Operating expenses increased due to
higher auditing and legal fees during the three
month period ended September 30, 2002 as
compared to the same three month period ended
September 30, 2001.
11
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 income.
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 in the Company's results
of operations. However, management does not
believe this can be accomplished within the next
twelve months sufficient enough to generate a
net profit from operations.
Liquidity.
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 six months ended September 30, 2002 and
2001, the Company pursued no financing activities.
For the six months ended September 30, 2002, the
Company acquired property and equipment of $9,394,
received proceeds from the sale of marketable
securities of $25,000 and received proceeds from
the sale of assets of $700.
For the six months ended September 30, 2001, the
Company pursued no investing activities.
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.
12
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.
Item 3. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the
participation of our chief executive officer and
chief financial officer, conducted an evaluation of
our "disclosure controls and procedures" (as
defined in Securities Exchange Act of 1934 (the
"Exchange Act") Rules 13a-14(c)) within 90 days of
the filing date of this quarterly report on Form
10QSB (the "Evaluation Date"). Based on their
evaluation, our chief executive officer and chief
financial officer have concluded that as of the
Evaluation Date, our disclosure controls and
procedures are effective to ensure that all
material information required to be filed in this
quarterly report on Form 10QSB has been made known
to them in a timely fashion.
Changes in Internal Controls
There have been no significant changes (including
corrective actions with regard to significant
deficiencies or material weaknesses) in our
internal controls or in other factors that could
significantly affect these controls subsequent to
the Evaluation Date set forth above.
13
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) Exhibit 99 - Certifications pursuant to
18 U.S.C. Section 1350
(b) Not applicable.
14
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: November 18, 2002
By: /s/ Carmine Catizone
----------------------------
Carmine Catizone, President
15
CERTIFICATIONS
I, Carmine Catizone, certify that:
1. I have reviewed this quarterly report on Form
10QSB of Creative Beauty Supply, Inc.
2. Based on my knowledge, the quarterly report
does not contain any untrue statement of a material
fact or omit to state a material fact necessary to
make the statements made, in light of the
circumstances under which such statements were
made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial
statements, and other financial information
included in this quarterly report, fairly present,
in all material respects, the financial condition,
results of operations and cash flows of the
registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and
I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
(a) designed such disclosure controls and
procedures to ensure that material information
relating to the registrant, including its
consolidated subsidiaries, is made known to us by
others within those entities, particularly during
the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the
registrant's disclosure controls and procedures as
of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date");
and
(c) presented in this quarterly report our
conclusions about the effectiveness of the
disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and
I have disclosed, based on our most recent
evaluation, to the registrant's auditors and the
audit committee of the registrant's board of
directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or
operation of internal controls which could
adversely affect the registrant's ability to
record, process, summarize and report financial
data and have identified for the registrant's
auditors any material weaknesses in internal
controls; and
(b) any fraud, whether or not material, that
involves management or other employees who have a
significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officers
and I have indicated in this quarterly report
whether or not there were significant changes in
internal controls or in other factors that could
significantly affect internal controls subsequent
to the date of our most recent evaluation,
including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 18, 2002
/s/Carmine Catizone
- --------------------------
Carmine Catizone
Chief Executive Officer
16
CERTIFICATION
I, Daniel Generelli, certify that:
1. I have reviewed this quarterly report on Form
10QSB of Creative Beauty Supply, Inc.
2. Based on my knowledge, the quarterly report
does not contain any untrue statement of a material
fact or omit to state a material fact necessary to
make the statements made, in light of the
circumstances under which such statements were
made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial
statements, and other financial information
included in this quarterly report, fairly present,
in all material respects, the financial condition,
results of operations and cash flows of the
registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and
I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
(a) designed such disclosure controls and
procedures to ensure that material information
relating to the registrant, including its
consolidated subsidiaries, is made known to us by
others within those entities, particularly during
the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the
registrant's disclosure controls and procedures as
of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date");
and
(c) presented in this quarterly report our
conclusions about the effectiveness of the
disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and
I have disclosed, based on our most recent
evaluation, to the registrant's auditors and the
audit committee of the registrant's board of
directors (or persons performing the equivalent
function):
17
(a) all significant deficiencies in the design or
operation of internal controls which could
adversely affect the registrant's ability to
record, process, summarize and report financial
data and have identified for the registrant's
auditors any material weaknesses in internal
controls; and
(b) any fraud, whether or not material, that
involves management or other employees who have a
significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officers
and I have indicated in this quarterly report
whether or not there were significant changes in
internal controls or in other factors that could
significantly affect internal controls subsequent
to the date of our most recent evaluation,
including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 18, 2002
/s/ Daniel Generelli
- --------------------------------
Danie Generelli, Chief Financial Officer