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, 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
DECEMBER 31, MARCH 31,
2002 2002
------------- ----------
(Unaudited)
<s> <c> <c>
CURRENT ASSETS:
Cash and cash equivalents $ 351,393 $ 383,108
Marketable securities 280,000 364,500
Accounts receivable 2,124 2,123
Inventory 63,923 66,353
Prepaid expenses - 2,494
---------- ---------
TOTAL CURRENT ASSETS 697,440 818,578
PROPERTY AND EQUIPMENT , net of accumulated
depreciation 8,318 161
---------- ---------
TOTAL ASSETS $ 705,758 $ 818,739
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 18,911 $ 10,887
Payroll taxes withheld and accrued 1,198 1,188
Accrued expenses 994 825
Deferred income taxes - 63,569
---------- ---------
TOTAL CURRENT LIABILITIES 21,103 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 (687,621) (634,271)
Accumulated other comprehensive income 80,000 84,265
---------- ---------
TOTAL STOCKHOLDERS' EQUITY 684,655 742,270
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 705,758 $ 818,739
========== =========
The accompanying notes are an integral part
of these financial statements
3
CREATIVE BEAUTY SUPPLY, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED DECEMBER 31, THREE MONTHS ENDED DECEMBER 31,
------------------------------ ------------------------------
- -
2002 2001 2002 2001
------ ------ ------ ------
<s> <c> <c> <c> <c>;
NET SALES $ 149,529 $ 166,354 $ 46,336 $ 55,248
COST OF GOODS SOLD 112,894 130,587 35,435 43,369
--------- --------- -------- --------
GROSS PROFIT 36,635 35,767 10,901 11,879
--------- --------- -------- --------
OPERATING EXPENSES:
Salaries - officers 24,220 161,050 8,030 144,680
Payroll taxes 2,056 2,141 695 667
Auto and delivery 6,523 6,478 2,215 2,518
Consulting fees - 171,990 - 171,990
Employee welfare 7,097 5,143 2,442 2,100
Insurance 3,680 2,849 1,360 1,297
Office 1,874 1,483 597 54
Professional fees 46,367 26,851 6,134 2,917
Rent 11,655 11,403 3,900 3,801
Store supplies 888 667 213 218
Taxes 500 240 260 -
Telephone 2,229 1,450 533 527
Utilities 1,378 1,235 282 223
Miscellaneous 872 907 314 -
Depreciation 1,236 161 412 54
-------- ------- ------- -------
TOTAL OPERATING EXPENSES 110,575 394,048 27,387 331,046
-------- ------- ------- -------
LOSS FROM OPERATIONS BEFORE
OTHER INCOME (73,940) (358,281) (16,486) (319,167)
-------- ------- ------- -------
OTHER INCOME:
Gain on sale of
securities 8,333 33,333 - 33,333
Gain on sale of assets 700 - - -
Interest income 11,557 8,033 3,385 2,191
-------- ------- ------- --------
TOTAL OTHER INCOME 20,590 41,366 3,385 35,524
-------- ------- ------- --------
NET LOSS (53,350) (316,915) (13,101) (283,643)
======== ======= ======= ========
4
LOSS PER COMMON SHARE, BASIC
AND DILUTED $ (0.02) $ (0.17) $ (0.00) $ (0.15)
======== ======== ======== ========
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
NINE MONTHS ENDED DECEMBER 31, 2002 AND 2001
(UNAUDITED)
2002 2001
---- ----
<s> <c> <c>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(53,350) $(316,915)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 1,236 161
Gain on sale of marketable securities (8,333) (33,333)
Gain on sale of assets (700) -
Operating expenses through issuance
of common stock - 308,490
Changes in operating assets and liabilities:
Accounts receivable (1) (772)
Inventory 2,430 3,521
Prepaid expenses 2,494 2,337
Accounts payable 8,024 (3,439)
Payroll taxes withheld and accrued 10 2,166
Accrued expenses 169 (1,403)
-------- --------
Net cash used in operating activities (48,021) (39,187)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (9,394) -
Proceeds from sale of marketable securities 25,000 50,000
Proceeds from sale assets 700 -
-------- ---------
Net cash provided by investing activities 16,306 50,000
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock options - 30
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (31,715) 10,843
CASH AND CASH EQUIVALENTS
- beginning of period 383,108 235,507
-------- --------
CASH AND CASH EQUIVALENTS - end of period $ 351,393 $ 246,350
========= =========
The accompanying notes are an integral part
of these financial statements
6
CREATIVE BEAUTY SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 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 nine months ending December 31, 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 December 31, 2002 of $86,052
resulting from net operating loss carryforwards net of unrealized gains
from marketable securities. A valuation allowance has been recorded
for the full amount of the deferred tax asset.
NOTE 4 - COMPREHENSIVE LOSS
Other comprehensive income for the nine months ended December 31,
2002 consisted of an unrealized holding loss arising during the period
(net of an income taxes of -0- after applying a net operating loss
carryforwards) in the amount of $60,000.
Other comprehensive loss for the nine months ended December 31, 2001
consisted of an unrealized holding loss arising during the period (net
of an income tax benefit of -0- after applying a valuation allowance
for the entire amount of the benefit) in the amount of $24,672.
Nine Months Ended December 31,
------------------------------
2002 2001
---- ----
Net Loss $(53,350) $(316,915)
Unrealized holding hoss arising during
the period net of income tax benefit
of -0- and $-0-. (60,000) (24,672)
7
Reclassifications 55,735 -
-------- ---------
Total Comprehensive Loss $(57,615) $(341,587)
======== =========
NOTE 5 - MARKETABLE SECURITIES
The cost and fair value of marketable equity securities that are
available-for-sale are as follows:
December 31, 2002 March 31, 2002
----------------- --------------
<s> <c> <c>
Cost $200,000 $216,666
Gross unrealized gain 80,000 147,834
--------- ---------
$280,000 $364,500
========= =========
The unrealized appreciation (loss) of marketable equity securities
that are available for sale are as follows:
December 31, 2002 March 31, 2002
----------------- --------------
<s> <c> <c>
Net unrealized gain $ 80,000 $147,834
Deferred income taxes - (63,569)
--------- ---------
$ 80,000 $ 84,265
========= =========
These amounts are presented as accumulated other comprehensive
income (loss).
During the nine months ended December 31, 2002 and 2001 sales
proceeds and gross realized gains and losses on securities classified
as available-for-sale were:
<TABLE<>
2002 2001
---- ----
<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.
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 December 31, 2002 over December
31, 2001 due to a change in sales mix. Although sales decreased
(wholesale decreased by 2% and retail decreased by 11%) products sold
were sold at higher margins resulting in a higher gross margin for the
nine months ended December 31, 2002.
Nine Months Ended December 31, 2002 as compared to nine months ended
December 31, 2001
For the nine months ended December 31, 2002, the Company had a net loss
of $(53,350). The Company had net sales of $149,529 with a cost of
goods sold of $112,894 resulting in gross profit of $36,635 for the
nine months ended December 31, 2002.
The Company had operating expenses of $110,575 for the nine months
ended December 31, 2002. These expenses primarily consisted of
officer's salaries of $24,220, auto and delivery of $6,523, employee
welfare of $7,097, professional fees of $46,367, rent of $11,655,
telephone of $2,229, utilities of $1,378, store supplies of $888,
insurance of $3,680, office expenses of $1,874, payroll taxes of $2,056
and other miscellaneous expenses of $1,372. Depreciation was $1,236
for the nine months ended December 31, 2002.
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.
9
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, employee
welfare of $5,143, consulting fees of $171,990, professional fees of
$26,851, rent of $11,403, telephone of $1,450, utilities of $1,235,
store supplies of $667, insurance of $2,849, office expenses of $1,483,
payroll taxes of $2,141 and other miscellaneous expenses of $1,147.
Depreciation was $161 for the nine months ended December 31, 2001.
Assets for the nine months ended December 31, 2002 decreased by approx.
$112,981. This was a direct result of sales of marketable securities
and the decline in the market value of securities held for sale.
Liabilities for the nine months ended December 31, 2002 decreased by
approx. $55,366. 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 December 31, 2002 was approx. $676,337 and at March
31, 2002 it was $742,109, a decrease approx. $65,772. The decrease was
a direct result from a decrease in current assets of $121,138 net of a
decrease of current liabilities of $55,366. Cash decreased by $31,715,
market value of securities held for sale decreased by $84,500 and
inventory increased by $2,430. Accounts payable increased by $8,024
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 nine months ended December 31, 2002 were $149,529 as
compared to $166,354 for the nine months ended December 31, 2001, a 10%
decrease.
Gross profit for the nine months ended December 31, 2002 was $36,635 as
compared to $35,767 for the nine months ended December 31, 2001, a 2%
increase.
Operating expenses for the nine months ended December 31, 2002 were
$110,575 as compared to $394,048 for the nine months ended December 31,
2001, a decrease of 72%. In 2001, the Company paid officer salaries
and consulting fees through the issuance of common stock in the amount
of $308,490 while in 2002 there were no such expenditures.
Sales for the two periods were as follows:
2002 2001
----------- ------------
Wholesale 65,837 44% 69,272 42%
Retail 83,692 56% 97,082 58%
------- -------
149,529 166,354
======= =======
Sales are decreasing due to loss of customers. Wholesale sales have
decreased by approx. 5% and retail sales have decreased by approx. 14%.
10
Gross profit increased slightly due to the changes in mix between
wholesale and retail customers. Gross profit is also effected by the
products sold.
Operating expenses decreased by approx. 72% as compared to 2001.
However, after removing the one time charges for officer salaries and
consulting fees, operating expenses increased from 2001 to 2002 by
approx. $25,017 or approx. 29%.
All categories of expenses were consistent with 2001 with the exception
of professional fees. Professional fees increased by approx. $19,516
or 72%. The majority of this increase was due to an increase in
auditing fees.
The unrealized loss from marketable securities held for sale was due
directly from the decline in market value over the nine month period.
Three Months Ended December 31, 2002 as compared to Three Months Ended
December 31, 2001
Sales for the three months ended December 31, 2002 decreased by $8,912,
a 16% decrease as compared to the same three month period ended
December 31, 2001. Gross profit for the three months ended December
31, 2002 decreased by $978, a 8% decrease, as compared to the same
three month period ended December 31, 2001. Operating expenses for
the three month period ended December 31, 2002 decreased by $303,659, a
92% decrease, as compared to the same three month period ended December
31, 2001. However, after removing the one time charges for officer
salaries and consulting fees of $308,490, operating expenses increased
by $4,831, a 21% increase, as compared to the same three month period
ended December 31, 2001.
Sales decreased due to a lower sales volume. Gross profit decrease
due to lower sales volume and changes in sales mix. Operating
expenses increased after removing the none cash charges for officers
salaries and consulting fees, due to higher auditing and legal fees
during the three month period ending December 31, 2002 as compared to
the same three month period ended December 31, 2001.
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.
11
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 nine months ended December 31, 2002, the Company pursued no
financing activities. For the nine months ended December 31, 2001,
the Company issued stock options valued at $30 resulting in cash flows
from financing activities of $30.
For the nine months ended December 31, 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 nine months ended December 31, 2001, the Company received
proceeds from the sale of marketable securities of $50,000 resulting in
net proceeds provided by investing activities of $50,000.
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.
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
12
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: January 23, 2003
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
15
(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: January 23, 2003
/s/Carmine Catizone
- --------------------------
Carmine Catizone
Chief Executive Officer
17
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):
(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
18
(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: January 23, 2003
/s/ Daniel Generelli
- --------------------------------
Danie Generelli, Chief Financial Officer