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, 2003
[ ] 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,
2003 2003
---------- ----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 320,384 $ 332,755
Marketable securities 200,000 160,000
Accounts receivable 1,519 1,554
Inventory 62,996 63,912
Prepaid expenses 3,205 2,858
---------- ----------
TOTAL CURRENT ASSETS 588,104 561,079
PROPERTY AND EQUIPMENT, net of accumulated
depreciation 7,437 7,906
---------- ----------
TOTAL ASSETS $ 595,541 $ 568,985
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 37,900 $ 18,468
Payroll taxes withheld and accrued 1,249 1,202
Accrued expenses 9,752 16,095
---------- ----------
TOTAL CURRENT LIABILITIES 48,901 35,765
---------- ----------
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 (745,636) (719,056)
Accumulated other comprehensive income (loss) - (40,000)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 546,640 533,220
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 595,541 $ 568,985
========== ==========
The accompanying notes are an integral part of these financial
statements.
3
CREATIVE BEAUTY SUPPLY, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
2003 2002
---------- ----------
NET SALES $ 49,512 $ 53,729
COST OF GOODS SOLD 36,887 40,566
---------- ----------
GROSS PROFIT 12,625 13,163
---------- ----------
OPERATING EXPENSES:
Salaries - officers 8,070 8,170
Payroll taxes 678 687
Auto and delivery 2,277 2,669
Employee welfare 2,644 2,214
Insurance 953 829
Office 365 851
Professional fees 20,029 27,635
Rent 3,900 3,855
Store supplies 67 271
Taxes 559 240
Telephone 646 965
Utilities 385 477
Miscellaneous 249 281
Depreciation 470 132
---------- ----------
TOTAL OPERATING EXPENSES 41,292 49,276
---------- ----------
LOSS FROM OPERATIONS BEFORE OTHER INCOME (28,667) (36,113)
---------- ----------
OTHER INCOME:
Gain on sale of securities - 8,333
Interest income 2,087 4,127
---------- ----------
TOTAL OTHER INCOME 2,087 12,460
---------- ----------
NET LOSS (26,580) (23,653)
========== ==========
LOSS PER COMMON SHARE, BASIC AND DILUTED $ (0.01) $ (0.01)
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,494,650 3,494,650
========== ==========
The accompanying notes are an integral part of these financial
statements.
4
CREATIVE BEAUTY SUPPLY, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
2003 2002
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (26,580) $ (23,653)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation 469 132
Gain on sale of marketable securities - (8,333)
Changes in operating assets and liabilities:
Accounts receivable 35 (454)
Inventory 916 (2,032)
Prepaid expenses (347) (471)
Accounts payable 19,432 34,372
Payroll taxes withheld and accrued 47 76
Accrued expenses (6,343) 491
---------- ----------
Net cash provided by (used in)
operating activities (12,371) 128
---------- ----------
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 (12,371) 15,734
CASH AND CASH EQUIVALENTS - beginning of period 332,755 383,108
---------- ----------
CASH AND CASH EQUIVALENTS - end of period $ 320,384 $ 398,842
========== ==========
The accompanying notes are an integral part of these financial
statements.
5
CREATIVE BEAUTY SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2003
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 10-QSB 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 ended June 30, 2003 are not
necessarily indicative of the results that may be expected for the year
ended March 31, 2004. The unaudited financial statements should be
read in conjunction with the financial statements and footnotes thereto
included in the Company's Form 10-KSB for the year ended March 31,
2003.
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 gain for the three months ended June 30, 2003
consisted of an unrealized holding gain arising during the period (net
of an income taxes of -0- after applying net operating loss carry
forwards) in the amount of $40,000.
Other comprehensive loss for the three months ended June 30, 2002
consisted of an unrealized holding loss arising during the period ( net
of an income tax benefit of $59,269) in the amount of $78,564.
NOTE 4 - MARKETABLE SECURITIES
The cost and fair value of marketable equity securities that are
available-for-sale are as follows:
June 30, 2003 March 31, 2003
------------- --------------
Cost $ 200,000 $ 200,000
Gross unrealized loss - (40,000)
------------- --------------
$ 200,000 $ 160,000
============= ==============
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The unrealized loss of marketable equity securities that are available
for sale are as follows:
June 30, 2003 March 31, 2003
------------- --------------
Net unrealized loss $ - $ (40,000)
Deferred income taxes - -
------------- --------------
$ - $ (40,000)
============= ==============
These amounts are presented as accumulated other comprehensive income
(loss).
During the three months ended June 30, 2003 and 2002 sales proceeds and
gross realized gains and losses on securities classified as available-
for-sale were:
2003 2002
---------- ----------
Sales proceeds - $ 25,000
---------- ----------
Gross realized gains - $ 8,333
---------- ----------
The method used to determine the costs of securities sold was actual
cost per share.
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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 June 30, 2003 over June 30, 2002
due to a change in sales mix. Although sales decreased (wholesale
decreased by 2% and retail decreased by 13%) products sold were sold at
higher margins resulting in a higher gross margin for the three months
ended June 30, 2003.
Three Months Ended June 30, 2003 as compared to three months ended June
30, 2002
For the three months ended June 30, 2003, the Company had a net loss of
$(26,580). The Company had net sales of $49,512 with a cost of goods
sold of $36,887 resulting in gross profit of $12,625 for the three
months ended June 30, 2003.
The Company had operating expenses of $41,292 for the three months
ended June 30, 2003. These expenses primarily consisted of officer's
salaries of $8,070, auto and delivery of $2,277, employee welfare of
$2,644, professional fees of $20,029, rent of $3,900, telephone of
$646, utilities of $385, store supplies of $67, insurance of $953,
office expenses of $365, payroll taxes and other taxes of $1,237, and
other miscellaneous expenses of $249. Depreciation was $470 for the
three months ended June 30, 2003.
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.
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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 $281.
Assets for the three months ended June 30, 2003 increased by approx.
$26,556. This was a direct result from the increase in market value of
securities held for sale.
Liabilities for the three months ended June 30, 2003 increased by
approx. $13,136. This was a direct result of an increase in net
accounts payable and accrued expenses.
Working capital at June 30, 2003 was approx. $539,203 and at March 31,
2003 it was $525,314, an increase of approx. $13,889. The increase was
a direct result from the increase in current assets of $27,025 net of
an increase of current liabilities of $13,136.
Cash decreased by $12,371, market value of securities held for sale
increased by $40,000 and inventory decreased by $916. Accounts payable
increased by $19,432 while accrued expenses decreased by $6,343.
Stockholders Equity decreased by the loss for the three months. There
were no equity transactions during the period.
Sales for the three months ended June 30, 2003 were $49,512 as compared
to $53,729 for the three months ended June 30, 2002, a 8% decrease.
Gross profit for the three months ended June 30, 2003 was 12,625 as
compared to $13,163 for the three months ended June 30, 2002, a 4%
decrease.
Operating expenses for the three months ended June 30, 2003 were
$41,292 as compared to $49,276 for the three months ended June 30,
2002, a decrease of 16%.
Sales for the two periods were as follows:
2003 2002
---------- ----------
Wholesale 22,995 46% 23,413 44%
Retail 26,517 54% 30,316 56%
---------- ----------
49,512 53,729
========== ==========
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. 13%.
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Operating expenses decreased by approx. 16% as compared to 2002. All
categories of expenses were consistent with 2002 with the exception of
professional fees. Professional fees decreased by approx. $7,606 or
28%. The decrease was mostly due to lower audit fees.
The unrealized gain from marketable securities held for sale was due
directly from the increase in market value over the three month period.
Liquidity.
Capital and Source of Liquidity. For the three months ended June 30,
2003 and 2002, the Company did not pursue any financing activities.
For the three months ended June 30, 2003, the Company did not pursue
any investing 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.
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
10
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 10-QSB 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.
11
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.
12
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: August14, 2003
By: /s/ Carmine Catizone
----------------------------
Carmine Catizone, President
13
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
14
(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: August 14, 2003
/s/Carmine Catizone
- --------------------------
Carmine Catizone
Chief Executive Officer
15
CERTIFICATION
I, Daniel Generelli, certify that:
1. I have reviewed this quarterly report on Form 10-QSB 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
16
(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: August 14, 2003
/s/ Daniel Generelli
- --------------------------------
Danie Generelli, Chief Financial Officer