AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 4, 2002.
REGISTRATION NO. 333-92190
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM SB-2/A
AMENDMENT NO. 1
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
National Beauty Corp.
---------------------
(Name Of Small Business Issuer In Its Charter)
Nevada 2844 13-3422912
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation Industrial Classification Identification No.)
or Organization) Code Number)
4810 West Commercial Blvd.
Ft. Lauderdale, Florida 33319
(954) 717-8680
--------------
(Address and Telephone Number of Principal Executive Offices)
4810 West Commercial Blvd.
Ft. Lauderdale, Florida 33319
(954) 717-8680
--------------
(Address of Principal Place of Business or Intended Principal Place of Business)
Mr. Ed Roth
-----------
4810 West Commercial Blvd.
Ft. Lauderdale, Florida 33319
(954) 717-8680
(Name, Address, and Telephone Number of Agent for Service)
Copy to:
Weed & Co. LLP
4695 MacArthur Court, Suite 1430
Newport Beach, CA 92660
Telephone (949) 475-9086
Facsimile (949) 475-9087
1
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
possible after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]
________________________________________________________________
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
_______________________________________________________________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
_______________________________________________________________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
_______________________________________________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
2
CALCULATION OF REGISTRATION FEE
-------------------------------
Title Of Each. . . . . . . . . Proposed Proposed
Class Of . . . . . . . . . . . Maximum Maximum
Securities . . . . . . . . . . Amount Offering Aggregate Amount Of
To Be. . . . . . . . . . . . . To Be Price Offering Registration
Registered . . . . . . . . . . Registered Per Unit Price Fee
----------- ---------- ---------- -------------
Units(1) . . . . . . . . . . . 4,000,000 -- -- --
- ------------------------------ ----------- ---------- ---------- -------------
Common Stock,
..001 par value(2) . . . . . . 4,000,000 $ .50 $2,000,000 $ 184.00
- ------------------------------ ----------- ---------- ---------- -------------
Warrants to
Purchase
Common
Stock(3) . . . . . . . . . . . 4,000,000 $ .25 $1,000,000 $ 92.00
- ------------------------------ ----------- ---------- ---------- -------------
Common Stock,
..001 par value
(4) 5,450,000 $ .13 $ 708,500 $ 65.18
----------- ---------- ---------- -------------
Total. . . . . . . . . . . . . 9,450,000 N/A $3,708,500 $ 341.18
Shares of Common
Stock
4,000,000
Warrants
- ------------------------------ ----------- ---------- ---------- -------------
3
(1) Includes 4,000,000 shares of common stock and warrants exercisable to
purchase 4,000,000 shares of common stock.
(2) Represents 4,000,000 shares of common stock included in the units offered by
National Beauty Corp. The units are being offered to the public at a price of
$.50 per share.
(3) Represents 4,000,000 warrants to purchase one share of common stock included
in the units offered by National Beauty Corp. The exercise price for the
warrants is $.25 per share.
(4) Represents 4,000,000 shares of common stock underlying the warrants and
1,450,000 shares being offered by selling shareholders. This calculation is
made solely for the purpose of determining the registration fee pursuant to the
provisions of Rule 457(c) under the Securities Act and is calculated on the
basis of the average of the high and low prices reported and last sale reported
on the OTC Bulletin Board as of December 3, 2002.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
4
PROSPECTUS
National Beauty Corp.
4,000,000 Units
1,450,000 Shares of Common Stock
This prospectus relates to the public offering, which is not being underwritten,
of 4,000,000 units of National Beauty Corp., a Nevada corporation ("National
Beauty") at a price of $.50 per unit. Each unit consists of one share of common
stock, $.001 par value, and one warrant exercisable to purchase one share of
common stock at an exercise price of $.25 per share. National Beauty is also
registering for resale 4,000,000 shares underlying the warrants. There is no
minimum number of units that National Beauty has to sell. There is no escrow
account. National Beauty will use all money received from the offering and there
will be no refunds. The offering will terminate nine months after the effective
date of this registration statement.
Further, concurrent with this offering, National Beauty is registering 1,450,000
additional shares which may be resold from time to time by stockholders of the
company at then current market prices or at negotiated prices.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 8 OF THIS
PROSPECTUS BEFORE PURCHASING ANY OF THE COMMON STOCK OFFERED BY THIS PROSPECTUS.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
Per Unit Total(1)
------------- -----------
Public offering price. . . $ .50 $ 2,000,000
- -------------------------- ------------- -----------
Exercise price of warrants $ .25 $ 1,000,000
- -------------------------- ------------- -----------
Total proceeds to National
Beauty . . . . . . . . . . $3,000,000(2)
- -------------------------- ------------- -----------
5
(1) Assuming all shares are purchased and all warrants are exercised.
(2) Before deducting offering expenses.
National Beauty's common stock is currently trading on the OTC Bulletin Board
under the symbol "NBEU." This is a self-underwritten offering, to be conducted
by the officers and directors of National Beauty.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The registrant may amend this registration statement. A registration statement
relating to these securities has been filed with the Securities and Exchange
Commission. National Beauty may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
The date of this prospectus is December 3, 2002.
6
TABLE OF CONTENTS
-----------------
Prospectus Summary 6
Risk Factors 8
Use of Proceeds 13
Determination of Offering Price 14
Dilution 14
Selling Security Holders .14
Plan of Distribution .15
Legal Proceedings 18
Directors, Executive Officers, Promoters and Control Persons 18
Security Ownership of Certain Beneficial Owners and Management 19
Description of Securities 21
Experts 23
Disclosure of Commission Position on Indemnification for Securities Act
Liabilities .23
Organization Within Last Five Years 24
Description of Business 24
Management's Discussion and Analysis or Plan of Operation 28
Description of Property 34
Certain Relationships and Related Transactions 35
Market for Common Equity and Related Stockholder Matters 35
Executive Compensation 36
Financial Statements F-1
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure 39
7
PROSPECTUS SUMMARY
National Beauty Corp.
National Beauty Corp., formerly known as Beautymerchant.com, Inc., was
incorporated in Nevada in 1987. The company has primarily operated through its
wholly owned subsidiaries, Cleaning Express USA, Hairmax of Florida, Inc., f/k/a
Beauty Works USA, Inc. and Beauty Merchant, Inc. Cleaning Express USA is a full
service cleaning company offering daily residential cleaning services, carpet
cleaning and other related services in the South Florida area. During April
2000, the company began operations as an E-commerce distributor of beauty
products under its Beauty Merchant, Inc. subsidiary and ceased these operations
in 2001. Through Hairmax of Florida, Inc., National Beauty intends to operate a
chain of haircutting stores, located inside or next to major retailers.
For the year ended December 31, 2001, National Beauty had generated
$431,810 in revenue and had incurred a net loss of $257,044. Over the last
fiscal year, National Beauty did not expend any funds for research and
development activities. For the nine months ended September 30, 2002, National
Beauty generated $404,582 in revenues and had a net loss of $343,309.
National Beauty's business plan entails developing beauty salons and
marketing the company's own private label beauty products through these
operations. National Beauty is also pursuing the development of its "HAIRMAX"
concept, which aims to locate hair salons, offering quality and inexpensive hair
services, in larger retailers. There is currently one Hairmax store in Boca
Raton, Florida. After some minor construction delays, the second Hairmax store
is planned to open in the next ninety days in Coral Springs, Florida. Further,
National Beauty plans to open ten stores in Las Vegas, Nevada over the next two
years, beginning with two stores in early spring 2003. Overall, National Beauty
plans to roll out 150 haircutting stores across the nation. National Beauty has
filed a trademark application on the HAIRMAX name and logo.
National Beauty 's common stock trades on the OTCBB under the symbol
"NBEU." On December 3, 2002, National Beauty's common stock was trading at $.12
per share.
National Beauty's executive office is located at 4810 West Commercial
Blvd., Ft. Lauderdale, Florida 33319. The telephone number is (949) 717-8680.
8
OFFERING
4,000,000 shares of common stock, 4,000,000
Units Offered by National . . . . . . . . . . . . warrants to purchase one share of common stock
Beauty. . . . . . . . . . . . . . . . . . . . . . at an exercise price of $.25 per share
Price per Unit. . . . . . . . . . . . . . . . . . $ .50
Common Stock Offered by the Selling
Shareholders. . . . . . . . . . . . . . . . . . . 1,450,000 shares
Common Stock
Currently . . . . . . . . . . . . . . . . . . . . 4,871,062 shares
Outstanding
Investment in the shares involves a high degree of risk.
Risk Factors
SELECTED FINANCIAL INFORMATION
The Selected Financial Information should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto appearing in this
Prospectus.
SUMMARY OF CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Year Ended Nine Months Ended
December 31 September 30, (unaudited)
2001 2002
----------------- -------------------------
Revenue $431,810 $404,8525
Net income (loss) . $(257,044) $(343,309)
Net income (loss) per share $(.57) $(.09)
Number of shares outstanding 1,466,362 4,746,062
SUMMARY OF CONSOLIDATED BALANCE SHEETS
At December At September 30,
31, 2001 2002 (unaudited)
-------- ----------------
Current assets $105,347 $37,428
Current liabilities $16,207 $29,266
Working capital $89,140 $8,162
Total assets $136,743 $86,733
Total liabilities . $16,207 $29,266
Retained deficit . $(1,284,330) $(1,627,639)
Stockholders' equity $120,536 $57,467
9
36
RISK FACTORS
An investment in the shares offered hereby involves a high degree of risk.
Prospective investors should carefully consider the following factors concerning
the business of National Beauty and its subsidiaries and the offering, and
should consult independent advisors as to the technical, tax, business and legal
considerations regarding an investment in the shares.
NATIONAL BEAUTY HAS A LIMITED OPERATING HISTORY IN REGARD TO ITS CURRENT
BUSINESS PLAN, HAS NOT GENERATED SIGNIFICANT REVENUES AND MAY NOT BE SUCCESSFUL
IN THE BEAUTY SUPPLY AND SERVICE INDUSTRIES.
National Beauty is in the early stages of developing its beauty service
business and has engaged only in very limited operations, none of which have
generated substantial revenues. Further, National Beauty does not have
significant experience in the beauty industry and is subject to all the risks
inherent in an immature business enterprise, including the absence of an
extensive operating history upon which to base a future forecast. Risks to
National Beauty's operations include, but are not limited to:
- - inability to manage growth and expanding operations;
- - inability to predict interest in National Beauty's services;
- - inability to increase brand awareness;
- - attracting, retaining and motivating qualified personnel; and
- - maintaining current and developing strategic relationships.
To be successful, National Beauty must:
- - retain existing customers;
- - attract new customers;
- - meet customer demands;
- - fulfill all customer needs;
- - acquire additional sources for merchandise at discounted prices;
- - develop and brand HAIRMAX stores as a consumer choice;
- - increase its media exposure;
- - monitor the competition; and
- - maintain the ability to hire and retain qualified service personnel such
as hairstylists.
10
NATIONAL BEAUTY HAS INCURRED SIGNIFICANT LOSSES AND FOR THE YEARS ENDED DECEMBER
31, 2000 AND DECEMBER 31, 2001, HAD NET LOSSES OF $794,306 AND $257,044,
RESPECTIVELY, AND ACCORDINGLY, MAY NOT BE ABLE TO GENERATE SUFFICIENT REVENUES
TO ACHIEVE OR SUSTAIN PROFITABILITY IN THE FUTURE.
For the years ended December 31, 2001 and December 31, 2000, National
Beauty's net operating loss was $257,044 and $794,306, respectively. For the
nine months ended September 30, 2002, National Beauty incurred a net loss of
$343,309. National Beauty may continue to experience net-operating losses
through the next two years and therefore, National Beauty may not be able to
generate sufficient revenues to achieve or sustain profitability in the future.
National Beauty's losses are primarily due to expenses incurred in payroll
expenses and consulting services. National Beauty expects to incur losses at
least through fiscal 2002 due to the following factors:
- - the development of the HAIRMAX brand, marketing and promotion;
- - expanded offering of service;
- - continued store development costs;
- - additional personnel to manage customer service and in-house marketing;
and
- - increases in general and administrative costs to support the company's
growing operations.
NATIONAL BEAUTY'S GROWTH MAY REQUIRE SUBSTANTIAL EXPENDITURES WHICH NATIONAL
BEAUTY MAY NOT BE ABLE TO FUND.
Cash flows used in National Beauty's operations were a negative $43,038 for
the year ended December 31, 2001, and a negative $293,498 for the year ended
December 31, 2000. Further, cash flows used in National Beauty's operations as
of September 30, 2002 were $3,381. National Beauty's success and ongoing
financial viability is contingent upon the success of its new business model and
the generation of related cash flows. National Beauty's failure to meet these
contingencies may cause it to delay or suspend its operations.
National Beauty has funded its cash needs from inception through December 31,
2001 with a series of equity transactions totaling $555,889, including private
placements. In contrast, National Beauty will need approximately $9,750,000 to
fund its publicly announced 150-store salon development, as each store is
estimated to require $65,000 to open, including lease deposits. The company's
president, Ed Roth, has been responsible for providing the current cash on hand.
There is not any external credit available at this time. As such, National
Beauty may not be able to proceed with its current business plan absent further
financing.
11
NATIONAL BEAUTY'S PROCUREMENT OF ADDITIONAL FINANCING, IF AVAILABLE, MAY DILUTE
THE OWNERSHIP INTERESTS OF INVESTORS.
National Beauty may raise additional funds through the issuance of equity,
equity-related or convertible debt securities. The issuance of additional
common stock dilutes existing stockholders. Further procurement of additional
financing through the issuance of equity, equity-related or convertible debt
securities or preferred stock may further dilute existing stock. Further, the
perceived risk of dilution may cause selling shareholders, as well as other
holders, to sell their shares, which would contribute to downward movement in
the price of your shares.
NATIONAL BEAUTY'S SYSTEMS, PROCEDURES, CONTROLS AND EXISTING SPACE MAY NOT BE
ADEQUATE TO SUPPORT EXPANSION OF NATIONAL BEAUTY'S OPERATIONS, WHICH MAY STRAIN
NATIONAL BEAUTY'S RESOURCES AND THEREFORE, DETRIMENTALLY AFFECT ITS FUTURE
OPERATIONS.
National Beauty may expand its operations rapidly, which may create
significant demands on National Beauty's personnel and other administrative
resources, operations and management. These demands on National Beauty's
administrative and operational capabilities could adversely effect:
- - the quality of its services,
- - its ability to retain and attract research and development staff,
- - its ability to retain and attract administrative personnel and management,
and
- - its ability to collect revenues, if any.
Further, National Beauty's systems, procedures, controls and existing space
may not be adequate to support expansion of National Beauty's operations.
National Beauty's business model requires the leasing or acquisition of property
for new salons. National Beauty's future operating results will depend, among
other things, on its ability to manage changing business conditions and to
continue to improve its operational, financial control and reporting systems.
NATIONAL BEAUTY'S OPERATIONS ARE DEPENDANT ON LOCATING ADEQUATE STORE LOCATIONS,
SUFFICIENT SOURCES OF SUPPLY AND QUALIFIED PERSONNEL TO STAFF THESE LOCATIONS;
FAILURE TO DO SO COULD REDUCE OR CURTAIL OPERATIONS.
National Beauty intends to offer beauty services and products to the public
through the development of new and existing salons, which may be difficult to
locate. The principal suppliers to the company are wholesale distributors, who
do not sell retail. As such, sources of supply for National Beauty' s proposed
products may be difficult to locate or may not provide sufficient supplies at a
reasonable cost. Further, National Beauty does not have manufacturing expertise,
facilities or capabilities and does not intend to manufacture any products. Even
if an acceptable supplier or manufacturer can be found, termination of the
services of these suppliers or manufacturers could result in interruptions in
the ability to manufacture the products until an alternative source can be
secured. Further, National Beauty will be dependant on its ability to hire and
retain qualified service and management personnel to staff the new stores it
expects to establish.
NATIONAL BEAUTY IS DEPENDENT ON MEMBERS OF ITS KEY PERSONNEL, PARTICULARLY MR.
EDWARD ROTH FOR HIS KNOWLEDGE OF THE BEAUTY SERVICE INDUSTRY, AND THE LOSS OF
KEY PERSONNEL MAY HINDER THE COMPANY'S DEVELOPMENT.
The success of National Beauty is dependent upon, among other things, the
service of Mr. Edward Roth, President of National Beauty. Because of Mr. Roth's
experience in the beauty service industry, the loss of Mr. Roth could have a
material adverse effect on the company's plan to offer beauty products and
services to the public. Further, Mr. Roth and Alisha Roth, the company's
Secretary, Treasurer and director, have managed the operations of Cleaning
Express USA since inception. As such, the loss of either of these individuals
could adversely affect the operations of Cleaning Express USA, as well as the
company as a whole. National Beauty has entered into employment agreements with
Mr. Roth and Ms. Roth but does not maintain any key-man life insurance.
NATIONAL BEAUTY FACES SUBSTANTIAL COMPETITION FROM COMPETITORS WITH
SIGNIFICANTLY GREATER HUMAN AND FINANCIAL RESOURCES, EXPERIENCE, AND TECHNICAL
STAFF, WHICH COULD REDUCE OR ELIMINATE NATIONAL BEAUTY'S ABILITY TO COMPETE IN A
DESIGNATED MARKET.
There are many companies, substantially all with significantly greater
resources, including financial resources, experience and staff than National
Beauty. These companies, such as Regis Corp., have or may successfully develop
products and services which meet some of the needs intended to be met by
National Beauty's proposed products and services. Some of these companies have
established strong market positions in their products and services. These
competitors may respond vigorously to any threat in their market shares and
therefore, National Beauty may not be able to compete successfully in the
future.
12
DUE TO THE LOW TRADING PRICE, VOLATILITY, LIMITED LIQUIDITY AND POTENTIAL
FURTHER DILUTION OF NATIONAL BEAUTY'S COMMON SHARES, INVESTORS IN THIS OFFERING
MAY NEVER BE ABLE TO REALIZE A PROFIT ON DISPOSAL OF ANY SHARES PURCHASED.
Because of the low trading price of National Beauty's common stock and its
extreme price and volume volatility, shareholders may face limited liquidity for
their shares. At December 3, 2002, National Beauty's last reported price for
its common stock was $.12 per share. National Beauty's common stock may
experience further dilution as a result of additional issuances of shares. As a
result, investors in this offering may not be able to realize a profit on
disposal of any shares purchased in this offering.
NATIONAL BEAUTY'S COMMON STOCK PRICE IS HIGHLY VOLATILE AND ANY FLUCTUATIONS
THAT OCCUR FOLLOWING COMPLETION OF THIS OFFERING MAY REDUCE THE MARKET PRICE
AND/OR LIQUIDITY OF NATIONAL BEAUTY'S COMMON STOCK.
The market price of the common stock has been, and is likely to remain,
highly volatile as is frequently the case with unseasoned public companies. The
following developments affecting National Beauty or its competitors could cause
the market price of the common stock to fluctuate substantially and reduce the
liquidity of the common stock:
- - quarterly operating losses of National Beauty,
- - deviations in losses of operations from estimates of securities analysts,
and
- - changes in general conditions in the economy, or in the beauty service
industry.
The equity markets have, on occasion, experienced significant price and
volume fluctuations that have affected the market prices for many companies'
securities and that have often been unrelated to the operating performance of
these companies.
NATIONAL BEAUTY'S COMMON STOCK IS TRADED ON A LIMITED PUBLIC MARKET, WHICH MAY
IMPACT STOCKHOLDERS' ABILITY TO LIQUIDATE THEIR INVESTMENTS.
National Beauty's common stock is traded on the Nasdaq OTC Bulletin Board
which tends to be comprised of small businesses of regional interest with
limited trading activity. National Beauty intends to submit an application to
list the common stock on Nasdaq's National Market System or Small Cap System as
soon as it meets the listing qualifications; however, National Beauty's
securities may not qualify for listing on Nasdaq's National Market System or
Small Cap System or on any other exchange.
APPLICABLE SEC RULES GOVERNING THE TRADING OF "PENNY STOCKS" LIMITS THE TRADING
AND LIQUIDITY OF NATIONAL BEAUTY'S COMMON STOCK WHICH MAY ADVERSELY AFFECT THE
TRADING PRICE OF ITS COMMON STOCK.
13
National Beauty's common stock currently trades on the OTC Bulletin Board.
Since its common stock continues to trade below $5.00 per share, its common
stock is considered a "penny stock" and is subject to SEC rules and regulations
which impose limitations upon the manner in which National Beauty's shares can
be publicly traded. These regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the associated risks. Under these regulations, certain
brokers who recommend such securities to persons other than established
customers or certain accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale. These regulations have the effect of
limiting the trading activity of National Beauty's common stock and reducing the
liquidity of an investment in its common stock.
AVAILABLE INFORMATION
National Beauty files annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any document National Beauty files with the Commission at
the Commission's Public Reference room at 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information
on the public reference room. National Beauty's Commission filings are also
available to the public at the Commission's web site at http://www.sec.gov.
You may also request a copy of these filings, at no cost, by writing or
telephoning as follows:
National Beauty Corp. Attention: Investor Relations, 4810 West Commercial
Blvd., Ft. Lauderdale, Florida 33319, telephone: (954) 717-8680.
This prospectus is part of a registration statement on Form SB-2 National
Beauty filed with the SEC under the Securities Act. You should rely only on the
information or representations provided in this prospectus. National Beauty has
not authorized anyone to provide you with different information other than the
information contained in this prospectus. National Beauty is not making an offer
of these securities in any state where the offer is not permitted. You should
not assume that the information in this prospectus is accurate as of any date
other than the date on the front of the document.
FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the matters discussed
in this prospectus are forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those set forth in such forward looking statements. Such risks and
uncertainties include, without limitation, National Beauty's dependence on the
timely development, introduction and customer acceptance of products and
services, the impact of competition and downward pricing pressures, the ability
of National Beauty to generate revenues and raise any needed capital, the effect
of changing economic conditions, and risks in product development.
14
USE OF PROCEEDS
The following table sets forth the estimated application of proceeds from
the sale of the units offered; assuming that all units offered are sold and all
warrants included in the units are exercised.
Amount %
---------- ----
Net Proceeds from
Offering. . . . . . . $2,955,000 100%
Use of Net Proceeds . $2,955,000 100%
Development of Beauty
Salons* . . . . . . . $2,925,000 99%
Contingency Reserve . $ 30,000 1%
15
* Estimated to be approximately $65,000 per salon, the breakdown is as follows:
Development of a Beauty
Salon. . . . . . . . . . $ 65,000 100%
Beauty Stations *. . . . $ 20,000 30.8%
Employees. . . . . . . . $ 19,000 29.2%
Establishment of a Lease $ 6,000 ($3,000 9.2%
security deposit,
$3,000 first month rent)
Grand Opening/Marketing. $ 10,000 15.4%
Working Capital. . . . . $ 10,000 15.4%
*Approximately 8 stations will be needed per salon, amounts include chairs,
mirrors and equipment.
The allocations listed above are, for the most part, estimates and
approximations only, based upon management's projections and the cost of
implementing National Beauty's salon in Boca Raton, Florida. National Beauty may
not be able to sell all of the units in this offering, if any, and may be forced
to delay these salons. If less than the maximum amount of proceeds are raised,
the company will develop less salons. National Beauty intends to use the funds
from this offering to develop as many salons as possible. The Coral Springs,
Florida salon is expected to open within the next ninety days. Further,
National Beauty plans to open ten stores in Las Vegas, Nevada over the next two
years, beginning with two stores in early spring 2003.
DETERMINATION OF OFFERING PRICE
Not applicable.
DILUTION
Not applicable.
16
SELLING SECURITY HOLDERS
The following table provides information with respect to the selling
shareholders' beneficial ownership of National Beauty's common stock as of
November 5, 2002, and as adjusted to give effect to the sale of all of the
shares offered. None of the selling shareholders currently is an affiliate of
ours, and none of them has had a material relationship with National Beauty
during the past three years. The selling shareholders possess sole voting and
investment power with respect to the securities shown.
PERCENT OF
NUMBER OF CLASS OF
SHARES SHARES
NUMBER OF SHARES BENEFICIALLY BENEFICIALLY
BENEFICIALLY NUMBER OWNED AFTER OWNED AFTER
NAME AND ADDRESS OF SELLING . . . OWNED PRIOR TO OF SHARES THE OFFERING IS THE OFFERING IS
STOCKHOLDER . . . . . . . . . . . THE OFFERING OFFERED HEREBY COMPLETE COMPLETE
================================= ================ ============== =============== ===============
Richard O. Weed
4695 MacArthur Court, Suite 1430
Newport Beach, CA 92660(1). . . . 250,000 250,000 0 0
================================= ================ ============== =============== ===============
3rd Millennium Management,
LLC
One Newark Pomption Turnpike
Wane, NJ 07470(2)
1,000,000 1,000,000 0 0
================================= ================ ============== =============== ===============
American Market Support
Network, Inc.
5599 San Felipe, Suite 975
Houston, TX 77056(3). . . . . . . 200,000 200,000 0 0
================================= ================ ============== =============== ===============
(1) Richard O. Weed of Weed & Co. LLP acquired his shares in consideration for
legal services rendered.
(2) 1,000,000 shares were issued to 3rd Millennium Management, LLC for
investor relations services provided to National Beauty.
(3) 200,000 shares were issued to American Market Support Network, Inc. for
investor relations services provided to National Beauty.
17
PLAN OF DISTRIBUTION
1,450,000 SHARES SOLD BY SELLING STOCKHOLDERS
National Beauty is registering 1,450,000 shares of common stock on behalf
of the selling stockholders. As used in this prospectus, the term "selling
stockholders" includes pledgees, transferees or other successors-in-interest
selling shares received from the selling stockholder, as a pledgor, a borrower
or in connection with other non-sale-related transfers after the date of this
prospectus. This prospectus may also be used by transferees of the selling
stockholders, including broker-dealers or other transferees who borrow or
purchase the shares to settle or close out short sales of shares of common
stock. The selling stockholders will act independently of National Beauty in
making decisions with respect to the timing, manner, and size of each sale or
non-sale related transfer. None of the selling stockholders are officers,
directors or affiliates of the registrant. National Beauty will not receive any
of the proceeds from the sales by the selling stockholders. National Beauty
will bear all expenses incurred in connection with the offering.
The selling stockholders may sell their shares of common stock directly to
purchasers from time to time. Alternatively, they may from time to time offer
the common stock to or through underwriters, broker/dealers or agents, who may
receive compensation in the form of underwriting discounts, concessions or
commissions from the selling stockholders or the purchasers of the securities
for whom they may act as agents. The selling stockholders and any
broker/dealers or agents that participate in the distribution of common stock
may be deemed to be "underwriters" within the meaning of the Securities Act and
any profit on the sale of the securities and any discounts, commissions,
concessions or other compensation received by any underwriter, broker/dealer or
agent may be deemed to be underwriting discounts and commissions under the
Securities Act.
The common stock may be sold from time to time in one or more transactions
at fixed prices, at prevailing market prices at the time of sale, at varying
prices determined at the time of sale or at negotiated prices. The sale of the
common stock may be effected by means of one or more of the following
transactions, which may involve block transactions,
- - in the over-the-counter market, or
- - in transactions otherwise than on exchanges or services, including
transactions pursuant to Rule 144 or another exemption from registration.
In connection with sales of the common stock or otherwise, the selling
stockholders may enter into hedging transactions with broker/dealers, who in
turn may engage in short sales of the common stock in the course of hedging the
positions they assume. The selling stockholders may also sell common stock
short and deliver common stock to close out short positions, or loan or pledge
common stock to broker/dealers who in turn may sell the securities.
At the time a particular offering of the common stock is made, a prospectus
supplement, if required, will be distributed which will set forth the aggregate
amount common stock being offered and the terms of the offering, including the
name or names of any underwriters, broker/dealers or agents, any discounts,
commissions and other terms constituting compensation from the selling
stockholders and any discounts, and commissions or concessions allowed or
re-allowed or paid to broker/dealers.
To comply with the securities laws of certain jurisdictions, if applicable,
the common stock will be offered or sold in jurisdictions only through
registered or licensed brokers or dealers.
The selling stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of sales of the common stock by the selling stockholders. The
foregoing may affect the marketability of the securities.
18
4,000,000 UNITS TO BE SOLD BY NATIONAL BEAUTY
National Beauty is offering 4,000,000 units at a purchase price of $.50 per
share on a delayed or continuous offering basis pursuant to Rule 415 of the
Securities Act of 1933 Rules. The units consist of one share of common stock and
one warrant exercisable to purchase common stock at an exercise price of $.25
per share. There are no minimum units that National Beauty has to sell. There
is no escrow account. National Beauty will use all money received from the
offering and there will be no refunds. This offering will terminate nine months
after the effective date of the registration statement. This is a
self-underwritten offering.
National Beauty reserves the right to use selling agents with the
appropriate modification to the registration statement, as necessary. If
National Beauty makes arrangements to use selling agents after effectiveness of
this registration statement, then National Beauty will need to file a
post-effective amendment to the registration statement identifying the
broker-dealer, providing the required information on the plan of distribution
and use of proceeds, revising the disclosures in the registration statement, and
filing the agreement as an exhibit to the registration statement. Further,
prior to any involvement of any broker-dealer in the offering, such
broker-dealer must seek and obtain clearance of the underwriting compensation
and arrangements from the NASD Corporate Finance Department.
National Beauty's officers and directors will be conducting the offering
under the self-offering exemption of Rule 3a4-1. The offer to sell and any sales
will be made only by this prospectus.
None of National Beauty's officer and directors conducting the offering:
(1) are subject to a statutory disqualification, as that term is defined in
section 3(a)(39) of the Securities Act of 1933, as amended;
(2) will be compensated in connection with their participation in this
offering by the payment of commissions or other remuneration based either
directly or indirectly on transactions in these securities; or
(3) are associated persons of a broker or dealer.
Furthermore, the persons associated with National Beauty that participate
in this offering meet all of the following requirements:
(1) each primarily performs, or is intended to primarily perform at the end
of the offering, substantial duties for or on behalf of National Beauty
otherwise than in connection with transactions in securities;
(2) none were a broker or dealer, or an associated person of a broker or
dealer, within the preceding 12 months; and
(3) none participate in selling an offering of securities for any issuer
more than once every 12 months other than as authorized by Rule 3a4-1 of the
Securities Exchange Act.
To subscribe to the units, subscribers are to deliver to the company (1) a
completed and duly executed copy of the subscription agreement and (2)
immediately available funds in the amount of $.50 per unit.
19
LEGAL PROCEEDINGS
There are no material legal proceedings to which National Beauty is a party
or to which any of National Beauty's properties are subject.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Identification of Directors and Executive Officers.
The following table sets forth certain information concerning National
Beauty's directors and executive officers:
Name Age Service Position with Company
- ---- --- ------- ---------------------
Edward A. Roth 44 1997 to present Chairman, President & CEO,
Director
Alisha Roth 36 1997 to present Secretary, Treasurer, Director
Barbara Patigalia 51 1997 to present Director
Michael J. Bongiovanni 40 2000 to present Chief Financial Officer,
Director
All Directors serve for one-year terms, which expire at the annual
shareholders meeting in 2002.
All officers serve at the pleasure of the Board.
There are no arrangements or understandings pursuant to which any of them
were elected as officers.
Edward A. Roth has been President and Director of National Beauty since
1997. Mr. Roth previously served as Vice-President and Director of Operations
for Cleaning Express USA since its inception in November 1994. During this
period, Mr. Roth developed and implemented all operations and developments
creating a company that started with less than 50 customers, and today services
over 8,000 customers in South Florida. Mr. Roth was President of Advanced
Appearance, a chain of beauty salons, in Alabama and Florida from 1978 to 1988.
Prior to this, Mr. Roth served as a management consultant working independently
for 20 years. Mr. Roth has attended Auburn University majoring in business and
marketing, and is also a veteran of the United States Air Force. Edward A. Roth
is married to Alisha M. Roth, the company's Secretary, Treasurer and director.
Alisha M. Roth has served as Secretary, Treasurer and Director of National
Beauty since 1997. Mrs. Roth served previously as President of Cleaning Express
USA, and during her tenure she was in charge of staffing and customer relations.
Mrs. Roth has been with Cleaning Express USA since 1994, prior to that she was a
resident of Trinidad, West Indies. Mrs. Roth has owned and operated her own
business in the restaurant and pre-school development areas, and has eight years
of management experience. Alisha M. Roth is married to Edward A. Roth.
Barbara Patigalia is a language pathologist with the Head Start program in
Maryland, and serves as President of the League of Women Voters in Potomac,
Maryland. Ms. Patigalia had no business experience during the last five years,
except other than through her role as a director of National Beauty.
Michael J. Bongiovanni has been Chief Financial Officer of National Beauty
since April 2000. Mr. Bongiovanni is responsible for SEC reporting compliance
and financial analysis of new operations including Hairmax of Florida, Inc.
f/k/a Beautyworks USA, Inc. Mr. Bongiovanni has served numerous publicly traded
companies in financial consulting and business management since 1980. Mr.
Bongiovanni received his Masters of Accounting degree at Florida Atlantic
University.
There have been no events under any bankruptcy act, no criminal proceedings
and no judgments or injunctions material to the evaluation of the ability and
integrity of any director or executive officer during the past five years.
20
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires National
Beauty's directors and officers and persons who own more than ten percent of
National Beauty 's equity securities to file reports of ownership and changes in
ownership with the SEC. Directors, officers and greater than ten percent
shareholders are required by SEC regulation to furnish National Beauty with
copies of all Section 16(a) reports filed.
Based solely on information it received from persons required to file,
National Beauty believes that all filing requirements applicable to its
officers, directors and greater than ten percent shareholders were complied
with.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table, based upon figures obtained from National Beauty's
transfer agent, sets forth certain information as of November 5, 2002 relating
to the beneficial ownership of National Beauty common stock by (i) all persons
known by National Beauty to beneficially own more than 5% of the outstanding
shares of its stock, (ii) each officer and director of National Beauty and (iii)
all officers and directors of National Beauty as a group. The table includes all
shares underlying options or warrants that are currently exercisable or that
will become exercisable within sixty days. As of November 5, 2002, National
Beauty had 4,871,062 shares of its common stock issued or issuable and
outstanding.
21
Amount and
Nature of Percent of
Name and Address of Beneficial Shares Outstanding
Title of Class. . . . . . . Beneficial Owner Owned* Ownership
=========================== =========================== ================== =========================
Edward A. Roth and
Alisha Roth (1)
4810 W. Commercial
Common Stock, . . . . . . . Blvd.
..001 Par Value . . . . . . Ft. Lauderdale, FL 33319 3,216,440 66%
- --------------------------- --------------------------- ------------------ -------------------------
Knight Securities, L.P.
525 Washington Blvd.,
Common Stock, . . . . . . . 23rd Floor
..001 Par Value . . . . . . Jersey City, NJ 07310 549,185 11.3%
- --------------------------- --------------------------- ------------------ -------------------------
Michael J. Bongiovanni
4810 W. Commercial
Common Stock, . . . . . . . Blvd.
..001 Par Value . . . . . . Ft. Lauderdale, FL 33319 25,000 -1%
- --------------------------- --------------------------- ------------------ -------------------------
Barbara Patagalia
4810 W. Commercial
Common Stock, . . . . . . . Blvd.
..001 Par Value . . . . . . Ft. Lauderdale, FL 33319 2,065 -1%
- --------------------------- --------------------------- ------------------ -------------------------
Common Stock, . . . . . . . All Officers and Directors
..001 Par Value . . . . . . as a Group 3,243,505 66.6%
- --------------------------- --------------------------- ------------------ -------------------------
Edward A. Roth and
Alisha Roth (3)
Preferred Stock,. . . . . . 4810 W. Commercial
..001 Par Value . . . . . . Blvd.
(2) Ft. Lauderdale, FL 33319 750,000 100%
- --------------------------- --------------------------- ------------------ -------------------------
*All shareholders listed have direct beneficial ownership over their shares.
(1) Edward and Alisha Roth own the common shares as joint tenants.
(2) Each share of preferred stock is convertible into ten shares of common
stock.
(3) Edward and Alisha Roth own the preferred shares as joint tenants.
Changes in Control
Edward and Alisha Roth currently own 66% of National Beauty's outstanding
common stock. If all 4,000,000 units in this offering are sold, the resulting
issuance of common stock will cause the Roth's ownership to fall below 50%,
unless they purchase some of the units being offered and/or convert their
preferred shares into common shares. Also, the subsequent exercise of the
warrants could dilute their ownership. As such, these events could result in one
or more changes in control in National Beauty.
22
DESCRIPTION OF SECURITIES
The following summary is a description of material provisions of National
Beauty's Articles of Incorporation and Bylaws.
COMMON STOCK
Pursuant to National Beauty's Articles of Incorporation, the board of
Directors has authority to issue up to 100,000,000 shares of common stock, par
value $0.001 per share. As of November 5, 2002, there were 4,871,062 shares
issued and outstanding, one vote for each share held on all matters. Cumulative
voting in elections of directors and all other matters brought before
stockholders' meetings, whether they are annual or special, is not provided for
under National Beauty's Articles of Incorporation or Bylaws. National Beauty has
not paid cash dividends on its common stock and does not intend to do so in the
foreseeable future. National Beauty intends to retain earnings, if any, to
provide funds for its operations. Future dividend policy will be determined by
the Board of Directors based upon conditions then existing including National
Beauty's earnings and financial condition, capital requirements and other
relevant factors.
PREFERRED STOCK
Pursuant to National Beauty's Articles of Incorporation, the Board of
Directors has the authority, without further action by the stockholders, to
issue up to 50,000,000 shares of preferred stock in one or more series. Further,
the Board of Directors may fix the designations, preferences, rights and the
qualifications, limitations of restrictions on these shares, including:
- - dividend rights,
- - conversion rights,
- - voting rights,
- - terms of redemption, and
- - liquidation preferences.
Any or all of these rights may be greater than the rights of the common stock.
The Board of Directors, without stockholder approval, can issue preferred stock
with voting, conversion or other rights that could adversely affect the voting
power and other rights of the holders of common stock. Preferred stock could
thus be issued quickly with terms calculated to delay or prevent a change in
control of National Beauty or make removal of management more difficult.
Additionally, the issuance of preferred stock may have the effect of decreasing
the market price of the common stock, and may adversely affect the voting and
other rights of the holders of common stock.
National Beauty's Board of Directors has designated 40,000,000 shares of
convertible preferred stock as Series A Voting Convertible Preferred Stock of
which 750,000 shares are issued and outstanding. The Series A is senior to the
common stock and all other shares of preferred stock that may be later
authorized. The holders of the Series A shall be entitled to receive common
stock dividends or other distributions when, as, and if declared by the
directors of the company, with the holders of the common stock on an as
converted basis.
Each share of the Series A is convertible into common stock at the option of the
holder, at any time after the issuance of the shares, on an one for ten basis.
In the event of liquidation, dissolution or winding up of National Beauty, the
holders of the Series A shall be entitled to receive, prior to the holders of
common stock or other series of preferred stock, $1.00 per share, plus all
declared but unpaid dividends. The Series A is entitled to vote, on an as
converted basis, on any matter submitted to the common stock holders including
the election of the board of directors.
On August 29, 2002, National Beauty's Board of Directors designated 1,000 shares
of preferred stock as Series B 2% Convertible Preferred Stock, of which no
shares are currently issued and outstanding. The stated value of the preferred
stock is $1,000.00. The holders of the Series B are entitled to receive
dividends in cash or common stock at a rate of 2% per annum of the stated value
of the Series B. The Series B is convertible into common stock at any time
during a five-year period following the issuance date at a rate determined by
dividing the stated value of the shares by the conversion price. The conversion
price for each share of Series B shall be the lesser of $.40 or 125% of the
average of the closing bid prices per share of the common stock during the five
days immediately preceding closing.
The Series B ranks senior to the common stock and to all other shares of
preferred stock that may be later authorized. The Series B does not have a
right to vote with the holders of the company's common stock.
23
WARRANTS
National Beauty plans to issue one warrant for each share of common stock
purchased, exercisable for one share of common stock. Each warrant will have an
exercise price of $.25 per share and will expire within three years of issuance.
Each series of warrants will be evidenced by certificates issued under a
separate warrant agreement. The warrant agreement will be entered into between
National Beauty and the warrant agent.
The exercise price and number of shares of National Beauty common stock or
other securities issuable on exercise of the warrants are subject to adjustment
to protect against dilution if National Beauty:
- - issues a stock dividend, or
- - undertakes:
- - a stock split,
- - recapitalization,
- - reorganization,
- - merger,
- - consolidation, or
- - other similar event.
Before exercising their warrants, holders of warrants will not have any of
the rights of holders of the securities purchasable upon such exercise,
including:
- - the right to receive dividends, if any, or payments upon the liquidation,
dissolution or winding up of National Beauty, or
- - to exercise voting rights, if any.
TRANSFER AGENT
Florida Atlantic Stock Transfer, Inc. located in Tamarac, Florida serves as
the transfer agent for National Beauty.
EXPERTS
Perrella & Associates, P.A., independent auditors, have audited National
Beauty's financial statements included in its Annual Report on Form 10-KSB for
the year ended December 31, 2001.
Weed & Co. LLP, legal counsel to National Beauty, has expressed an opinion
concerning the validity of the securities being registered. Richard O. Weed of
Weed & Co. LLP owns 250,000 shares of restricted National Beauty common stock
and options to purchase 34,000 shares of National Beauty's common stock at an
exercise of $0.48 per share. These stock options expire on December 31, 2005.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities, other than the payment by National Beauty of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding, is asserted by such
director, officer or controlling person in connection with the securities being
registered, National Beauty will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
24
ORGANIZATION WITHIN LAST FIVE YEARS
See "Certain Relationships and Related Transactions."
DESCRIPTION OF BUSINESS
CORPORATE ORGANIZATION
National Beauty Corp., a Nevada corporation, was originally incorporated in
1987 as Tri-Capital Corporation. In 1988, the company changed its name to
Advanced Appearance of America, which operated beauty salons until 1990. At that
time, National Beauty discontinued its operations and went inactive until early
1998. In March of 1998, National Beauty changed its name to ATR Industries, Inc.
On June 1, 1998, National Beauty acquired ATR Industries, Inc. of Florida,
formerly known as Cleaning Express USA and Cleaning Express of South Palm Beach,
Inc., a private Florida corporation, for 3,000,000 restricted shares of common
stock. In September 1999, ATR Industries, Inc. changed its name to
Beautymerchant.com and in March 2001, the company changed its name to National
Beauty Corp.
National Beauty has operated primarily through its wholly owned
subsidiaries, Cleaning Express USA, Hairmax of Florida, Inc., f/k/a Beauty Works
USA, Inc., and Beautymerchant.com, Inc. Since 1998, National Beauty has
concentrated its operations primarily on the home cleaning services industry. In
January 2000, National Beauty began a new division of operations related to the
preparation, development and marketing of cosmetics and beauty products via an
e-commerce Internet site. These operations were conducted through National
Beauty's wholly owned subsidiary, Beautymerchant.com, Inc. In 2001, after a
developmental period, National Beauty ceased any further investment into
Beautymerchant.com Inc. because it had encountered numerous distribution and
inventory problems. Shortly thereafter, Beautymerchant.com, Inc. ceased all
operations. Presently, through its Hairmax of Florida, Inc. subsidiary, National
Beauty intends to operate a chain of haircutting stores, located inside or next
to major retailers.
Recently, on October 24, 2002, National Beauty Corp. closed under an Agreement
and Plan of Merger with Zzyzx Zzazx Zzozx, Inc., a Wyoming corporation ("ZZZI"),
whereby National Beauty acquired ZZZI in exchange for 1,000 shares of its common
stock and 750 shares of Series B 2% Convertible Preferred Stock. In accordance
with the terms of the merger, National Beauty will exchange all issued and
outstanding shares of common stock of ZZZI with company common stock on a one
for one basis, all issued and outstanding shares of ZZI preferred stock on a one
for one basis, and exchange a ZZZI warrant to purchase 3,000,000 shares of
common stock with a warrant to purchase 3,000,000 shares of National Beauty
common stock. In connection with these exchanges, the company placed in escrow
30,000,000 shares of common stock and 750 shares of Series B Preferred Stock to
cover the exchanges and conversion of the preferred shares. The company has not
issued any shares out of this escrow and therefore, does not consider these
shares to be outstanding.
25
DESCRIPTION OF BUSINESS
CLEANING EXPRESS USA
Cleaning Express USA's operations primarily involve home cleaning services.
Through its emphasis on budget pricing, Cleaning Express USA has developed a
market in the home cleaning industry. Cleaning Express USA currently operates
one office and dispatches 40-50 workers in teams of two workers on a daily
basis. The present geographic area in which the Cleaning Express USA operates
includes the Broward and South Palm Beach County areas of South Florida.
Marketing for the home cleaning services is accomplished through print ads,
television and radio commercials. Additionally, Cleaning Express USA utilizes a
referral program that rewards customers with future discounts for referring a
client.
The home cleaning industry is highly competitive with respect to price,
service, quality and location. There are numerous, well-established, larger
competitors in the home cleaning industry possessing substantially greater
financial, marketing, personnel and other resources than National Beauty.
National Beauty may not be able to respond to various competitive factors
affecting the business. National Beauty plans to gain a competitive advantage
over its competitors in the home cleaning industry by offering quality service
at a low price. National Beauty plans to further expand Cleaning Express USA's
operations in South Florida by continuing its current marketing strategy.
The primary market for Cleaning Express USA is individual households. No
single customer makes up more than ten percent of the total revenues of Cleaning
Express USA. National Beauty does not expect that this will change in the
future.
Cleaning Express USA has three full time employees and 40-50 workers that
are each independently contracted with the company to service and provide home
cleaning services to existing and new customers.
BEAUTYMERCHANT.COM, INC.
During January 2000, National Beauty, through its wholly owned subsidiary
Beautymerchant.com, Inc., a Florida corporation, developed a retail cosmetic and
beauty product e-commerce Internet site. Beautymerchant.com was developed under
the guidance of the CEO, Mr. Ed Roth. Beautymerchant.com sold and distributed
popular cosmetic, fragrances and beauty products.
In 2001, the company ceased any further investment into Beautymerchant.com
Inc. since it encountered numerous distribution and inventory problems. Shortly
thereafter, Beautymerchant.com Inc. ceased all operations.
BEAUTYWORKSUSA.COM AND TOYWORKSUSA.COM
Previously, the company was involved in the development of two websites,
BeautyworksUSA.com and ToyworksUSA.com. The Toyworks USA website established a
new shopping destination for toys, for children of all ages. The Beautyworks
USA site offered health and beauty products. Both of these Internet sites were
co-developed with a strategic partner that maintained the online stores and
handled all inventory and distribution, while the company handled all
advertising and marketing. The company ceased any involvement in these
operations in the first quarter of 2002 and decided to focus on its Cleaning USA
and Hairmax operations.
HAIRMAX OF FLORIDA, INC. F/K/A BEAUTYWORKS U.S.A., INC.
Hairmax of Florida, Inc. is designed to tap into the beauty industry
through its offering of personal care salons. Hairmax will aim to be both a
retailer and provider of such needed consumer services and provide a one-stop
resource for professional services on hair, with emphasis on haircutting and
related haircolor services, under the name HAIRMAX. Through this subsidiary,
National Beauty intends to roll out in stages a chain of 150 haircutting stores,
located inside or next to major discount retailers. These stores will offer
discount haircutting and styling services as well as tropical hair products.
Phase one of the roll out includes opening 30 stores in Florida. National
Beauty has already opened one store in Boca Raton, Florida and has signed a
lease on a second store located in Coral Springs, Florida next to value retailer
Big Lots, which operates over 2,000 stores across North America. After some
minor construction delays, the second store is expected to open within the next
ninety days.
Although National Beauty previously announced that it would open stores in
the North Carolina area within the next four to six months, due to stalled
negotiations with a major retailer, it plans to focus on opening stores in Las
Vegas, Nevada. National Beauty plans to open ten stores in Las Vegas, Nevada
area over the next two years, beginning with two stores in early spring 2003.
Last year, the company acquired the fixed assets only of the Boca Raton,
Florida beauty salon. The company financed the acquisition with a short-term
note with the unrelated seller in the amount of $15,000 at 8% interest per
annum. This note was paid in full last year. The company also assumed the lease
from the seller.
National Beauty intends to follow a cluster expansion plan by opening
several stores in a geographic area and then conducting a localized marketing
campaign with heavy discounts. Further plans include development of multiple
store locations in South Palm Beach, Dade County and Broward County, Florida, as
soon as appropriate locations are selected. National Beauty has retained the
services of Neal Realty and Development of Fort Lauderdale, Florida to search
for shopping center locations in Florida, as well as Lucchesi and Associates of
Las Vegas, Nevada to represent, find and negotiate suitable locations for
Hairmax in Southern Nevada.
The principal suppliers to the company are wholesale distributors who do
not sell retail. The beauty services industry is highly competitive with respect
to price, service, and location. As a result, the potential for failure in this
industry is significant. There are numerous, well-established, larger
competitors in the beauty services industry with considerable expertise,
possessing substantially greater financial, marketing, personnel and other
resources than National Beauty. Currently, Regis Corp. (NASDAQ:RGIS) has over
8,000 salon stores and is the only well-known publicly traded company.
26
YOURSALONAPPT.COM
Plans have been formulated to develop and market www.yoursalonappt.com, a
consumer to business application service provider. In the opinion of management,
this developmental information and interactive consumer to business portal, when
fully developed will assist thousands of hair, nail, and spa customers by
providing appointment services that have traditionally been made by telephone
during normal business hours. This application service provider will allow
customers access to appointment setters, 7 days a week, 24 hours a day,
regardless of normal business hours. In addition, consumers will have access to
information that will provide them with a registry and directory of national
salons and beauty spas. Initial development is expected to begin in the second
quarter of 2003, with projected completion later in the year. Risks and
uncertainties include, but are not limited to, consumer spending habits,
availability of funds for project completion, and general acceptance of new
technology functions in the beauty service industry. The primary market will be
the United States, but could be extended worldwide.
BUSINESS STRATEGY
National Beauty's objective is to become a leading provider of beauty
services. Through its subsidiaries, National Beauty will attempt to:
- - Build its customer base by serving as a one-stop provider for discounted
haircutting and styling, along with hair coloring services;
- - Enhancing its brand name reputation by offering convenient, competitive
pricing and participation in special promotions; and
- - Expanding its business concept by continuing to develop "HAIRMAX" a newly
developed concept, conceived after 12 months of research and development in the
hair services industry, focused on quality haircutting and coloring services,
and offering them in a convenient high traffic location, such as a large
retailer, at below market prices, using a strategy of aggressive marketing.
National Beauty plans help enhance and brand its operations by:
- - Billboard, radio, television and newspaper advertising;
- - Offering free samples of hair products;
- - Attempting to open 25 new stores in early 2003.
- - Seeking to enter into marketing relationships with national advertising
agencies to establish concept branding strategies;
- - Attempting to market its concepts, "Max service" and "Max value", on a
national basis.
- - Establish strategic relationships with large retailers and expand the
"store in store" concept.
Hairmax of Florida, Inc. is presently the operations holding company for
salon operations in Florida.
Hairmax of Florida, Inc. presently employs nine full time employees, and
National Beauty plans to add at least 24 new employees during the next twelve
months to supervise and administer its retail operations. The three corporate
office employees presently on staff will manage new employees.
National Beauty has filed a trademark application on the HAIRMAX name and
logo.
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Introduction
National Beauty Corp., formerly known as Beautymerchant.com, Inc., was
incorporated in Nevada in 1987. The company has primarily operated through its
wholly owned subsidiaries, Cleaning Express USA, Hairmax of Florida, Inc. f/k/a
Beauty Works USA, Inc. and Beauty Merchant, Inc. Cleaning Express USA is a full
service cleaning company offering daily residential cleaning services, carpet
cleaning and other related services in the South Florida area. During April
2000, the company began operations as an e-commerce distributor of beauty
products under its Beauty Merchant, Inc. subsidiary and ceased these operations
in 2001. National Beauty currently offers beauty services and products though
its retail beauty salon in the South Florida area through its Hairmax of
Florida, Inc. subsidiary. National Beauty intends to operate a chain of
haircutting stores, located inside or next to major retailers, through Hairmax.
Results of Operations
The Three and Nine Months Ended September 30, 2002 compared to the Three and
Nine Months Ended September 30, 2001
Net Income/Losses
The company had a net losses of $67,584 and $343,309, or $.01 and $.09 per
common share, for the three months and nine months ended September 30, 2002,
respectively, versus net losses of $22,083 and $118,995, or $.07 and $.76 for
the same periods ended September 30, 2001. The change in net loss was primarily
due to an increase in common shares issued for professional services rendered
and salaries for officers which were paid through the issuances of common stock.
28
Sales
Revenues decreased $14,490 or 11% to $120,546 for the three months ended
September 30, 2002 as compared with $135,036 for the three months ended
September 30, 2001. However, revenues have increased $79,501, or 24%, to
$404,852 for the nine months ended September 30, 2002 as compared with $325,351
for the nine months ended September 30, 2001. The decrease in revenues for the
quarter was primarily due a decline in cleaning division sales compared to the
comparable period in 2001, however, National Beauty's revenues for the first
nine months of the year have increased due to National Beauty's new Hairmax
salon. Average selling prices and gross margins remained fairly constant. To
distinguish the cleaning services segment from beauty supply, the company
generated sales of $76,662 and $43,884 during the three months ended September
30, 2002 from those segments, respectively. Cost of sales and related gross
profit were generally the same as the year ended December 31, 2001. The CEO
reviewing the general ledger and check registers on a timely basis measures
segment performance. Product sales are immaterial to beauty salon sales, taken
as a whole. The company estimates that no more than 5% of above mentioned beauty
sales is product related.
Expenses
Selling, general, and administrative expenses for the three and nine months
ended September 30, 2002 were $127,630 and $550,775 as compared with $79,405 and
$183,755 for the same period in 2001, an increase of $48,225 and $367,020,
respectively. In comparison with the three-month period ended September 30,
2001, consulting and payroll increased by $44,980 due to professional services
and salaries for officers in the third quarter of 2002. There were 346,000
shares issued to consultants and an officer in the third quarter of 2002. The
shares were priced and recorded at 13 cents per share representing the closing
stock price on the dates of issuances.
The unrealized loss on securities in the prior period of 2001 is a result
of a write down in the fair value of the securities during the respective
periods. As to trading losses, marketable securities include the company's
investment in equity securities recorded at fair market value. The marketable
securities were classified as trading securities with holding gains and losses
recognized in current period operations. Since the stock is restricted, there
are no controls to limit the losses in those securities. Ed Roth, CEO, keeps the
certificates in safe keeping under lock and key as an internal control over
safeguarding of the corporate asset. Management's intent is to add value to
shareholders by trying to sell the securities at the most desirable amount
without affecting the stock price in an illiquid stock position. These stocks do
not trade much and are highly illiquid.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Sales
Sales for the year ended December 31, 2001 increased to $431,810 from
$340,413 for the year ended December 31, 2000, an increase of 27%. The increase
in revenues was primarily attributable to an increase in the revenues from
Beautyworks U.S.A., Inc., the Boca Raton beauty salon subsidiary, somewhat
offset by revenues earned by the Cleaning Express USA subsidiary.
Net sales from the home cleaning segment have accounted for
approximately 64% of total net sales in 2001 and 90% of the net sales in 2000.
National Beauty plans to accelerate growth of beauty salon sales in 2002 by
increasing expenditures on marketing and growing public awareness of services.
The cleaning services and beauty salon segments generated $281,124 and
$150,686, respectively, for the years ended December 31, 2001 and December 31,
2000, respectively. The CEO reviewing the general ledger and check registers on
a timely basis measures segment performance. The residential cleaning and beauty
salon segments generated 34.8% and 35.1% and 38.1% and 0% profit margins,
respectively, for the years ended December 31, 2001 and December 31, 2000.
Product sales are immaterial to beauty salon sales, taken as a whole. The
company estimates that no more than 5% of above mentioned beauty sales is
product related.
29
The percentage of revenues generated from the BeautyWorks segment in 2001
and 2000 was 35% and 0%, respectively. The reason for the increase in the
BeautyWorks segment for 2001 is that the store was operational for a longer time
in 2001 due to the acquisition the assets of the Boca Raton salon occurring in
2001. The decrease in the home cleaning segment in 2001 was due to the time
devoted to the salon in 2001 which detracted from the focus on home cleaning
sales.
Income / Losses
Net losses for the year ended December 31, 2001 decreased to $257,044
from $794,306 for the year ended December 31, 2000, a decrease of 68%. The
substantial decrease in losses was attributable primarily to a decrease in
non-cash expenses relating to payroll expenses and consulting services, which
were $387,346 and $96,097 for 2000, respectively, compared to $42,519 in payroll
expenses for 2001. The $9,156 loss from discontinued operations for the year
ended December 31, 2001 was from the termination of the Internet operations of
the BeautyMerchant, Inc. subsidiary.
The unrealized loss on trading securities was a major part of the
overall net loss of the company due to the significant decline in values
thereof. The marketable securities on hand at end of year were comprised of
illiquid OTC companies that have little operating history. Management does not
plan to continue to trade in these type of securities in the future. The
potential impact forward is a write down and related loss of $1,743, or the fair
value at year end. National Beauty expects to continue to incur losses
at least through fiscal 2002 and may not be able to achieve or maintain
profitability or sustain its revenue growth in the future.
Expenses
Selling, general and administrative expenses for the year ended
December 31, 2001 decreased to $336,240 from $816,126 for the year ended
December 31, 2000, a decrease of 59%. The decrease in selling, general and
administrative expenses was the result of significant decreases in payroll
expenses and consulting fees that were $387,346 and $96,097, respectively.
Decreases in payroll and consulting fees in 2001 is attributable to fewer stock
issuances to management and consultants which required less of an accounting
charge in 2001. Depreciation and amortization expenses for the years
ended December 31, 2001 and December 31, 2000 were $3,017 and $3,800,
respectively. The decrease was due to differences in accelerated depreciation
percentages between the year 2001 and the year 2000.
National Beauty has attempted to reduce rent expenses by closing one of the
two cleaning offices in 2001 and consolidating operations in the other Fort
Lauderdale office. This reduces overhead expenses by a projected 10% for the
coming year. In addition, the company has taken steps to change daily operations
of Cleaning Express USA, projecting a savings of 5-10% over the new year.
Specifically, National Beauty is anticipating a lower labor cost associated with
its cleaning services and nominal web site maintenance leading into 2002.
National Beauty expects increases in overall expenses through 2002 as
it moves toward increasing development and marketing of its Hairmax of Florida
subsidiary, developing the HAIRMAX concept, and development of beauty salons.
30
Cost of Sales
The cost of sales for the year ended December 31, 2001 was a loss of
$275,974 compared to a loss of $221,268 for the year ended December 31, 2000.
The increase in the cost of sales was primarily attributable to an increase in
cleaning and beauty salon sales. Cost of sales as a percentage of sales for
December 31, 2001 and 2000 was 65% and 69%, respectively.
The largest factor in the variation from year to year in the cost of
sales as a percentage of net sales was the cost of labor.
Impact of Inflation
National Beauty believes that inflation has had a negligible effect on
operations over the past two years. National Beauty believes that it can offset
inflationary increases in the cost of labor by increasing sales and improving
operating efficiencies.
Trends, Events, and Uncertainties
Demand for National Beauty's home cleaning services and beauty salon
services will be dependent on, among other things, market acceptance of National
Beauty's concept and general economic conditions, which are cyclical in nature.
Inasmuch as a major portion of National Beauty's activities is the receipt of
revenues from the sales of its products, National Beauty's business operations
may be adversely affected by National Beauty's competitors and prolonged
recessionary periods.
31
Liquidity and Capital Resources
Nine Months Ended September 30, 2002 Compared to the Nine Months Ended September
30, 2001
On September 30, 2002, National Beauty had cash in the amount of $6,983 and
working capital of $8,162. This compares with cash in the amount of $11,001 and
working capital of $89,140 at December 31, 2001. The decrease in working capital
was due to a decrease in cash and expiration of prepaid consulting fees. The
company has a $25,000 shareholder loan payable to an officer, which was repaid
subsequent to September 30, 2002. The loan was made to the company to purchase
assets and inventory for its new Hairmax salon.
Net cash used in operating activities was $8,022 for the nine months ended
September 30, 2002 as compared with net cash used in operating activities of
$23,226 for the same period ended September 30, 2001. The decrease in cash used
was primarily attributable to an increase in net loss for the 2002 period.
Net cash used in investing activities was $18,683 for the nine months ended
September 30, 2002 as compared with net cash used in investing activities of
$4,395 for the period ended September 30, 2001. The use of cash for the period
ended September 30, 2002 and 2001 was for salon equipment expenditures in both
periods.
Net cash provided by financing activities totaled $22,687 for the nine
months ended September 30, 2002 as compared with net cash used in financing
activities of $7,807 for the nine months ended September 30, 2001. The increase
in net cash provided by financing activities was primarily due to the proceeds
of the aforementioned shareholder loan during the third quarter of 2002.
Subsequent to the quarter ended September 30, 2002, 30,000,000 common
shares and 750 shares of Series B 2% Preferred Stock were placed in escrow for
the merger with Zzyzx Zzazx Zzozx, Inc. The shares will be issued in exchange
for common stock, preferred stock and a warrant held by the Zzyzx shareholders.
The company has not issued any shares out of this escrow account and therefore,
does not consider the shares to be outstanding.
32
Years Ended December 31, 2001 and December 31, 2000
Cash flows used in operations were a negative $43,038 for the year
ended December 31, 2001, and a negative $293,498 for the year ended December 31,
2000. Negative cash flows from operating activities for the years ended December
31, 2001 and 2000 are primarily attributable to losses from operations,
partially offset by the common stock issued for services in both years and an
unrealized loss on trading securities in 2001.
Cash flows from investing activities were $3,497 for the year ended
December 31, 2001 and a negative $1,565 for the same period in 2000. The
negative cash flows were primarily attributable to new equipment purchases
during 2001 and 2000.
Cash flows used in financing activities were a negative $15,649 for
the year ended December 31, 2001 and cash flows generated from financing
activities were $239,826 for the year ended December 31, 2000. The negative cash
flows in 2001 pertained to repayments on a note payable and capitalized lease
obligation. The positive cash flows in 2000 were primarily due to the private
placement of common stock sold during 2000 less the effects of repayments on a
capitalized lease obligation.
National Beauty has funded its cash needs from inception through
December 31, 2001 with a series of equity transactions totaling $555,889,
including private placements. During the year ended December 31, 2000, National
Beauty collected aggregate proceeds from unrelated investors of $240,326 under a
limited Regulation D private placement.
During October 2000, National Beauty signed an agreement with Standart
Capital, S.A., Inc. of West Palm Beach, Florida, an investment-banking firm, to
assist in a private placement stock offering for National Beauty. Under the
terms of the agreement, Standart Capital, S.A. agreed to use its best efforts to
locate funding for National Beauty between $500,000 and $3 million within the
next 24 months. No funds were raised for National Beauty and ultimately, the
company terminated this agreement.
Web site development costs paid to the web designer for development,
marketing and advertisements for Beautymerchant.com were approximately $27,000
during the year 2000. In 2001, because of numerous distribution and inventory
problems, after a developmental period, National Beauty ceased any further
investment into Beautymerchant.com Inc.
On a long-term basis, liquidity is dependent on continuation and
expansion of operations, receipt of revenues, additional infusions of capital
and debt financing. National Beauty is considering launching a wide scale
marketing and advertising campaign. The current capital and revenues are not
sufficient to fund such a campaign. If National Beauty chooses to launch such a
campaign, it will require substantially more capital. If necessary, National
Beauty plans to raise this capital through an additional follow-on stock
offering. The funds raised from this offering will be used primarily to develop
beauty salons. However, National Beauty may not be able to obtain additional
equity or debt financing in the future, if at all. If National Beauty is unable
to raise additional capital, the growth potential will be adversely affected.
Additionally, National Beauty will have to significantly modify its plans. The
company does not have any credit facilities available or commitments from third
parties, officers or directors to provide the company loans or advances.
33
Financing activities for the years ended December 31, 2001 and 2000
consisted of principal repayments under the company's capitalized lease
obligation on its office equipment. Principal repayments under the capitalized
lease obligation for the years ended December 31, 2001 and 2000 were $2,313 and
$2,500, respectively. Principal repayments of the note payable balance were made
in the amount of $15,000 in 2001. This debt was paid in full on August 31,
2002.
Commitments
National Beauty is committed to two employment agreements through April 1,
2007. Pursuant to the agreements, Edward and Alisha Roth, two of the company's
officers and majority shareholders shall receive total combined annual salaries
of $325,000 and a combined 300,000 preferred shares per annum.
Critical Accounting Policies
The company abided by FR-60. In that, management and the auditor have
communicated properly and proper disclosures were made in the financial
statements. Management has also ensured that disclosure in the M,D&A is balanced
and fully responsive. The company's audit committee properly reviewed the
selection, application and disclosure of critical accounting policies in
accordance with GAAP. All parties made proper consultations of the company's SEC
concurring reviewer regarding the application of GAAP principles.
DESCRIPTION OF PROPERTY
National Beauty leases its executive offices at 4810 West Commercial Blvd.,
Tamarac, Florida 33319, an 1,000 square foot administrative office space. The
lease expires on June 30, 2005, with an option to renew until June 30, 2007.
Payments on the lease are as follows:
From 7/1/02 to 6/30/03 ($1,100.00 per month)
From 7/1/03 to 6/30/04 ($1,200.00per month)
From 7/1/04 to 6/30/05 ($1,300.00 per month)
From 7/1/05 to 6/30/06 ($1,400.00 per month)
From 7/1/06 to 6/30/07 ($1,500.00 per month)
Cleaning Express USA, Inc. and Hairmax of Florida, Inc. share the corporate
office with National Beauty.
National Beauty also leases its beauty salon facility of 1,200 square feet
at the Del Mar Shopping Village, located at Powerline Road at Palmetto Park
Road, Boca Raton, Florida, for $3,100 per month. This lease expires September
30, 2005.
On August 2, 2002, National Beauty entered into a lease for its Coral
Springs, Florida beauty salon. The salon is approximately 900 feet and is
located at 2031 N. University Drive, Coral Springs, Florida. The lease
obligation is $2,226.00 per month or $26,712.00 annually. The lease expires
November 30, 2007, with an option to renew for an additional two years.
Management of National Beauty considers these facilities to be adequate for
its requirements for the immediate future.
34
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
1,000,000 preferred shares were issued to Edward and Alisha Roth in
February 1999 in exchange for an $8,000 shareholder promissory note receivable.
Accordingly, these shares were issued at $.008 per share. Mr. and Ms. Roth
converted 50,000 preferred shares into 500,000 common shares and 200,000
preferred shares into 2,000,000 common shares in 2001 and 2002, respectively.
Mr. Roth and Ms. Roth, officers and directors of the company, own 66% of the
outstanding common stock of National Beauty.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The principal market in which National Beauty's common stock is traded
is the Over-the-Counter Bulletin Board. The table below presents the high and
low bid price for the Company's common stock each quarter during the past two
years and reflects inter-dealer prices, without retail markup, markdown, or
commission, and may not represent actual transactions. National Beauty obtained
the following information from Lexis.com, an online source that publishes
historical price information.
Bid *
-----
Quarter Ended Low High
--- ----
03/31/00 $ .94 $1.81
06/30/00 .38 1.43
09/30/00 .21 .43
12/31/00 .07 .41
03/31/01 .07 .47
06/30/01 .05 .24
09/30/01 .04 6.55
12/31/01 .36 1.60
03/31/02 .25 .70
06/30/02 .13 .29
09/30/02 .10 .16
* Adjusted to reflect the 200:1 reverse stock split that occurred in the quarter
ended September 30, 2001
(b) Holders. The approximate number of holders of record of National
Beauty's common stock as of November 5, 2002 was 37.
(c) National Beauty has not paid dividends from inception to date and does
not currently intend to do so.
35
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth in summary form the compensation received
during each of the National Beauty's last three completed fiscal years by the
Chief Executive Officer and President of National Beauty. No executive officer
of National Beauty, including the Chief Executive Officer and President,
received total salary and bonus exceeding $100,000 during any of the last three
fiscal years.
Restricted Stock
Other Awards/Stock LTIP Restricted
Name and. . . Fiscal Annual Compen- Underlying Pay- Stock
Position. . . Year Salary Bonuses sation Options/SARs Outs Bonuses
- ------------- ----------------- -------------- -------- ---------- ---------------- ----- -------
(1) (2) (3) (5)
2001 $ 65,000 -0- -0- -0 -0- -0-
Edward A. . . 2000 $ 233,121 -0- -0- -0- -0- -0-
Roth, CEO and
President . . 1999 $ 43,215 -0- -0- 1,250 shares(4)- -0- -0-
- ------------- ----------------- -------------- -------- ---------- ---------------- ----- -------
2001 $ 15,000 -0- -0- 25,000 shares -0- -0-
(4)-
Michael J.. . 2000 $ 46,800 -0- -0- -0- -0- -0-
Bongiovanni,
CFO . . . . . 1999 $ -0- -0- -0- -0- -0- -0-
- ------------- ----------------- -------------- -------- ---------- ---------------- ----- -------
2001 $ -0- -0- -0- 0- -0- -0-
Alisha Roth,. 2000 $ 60,000 -0- -0- -0- -0- -0-
Secretary,
Treasurer . . 1999 $ -0- -0- -0- 300 shares(4)- -0- -0-
- ------------- ----------------- -------------- -------- ---------- ---------------- ----- -------
(1) The dollar value of base salary, cash and non-cash, received.
(2) The dollar value of bonus, cash and non-cash, received.
(3) During the periods covered by the summary compensation table, National
Beauty did not pay any other annual compensation not properly categorized as
salary or bonus, including perquisites and other personal benefits, securities
or property.
(4) Issuances of restricted stock for services rendered. These issuances
were valued at the then average bid-ask price.
(5) No other compensation
36
Compensation of Directors
National Beauty pays its non-employee directors' 1,000 shares of the
company's restricted common stock per year for Directors' meetings attended. It
is anticipated that no more than twelve meetings will occur each year. Employee
directors are not compensated for services rendered as directors of the company.
Employment Contracts and Termination of Employment and Change-In Control
Arrangements
In December 2001, the board approved an employment agreement with Michael
Bongiovanni, the company's Chief Financial Officer, for a term extending from
December 18, 2001 until April 5, 2003. Mr. Bongiovanni is to be compensated in
the amount of $50,000 for services rendered during the term of this contract,
payable in the company's common stock, registered on Form S-8.
On April 1, 2002, the board approved a five year employment agreement with
Edward Roth, President and CEO, whereby Mr. Roth would be compensated with an
annual salary of $250,000 and 250,000 shares of preferred stock per annum.
On April 1, 2002, the board approved a five year employment agreement with
Alisha Roth, Vice President, whereby Ms. Roth would be compensated with an
annual salary of $75,000 and 50,000 shares of preferred stock per annum.
2002 Non-Qualified Stock Compensation Plan
- ----------------------------------------------
The Board of Directors of National Beauty adopted the 2002 Non-Qualified
Stock Compensation Plan in December 2001. Under the Stock Plan, 1,000,000 shares
of National Beauty's common stock, subject to adjustments, are reserved for
issuance upon the exercise of options or restricted stock grants. There are
currently 600,000 shares issued under the plan. Options granted under the Stock
Plan may be either (a) options intended to constitute incentive stock options
under Section 422 of the Internal Revenue Code of 1986 or (b) nonqualified stock
options. Incentive stock options may be granted under the Stock Plan to
employees, including officers and directors who are employees, of the Company on
the date of grant. Nonqualified options may be granted to (a) officers and
directors of National Beauty on the date of the grant, without regard to whether
they are employees, and (b) consultants, advisors, agents or independent
representatives of National Beauty.
By its terms, the Stock Plan is to be administered by a committee appointed by
the board of directors which shall consist of either the entire board of
directors, or by a committee of three or more persons, who must be directors,
all of whom must be disinterested persons and who serve at the discretion of the
board of directors. Subject to the provisions of the Stock Plan, the committee
has the authority to determine the persons to whom restricted stock or options
will be granted, the exercise price, the term during which options may be
exercised and other terms and conditions as it deems appropriate.
Incentive stock options granted under the Stock Plan may not have an
exercise price less than the fair market value of the common stock on the date
of the grant, i.e. 110% of the fair market value in the case of employees
holding ten percent or more of the voting stock of National Beauty. Options
granted under the Stock Plan will expire not more than ten years from the date
of the grant, five years in the case of incentive options of employees holding
ten percent or more of the voting stock of National Beauty, subject to earlier
termination under the Stock Plan. Optionees under the Stock Plan may exercise
their options by paying cash, by using the cashless exercise procedure allowed
under Federal Reserve Regulation T or by tendering shares of National Beauty's
common stock that they already own.
37
FINANCIAL STATEMENTS
--------
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
NATIONAL BEAUTY CORP. (FKA BEAUTYMERCHANT, INC.)
& SUBSIDIARIES
DECEMBER 31, 2001
--------
PERRELLA & ASSOCIATES, P.A.
---------------------------
Certified Public Accountants
38
CONTENTS
====================================================================
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED BALANCE SHEET 2-3
CONSOLIDATED STATEMENTS OF OPERATIONS 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5-6
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8-16
====================================================================
39
Perrella & Associates, P.A.
555 S. POWERLINE ROAD
POMPANO BEACH, FLORIDA 33069
(954) 979-5353 OFFICE
(954) 979-6695 FAX
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders:
NATIONAL BEAUTY CORP. (FKA Beautymerchant, Inc.)
4818 West Commercial Boulevard
Fort Lauderdale, Florida 33319
We have audited the accompanying consolidated balance sheet of National Beauty
Corp. (FKA Beautymerchant, Inc., a Nevada corporation) and its wholly owned
subsidiaries as of December 31, 2001 and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years ended December
31, 2001 and 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
National Beauty Corp. (a Nevada corporation) and its wholly-owned subsidiaries
as of December 31, 2001, and the consolidated results of its operations and its
cash flows for the years ended December 31, 2001 and 2000 in conformity with
accounting principles generally accepted in the United States of America.
/s/ Perrella & Associates, P.A.
Perrella & Associates, P.A.
Pompano Beach, FL
March 15, 2002
40
NATIONAL BEAUTY CORP. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
--------------------------
December 31, 2001
ASSETS
---------
CURRENT ASSETS
- --------------------------------
Cash . . . . . . . . . . . . . $ 11,001
Accounts receivable. . . . . . 903
Marketable securities. . . . . . 1,743
Inventory. . . . . . . . . . . . 1,700
Prepaid expenses . . . . . . . 90,000
---------
TOTAL CURRENT ASSETS . . . . 105,347
---------
PROPERTY AND EQUIPMENT
- --------------------------------
Furniture. . . . . . . . . . . 21,616
Leasehold improvements . . . . 3,500
Equipment. . . . . . . . . . . 34,985
Accumulated depreciation . . . (35,361)
---------
NET PROPERTY AND EQUIPMENT 24,740
---------
OTHER ASSETS
- --------------------------------
Deposits . . . . . . . . . . . 6,656
---------
TOTAL OTHER ASSETS . . . . . 6,656
---------
TOTAL ASSETS . . . . . . . $136,743
==========
The accompanying notes are an integral part of these consolidated financial
statements.
41
NATIONAL BEAUTY CORP. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
December 31, 2001
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- ------------------------------------------------
Accounts payable and accrued expenses. . . . . $ 2,230
Outstanding checks in excess of bank balance . 11,664
Current portion of capitalized
lease obligation. . . . . . . . . . . . . . . . 2,313
------------
TOTAL CURRENT LIABILITIES. . . . . . . . . . 16,207
------------
COMMITMENTS - NOTES F and G
- ------------------------------------------------
STOCKHOLDERS' EQUITY
- ------------------------------------------------
Convertible preferred stock ($.001 par value;
50,000,000 shares authorized, 950,000
shares issued and outstanding) . . . . . . . . 950
Common stock ($.001 par value; 100,000,000
shares authorized, 1,466,362 shares issued
and outstanding). . . . . . . . . . . . . . 1,466
Additional paid-in-capital . . . . . . . . . . . 1,402,450
Retained deficit . . . . . . . . . . . . . . . (1,284,330)
------------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . 120,536
------------
$136,743
============
The accompanying notes are an integral part of these consolidated financial
statements.
42
NATIONAL BEAUTY CORP. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
For the Years Ended December 31, 2001 and 2000
2001 2000
REVENUES:
- ----------------------------------------------------
Sales. . . . . . . . . . . . . . . . . . . . . . . $ 431,810 $ 340,413
Cost of Sales. . . . . . . . . . . . . . . . . . . (275,974) (221,268)
---------- ----------
Gross profit . . . . . . . . . . . . . . . . . . . 155,836 119,145
---------- ----------
EXPENSES:
- ----------------------------------------------------
Selling, general and administrative. . . . . . . . 336,240 816,126
---------- ----------
Total expenses . . . . . . . . . . . . . . . . . . 336,240 816,126
---------- ----------
Loss from operations . . . . . . . . . . . . . . . (180,404) (696,981)
---------- ----------
OTHER EXPENSES:
- ----------------------------------------------------
Unrealized Loss on Trading Securities. . . . . . . (66,257) -0-
Interest Expense. . . . . . . . . . . . . . . . . (1,227) (1,040)
---------- ----------
Total Other Expenses . . . . . . . . . . . . . . . (67,484) (1,040)
---------- ----------
Loss from continuing operations. . . . . . . . . . (247,888) (698,021)
Net loss from discontinued operations. . . . . . . (9,156) (96,285)
---------- ----------
NET LOSS . . . . . . . . . . . . . . . . . . . . $(257,044) $(794,306)
========== ==========
Basic and fully diluted net loss per common share:
Continuing operations. . . . . . . . . . . . . . $ (.55) $ (10.84)
Discontinued operations. . . . . . . . . . . . . (.02) (1.50)
---------- ----------
Basic and fully diluted net loss per common share $ (.57) $ (12.34)
========== ==========
Weighted average common shares . . . . . . . . . . . 448,016 64,379
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
43
NATIONAL BEAUTY CORP. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
For the Years Ended December 31, 2001 and 2000
2001 2000
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
- --------------------------------------------------
Net loss . . . . . . . . . . . . . . . . . . . . $(257,044) $(794,306)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation . . . . . . . . . . . . . . . . . . 3,017 3,800
Common stock issued in exchange for services . . 235,044 103,908
Unrealized loss on trading securities. . . . . . 66,257 -0-
(Increase) decrease in operating assets:
Accounts receivable . . . . . . . . . . . . . . 781 3,700
Inventory . . . . . . . . . . . . . . . . . . 1,863 979
Prepaid expenses. . . . . . . . . . . . . . . . (90,000) 393,121
Deposits. . . . . . . . . . . . . . . . . . . . (2,956) -0-
(Decrease) in operating liabilities:
Accounts payable & accrued expenses . . . . . . -0- (4,700)
---------- ----------
NET CASH USED IN
OPERATING ACTIVITIES . . . . . . . . . . . . . (43,038) (293,498)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
- --------------------------------------------------
Purchases of property and equipment. . . . . . . . (4,395) (1,565)
Shareholder loan receivable. . . . . . . . . . . . 7,892 -0-
---------- ----------
NET CASH USED IN
INVESTING ACTIVITIES . . . . . . . . . . . . . 3,497 (1,565)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
- --------------------------------------------------
Proceeds from common stock issuances/subscriptions -0- 242,326
Repayment of note payable. . . . . . . . . . . . . (15,000) -0-
Principal repayments under capital lease . . . . . (2,313) (2,500)
Outstanding checks in excess of bank balance . . . 1,664 -0-
---------- ----------
NET CASH PROVIDED BY (USED
IN) FINANCING ACTIVITIES . . . . . . . . . . . $ (15,649) $ 239,826
---------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
44
NATIONAL BEAUTY CORP. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONT.)
For the Years Ended December 31, 2001 and 2000
==============================================
2001 2000
--------- ---------
NET (DECREASE) IN CASH
AND CASH EQUIVALENTS . . . . . . . . . . . $(45,190) $(55,237)
Cash and cash equivalents, beginning of year 56,191 111,428
--------- ---------
CASH AND CASH EQUIVALENTS,
END OF YEAR. . . . . . . . . . . . . . . . $ 11,001 $ 56,191
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
- --------------------------------------
Supplemental disclosures of cash flow information for the year ended December 31, 2001 and 2000 is summarized
as follows:
Cash paid during the year for:
2001 2000
----- ----
Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . $ -0- $ -0-
============================== ========
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,227 $ 1,040
============================== ========
NON-CASH FINANCING ACTIVITES:
- -------------------------------------------------------------------
Assumption of note payable with acquisition . . . . . . . . . . . . $ 15,000 $ -0-
============================== ========
Common stock issued to officers for services,
charged to prepaid expenses . . . . . . . . . . . . . . . . . . . $ 28,500 $ -0-
============================== ========
Common stock issued to others for
services, charged to prepaid expenses . . . . . . . . . . . . . . $ 61,500 $ -0-
============================== ========
Common stock issued to officers for other services. . . . . . . . . $ 25,044 $103,908
============================== ========
Common stock issued to others for other services. . . . . . . . . . $ 120,000 $ -0-
============================== ========
Common stock issued in exchange for marketable securities $-0- $ 68,000
============================== ========
Retirement of common stock. . . . . . . . . . . . . . . . . . . . . $ -0- $359,667
============================== ========
The accompanying notes are an integral part of these consolidated financial
statements.
45
- ------
NATIONAL BEAUTY CORP. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
For the Years Ended December 31, 2001 and 2000
Convertible Common Additional
Common Stock Preferred Stock Stock Subscriptions Paid-in
Shares Amount Shares Amount Subscribed Receivable Capital
------------------------------------------------------------------------------
Balances, January 1, 2000* . . . . . . . . . . . 58,843 $ 59 1,000,000 $1,000 $ 17 $(671,637) $1,425,709
Common stock issued for services . . . . . . . . 741 -0- -0- -0- -0- -0- 103,908
Proceeds from common stock subscriptions . . . . 5,508 6 -0- -0- (6) 242,326 -0-
Common stock exchanged for marketable securities 1,545 2 -0- -0- (2) 68,000 -0-
Retirement of shares during the year . . . . . . (8,212) (9) -0- -0- (9) 361,311 (361,303)
Net loss for the year. . . . . . . . . . . . . . -0- -0- -0- -0- -0- -0- -0-
Balances, December 31, 2000. . . . . . . . . . . 58,425 $ 58 1,000,000 $1,000 -0- -0- $1,168,314
---------- ------- ---------- ------- --------- ---------- -----------
Common stock issued for services . . . . . . . . 907,937 908 -0- -0- -0- -0- 234,136
Conversion of preferred shares into
common shares by officers. . . . . . . . . . . . 500,000 500 (50,000) (50) -0- -0- -0-
Net loss for the year. . . . . . . . . . . . . . -0- -0- -0- -0- -0- -0- -0-
Balances, December 31, 2001. . . . . . . . . . . 1,466,362 $1,466 950,000 $ 950 -0- -0- $1,402,450
---------- ------- ---------- ------- --------- ---------- -----------
*Includes retroactive adjustments
due to stock split.
Retained
Deficit
------------
Balances, January 1, 2000* . . . . . . . . . . . $ (232,980)
Common stock issued for services -0-
Proceeds from common stock subscriptions . . . . -0-
Common stock exchanged for marketable securities -0-
Retirement of shares during the year . . . . . . -0-
Net loss for the year. . . . . . . . . . . . . . (794,306)
Balances, December 31, 2000. . . . . . . . . . . $(1,027,286)
------------
Common stock issued for services . . . . . . . . -0-
Conversion of preferred shares into
common shares by officers. . . . . . . . . . . . -0-
Net loss for the year. . . . . . . . . . . . . . (257,044)
Balances, December 31, 2001. . . . . . . . . . . $(1,284,330)
------------
*Includes retroactive adjustments
due to stock split.
The accompanying notes are an integral part of these consolidated financial
statements.
46
NATIONAL BEAUTY CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2001 and 2000
==============================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Business Activity - National Beauty Corp. (formerly known as Beautymerchant.com,
- -----------------
Inc.) (a Nevada corporation) legally changed its corporate name in 2001 and was
also formerly known as ATR Industries, Inc., a Nevada corporation, which was
incorporated in 1987.
These financial statements include its wholly owned subsidiaries, Cleaning
Express USA, Beauty Works USA, Inc. and Beauty Merchant, Inc. The company is a
full service cleaning company offering daily residential cleaning services,
carpet cleaning and other related services in the South Florida area under the
name of Cleaning Express USA. During April 2000, the Company began operations as
an E-commerce distributor of beauty products under its Beauty Merchant, Inc.
subsidiary and ceased these operations in 2001. The Company currently offers
beauty services and products though its retail beauty salon in the South Florida
area under its Beauty Works USA, Inc. subsidiary.
During the year ended December 31, 2001, the Company enacted a 200 for 1 reverse
stock split on its common stock. All common stock amounts in the accompanying
financial statements have been retroactively restated to reflect this
capitalization change.
Accounts Receivable - Accounts receivable are charged to bad debt expense as
- --------------------
they are deemed uncollectible based upon a periodic review of the accounts. The
Company performs ongoing credit reviews of its customer accounts.
Property and Equipment - Property and Equipment are recorded at cost.
- ------------------------
Maintenance and repair costs are expensed as incurred. Depreciation is provided
using the straight-line method and other methods that approximate the
straight-line method. It is calculated over recovery periods as prescribed by
management which range from 5 years for equipment to 7 years for furniture.
Leasehold improvements are amortized over the terms of the office operating
leases.
When an asset is disposed of, its cost and related accumulated depreciation are
removed from the accounts. The difference between undepreciated cost and
proceeds from disposition is recorded as gain or loss.
The Company makes ongoing evaluations of the values of its assets to determine
whether an impairment write-down should be recognized in accordance with SFAS
No. 144. To date, no such impairment write-down has been deemed necessary.
47
NATIONAL BEAUTY CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2001 and 2000
==============================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
- -----------------------------------------------------------
Marketable Securities - Marketable securities include the Company's investment
- ----------------------
in equity securities recorded at fair market value. The marketable securities
were classified as trading securities with holding gains and losses recognized
in current period operations.
Cash and Cash Equivalents - For purposes of the Statement of Cash Flows, the
- ----------------------------
Company considers highly liquid investments with an original maturity of three
months or less to be cash equivalents.
Revenue Recognition- Revenue for the residential cleaning operations is
- --------------------
recognized when cleaning services are performed.
Revenues for beauty services are recognized when the services are rendered.
Revenues for beauty products are recognized when the products are shipped
provided collection of the resulting receivable is probable and the earnings
process is complete. If any material contingencies are present, revenue
recognition is delayed until all material contingencies are eliminated. Material
contingencies are circumstances in which there are any potential uncertainties
as to the completion of the revenue process being complete. Further, no revenue
is recognized unless collection of the applicable consideration is probable.
Probable collection is determined at the time collection occurs or is more than
reasonably possible it will be collected.
Income Taxes - Income taxes are provided for the tax effects of transactions
- -------------
reported in the financial statements and consist of deferred taxes related
primarily to differences between the basis of certain assets and liabilities for
financial and tax reporting. Deferred taxes represent the future tax return
consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled.
The income tax benefit consists of taxes currently refundable due to net
operating loss carryback provisions for federal and state governments. Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or the entire deferred
tax asset will not be realized. Deferred tax assets and liabilities are adjusted
for the effect of changes in tax laws and rates on the date of enactment.
48
NATIONAL BEAUTY CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2001 and 2000
==============================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
- -----------------------------------------------------------
Use of Estimates - The preparation of financial statements in conformity with
- ------------------
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Advertising - The Company charges the costs of advertising to expense when
- -----------
incurred.
Earnings Per Share - The Company reports earnings per share in accordance with
- --------------------
Statement of Financial Accounting Standard (SFAS) No.128. This statement
requires dual presentation of basic and diluted earnings (loss) with a
reconciliation of the numerator and denominator of the loss per share
computations. Basic earnings per share amounts are based on the weighted average
shares of common outstanding. If applicable, diluted earnings per share would
assume the conversion, exercise or issuance of all potential common stock
instruments such as options, warrants and convertible securities, unless the
effect is to reduce a loss or increase earnings per share. Accordingly, this
presentation has been adopted for the period presented. There were no
adjustments required to net loss for the period presented in the computation of
diluted earnings per share.
The total weighted average number of common shares outstanding used in the
computation of earnings (loss) per share for the years ended December 31, 2001
and December 31, 2002 was $448,016 and $64,379, respectively.
Stock issued as compensation solely caused net losses from continuing operations
of $.52 and $1.61 in 2001 and 2000, respectively.
Comprehensive Income (Loss) - The Company adopted Financial Accounting Standards
- ---------------------------
Board Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", which establishes standards for the reporting and display
of comprehensive income (loss) and its components in the financial statements.
There were no material items of comprehensive income (loss) applicable to the
Company during the period covered in the financial statements.
NOTE B - ACQUISITION
- --------------------
During 2001, the Company acquired the fixed assets of a beauty salon in South
Florida. The Company financed the acquisition with a short-term note with the
unrelated seller in the amount of $15,000 at 8% interest per annum. This note
was paid in full with interest thereto during 2001. The Company also assumed the
lease from the seller. See footnote G above for the minimum lease commitments.
Since the acquisition does not meet the conditions of a significant acquisition,
pro forma information has not been provided.
49
NATIONAL BEAUTY CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2001 and 2000
==============================================
NOTE C - DISCONTINUED OPERATIONS
- --------------------------------
In November 2001, the Board of Directors approved a plan for the disposal of it
e-commence segment. The results of beautymerchant.com have been reported as
discontinued operations for all periods presented.
NOTE D - STOCKHOLDERS' EQUITY
- --------------------------------
During the year ended December 31, 2000, the Company issued 741 shares of its
common stock for services to employees and consultants. The stock issued was
valued at the market price at the time of issuance, yielding an aggregate value
of $103,907. The total amount was expensed during the year ended December 31,
2000 and is included in the accompanying financial statements in selling,
general and administrative expenses. 148,200 shares were reverse split in
fiscal 2002 to 741 shares via a 200 for 1 reverse stock split during that year.
During the year ended December 31, 2000, the Company retired 8,212 of the common
shares that had been subscribed at $44 per share ($.22 pre-split).
Also during the year ended December 31, 2000, the Company received $242,326 in
proceeds from common stock subscribed during the year ended December 31, 1999.
The Company also received $68,000 in marketable securities in exchange for
common stock subscribed during the year ended December 31,2000.
The Company has 950,000 shares of preferred stock outstanding at December 31,
2001, which is convertible at the option of the shareholder into 9,500,000
shares of common stock.
During 2001, the Company's officers converted 50,000 preferred shares in to
500,000 common shares.
During the year ended December, 31 2001, the Company issued 607,937 shares of
its common stock for services rendered by officers and outside consultants. The
shares were valued at the date of issuance yielding an aggregate market value of
$145,044, which was expensed during the year.
On December 27, 2001, the Company issued 95,000 and 205,000 common shares to its
officers and outside consultants, respectively. These common shares were paid in
advance for services to be received by the Company in 2002 and are reflected as
Prepaid Expenses in the accompanying balance sheet. The shares were priced at
the date of issuance yielding an aggregate market value of $90,000. In addition,
34,000 options were granted to an outside consultant as part of compensation.
The options are exercisable at $.48 per share prior to December 31, 2005. The
options did not yield a material expense using the Black-Scholes Option Pricing
Model.
50
NATIONAL BEAUTY CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2001 and 2000
==============================================
NOTE E - INCOME TAXES
- ---------------------
The Company has approximately $726,000 of federal and state net operating losses
available that expire in various years through the year 2015.
Due to operating losses, there is no provision for current federal or state
income taxes for the years ended December 31, 2001 and 2000.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for federal and state income tax purposes.
The Company's deferred tax asset at December 31, 2001 consists of net operating
loss carryforwards calculated using federal and state effective tax rates
equating to approximately $276,000 less a valuation allowance in the amount of
approximately $276,000, respectively. Because of the Company's lack of earnings
history, the deferred tax asset has been fully offset by a valuation allowance.
The valuation allowance increased by approximately $8,000 and $141,000 for the
years ended December 31, 2001 and 2000, respectively.
The Company's total deferred tax asset as of December 31, 2001 is as follows:
Net operating loss carryforwards $ 276,000
Valuation allowance (276,000)
-------------
Net deferred tax asset $ --
=============
The reconciliation of income taxes computed at the federal statutory income tax
rate to total income taxes for the years ended December 31, 2001 and 2000 is as
follows:
2001 2000
---- ----
Income tax computed at the federal statutory rate 34% 34%
State income taxes, net of federal tax benefit 4% 4%
Valuation allowance (38%) (38%)
----- ----
Total deferred tax asset 0% 0%
===== =====
51
NATIONAL BEAUTY CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2001 and 2000
==============================================
NOTE F - OBLIGATION UNDER CAPITAL LEASE
- ---------------------------------------------
The Company is leasing equipment under a noncancelable capital lease that
expires in December, 2002. The obligation under the capital lease has been
recorded in the accompanying Balance Sheet at the net present value of the
future minimum lease payments, discounted at an interest rate of 20%. The book
value of the equipment was approximately $1,500 at December 31, 2001.
Minimum future obligations under this capital lease at December 31, 2001 are as
follows:
Year Amount
- ---- ------
2002 $ 3,540
--------
Total minimum obligation 3,540
Less amount representing interest 1,227
--------
Present value of net
minimum obligation 2,313
Less current portion 2,313
--------
$ -0-
========
NOTE G - COMMITMENTS
- --------------------
The Company leases its offices in Fort Lauderdale, Florida and a beauty salon in
Boca Raton, Florida under non-cancelable operating leases that expire from
varying dates through September 30, 2005. Future minimum rental payments as of
December 31, 2001 in the aggregate and for each of the four succeeding years are
as follows:
Year Amount
- ---- ------
2002 $ 61,050
2003 37,200
2004 37,200
2005 27,900
---------
$163,350
========
Rent expense for 2001 and 2000 was $47,467 and $32,526, respectively.
52
NATIONAL BEAUTY CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2001 and 2000
==============================================
NOTE G - COMMITMENTS (CONT')
- ----------------------------
In 1999, the Company committed itself to compensate each of its Board of
Directors in the amount of 1,000 shares of its common stock annually and 10,000
common stock purchase options over a thirty six-month period. As of the date of
this report, no option agreement has been officially adopted, there is no fair
market value for the options and none of the equity instruments have been issued
with the exception of 1,000 restricted common shares issued to each of its
directors in 2001.
NOTE H - SEGMENT INFORMATION
- --------------------------------
Based on the criteria established by SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information," the Company operates in two principal
business segments - (1) residential cleaning service and (2) retail beauty
salons. In accordance with SFAS 131, the Company is required to describe its
reportable segments and provide data that is consistent with the data made
available to the Company's management to assess performance and make decisions.
The assets of the discontinued subsidiary are reflected as corporate assets.
Summarized revenues and expense information by segment for 2001, as excerpted
from the internal management reports, is as follows:
2001 2000
---- ----
Residential Cleaning:
- ---------------------
Residential cleaning sales $281,124 $ 340,413
Cost of sales (182,731) (221,268)
Corporate and other expenses (220,436) (817,166)
--------- ---------
Segment loss (122,043) (698,021)
Total assets 9,550 9,550
Capital expenditures -0- -0-
Depreciation -0- 200
Interest expense 240 208
53
NATIONAL BEAUTY CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2001 and 2000
==============================================
NOTE H - SEGMENT INFORMATION (CONT')
- -----------------------------------------
2001 2000
------- ----
Retail beauty salon:
- ------------------------------
Retail beauty salon sales $150,686 N/A
Cost of sales ( 93,243) -0-
Corporate and other expenses (117,031) -0-
---------- -------
Segment loss (59,588) -0-
Total assets 13,500 -0-
Capital expenditures 1,538 -0-
Depreciation 1,056 -0-
Interest expense 429 -0-
Corporate:
- ------------------------------
Corporate revenues $ N/A $ N/A
Cost of sales -0- -0-
Unallocated and other expenses (66,257) -0-
---------- -------
Segment loss (66,257) -0-
Total assets 113,693 139,843
Capital expenditures 2,857 1,565
Depreciation 1,961 3,600
Interest expense 558 832
NOTE I - SUBSEQUENT EVENTS
- --------------------------
Subsequent to December 31, 2001, one of the Company's officers converted 200,000
shares of the Company's preferred stock in to 2,000,000 shares of common stock.
54
NATIONAL BEAUTY CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2001 and 2000
==============================================
NOTE J - RECENT ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No.143, "Accounting for Asset Retirement
Obligations" which addresses the accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
retirement costs. SFAS No. 143 requires that the fair value of a liability for
an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value cannot be made. SFAS No. 143 is
effective for financial statements issued for fiscal years beginning after June
15, 2002. The Company does not expect SFAS No. 143 to have a material effect on
its financial condition or cash flows.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 generally establishes a standard
framework which to measure impairment of long-lived assets and expands the
Accounting Principles Board ("APB") 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions" to include a
component of the entity (rather than a segment of the business). SFAF No. 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001. The Company does not expect SFAS No. 144 to have a material
effect on its financial condition and cash flows.
55
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
NATIONAL BEAUTY CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF SEPTEMBER 30, 2002
ASSETS
------
CURRENT ASSETS:
- -------------------------
Cash and cash equivalents $ 6,983
Accounts receivable . . . 132
Marketable securities . . 1,500
Inventory . . . . . . . . 4,087
Prepaid rent. . . . . . . 2,226
Prepaid consulting. . . . 22,500
TOTAL CURRENT ASSETS. . . 37,428
---------
FIXED ASSETS
- -------------------------
Furniture . . . . . . . . 21,616
Leasehold improvements. . 9,500
Equipment . . . . . . . . 47,668
Accumulated depreciation. (38,361)
NET FIXED ASSETS. . . . . 40,423
---------
OTHER ASSETS:
- -------------------------
Deposits. . . . . . . . . 8,882
TOTAL OTHER ASSETS. . . . 8,882
---------
TOTAL ASSETS. . . . . . . $ 86,733
=========
The accompanying notes are an integral part of these financial statements
56
24
NATIONAL BEAUTY CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF SEPTEMBER 30, 2002
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------------------------------------------------------
Accounts payable and accrued expenses . . . . . . . . . . . . . . . $ 4,005
Outstanding checks in excess of bank balance. . . . . . . . . . . . 261
Shareholder loan payable. . . . . . . . . . . . . . . . . . . . . . 25,000
Current portion of capitalized lease obligation . . . . . . . . . . -
------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . 29,266
------------
STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------
Common stock ($.001 par value, 100,000,000 shares authorized;
4,746,062 and 1,466,362 issued and outstanding at September 30,
2002 and December 31, 2001, respectively). . . . . . . . . . . . . 4,746
Series A convertible preferred stock ($.001 par value; 40,000,000
shares authorized, 750,000 and 950,000 shares issued and
outstanding at September 30, 2002 and December 31, 2001,
respectively). . . . . . . . . . . . . . . . . . . . . . . . . . . 750
Series B 2% convertible preferred stock ($.001 par value; 1,000
shares authorized, -0- shares issued and outstanding at September
30, 2002 and December 31, 2001, respectively). . . . . . . . . . . -
Additional paid in capital. . . . . . . . . . . . . . . . . . . . . 1,679,610
Retained deficit. . . . . . . . . . . . . . . . . . . . . . . . . . (1,627,639)
------------
TOTAL STOCKHOLDERS' EQUITY. . . . . . . . . . . . . . . . . . . . . 57,467
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . . . . . . . . $ 86,733
============
The accompanying notes are an integral part of these financial statements
57
NATIONAL BEAUTY CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
2002 2001 2002 2001
-----------------------------------------------
REVENUES:
- ---------------------------
Sales . . . . . . . . . . . $ 120,546 $135,036 $ 404,852 $ 325,351
Cost of sales . . . . . . . (60,257) (70,862) (197,143) (197,811)
----------- --------- ----------- ----------
GROSS PROFIT. . . . . . . . 60,289 64,174 207,709 127,540
----------- --------- ----------- ----------
EXPENSES:
- ---------------------------
Selling, general and
administrative. . . . . . . 127,630 79,405 550,775 183,755
----------- --------- ----------- ----------
TOTAL EXPENSES. . . . . . . 127,630 79,405 550,775 183,755
----------- --------- ----------- ----------
OPERATING LOSS. . . . . . . $ (67,341) $(15,231) $ (343,066) $ (56,215)
OTHER (EXPENSE):
- ---------------------------
Unrealized loss on trading
securities. . . . . . . . . (243) (6,592) (243) (62,000)
Interest expense. . . . . . - (260) - (780)
----------- --------- ----------- ----------
NET (LOSS). . . . . . . . . $ (67,584) $(22,083) $ (343,309) $(118,995)
=========== ========= =========== ==========
Net (loss) per share -
basic and fully diluted . $ (0.01) $ (0.07) $ (0.09) $ (0.76)
=========== ========= =========== ==========
Weighted average shares*. 4,705,062 322,361 3,832,434 155,694
=========== ========= =========== ==========
*Includes retroactive adjustment for 1 for 200 reverse stock split effected
during 2001.
The accompanying notes are an integral part of these financial statements
58
NATIONAL BEAUTY CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
Convertible
Common Stock Preferred Stock Paid-in Retained
Shares Amount Shares Amount Capital Deficit
------ ------ ------ ------ ------- -------
Balances, January 1, 2002 1,466,362 $ 1,466 950,000 $ 950 $1,402,450 ($1,284,330)
Common shares issued to
others. . . . . . . . . . 454,700 455 0 0 93,385 0
Common shares issued to
officers in exchange for
preferred conversion. . . 2,000,000 2,000 (200,000) (200) 0 0
Common shares issued to
officers. . . . . . . . . 825,000 825 0 0 183,775 0
Net loss for the period . 0 0 0 0 0 (343,309)
Balances, September 30,
2002 4,746,062 4,746 750,000 750 1,679,610
---------- --------- --------- ---------- ------------ -----------
The accompanying notes are an integral part of these financial statements
59
NATIONAL BEAUTY CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------------------------------------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(343,309) $(118,195)
Adjustments to reconcile net loss to net cash (used in) operating
activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 2,842
Common stock issued for services . . . . . . . . . . . . . . . . . . . . 280,240 36,365
Unrealized loss on trading securities. . . . . . . . . . . . . . . . . . 243 62,000
(Increase) decrease in operating assets:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . 771 (245)
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,387) (523)
Prepaid consulting . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,500 (1,370)
Prepaid rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,226) -0-
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,226) (4,100)
Increase (decrease) in operating liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,775 -0-
---------- ----------
NET CASH (USED IN) OPERATING ACTIVITIES. . . . . . . . . . . . . . . . . 3,381 (23,226)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------------------------------------------
Expenditures for leaseholds and equipment. . . . . . . . . . . . . . . . (18,683) (4,395)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES. . . . . . . . . . . . . . . . . . (18,683) (4,395)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------------------------------------------
Proceeds from shareholder loan payable . . . . . . . . . . . . . . . . . 25,000 -0-
Collection of shareholder loan receivable. . . . . . . . . . . . . . . . -0- 6,013
Outstanding checks in excess of bank balance . . . . . . . . . . . . . . (11,403) -0-
Principal repayments of note payable . . . . . . . . . . . . . . . . . . -0- (11,945)
Principal repayments under capitalized lease . . . . . . . . . . . . . . (2,313) (1,875)
---------- ----------
NET CASH PROVIDED BY (USED) IN
FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 11,284 (7,807)
---------- ----------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . . . (4,018) (35,428)
CASH AND CASH EQUIVALENTS,
BEGINNING OF THE YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . 11,001 56,191
---------- ----------
END OF THE PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,983 $ 20,763
---------- ----------
SUPPLEMENTARY CASH FLOW INFORMATION OF
- ------------------------------------------------------------------------
NON-CASH FINANCING:
- ------------------------------------------------------------------------
Common stock issued for services . . . . . . . . . . . . . . . . . . . . $ 280,240 $ 36,365
========== ==========
Assumption of note payable in connection with assets acquisition $ - $ 15,000
========== ==========
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NATIONAL BEAUTY CORPORATION & SUBSIDIARIES
September 30, 2002 (UNAUDITED)
ITEM 1.
- -------
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. 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, the unaudited condensed consolidated financial
statements contain all adjustments consisting only of normal recurring accruals
considered necessary to present fairly the Company's financial position at
September 30, 2002, the results of operations for the three and nine month
periods ended September 30, 2002 and 2001, and cash flows for the nine months
ended September 30, 2002 and 2001. The results for the period ended September
30, 2002, are not necessarily indicative of the results to be expected for the
entire fiscal year ending December 31, 2002.
NOTE 2 - SEGMENT INFORMATION
Based on the criteria established by SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information," the Company operates in two principal
business segments - (1) residential cleaning service and (2) retail beauty
salons. In accordance with SFAS 131, the Company is required to describe its
reportable segments and provide data that is consistent with the data made
available to the Company's management to assess performance and make decisions.
Information from the internal management reports may differ from the amounts
reported under generally accepted accounting principles. The assets of the
discontinued subsidiary are reflected as corporate assets. Summarized revenues
and expense information by segment for 2002 and 2001, as excerpted from the
internal management reports, is as follows:
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
2002 2001 2002 2001
----------- --------- ----------- ----------
REVENUES:
- -------------------------------------
Sales - Residential Cleaning. . . . . $ 76,662 $ 86,245 $ 243,975 $ 206,056
Sales - Retail Beauty Salon . . . . . 43,884 48,791 160,877 119,295
Cost of sales - Residential
Cleaning. . . . . . . . . . . . . . . (22,898) (25,983) (89,457) (72,530)
Cost of sales - Retail Beauty
Salon . . . . . . . . . . . . . . . . (37,359) (44,879) (107,686) (125,281)
----------- --------- ----------- ----------
GROSS PROFIT. . . . . . . . . . . . . 60,289 64,174 207,709 127,540
----------- --------- ----------- ----------
EXPENSES:
- -------------------------------------
S,G&A - Residential Cleaning. . . . . 85,675 52,730 368,792 124,432
S,G&A - Retail Beauty Salon . . . . . 42,198 26,675 182,226 59,323
----------- --------- ----------- ----------
TOTAL EXPENSES. . . . . . . . . . . . 127,873 79,405 551,018 183,755
----------- --------- ----------- ----------
OPERATING LOSS -
CLEANING. . . . . . . . . . . . . . . $ (31,911) $ 7,532 $ (214,274) $ 9,094
----------- --------- ----------- ----------
OPERATING LOSS -
SALON . . . . . . . . . . . . . . . . (35,673) (22,763) (129,035) (65,309)
----------- --------- ----------- ----------
OTHER (EXPENSE):
- -------------------------------------
Unrealized loss on trading
securities. . . . . . . . . . . . . . - (6,592) - (62,000)
Interest expense. . . . . . . . . . . - (260) - (780)
----------- --------- ----------- ----------
NET (LOSS). . . . . . . . . . . . . . $ (67,584) $(22,083) $ (343,309) $(118,995)
=========== ========= =========== ==========
Net (loss) per share -
basic and fully diluted - Cleaning. $ (0.01) $ 0.02 $ (0.06) $ 0.06
=========== ========= =========== ==========
Net (loss) per share -
basic and fully diluted - Salon . . $ (0.01) $ (0.09) $ (0.03) $ (0.82)
=========== ========= =========== ==========
Weighted average shares . . . . . . 4,705,062 322,361 3,832,434 155,694
=========== ========= =========== ==========
TOTAL ASSETS - CLEANING . . . . . . . 9,550 9,550 9,550 9,550
- -------------------------------------
TOTAL ASSETS - SALON. . . . . . . . . 77,183 55,193 77,183 55,193
- -------------------------------------
CAPITAL EXPENDITURES - CLEANING . . . 0 0 0 0
- -------------------------------------
CAPITAL EXPENDITURES - SALON. . . . . 18,683 4,395 18,683 4,395
- -------------------------------------
DEPRECIATION - CLEANING . . . . . . . 0 0 0 0
- -------------------------------------
DEPRECIATION - SALON. . . . . . . . . 1,000 947 3,000 2,842
- -------------------------------------
INTEREST EXPENSE - CLEANING . . . . . 0 260 0 780
- -------------------------------------
INTEREST EXPENSE - SALON. . . . . . . 0 0 0 0
- -------------------------------------
NOTE 3 - COMMITMENTS
The Company is committed to two employment agreements through April 1, 2007.
Pursuant to the agreements, two of the Company's officers and majority
shareholders shall receive total combined annual salaries of $325,000 and a
combined 300,000 preferred shares per annum.
61
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There were no changes in or disagreements with National Beauty's
independent accountants on financial statement disclosure or auditing scope or
procedure during the two year period prior covered by their report.
62
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Nevada law, a corporation may indemnify its officers, directors,
employees and agents under certain circumstances, including indemnification of
such person against liability under the Securities Act of 1933. A true and
correct copy of Section 78.7502 of Nevada Revised Statutes that addresses
indemnification of officers, directors, employees and agents is attached hereto
as Exhibit 99.1.
In addition, Section 78.037 of the Nevada Revised Statutes and National
Beauty's Articles of Incorporation and Bylaws provide that a director of this
corporation shall not be personally liable to the corporation or its
stockholders for monetary damages due to breach of fiduciary duty as a director
except for liability (a) for acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law; or (b) for the payments of
distribution in violation of Nevada Revised Statute 78.300.
The effect of these provisions may be to eliminate the rights of National
Beauty and its stockholders (through stockholders' derivative suit on behalf of
National Beauty) to recover monetary damages against a director for breach of
fiduciary duty as a director (including breaches resulting from negligent or
grossly negligent behavior) except in the situations described in clauses (a) -
(b) of the preceding paragraph.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the expenses in connection with the issuance and
distribution of the Securities being registered, other than underwriting
discounts and commissions. National Beauty shall bear all such expenses. All
amounts set forth below are estimates, other than the SEC registration fee.
SEC Registration Fee $ 341.18
Legal Fees and Expenses $25,000.00
Accounting Fees and Expenses $15,000.00
Miscellaneous $ 5,000.00
---------
TOTAL $45,341.18
63
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In October 2002, National Beauty issued 125,000 shares of common stock to
Richard O. Weed in consideration of legal services rendered in approximately the
amount of $25,000.
On July 8, 2002, National Beauty issued 200,000 shares to American Market
Support for investor relations support. These shares were valued at $.13 per
share or $26,000.
On April 17, 2002, National Beauty issued 10,000 shares of common stock to
Richard McCaffrey and 30,000 shares of common stock to National Financial
Communications Corp. in consideration of investor relations services rendered to
the company. These shares were valued at $.27 per share.
On February 27, 2002, National Beauty issued 125,000 shares of common stock
to Richard O. Weed in consideration of legal services rendered in approximately
the amount of $25,000.
On February 11, 2002, National Beauty issued 1,000,000 shares,
respectively, to Edward Roth and Alisha Roth, officers and directors of the
company. These shares were issued as a result of the Roth's conversion of the
aggregate of 200,000 shares of Series A Preferred Stock into common stock on a
10 to 1 basis
On January 3, 2002, National Beauty issued 30,000 shares of common stock to
National Financial Communications Corp. in consideration of investor relations
services rendered to the company. These shares were valued at $.02 per share.
On September 14, 2001, National Beauty issued 2,000 shares, respectively,
to Geoff Gazda and Barbara Patigalia in consideration of services rendered as
directors of the company. On September 14, 2001, National Beauty issued 25,000
shares to Michael Bongiovanni for accounting services rendered. On September 14,
2001, National Beauty issued 150,000 shares to Gerald Sklar for services
rendered to the company. The above-listed shares were valued at $.60 per share
On August 15, 2001, National Beauty issued 250,000 shares, respectively, to
Edward Roth and Alisha Roth, officers and directors of the company. These shares
were issued as a result of the Roth's conversion of the aggregate of 50,000
shares of Series A Preferred Stock into common stock on a 10 to 1 basis.
On May 9, 2001, National Beauty issued 1,650 shares, 8,100 shares and 900
shares, respectively, to Thomas Engelbert, Action Stocks, Inc. and James
Williams for services rendered to the company. These shares were valued at $.01
per share.
On July 28, 2000, National Beauty issued 375 shares and 1 share,
respectively, to Richard Barson and John Schertl for services rendered to the
company. These shares were valued at $.20 per share.
On May 9, 2000, National Beauty issued 250 shares to Market Voice, Inc. for
services rendered to the company. These shares were valued at $.01 per share.
On January 26, 2000, National Beauty issued 8 shares to Brenda Lee Hamilton
for services rendered to the company. These shares were valued at $.01 per
share.
On November 18, 1999, National Beauty issued 1,250 shares and 300 shares ,
respectively, to Edward Roth and Alisha Roth, officers and directors of the
company, in consideration of services rendered. These share were valued at $.50
per share.
On November 1, 1999, National Beauty issued 25 shares, 100 shares and 17
shares, respectively, to Brenda Lee Hamilton, Richard D. Surber and Chris
Cottone in consideration of services rendered to the company. These shares were
valued at $.50 per share.
Exemption from registration under the Securities Act of 1933 ("Act") is
claimed for the sale of these securities in reliance upon the exemption offered
by Section 4(2) of the Act, which exempts transactions by issuers not involving
a public offering. Use of this exemption is based on the following facts:
- - Neither National Beauty nor any person acting on behalf of National Beauty
solicited any offer to buy or sell the securities by any form of general
solicitation or advertising;
- - The purchasers represented that they were acquiring the securities as a
principal for their own account for investment purposes only and without a view
towards distribution or reselling these securities unless pursuant to an
effective registration statement or exemption from registration in compliance
with federal or state securities laws; and
- - The securities were issued with the understanding that they may only be
disposed of pursuant to an effective registration statement or exemption from
registration in compliance with federal or state securities laws.
In 1999, $315,563 was received in equity financing. In 2000, $240,326
was received in equity financing. These sales were made to approximately ten
accredited investors and were exempt from registration under Section 4(2) of the
Act and/or Regulation D.
ITEM 27. EXHIBITS
The following is a list of exhibits required by Item 601 of Regulation S-B
that are filed or incorporated by reference. The exhibits that are incorporated
by reference from National Beauty's prior SEC filings are noted on the exhibit
index. The other exhibits are attached hereto and being filed with the SEC as
part of this registration statement.
64
Exhibit
Number . Description of Exhibits
- -------- ------------------------------------
3(i)(a). Articles of Incorporation of Tri-Capital Corporation, Inc.(1)
3(ii) Bylaws of Tri-Capital Corporation, Inc.(1)
3(iii) Articles of Amendment to the Articles of Incorporation of Tri Capital Corporation, Inc. (3)
3(iv) Certificate of Amendment to the Articles of Incorporation of Advanced Appearance of America, Inc. (3)
3(v) . . Certificate of Amendment to the Articles of Incorporation of ATR Industries, Inc. (3)
3(vi) Certificate of Amendment to the Articles of Incorporation of ATR Industries, Inc. (3)
3(vii) Certificate of Amendment to the Articles of Incorporation of ATR Industries, Inc. (3)
3(viii) Certificate of Amendment to the Articles of Incorporation of Beautymerchant.com, Inc. (3)
3(ix). . Certificate of Amendment to the Articles of Incorporation of National Beauty Corp. (3)
3(x) . . Certificate of Amendment to the Articles of Incorporation of National Beauty Corp. (3)
4.1. . . Form of Common Stock Certificate of National Beauty Corp. (3)
4.2. . . Warrant Agreement (3)
4.3. . . Common Stock Purchase Warrant (3)
4.4. . . Certificate of Designation of the Rights and Preferences of the Series A Convertible
Preferred Stock of National Beauty Corp. (3)
4.5 Certificate of Amendment to the Certificate of Designation of the Rights and
Preferences of the Series A Convertible Preferred Stock of National Beauty Corp.
4.6. . . Certificate of Designation of the Rights And Preferences of Series B 2% Convertible
Preferred Stock of National Beauty Corp.(4)
5.1. . . Opinion of Weed & Co. LLP re: Legality
10.1 . . Employment Agreement with Edward Anthony Roth
10.2 . . Employment Agreement with Alisha Roth
10.3 . . Investor Relations/Consulting Services Agreement with 3rd Millennium
Management, LLC
10.4 Commercial Lease between Commercial Villas and Beautyworks USA of Florida Inc. (3)
10.5 . . Third Lease Amendment Agreement and Assignment of Lease (3)
10.6 . . Form of Subscription Agreement (3)
10.7 . . Investor Relations Services Agreement (3)
10.8 . . Lease for 2031 N. University Drive, Coral Springs, FL
10.9 . . Consulting Agreement with Michael Bongiovanni (2)
10.10. . Agreement and Plan of Merger between National Beauty Corp. and Zzyzx Zzazx
Zzozx, Inc.(4)
10.11. . Warrant to Purchase Common Stock of National Beauty Corp.(4)
10.12. . Articles of Merger(4)
21 . . . Subsidiaries of National Beauty(3)
23.1 . . Consent of Independent Auditors, Perrella & Associates, P.A.
23.2 . . Consent of Weed & Co. LLP
99.1 . . Section 78.7502 of Nevada Revised Statutes (2)
(1) Previously filed with National Beauty's filing of Form 10-SB and
subsequent amendments thereto (File No. 00030212).
(2) Previously filed with National Beauty's filing of a Form S-8 on August
21, 2001.
(3) Previously filed with National Beauty's Form SB-2 filed on July 10,
2002.
(4) Previously filed with National Beauty's filing of Form 8-K on November
12, 2002.
65
ITEM 28. UNDERTAKINGS.
National Beauty hereby undertakes to:
(a)(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement; and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For the purpose of determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
66
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the city of Fort
Lauderdale, State of Florida, on December 3, 2002.
National Beauty Corp.
By: /s/ Edward Roth
Name: Edward Roth
Title: President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
Signature Date
- --------- ----
/s/ Edward A. Roth December 3, 2002
- ------------------
Edward A. Roth
President & CEO
/s/ Alisha Roth December 3, 2002
- ---------------
Alisha Roth
Secretary, Treasurer
Director
/s/ Barbara Patagalia December 3, 2002
- ---------------------
Barbara Patagalia
Director
/s/Michael J. Bongiovanni December 3, 2002
- -------------------------
Michael J. Bongiovanni
Chief Financial Officer
(Principal Accounting Officer), Director
67