U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the quarterly period ended September 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the transition period from _______ to _______
HAIRMAX INTERNATIONAL CORP.
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(Exact name of small business issuer as specified in its charter)
NATIONAL BEAUTY CORP.
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(Former name of registrant)
Nevada 13-3422912
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
9900 West Sample Road, Coral Springs, Florida 33065
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(Address of principal executive offices)
(954) 825-0299
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Number of shares of common stock outstanding as of
November 11, 2004: 206,921,001
Number of shares of preferred stock outstanding as of
November 11, 2004: 2,850,000
INDEX TO FORM 10-QSB
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Page No.
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PART I
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Item 1. Financial Statements
Condensed Consolidated Balance Sheet
- September 30, 2004 (unaudited) 3
Condensed Consolidated Statements of Operations
- Three and Nine Months Ended September 30, 2004
and 2003 (unaudited) 4
Condensed Consolidated Statements of Cash Flows
- Nine Months Ended September 30, 2004 and 2003 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 8-12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Item 4. Controls and Procedures 12
PART II
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Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
HAIRMAX INTERNATIONAL CORP. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2004 (UNAUDITED)
==============================================================================
ASSETS
2004
------------
CURRENT ASSETS:
- ----------------
Cash and cash equivalents $ 9,111
Marketable securities 5,416
Inventory 500
------------
TOTAL CURRENT ASSETS 15,027
PROPERTY AND EQUIPMENT
- ------------------------
Property and equipment 136,791
Accumulated depreciation (79,886)
------------
NET FIXED ASSETS 56,905
OTHER ASSETS:
- --------------
Deposits 8,882
------------
TOTAL OTHER ASSETS 8,882
------------
TOTAL ASSETS $ 80,814
============
HAIRMAX INTERNATIONAL CORP. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF SEPTEMBER 30, 2004 (UNAUDITED)
==============================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
- --------------------
Accounts payable and accrued expenses $ 98,977
------------
TOTAL CURRENT LIABILITIES 98,977
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STOCKHOLDERS' DEFICIT
- ----------------------
Series A convertible preferred stock ($.001 par value;
40,000,000 shares authorized, 2,850,000 shares issued
and outstanding) 2,850
Series B 2% convertible preferred stock ($.001 par value;
1,000 shares authorized, -0- shares issued and outstanding) -
Common stock ($.001 par value, 500,000,000 shares
authorized; 203,921,001 issued and outstanding) 203,921
Additional paid in capital 6,762,552
Retained deficit (6,987,486)
------------
TOTAL STOCKHOLDERS' DEFICIT (18,163)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 80,814
============
See accompanying notes to consolidated financial statements
HAIRMAX INTERNATIONAL CORP. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
===============================================================================================================
Three Months Ended September 30, Nine Months Ended September 30,
2004 2003 2004 2003
------------ ------------ ------------ ------------
REVENUES:
- ---------
Sales $ 113,612 $ 108,684 $ 445,521 $ 337,265
Cost of sales (4,568) (48,248) (18,689) (147,800)
------------ ------------ ------------ ------------
GROSS PROFIT 109,044 60,436 426,832 189,465
EXPENSES:
- ---------
Common stock issued for
consulting services 65,995 - 1,030,390 371,281
Preferred stock issued for
consulting services - - 30,000 160,000
Other selling, general and administrative 316,099 484,611 666,715 384,752
------------ ------------ ------------ ------------
TOTAL EXPENSES 382,094 484,611 1,727,105 916,033
------------ ------------ ------------ ------------
OPERATING LOSS $ (273,050) $ (424,175) $ (1,300,273) $ (726,568)
OTHER INCOME (EXPENSE):
- -------------------------
Unrealized gain on marketable
securities $ - $ - $ 958 $ -
Interest - - (2,762) -
------------ ------------ ------------ ------------
NET LOSS $ (273,050) $ (424,175) $ (1,302,077) $ (726,568)
============ ============ ============ ============
Net loss per share -
basic and fully diluted $ (0.002) $ (0.65) $ (0.02) $ (1.13)
============ ============ ============ ============
Weighted average shares outstanding 141,281,918 657,191 55,926,927 644,490
============ ============ ============ ============
See accompanying notes to consolidated financial statements
HAIRMAX INTERNATIONAL CORP. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
==========================================================================================================
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
- -----------------------------------------
Net loss $ (1,302,077) $ (726,568)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 15,000 7,500
Preferred stock issued for services 30,000 160,000
Common stock issued for services 1,030,390 371,281
Unrealized gain on maretable securities (958) -
Increase in operating liabilities:
Accrued interest on shareholder loan payable 2,762 -
Accounts payable and accrued expenses 204,025 6,605
------------ ------------
NET CASH (USED IN) OPERATING ACTIVITIES (20,858) (181,182)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- ----------------------------------------
Purchases of property and equipment - (3,505)
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NET CASH (USED IN) INVESTING ACTIVITIES - (3,505)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ----------------------------------------
Proceeds from shareholder loan payable - 30,000
Collections on common stock issuances 25,975 95,628
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NET CASH PROVIDED BY FINANCING ACTIVITIES 25,975 125,628
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,117 (59,059)
CASH AND CASH EQUIVALENTS,
BEGINNING OF THE PERIOD 3,994 98,837
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END OF THE PERIOD $ 9,111 $ 39,778
============ ============
SUPPLEMENTARY CASH FLOW INFORMATION OF NON-CASH FINANCING:
- ----------------------------------------------------------------
Common stock issued for services $ 1,031,365 $ 371,281
============ ============
Preferred stock issued for services $ 30,000 $ 160,000
============ ============
Interest paid $ - $ -
============ ============
Income taxes paid $ - $ -
============ ============
See accompanying notes to consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
HAIRMAX INTERNATIONAL CORP. & SUBSIDIARIES
SEPTEMBER 30, 2004 (UNAUDITED)
ITEM 1.
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NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America 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, 2004, the results of operations for the three and nine month
periods ended September 30, 2004 and 2003, and cash flows for the three and nine
months ended September 30, 2004 and 2003. The results for the period ended
September 30, 2004 are not necessarily indicative of the results to be expected
for the entire fiscal year ending December 31, 2004. These financial statement
should be read in conjunction with the financial statements and notes for the
year ended December 31, 2003 appearing in the Company's annual report on Form
10-KSB as filed with the Securities and Exchange Commission.
Revenue Recognition- Revenue for the residential cleaning operations is
- --------------------
recognized when cleaning services are performed. Revenues for beauty salon
services are recognized when the services are rendered. Revenues for beauty
products are recognized when the retail products are sold at the beauty salon
locations
Management's 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.
Loss Per Share - We report loss 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. There were no adjustments required to net loss for the
period presented in the computation of diluted earnings per share.
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 the three and nine months ended September
30, 2004 and 2003, as excerpted from the internal management reports, is as
follows:
2004 2003
---- ----
9 Mos. 3 Mos. 9 Mos. 3 Mos.
----------- ----------- ----------- -----------
Revenue:
- --------
Residential cleaning $ 129,100 $ 34,197 $ 158,453 $ 51,081
Beauty salons 316,421 79,415 178,812 57,603
----------- ----------- ----------- -----------
$ 445,521 $ 113,612 $ 337,265 $ 108,684
Net Loss:
- ----------
Residential cleaning $ (518,227) $ (108,674) $ (289,231) $ (168,822)
Corporate (822,913) (172,568) (459,838) (268,078)
Beauty salons 39,062 8,192 22,501 12,725
----------- ----------- ----------- -----------
$(1,302,077) $ (273,050) $ (726,568) $ (424,175)
Identifiable Assets:
- ---------------------
Residential cleaning $ 2,000 $ 9,050
Corporate 1,363 60,421
Beauty salons 77,451 12,500
----------- ----------- ----------- -----------
$ 80,814 $ 81,971
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.
NOTE 4 - COMMON STOCK AND RELATED PARTY TRANSACTIONS
During the three months ended September 30, 2004, we issued 175,000,000 shares
of our restricted common stock to our President and Chief Executive Officer
pursuant to a 200 for 1 conversion of 875,000 of preferred shares owned by our
President and Chief Executive Officer into common shares. In addition, we issued
9,333,333 and 97,500 shares of common stock to unrelated outside investors and
received cash proceeds from investors of $25,000 and $975, respectively, during
the three months ended September 30, 2004. We also issued 1,528,000 common
shares for services rendered by outside contractors during the quarter ended
September 30, 2004. The shares were valued using the closing Yahoo stock prices
at the dates of issuances, yielding an aggregate fair value of $61,120.
During the quarter ended September 30, 2004, we did not issue preferred stock.
NOTE 5 - SUBSEQUENT EVENTS
On October 11, 2004, we entered into a signed Share Purchase Agreement and
related Promissory Note and Security Agreement with Barr-John Investments. The
purchase price for these common shares was $30,000 in exchange for a promissory
note in that amount. The stock was purchased at $.01 per share. The promissory
note is due on November 3, 2004 and carries interest of 8% per annum.
In October 2004, we began development of DATEMAX USA.COM, an Internet dating
portal. The licensing and development is being outsourced to a software
developer. The portal is expected to be launched initially during October 2004,
with continued technical developments and upgrades planned through fourth
quarter.
NOTE 6 - GOING CONCERN
We have suffered recurring losses from operations, have a negative working
capital and have a stockholders' deficit as of September 30, 2004. In addition,
we have yet to generate an internal cash flow from its business operations.
These factors raise substantial doubt as to our ability to continue as a going
concern.
Management's plans with regard to these matters encompass the following actions:
1) obtain funding from new investors to alleviate our capital deficiency, 2)
implement a plan focusing on developing and expanding our subsidiaries through
increased sales and marketing efforts, and 3) develop a new acquisition strategy
to acquire small, privately held hair salons. Our continued existence is
dependent upon its ability to resolve it liquidity problems and increase
profitability in its current business operations. However, the outcome of
management's plans cannot be ascertained with any degree of certainty. The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of these risks and uncertainties.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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HairMax International, Inc. is hereby providing cautionary statements
identifying important factors that could cause our actual results to differ
materially from those projected in forward looking statements made in this
quarterly report on Form 10-QSB. Any statements that express, or involve
discussions as to, expectations, beliefs, plans, objectives, assumptions or
future events or performance (often, but not always, through the use of words or
phrases such as "likely will result," "are expected to," "will continue," "is
anticipated," "estimated," "intends," "plans" and "projection") are not
historical facts and may be forward-looking statements and involve estimates and
uncertainties which could cause actual results to differ materially from those
expressed in the forward-looking statements. Accordingly, any such statements
are qualified in their entirety by reference to, and are accompanied by, the
following key factors that have a direct bearing on our results of operations:
the absence of contracts with customers or suppliers; our ability to maintain
and develop relationships with customers and suppliers; our ability to
successfully integrate acquired businesses or new brands; the impact of
competitive products and pricing; supply constraints or difficulties; changes in
the retail and beauty industries; the retention and availability of key
personnel; and general economic and business conditions.
We caution that the factors described herein could cause actual results to
differ materially from those expressed in any forward-looking statements and
that the investors should not place undue reliance on any such forward-looking
statements. Further, any forward-looking statement speaks only as of the date on
which such statement is made, and we undertake no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events or circumstances. Consequently, no forward-looking statement can be
guaranteed.
New factors emerge from time to time, and it is not possible for us to predict
all such factors. Further, we cannot assess the impact of each such factor on
our results of operations or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.
Overview
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Hairmax International Corp., formerly known as National Beauty Corp, Inc., was
incorporated in Nevada in 1987. We have primarily operated through our wholly
owned subsidiaries, Cleaning Express USA, Hair Max of Florida, Inc. f/k/a Beauty
Works USA, Inc. and Cleaning Express USA, Inc. 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. Hairmax
International currently offers hairstyling beauty services and products through
its retail beauty salons in the South Florida area through its Hair Max of
Florida, Inc. subsidiary. Hairmax International intends to operate a chain of
haircutting stores, located inside or next to major retailers, through Hair Max
subsidiaries.
Hairmax International's business plan entails developing hairstyling salons and
marketing the company's services, through a niche concept, "WE STYLE FOR LESS",
including marketing our own private label beauty products through these
operations. Hairmax International is also pursuing the development of its
"HAIRMAX" franchise concept, which it expects to launch and market in 2005, we
expect to have five operating salons, in place, and a training center in South
Florida. We are presently working with several business development consultants,
and plan to pursue celebrity affiliation with the Hairmax concept, and the
franchise development program. There are currently three HairMax stores in South
Florida. During the quarter ending September 30, 2004, we terminated and
discontinued any further investment in HairMax of Nevada, Inc. The operations
did not meet corporate standards due to poor locations. Overall we plan on
acquiring existing salon operations, from private owners. In our opinion, we
will be able to increase sales significantly, by purchasing successful salon
operations, and add them to our portfolio of developing companies. We recently
targeted several potential salons, and expect aggressively to seek to purchase
them, if we are successful in negotiating for acquisition plans to expand
internationally.
In October 2004, we began development of DATEMAX USA.COM, an Internet dating
portal. The licensing and development is being outsourced to a software
developer. The portal is expected to be launched initially during October 2004,
with continued technical developments and upgrades planned through fourth
quarter. The Internet dating portal is majority owned by Max Internet Brands
Inc. a Florida corporation, which presently owns several proprietary rights to
the following domains: Datemax Seniors.com, Partymax USA.com, Companions USA.
Com and Datemax USA.com.
We are seeking a programmer/developer partner to further develop Internet
business interests, by development and acquisition. As a Business Development
Company we are focused on growth, and plan on continuing existing business
operations.
We expect to add at least 8 employees, through our subsidiary companies during
the next 12 months to our retail operations. We are unable to determine how many
additional employees will be required for support operations. The corporate
staff of four office employees and various consultants that are presently on
staff will manage new employees.
We plan on managing our Internet operations by outsourced contract labor, and do
not expect to add new employees. In June 2002, we made application with the U.S.
Patent and Trademark office, to gain exclusive rights to the name and logo for
"Hair Max". The registration is still pending.
In July 2004, we signed a Letter of Intent with Xibiabang Corporation, in the
Peoples Republic of China, for expanded development and partnership.
Negotiations are still ongoing.
RESULTS OF OPERATIONS
- -----------------------
Net Loss
We had net losses of $(273,050) and $(424,175), or $(.002) and $(.65) per common
share for the three months ended September 30, 2004 and 2003, respectively. We
had net losses of $(1,302,077) and $(726,568) or $(.02) and $(1.13), for the
nine months ended September 30, 2004 and 2003, respectively. The change in net
loss was primarily due to an increase in common shares issued for professional
services rendered and compensation for officers. In addition, we experienced
losses of business in our salon and cleaning segments for the quarter ended
September 30, 2004 due to the multiple hurricanes in Florida during that period.
These losses occurred before and after the hurricanes.
Sales
Cleaning revenues decreased $16,884 or 33% to $34,197 for the three months ended
September 30, 2004, from $51,081 for the three months ended September 30, 2003.
Cleaning revenues decreased $29,353 or 19% to $129,100 for the nine months ended
September 30, 2004, from $158,453 for the nine months ended September 30, 2003.
The decrease was primarily due to a decline in cleaning division demand in the
first through third quarters of 2004 compared to the comparable periods in 2003.
The Company is also concentrating more on its beauty salon segment. Average
selling prices and gross margins remained fairly constant. In addition, we
experienced sales losses in our salon and cleaning segments for the quarter
ended September 30, 2004 due to the multiple hurricanes in Florida during that
period. These sales losses occurred before and after the hurricanes.
Beauty salon revenues increased $21,812 or 38% to $79,415 for the three months
ended September 30, 2004 as compared with $57,603 for the three months ended
September 30, 2003. Beauty salon revenues increased $137,609 or 77% to $316,421
for the nine months ended September 30, 2004 as compared with $178,812 for the
nine months ended September 30, 2003. The increase in the first through third
second quarters of 2004 was primarily due increased demand due to stores being
matured in the areas opened and the opening of new stores, less the affects of
the Florida hurricanes in the third quarter.
Expenses
Selling, general, and administrative expenses for the three months ended
September 30, 2004 decreased $102,517 or 21% to $382,094. In comparison with the
three month period ended September 30, 2003, consulting and payroll increased
$65,995 due to common stock issuances for professional services rendered and
salaries for officers in the third quarter of 2004. Selling, general, and
administrative expenses for the nine months ended September 30, 2004 increased
$811,072 or 73% to $1,727,105. In comparison with the nine month period ended
September 30, 2003 amount of $916,033, consulting and payroll increased due to
common stock issuances for professional services rendered and salaries for
officers in the first three quarters and mainly second quarter of 2004. The
increase is directly attributable to the increase in common stock issued for
consulting services in 2004 compared to 2003.
Liquidity and Capital Resources
On September 30, 2004, we had cash of $9,111 and a working capital deficit of
$83,950. This compares with cash of $3,994 and a working capital deficit of
$139,712 at December 31, 2003. The increase in cash and decrease in working
capital deficit was due to an increase in revenue from beauty salon and
residential cleaning for 2004. Operating activities had a net usage of cash in
the amount of $19,883 during the nine months ended September 30, 2004 reflecting
an excess of expenditures over revenues with common stock issued for services
added back.
Net cash used in operating activities was $20,858 for the nine months ended
September 30, 2004 as compared with net cash used in operating activities of
$181,182 for the same period ended September 30, 2003. The decrease in cash used
was primarily attributable to an increase in stock issued for services in
operations for the 2004 period.
Net cash used in investing activities for the nine months ended September 30,
2004 was $-0- as compared with net cash used in investing activities of $3,505
for the nine months ended September 30, 2003. The decrease in net cash used in
investing activities is attributable to no purchases of fixed assets during the
nine months ended September 30, 2004 compared to the comparable period in 2003.
Net cash provided by financing activities for the nine months ended September
30, 2004 was $25,975 as compared with net cash provided by financing activities
of $125,628 for the nine months ended September 30, 2003. The decrease in net
cash provided by financing activities is attributable to no proceeds from
shareholder loan payable and a cash decrease from common stock issuances in the
nine months ended September 30, 2004 compared to the comparable period in 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------
We do not have any material risk with respect to changes in foreign currency
exchange rates, commodities prices or interest rates. We do not believe that we
have any other relevant market risk with respect to the categories intended to
be discussed in this item of this report.
ITEM 4. CONTROLS AND PROCEDURES
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Quarterly Evaluation of Controls
As of the end of the period covered by this quarterly report on Form
10-QSB, we evaluated the effectiveness of the design and operation of (i) our
disclosure controls and procedures ("Disclosure Controls"), and (ii) our
internal control over financial reporting ("Internal Controls"). This evaluation
("Evaluation") was performed by our President and Chief Executive Officer,
Edward A. Roth ("CEO") and Michael J. Bongiovanni, our Chief Financial Officer.
In this section, we present the conclusions of our CEO and CFO based on and as
of the date of the Evaluation, (i) with respect to the effectiveness of our
Disclosure Controls, and (ii) with respect to any change in our Internal
Controls that occurred during the most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect our Internal Controls.
CEO and CFO Certifications
Attached to this annual report, as Exhibits 31.1 and 31.2, are certain
certifications of the CEO and CFO, which are required in accordance with the
Exchange Act and the Commission's rules implementing such section (the "Rule
13a-14(a)/15d-14(a) Certifications"). This section of the annual report contains
the information concerning the Evaluation referred to in the Rule
13a-14(a)/15d-14(a) Certifications. This information should be read in
conjunction with the Rule 13a-14(a)/15d-14(a) Certifications for a more complete
understanding of the topic presented.
Disclosure Controls and Internal Controls
Disclosure Controls are procedures designed with the objective of ensuring
that information required to be disclosed in our reports filed with the
Commission under the Exchange Act, such as this annual report, is recorded,
processed, summarized and reported within the time period specified in the
Commission's rules and forms. Disclosure Controls are also designed with the
objective of ensuring that material information relating to the Company is made
known to the CEO and the CFO by others, particularly during the period in which
the applicable report is being prepared. Internal Controls, on the other hand,
are procedures which are designed with the objective of providing reasonable
assurance that (i) our transactions are properly authorized, (ii) the Company's
assets are safeguarded against unauthorized or improper use, and (iii) our
transactions are properly recorded and reported, all to permit the preparation
of complete and accurate financial statements in conformity with accounting
principals generally accepted in the United States.
Limitations on the Effectiveness of Controls
Our management does not expect that our Disclosure Controls or our Internal
Controls will prevent all error and all fraud. A control system, no matter how
well developed and operated, can provide only reasonable, but not absolute
assurance that the objectives of the control system are met. Further, the design
of the control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances so
of fraud, if any, within the Company have been detected. These inherent
limitations include the realities that judgments in decision -making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. The design of a system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated objectives under all
potential future conditions. Over time, control may become inadequate because of
changes in conditions, or because the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
Scope of the Evaluation
The CEO and CFO's evaluation of our Disclosure Controls and Internal
Controls included a review of the controls' (i) objectives, (ii) design, (iii)
implementation, and (iv) the effect of the controls on the information generated
for use in this annual report. In the course of the Evaluation, the CEO and CFO
sought to identify data errors, control problems, acts of fraud, and they sought
to confirm that appropriate corrective action, including process improvements,
was being undertaken. This type of evaluation is done on a quarterly basis so
that the conclusions concerning the effectiveness of our controls can be
reported in our quarterly reports on Form 10-QSB and annual reports on Form
10-KSB. The overall goals of these various evaluation activities are to monitor
our Disclosure Controls and our Internal Controls, and to make modifications if
and as necessary. Our external auditors also review Internal Controls in
connection with their audit and review activities. Our intent in this regard is
that the Disclosure Controls and the Internal Controls will be maintained as
dynamic systems that change (including improvements and corrections) as
conditions warrant.
Among other matters, we sought in our Evaluation to determine whether there
were any significant deficiencies or material weaknesses in our Internal
Controls, which are reasonably likely to adversely affect our ability to record,
process, summarize and report financial information, or whether we had
identified any acts of fraud, whether or not material, involving management or
other employees who have a significant role in our Internal Controls. This
information was important for both the Evaluation, generally, and because the
Rule 13a-14(a)/15d-14(a) Certifications, Item 5, require that the CEO and CFO
disclose that information to our Board (audit committee), and to our independent
auditors, and to report on related matters in this section of the annual report.
In the professional auditing literature, "significant deficiencies" are referred
to as "reportable conditions". These are control issues that could have
significant adverse affect on the ability to record, process, summarize and
report financial data in the financial statements. A "material weakness" is
defined in the auditing literature as a particularly serious reportable
condition where the internal control does not reduce, to a relatively low level,
the risk that misstatement cause by error or fraud may occur in amounts that
would be material in relation to the financial statements and not be detected
within a timely period by employee in the normal course of performing their
assigned functions. We also sought to deal with other controls matters in the
Evaluation, and in each case, if a problem was identified; we considered what
revisions, improvements and/or corrections to make in accordance with our
ongoing procedures.
Conclusions
Based upon the Evaluation, the Company's CEO and CFO have concluded that,
subject to the limitations noted above, our Disclosure Controls are effective to
ensure that material information relating to the Company is made known to
management, including the CEO and CFO, particularly during the period when our
periodic reports are being prepared, and that our Internal Controls are
effective to provide reasonable assurance that our financial statements are
fairly presented inconformity with accounting principals generally accepted in
the United States. Additionally, there has been no change in our Internal
Controls that occurred during our most recent fiscal quarter that has materially
affected, or is reasonably likely to affect, our Internal Controls.
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
During the three months ended September 30, 2004, we issued 175,000,000 shares
of our restricted common stock to our President and Chief Executive Officer
pursuant to a 200 for 1 conversion of 875,000 of preferred shares owned by our
President and Chief Executive Officer into common shares. In addition, we issued
9,333,333 and 97,500 shares of common stock to unrelated outside investors and
we issued 1,528,000 common shares for services rendered by outside contractors
during the three months ended September 30, 2004.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
A majority of the security holders voted to issue common stock to various
investors and consultants during the three months ended September 30, 2004.
A majority of the security holders voted to rescind and terminate the Share
Purchase Agreement and related Promissory Notes and Security Agreements with
southern Securities, Inc.
A majority of the security holders voted to enter into a signed Share Purchase
Agreement and related Promissory Note and Security Agreement with Barr-John
Investments.
Item 5. Other Information
In July of 2004, we signed a Letter of Intent with Xibiabang Corporation, in the
Peoples Republic of China, for expanded development and partnership.
Negotiations are still ongoing.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits are incorporated by reference.
(b) On July 2, 2004, we filed an 8-K regarding the filing of an election with
the Commission pursuant to Section 54(a) of the Investment Company Act of
1940, to be subject to the provisions of sections 55 through 65 of the Act
and be regulated as a Business Development Company.
(c) --Signature page follows-
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HAIRMAX INTERNATIONAL, INC.,
(Registrant)
/S/ Michael J. Bongiovanni
Date: November 11, 2004 -----------------------------
Michael J. Bongiovanni
Chief Financial Officer
/S/ Edward A. Roth
Date: November 11, 2004 -----------------------------
Edward A. Roth
Chief Executive Officer