-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HBWefWsi/xLDUheFTOlVttuNHP7LusrPBOD4CDQZ1dv8NrY98wlCAV1dVtYjSAwV 9urJO9Jb2OSEjV3GjPTeKA== 0001014897-02-000072.txt : 20020710 0001014897-02-000072.hdr.sgml : 20020710 20020710094646 ACCESSION NUMBER: 0001014897-02-000072 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020710 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CREATIVE BEAUTY SUPPLY INC CENTRAL INDEX KEY: 0001011662 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 223392051 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-26361 FILM NUMBER: 02699305 BUSINESS ADDRESS: STREET 1: 380 TOTOWA RD CITY: TOWOWA STATE: NJ ZIP: 07512 BUSINESS PHONE: 2012920125 MAIL ADDRESS: STREET 1: 380 TOTOWA ROAD CITY: TOTOWA STATE: NJ ZIP: 07512 10KSB 1 creative10ksb2002.txt FORM 10KSB 3-31-02 FORM 10-KSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] 15,ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: 3/31/02 OR [ ]15,TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number - 000-26361 Creative Beauty Supply, Inc (Exact name of Registrant as specified in its charter)
NEW JERSEY 22-3392051 (State or other (Primary Standard Industrial (I.R.S. Employer jurisdictions Classification Code Number) Identification number) of incorporation or organization
380 Totowa Road, Totowa, NJ 07512 (Address of principal (Zip Code) executive offices) Telephone: 973-904-0004 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value Check whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes __x__ No _____ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of Company's knowledge, in definitive proxy or information 2 statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [x] The Company's revenues for its most recent fiscal year were $216,087. As of March 31, 2002, the market value of the Company's voting $.00l par value common stock held by non-affiliates of the Company was $1,318,911. The number of shares outstanding of Company's class of common stock, as of March 31, 2002 was 3,494,650 shares of its $.001 par value common stock. Check whether the Issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes __x__ No _____ The exhibits are incorporated into the text by reference. Transitional Small Business Disclosure Format (check one) Yes No x -------- -------- 3 PART I ITEM 1. BUSINESS - General A. The Company was incorporated in New Jersey on August 28, 1995. On March 15, 1996, the Company effectuated a 45,392 for 1 stock split. There have been no other material events in the development of the Company (including any material mergers or acquisitions) since inception. There are no pending or anticipated mergers, acquisitions, spin-offs or recapitalizations. On February 26, 1997, the Company's officers surrendered 7,543,000 Common Shares. The issued and outstanding shares were reduced from 11,348,000 to 3,805,000. An additional 795,000 common shares were subsequently issued. On July 1, 1997, the Company effectuated a 1 for 2.5 reverse stock split reducing the then issued and outstanding shares from 4,600,000 to 1,840,000, subsequently issuing another 24,650 shares from March 30, 1998 through July 26, 1998 bringing the total issued and outstanding shares to 1,864,650. During fiscal year ended March 31, 2002, 1,630,000 common shares were issued bringing the total issued and outstanding common shares at March 31, 2002 to 3,494,650. Corporate Operations. The Company operates as a cosmetic and beauty supply distributor at both the retail and wholesale levels. The Company's various beauty and cosmetic products are purchased by it from a number of unaffiliated suppliers and manufacturers and thereafter sold on its premises to retail "walk-in" customers or directly to beauty salons. Products. The Company's beauty and cosmetic products primarily consist of the following items: Shampoos, conditioners, mousse, setting/styling and spray gels, lotions, lipstick and nail products and hair sprays as well as such beauty and cosmetic related appliances as blow dryers, curling irons, mirrors, air diffusers and hair trimmers. Many of the aforesaid products (at least 80%) may be considered to be "national" brands bearing consumer recognition with respect to the their respective names. Such consumer recognition of such "brand" names is considered by the Company to be of assistance to it with respect to sale of such products since consumer recognition is advanced by national brand media advertising (at no cost to the Company but to the Company's benefit) when potential customers are already familiar with the product as a result of media advertising. 4 Suppliers. The above indicated products are purchased by the Company from a number of unaffiliated suppliers and management of the Company does not contemplate or anticipate any significant difficulties with its ability to purchase such products from its current suppliers and/or from replacement and/or additional suppliers if and when necessary or advisable. The Company does not have any written agreements with any of its suppliers. During the most current year (2002) the Company purchased approximately 59% of its products from one supplier. Management believes that other suppliers could provide similar products on comparable terms. A change in suppliers, however, could cause a delay in obtaining merchandise and possible loss of sales that could effect operating results. Distribution. The Company is currently distributing its products to approximately 200 nail and beauty salons. Its territory is principally and almost exclusively located within the northern and central portion of the State of New Jersey, in the counties of Essex, Hudson, Bergen, Passaic, Morris and Union. The Company sells cosmetic and beauty supplies, both on the retail and wholesale levels to beauty salons and to the general public. Wholesale sales consist of sales to beauty salons of merchandise for resale. Sales of merchandise to beauty salons for their own consumption, not for resale, are considered retail sales. All sales to the general public are also considered retail sales. Net sales are summarized as follows: 2002 2001 -------- -------- Retail $124,936 $133,501 Wholesale 91,151 106,919 --------- --------- $216,087 $240,420 ========= ========= Competition. Competition is based on price. The Company's price ranges of its various products are within the manufacturer-suggested prices, services and product lines. The Company is competing with established companies and other entities (many of which may possess substantially greater resources than the Company). Almost all of the companies 5 with which the Company competes are substantially larger, have more substantial histories, backgrounds, experience and records of successful operations, greater financial, technical, marketing and other resources, more employees and more extensive facilities than the Company now has, or will have in the foreseeable future. It is also likely that other competitors will emerge in the near future. There is no assurance that the Company's products will compete successfully with other established and/or well- regarded products. Inability to compete successfully might result in increased costs, reduced yields and additional risks to the investors herein. Marketing. The Company has no formal marketing plan and no sales representatives. The Company's products will be marketed through catalog advertising to the salon industry and special promotions. The salons order and receive their products weekly. No customer accounts for more than 20% of sales and there are no existing sales contracts. Backlog. The Company services its wholesale accounts on two days notice. There is no backlog. If the Company does not have a specific item, it is back ordered until the next delivery. Employees. The Company currently has one full- time employee and one part-time employee. The Company's operations do not depend nor are they expected to depend upon patents, copyrights, trade secrets, know-how or other proprietary information. No amounts have been expended by the Company for research and development of any products nor does the Company expect to expend any amounts this year or in the near future. The Company's business, products and properties are not subject to material regulation (including environmental regulation) by federal, state, or local governmental agencies. Seasonal Nature of Business Activities. The Company's business activities are not seasonal. 6 ITEM 2. PROPERTIES. The Company's executive offices and showroom are located at 380 Totowa Road, Totowa, New Jersey 07512. Telephone No. (973) 904-0004. These offices consist of 1,400 square feet on a lease term. The Company has a lease for a term of three (3) years commencing May 1, 1999 at a monthly rental of $1,200 per month for the first twelve (12) months and $1,300 a month for each of the remaining twenty four (24) months. Total rent charged to operations for the years ended March 31, 2002 and 2001 was $15,204 each year. In April 2002, the Company renewed its lease for a term of two (2) years commencing May 1, 2002 at a monthly rental of $1,300 per month. The Company owns its delivery vehicle and the computers used in the operation of the business. ITEM 3. LEGAL PROCEEDINGS. The Company is not involved in any legal proceedings at this date. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. During the fourth quarter of the fiscal year ended March 31, 2002, no matters were submitted to a vote of the Company's security holders, through the solicitation of proxies. 7 PART II ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Information. The Company began trading publicly on the NASD Over the Counter Bulletin Board in October 2001. The following table sets forth the range of high and low bid quotations for the Company's common stock for each quarter since trading began, as reported on the NASD Bulletin Board. The quotations represent inter-dealer prices without retail markup, markdown or commission, and may not necessarily represent actual transactions.
Quarter Ended High Bid Low Bid 12/31/01 $.86 $.80 3/31/02 $.75 $.72
The Company has never paid any cash dividends nor does it intend, at this time, to make any cash distributions to its shareholders as dividends in the near future. As of March 31, 2002, the number of holders of Company's common stock was 114. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Trends and Uncertainties. Demand for the Company's products will be dependent on, among other things, market acceptance of the Company's concept and general economic conditions, which are cyclical in nature. Inasmuch as a major portion of the Company's activities is the receipt of revenues from the sales of its products, the Company's business operations may be adversely affected by the Company's competitors and prolonged recessionary periods. Hair styles in the industry change drastically from season to season. The recent trend away from straight hair will have a favorable impact on the sales of the Company's hair products such as perms, etc. although the extent of this impact is indeterminable. 8 Capital and Source of Liquidity. In April 2002, the Company renewed its lease for a term of two (2) years commencing May 1, 2002 at a monthly rental of $1,300 per month. For the year ended March 31, 2001, the Company had a non-cash financing activity of $173,750 for forgiveness of debt by stockholders. For the year ended March 31, 2001, the Company made an investment in marketable securities of $50,000 resulting in net cash used in investing activities of $50,000. For the year ended March 31, 2002, the Company received proceeds from the sale of marketable securities of $75,000 resulting in net cash provided by investing activities of $75,000. In August 2001, the Board of Directors approved the issuance of 1,130,000 stock options to its president and two consultants. The options were exercisable at $.12 per common share and granted for the consideration of $10 per individual. In December 2001, the options were granted at which time additional paid-in-capital was charged for $308,500 ($.27 per common share) for the excess of market value over the option price. Officer salaries were charged for $136,530 and consulting fees for $171,990. For the year ended March 31, 2002, the Company issued common stock and options for $135,630 resulting in net cash provided by financing activities of $135,630. For the year ended March 31, 2001, the Company did not pursue any financing activities. Results of Operations. The Company sells approximately 1,000 different products at varying mark ups ranging from 20 to 40 percent. The Company has two types of customers, beauty salons and the general public. The gross profit margin on sales of merchandises to the general public ranges from 30 to 40 percent depending on the product sold. The gross margin on sales of merchandise to beauty salons is somewhat less ranging from 20 to 28 percent depending on the product sold and the discount 9 given. The Company's product margin increased in 2002 over 2001 due to a change in sales mix. Although sales decreased (wholesale decreased by 14.75% and retail decreased by 6.42%) products sold were sold at higher margins resulting in a higher gross margin for the year. March 31, 2002 compared to March 31, 2001 For the year ended March 31, 2002, the Company had a net loss of $(318,729). The Company had net sales of $216,087 with a cost of goods sold of $163,148 resulting in gross profit of $52,939 for the year ended March 31, 2002. The Company had operating expenses of $424,970 for the year ended March 31, 2002. These expenses primarily consisted of officer's salaries of $168,850, auto and delivery of $8,382, consulting fees of $171,990, professional fees of $37,377, rent of $15,204, telephone of $1,991, utilities of $1,874, store supplies of $914, insurance of $3,705, office expenses of $1,760, payroll and other taxes of $3,155 and other miscellaneous expenses of $9,768. For the year ended March 31, 2001, the Company had a net loss of $(72,851). The Company had net sales of $240,420 with a cost of goods sold of $188,736 resulting in gross profit of $51,684 for the year ended March 31, 2001. The Company had operating expenses of $134,029 for the year ended March 31, 2001. These expenses primarily consisted of officer's salaries of $56,936, auto and delivery of $8,360, professional fees of $27,812, rent of $15,204, telephone of $2,466, utilities of $2,242, store supplies of $1,587, insurance of $3,404, office expenses of $2,989 payroll and other taxes of $2,879 and other miscellaneous expenses of $10,150. The Company's product margin increased from year ended March 31, 2001 to March 31, 2002 by approximately 3% (from 21.5% to 24.5%). This increase represents an approximately 2.4% increase in gross margin. The increase is a direct result from the change in sales mix, and higher volume purchases from suppliers resulting in lower unit cost. In 2001, the Company had 1,852 invoices to customers, while in 2002, the Company had only 1,682 invoices, a decrease of 9.2%, resulting in a $24,333 decrease in sales for 2002. 10 Professional fees increased due to additional cost associated with the new auditing firm, additional report filings, higher fees charged by stock transfer agent and normal fee increases by all professionals. The major cause of the Company's losses from operations have been the low sales volume. Management is looking for new suppliers at more favorable prices and to increase their customer base and sales volume. Management believes that if it can increase its customer base significantly and obtain products from new sources at favorable pricing, it will have a favorable impact on the Company's results of operations with in the next 12 months. Plan of Operation. During the next twelve months, the Company may obtain new product lines by negotiating with various manufacturers. The Company does not intend to hire any additional employees. The Company's liquidity will be decreased due to little or no increase in revenue and higher operating costs. The Company is not delinquent on any of its obligations even though the Company has had limited operating revenues. The Company intends to market its products utilizing cash made available from the sale of its products. The Company is of the opinion that revenues from the sales of its products and the proceeds from the sale of its securities will be sufficient to pay its expenses. The Company does not have nor does it intend to have pension and/or other post-retirement benefits in the future. The Company does not have any or intends to have any derivative instruments or hedging activities. ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements The response to this item is being submitted as a separate section of this report beginning on page 16. 11 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On March 4, 2002, the board of directors of Creative dismissed Ehrenkrantz Sterling & Co. as Creative's independent public accountants and notified them on that same date. The decision to use another accounting firm was made due to the resignation of Thomas Parrillo from Ehrenkrantz Sterling & Co., who had worked directly with Creative. Mr. Parrillo took another position with Withum Smith & Brown, PC. Ehrenkrantz Sterling & Co.'s report on the financial statements of Creative for the fiscal year ended March 31, 2001 neither contained an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles. During Creative's most recent fiscal year and the interim period through the date of dismissal, there were no disagreements on any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure and there were no "reportable events" with Ehrenkrantz Sterling & Co. as described in Items 304 (a)(1)(iv) and (v) of Regulation S-K, respectively. On March 4, 2002, the board of directors of Creative engaged the accounting firm of Withum Smith & Brown, PC as principal accountants of Creative for the fiscal year ended March 31, 2002. Creative has not consulted Withum Smith & Brown, PC during Creative's two most recent fiscal years and the interim period for the quarter ended December 31, 2001. 12 PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY Board of Directors. The following persons listed below have been retained to provide services as directors and executive officers until the qualification and election of his successor. All holders of Common Stock will have the right to vote for Directors of the Company. The Board of Directors has primary responsibility for adopting and reviewing implementation of the business plan of the Company, supervising the development business plan, review of the officers' performance of specific business functions. The Board is responsible for monitoring management, and from time to time, to revise the strategic and operational plans of the Company. Directors receive no cash compensation or fees for their services rendered in such capacity.
Name Position Held Term of Office Carmine Catizone, age 54 President, Director Inception to present Daniel Generelli, age 36 Secretary/Treasurer Inception Vice-President/Director to present
Resumes: Carmine Catizone. Mr. Catizone has been President and a director of the Company since its inception in August 1995. From June 1988 to July 1994, Mr. Catizone was President and a Director of J&E Beauty Supply, Inc., a retail and wholesale beauty supply distributor. Mr. Catizone served as President and a director of C&C Investments, Inc., a blank check company (now known as T.O.P.S. Medical Corp., which provided chemicals for transportation of organs) from July 1977 to December 1984. Mr. Catizone is not currently involved with T.O.P.S. Medical Corp. From June 1980 to December 1985, Mr. Catizone had been district sales manager (engaged in sales of cosmetics) for Chattem Labs. Mr. Catizone received his Bachelor of Science degree from Fairleigh Dickerson University in 1972. 13 Daniel Generelli. Mr. Generelli has been Secretary-Treasurer and a director of the Company since inception in August 1995. From December 1989 to July 1995, Mr. Generelli was Secretary/Treasurer and a director of J&E Beauty Supply, Inc., a retail and wholesale beauty supply distributor. From December 1984 to December 1989, Mr. Generelli was employed as a distribution supervisor with Tags Beauty Supply, a retail and wholesale beauty supply distributor in Fairfield, NJ. Mr. Generelli graduated from Ramapo College of New Jersey with a Bachelor of Science degree in June of 1984. Remuneration. To date, the Company has not entered into employment agreements nor are any contemplated. Mr. Generelli and Mr. Catizone were paid approximately $30,000 per year. Although he is still an officer and director of the Company, Mr. Generelli is no longer a full time employee of the Company as of February 2001. Until March 2001, all of Mr. Catizone's $30,000 salary had been accrued. Mr. Carmine Catizone ($155,000) and Mr. Pat Catizone ($18,750) forgave accrued salaries totaling $173,750 which is reflected in the financial statements as additional paid-in capital for the year ended March 31, 2001.
Annual Compensation Awards Payouts --------------------------- ---------------------- ---------- Other Restricted Securities Annual Stock Underlying LTIP All Other Name and Position Year Salary($) Bonus($) Compensation($) Awards(#) Options/SARs(#) Payouts($) Compensation($) Carmine Catizone 2002 30,000 ---- ---- ---- ---- ---- 156,530 Chairman and 2001 30,000 ---- ---- ---- ---- ---- ---- President 2000 30,000 ---- ---- ---- ---- ---- ---- Daniel Generelli 2002 2,350 ---- ---- ---- ---- ---- ---- Secretary/Treasuer/ 2001 26,936 ---- ---- ---- ---- ---- ---- Director 2000 31,189 ---- ---- ---- ---- ---- ----
On December 4, 2001, the Board of Directors granted 500,000 stock options to Carmine Catizone, President. The options were exercisable at $.12 per common share for a period of one year and granted for the consideration of $10. Market price at time of grant was $.39. Board of Directors Compensation. Members of the Board of Directors may receive an amount yet to be determined annually for their participation and will be required to attend a minimum of four meetings per fiscal year. To date, the Company has paid $0.00 in directors' expenses. 14 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following tabulates holdings of shares of the Company by each person who, subject to the above, at the date of this registration statement, holders of record or is known by Management to own beneficially more than 5.0% of the Common Shares and, in addition, by all directors and officers of the Company individually and as a group. Each named beneficial owner has sole voting and investment power with respect to the shares set forth opposite his name. Shareholdings at Date of This Prospectus
Percentage of Number & Class(1) Outstanding Name and Address of Shares Common Shares Carmine Catizone Common 1,308,000 (direct) 31.26% 10 1/2 Walker Avenue 80,600(2) (indirect) 1.93% Morristown, NJ 07960 Daniel T. Generelli Common 80,000 1.91% 24 Kansas Street Hackensack, NJ 07601 All Directors & Officers 1,468,600 35.10% as a group (2 persons) Pat Catizone Common 500,000 (direct) 11.95% 266 Cedar Street Common 10,000(3)(indirect) .24% Cedar Grove, NJ 07009 Ram Venture Holdings Corp. Common 630,000 15.06% 3040 E. Commercial Blvd. Fort Lauderdale, FL 33308 Cede & Co. Common 487,500 11.65% P.O. Box 20 Bowling Green Station New York, NY 10274
(1)Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended, beneficial ownership of a security consists of sole or shared voting power (including the power to vote or direct the voting) and/or sole or shared investment power (including the power to dispose or direct the disposition) with respect to a 15 security whether through a contract, arrangement, understanding, relationship or otherwise. Unless otherwise indicated, each person indicated above has sole power to vote, or dispose or direct the disposition of all shares beneficially owned, subject to applicable unity property laws. (2)Carmine Catizone and Phyllis Catizone are husband and wife and are deemed to be the beneficial owners of each other's shares and custodial shares. (3)Pat Catizone and Barbara Catizone are husband and wife and are deemed to be the beneficial owners of each other's shares. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On January 31, 2002, the Company exchanged 500,000 common shares valued at $200,000 ($0.40 cents per share) for 2,000,000 shares of a corporate stockholder's common stock valued at $200,000 ($0.10 per share). This corporate stockholder was one of the consultants who received options. At the conclusion of the transaction, the corporate shareholder owned 18% of the Company's issued and outstanding shares. ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) FINANCIAL STATEMENTS AND SCHEDULES The following financial statements and schedules are filed as part of this report: Reports of Independent Auditors 16 Balance Sheets 18 Statements of Operations and Comprehensive Income (Loss) 20 Statements of Stockholder's Equity 21 Statements of Cash Flows 22 Notes to Financial Statements 23 Schedules Omitted: All schedules other than those shown have been omitted because they are not applicable, not required, or the required information is shown in the financial statements or notes thereto. 16 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders of Creative Beauty Supply, Inc. Totowa, New Jersey We have audited the accompanying balance sheet of Creative Beauty Supply, Inc. as of March 31, 2002 and the related statements of income and comprehensive income (loss), stockholders' equity and cash flows for the year then ended. 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Creative Beauty Supply, Inc. as of March 31, 2002 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. /s/Withum Smith & Brown - ------------------------------ Withum Smith & Brown Livingston, New Jersey May 23, 2002 17 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders of Creative Beauty Supply, Inc. Totowa, New Jersey We have audited the accompanying balance sheet of Creative Beauty Supply, Inc. as of March 31, 2001 and the related statements of operations and comprehensive income, stockholders' equity and cash flows for the year then ended. 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Creative Beauty Supply, Inc. as of March 31, 2001 and the results of its operations and cash flows for the year then ended in conformity with generally accepted accounting principles. /s/Ehrenkrantz Sterling & Co., LLC - --------------------------------- Ehrenkrantz Sterling & Co., LLC Certified Public Accountants May 16, 2001 18 CREATIVE BEAUTY SUPPLY, INC BALANCE SHEETS ASSETS
March 31, March 31, 2002 2001 -------- --------- CURRENT ASSETS: Cash and cash equivalents $ 383,108 $ 235,507 Marketable securities 364,500 178,125 Accounts receivable 2,123 2,406 Inventory 66,353 62,721 Prepaid expenses 2,494 3,637 --------- --------- TOTAL CURRENT ASSETS 818,578 482,396 PROPERTY AND EQUIPMENT, net of accumulated depreciation 161 375 --------- --------- TOTAL ASSETS $ 818,739 $ 482,771 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable - trade $ 10,887 $ 18,759 Payroll taxes withheld and accrued 1,188 821 Accrued expenses 825 2,452 Deferred income taxes 63,569 55,093 --------- --------- TOTAL CURRENT LIABILITIES 76,469 77,125 --------- --------- STOCKHOLDERS' EQUITY: Preferred stock, par value $.001, authorized 10,000 000 shares, issued and outstanding - 0 - shares - - Common stock, par value $.001, authorized 100,000,000 shares, issued and outstanding 3,494,650 and 1,864,650 shares 3,495 1,865 Additional paid-in capital 1,288,781 646,291 Accumulated deficit (634,271) (315,542) Accumulated other comprehensive income 84,265 73,032 --------- --------- TOTAL STOCKHOLDERS' EQUITY 742,270 405,646 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 818,739 $ 482,771 ========= =========
See Accompanying Notes to Financial Statements 19 CREATIVE BEAUTY SUPPLY, INC. STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) YEARS ENDED MARCH 31, 2002 AND 2001
2002 2001 --------- --------- NET SALES $ 216,087 $ 240,420 COST OF GOODS SOLD 163,148 188,736 --------- --------- GROSS PROFIT 52,939 51,684 --------- --------- OPERATING EXPENSES: Salaries-officers 168,850 56,936 Payroll taxes 2,915 2,599 Auto and delivery 8,382 8,360 Consulting fees 171,990 - Employee welfare 7,943 7,644 Insurance 3,705 3,404 Office 1,760 2,989 Professional fees 37,377 27,812 Rent 15,204 15,204 Store supplies 914 1,587 Taxes 240 280 Telephone 1,991 2,466 Utilities 1,874 2,242 Miscellaneous 1,611 829 Depreciation and amortization 214 1,677 --------- --------- TOTAL OPERATING EXPENSES 424,970 134,029 --------- --------- LOSS FROM OPERATIONS BEFORE OTHER INCOME (372,031) (82,345) --------- --------- OTHER INCOME: Gain on sale of securities 41,666 - Interest income 11,636 15,869 Inventory write-downs - (6,375) --------- --------- TOTAL OTHER INCOME 53,302 9,494 --------- --------- NET LOSS (318,729) (72,851) --------- --------- 20 OTHER COMPREHENSIVE INCOME, NET OF TAXES Unrealized holding gains arising during the year, net of income taxes of $60,200 for 2002 and $55,093 for 2001 79,800 73,032 Less: reclassification adjustment, net of income taxes of $51,724 (68,567) - --------- --------- 11,233 73,032 --------- --------- TOTAL COMPREHENSIVE INCOME (LOSS) $(307,496) $ 181 ========= ========= LOSS PER COMMON SHARE, BASIC AND DILUTED $ (0.15) $ (0.04) ========= ========= WEIGHT AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 2,184,513 1,864,650 ========= =========
See Accompanying Notes to Financial Statements 21 CREATIVE BEAUTY SUPPLY, INC. STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED MARCH 31, 2002 AND 2001
Accumulated Common Stock Other Number of Additional Accumulated Comprehensive Shares Amount Paid-in Capital Deficit Income Total - ----------------------------------------------------------------------------------------- Balance, April 1, 2000 1,864,650 $1,865 $472,541 $(242,691) $ -- $231,715 Net loss -- -- -- (72,851) -- (72,851) Forgiveness of debt by stockholders -- -- 173,750 -- -- 173,750 Other comprehensive income -- -- -- -- 73,032 73,032 --------- ------ -------- --------- ------- -------- Balance, March 31, 2001 1,864,650 1,865 646,291 (315,542) 73,032 405,646 Net loss -- -- -- (318,729) -- (318,729) Granting of stock Options -- -- 308,490 -- -- 308,490 Issuance of common stock through exercise of stock options 1,130,000 1,130 134,500 -- -- 135,630 Issuance of common stock in exchange for marketable securities 500,000 500 199,500 -- -- 200,000 Other comprehensive Income -- -- -- -- 11,233 11,233 --------- ------ -------- --------- ------- -------- Balance, March 31, 2002 3,494,650 $3,495 $1,288,781 $(634,271) $84,265 $742,270 ========= ====== ========== ========= ======= ========
See notes to financial statements 22 CREATIVE BEAUTY SUPPLY, INC STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 2002 AND 2001
2002 2001 ------ ------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(318,729) $(72,851) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 214 1,677 Gain on sale of marketable securities (41,666) - Operating expenses through issuance of stock options 308,490 - Changes in operating assets and liabilities: Accounts receivable 283 1,228 Inventory (3,632) 4,986 Prepaid expenses 1,143 (1,389) Accounts payable (7,872) 2,542 Payroll taxes withheld and accrued 367 766 Accrued expenses (1,627) 27,039 --------- --------- Net Cash Used In Operating Activities (63,029) (36,002) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of marketable securities 75,000 - Investment in marketable securities - (50,000) --------- --------- Net Cash Provided By (Used In) Investing Activities 75,000 (50,000) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock and options 135,630 - --------- --------- Net Cash Provided By Financing Activities 135,630 - ---------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 147,601 (86,002) CASH AND CASH EQUIVALENTS-beginning of year 235,507 321,509 ---------- --------- CASH AND CASH EQUIVALENTS-end of year $ 383,108 $ 235,507 ========== =========
See Accompanying Notes to Financial Statements 23 CREATIVE BEAUTY SUPPLY, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Creative Beauty Supply, Inc. was incorporated in the State of New Jersey on August 28, 1995, and commenced operations on January 2, 1996. The Company sells cosmetic and beauty supplies both on the retail and wholesale levels to the general public and beauty salons in Northern and Central New Jersey. The Company is located in Totowa, New Jersey and employed two employees from the date its operations commenced until February 2001, at which time one employee was terminated. Since February 2001, the Company has only one full time employee. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION Net sales are recognized at the time products are shipped to customers. Over the counter sales are recorded at the point of sale. CASH EQUIVALENTS The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. MARKETABLE SECURITIES The Company has elected to classify its investments in equity securities as available-for sale and report them at fair value. Realized gains and losses are recorded in earnings and unrealized gains and losses are excluded from earnings and reported as a separate component of equity as accumulated other comprehensive income (loss). 24 PROVISION FOR DOUBTFUL ACCOUNTS Bad debts are provided on the allowance method based on historical experience and management's evaluation of outstanding accounts receivable. Management considered accounts receivable at March 31, 2002 and 2001 to be fully collectible; accordingly, no allowance for doubtful accounts was provided for at March 31, 2002 and 2001. INVENTORY Inventory, consisting of finished goods, is valued at lower of cost or market, with cost being determined on the first-in, first-out (FIFO) method. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation of property and equipment is provided for over the estimated useful lives of the respective assets. Depreciation is recorded based on the straight-line method. The major classes of assets and ranges of estimated useful lives are as follows: Years Delivery equipment 5 Furniture and office equipment 7 Maintenance, repairs and minor renewals are charged to earnings when they are incurred. When assets are retired or otherwise disposed of, the assets and related allowance for depreciation and amortization are eliminated from the account and any resulting gain or loss is reflected in income. INCOME TAXES Deferred income taxes are provided on the liability method whereby deferred income tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred income tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred income tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. 25 LONG-LIVED ASSETS The Company reviews long-lived assets for impairments whenever events or changes in business circumstances occur that indicate that the carrying amount of the assets may not be recoverable. The Company assesses the recoverability of long-lived assets held and to be used based on undiscounted cash flows, and measures the impairment, if any, using discounted cash flows. NET LOSS PER COMMON SHARE The Financial Accounting Standard Board issued "SFAS" No. 128, which requires the presentation on the face of the income statement "basic" earnings per share and "diluted" earnings per share. Basic earnings per share is computed by dividing the net income (loss) available to common stockholders by the weighted average number of outstanding common shares. The calculation of diluted earnings per share is similar to basic earnings per share except the denominator includes dilutive common stock equivalents such as stock options and convertible debentures. There were no dilutive common stock equivalents for all periods presented. COMPREHENSIVE INCOME Comprehensive income includes net earnings adjusted for certain revenues, expenses, gains and losses that are excluded from net earnings under generally accepted accounting principles. NEW ACCOUNTING STANDARDS: In July 2001, the FASB issued FASB Statement No. 142, "Goodwill and Other Intangible Assets" (FAS 142). FAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. FAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. FAS 142 is required to be applied for fiscal years beginning after December 15, 2001. Currently, the Company has not recorded any goodwill and will assess how the adoption of FAS 142 will impact its financial positions and results of operations in any future acquisitions. In August 2001, the FASB issued FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS144). This statement supercedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and or Long- 26 Lived Assets to be Disposed Of (FAS 121) and amends Accounting Principles Board Opinion No. 30, Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. FAS 144 retains the fundamental provisions of FAS 121 for recognition and measurements of impairment, but amends the accounting and reporting standards for segments of a business to be disposed of. FAS 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The provisions of FAS 144 generally are to be applied prospectively. The Company believes that that the adoption of FAS 144 will not have a material impact on the Company's financial position or results of operations. RECLASSIFICATIONS Certain reclassifications were made to the 2001 financial statements presentation in order to conform to the 2002 financial statements presentation. 2. CONCENTRATION OF CREDIT RISK: The Company sells its products to various customers primarily in Northern and Central New Jersey. The Company performs ongoing credit evaluations on its customers and generally does not require collateral. The Company maintains its cash balances with a major bank. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000 per depositor. At March 31, 2002, the Company's uninsured cash balances approximated $286,900. The Company has made an investment in a single marketable equity security which represents approximately 47% of its total assets at March 31, 2002. There is no guarantee that the market value will not decline. 3. ECONOMIC DEPENDENCY: For the year ended March 31, 2002 and 2001, the Company purchased approximately 59% and 57%, respectively, of its products from one supplier. Management believes that other suppliers could provide similar products on comparable terms. A 27 change in suppliers, however, could cause a delay in obtaining merchandise and possible loss of sales which could effect operating results. 4. FAIR VALUE OF FINANCIAL INSTRUMENTS: The Company measures its financial assets and liabilities in accordance with generally accepted accounting principles. For certain of the Company's financial instruments, including cash and cash equivalents, trade receivables, accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short-term maturities. The investment in marketable equity securities is recorded at fair value based on quoted market prices. 5. MARKETABLE SECURITIES: The cost and fair value of marketable equity securities that are available for sale are as follows:
March 31 ------------------------- 2002 2001 ------- ------- Cost $216,666 $50,000 Gross unrealized gains 147,834 128,125 -------- -------- Fair Value $364,500 $178,125 ======== ========
The unrealized appreciation of marketable equity securities that are available for sale is as follows:
March 31 --------------------------- 2002 2001 -------- ------ Net unrealized gains $147,834 $128,125 Deferred income taxes (63,569) (55,093) -------- -------- $84,265 $73,032 ======== ========
28 These amounts are presented as accumulated other comprehensive income. During 2002 and 2001, sales proceeds and gross realized gains and losses on securities classified as available-for-sale were:
2002 2001 -------- ------ Sales Proceeds $75,000 $ - ======= ======= Gross Realized Gains $41,666 $ - ======= =======
6. PROPERTY AND EQUIPMENT: The components of property and equipment are as follows:
March 31 -------------------------- 2002 2001 -------------------------- Delivery equipment $9,750 $9,750 Furniture and office equipment 1,500 1,500 ------ ------ 11,250 11,250 Less: Accumulated depreciation 11,098 10,875 ------ ------ $ 161 $ 375 ====== ======
Depreciation expense for the years ended March 31, 2002 and 2001 was $214 and $1,677, respectively. 7. INCOME TAXES: The deferred income tax asset at March 31, 2002 and 2001 related to Federal and state net operating loss carry forwards. The resulting deferred tax asset has been fully offset by a valuation allowance. The valuation allowance has been established equal to the full amount of the deferred tax assets as the Company is not assured at March 31, 2002 that is more likely than not that these benefits will be realized. 29 The deferred income tax liability at March 31, 2002 and 2001 related to an unrealized holding gain from an investment in marketable equity securities held for sale. Net operating loss carryforwards and temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to the net deferred tax liability relate to the following:
March 31 ----------------------- 2002 2001 ----------------------- Net operating loss carryforwards $58,811 $60,744 Unrealized holding gain (63,569) (55,093) ------- ------- (4,758) 5,651 Less valuation allowance for deferred tax assets (58,811) (60,744) ------- ------- Net deferred tax liability $ (63,569) $ (55,093) ========= =========
The change in the valuation allowance for the year ended March 31, 2002 was a decrease of $1,933 due to expiration of State net operating loss carry- forwards. A reconciliation between the statutory federal income tax rate (34%) and the effective income tax rates based on continuing operation is as follows:
Year Ended March 31 ----------------------------- 2002 2001 ----------------------------- Statutory federal income tax (benefit) $(108,368) $(24,769) State income tax (benefit) -- -- Non-deductible items 106,723 9,390 Valuation allowance 1,645 15,379 -------- -------- Net income tax expense $ -- $ -- ======== ========
30 Federal net operating loss carry-forwards of $146,241 will expire through the year 2022 and the state net operating loss carry-forwards of $100,987 will expire through the year 2009. 8. Stockholders' Equity: In March 2001, two stockholders forgave accrued salaries due them in the amount of $173,750 which is reflected in the financial statements as additional paid-in capital for the year ended March 31, 2001. On August 20, 2001 the Board of Directors approved the issuance of 1,130,000 stock options to its President and two consultants. The options were exercisable at $.12 per common share for a period of one year and granted for the consideration of $10 per individual. On December 4, 2001 all options were granted at which time additional paid-in-capital was charged for $308,520 ($ .27 per share) for the excess of market value over the option price. Officer salaries were charged for $136,530 and consulting fees for $171,990. In January 2002 all 1,130,000 stock options were exercised for $135,600 ($.12 per share). In January 2002 the Company exchanged 500,000 shares of its common stock valued at $.40 per share for 2,000,000 shares of a corporate stockholder's common stock valued at $.10 per share. 9. Supplemental Cash Flow Information: There was no interest or income taxes paid during the years ended March 31, 2002 and 2001. Non cash investing and financing activities for the year ended March 31, 2002 consist of an exchange of 500,000 shares of common stock for marketable securities valued at $200,000. Non cash financing activities for the year ended March 31, 2001 consisted of a forgiveness of debt by stockholders totaling $173,750. 10. SALES: Wholesale sales consist of sales to beauty salons of merchandise for resale. Sales of merchandise to beauty salons for their own consumption, not 31 for resale, are considered retail sales. All sales to the general public are also considered retail sales. Net sales are summarized as follows:
Year Ended March 31 --------------------------- 2002 2001 --------------------------- Retail $124,936 $133,501 Wholesale 91,151 106,919 -------- -------- $216,087 $240,420 ======== ========
11. COMMITMENTS: In April of 1999, the Company entered into a lease agreement with a non-related party for a term of three (3) years commencing May 1, 1999 for the rental of its executive offices, retail, wholesale and warehouse facilities in Totowa, New Jersey at a monthly rental of $1,200 per month for the first twelve (12) months and $1,300 a month for each of the remaining twenty four (24) months. Total rent charged to operations for the years ended March 31, 2002 and 2001 was $15,204 each year. In April 2002, the Company renewed its lease for a term of (2) years commencing May 1, 2002 at a monthly rental of $1,300 per month. The minimum annual future payments are as follows: Years Ended March 31 -------- 2003 $15,600 2004 15,600 2005 13,000 ------- $44,200 ======= 12. Related Party Transaction: On January 31, 2002 the Company exchanged 500,000 shares of its common stock valued at $200,000 ($0.40 cents per share) for 2,000,000 shares of a corporate stockholder's common stock valued at $200,000 ($0.10 per share). This corporate 32 stockholder was one of the consultants who received options as indicated in Note 8. At the conclusion of the transaction, the corporate shareholder owned 18% of the Company's issued and outstanding shares. 33 (b) List of Exhibits The following exhibits are filed with this report: (2.1) Articles of Incorporation incorporated by reference to Form 10SB filed June 14, 1999, file #0-26361 (2.2) Bylaws incorporated by reference to Form 10SB filed June 14, 1999, file #0-26361 (3.1) Common Stock Certificate incorporated by reference to Form 10SB filed June 14, 1999, file #0-26361 (B) REPORTS ON FORM 8-K Form 8-K dated 1/30/02 - Item 2. Acquisition or Disposition of Assets Form 8-K dated 3/4/02 - Item 4. Change in Registrants Certifying accountants 34 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Company has duly caused this Report to be signed on its behalf by the undersigned duly authorized person. Date: July 8, 2002 Creative Beauty Supply, Inc. /s/ Carmine Catizone --------------------- By: Carmine Catizone, President Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
/s/Carmine Catizone 7/8/2002 - ----------------------- Carmine Catizone President and Director (Principal Executive Officer) /s/Daniel Generelli 7/8/2002 - ------------------------ Daniel Generelli Principal Financial Officer/Controller/Director
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