10KSB 1 creative10ksb2003.txt FORM 10KSB FOR MARCH 31, 2003 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: 3/31/03 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 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 $193,495. As of March 31, 2003, the market value of the Company's voting $.00l par value common stock held by non-affiliates of the Company was $439,131. 2 The number of shares outstanding of Company's class of common stock, as of March 31, 2003 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, 2003 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. 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 (year ended March 31, 2003) the Company purchased approximately 56% 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. 4 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 for years ended March 31, are summarized as follows: 2003 2002 -------- -------- Retail 109,061 $124,936 Wholesale 84,434 91,151 ---------- --------- 193,495 $216,087 ========== ========= 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 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. 5 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. 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. In April of 1999, the Company entered into a lease agreement for a term of three(3) years commencing May 1, 1999 at a monthly lease 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. In April 2002, upon the expiration of the lease, the Company renewed its lease for an additional two(2)years at a monthly rental of $1,300 per month. Total rent charged to operations for the years ended March 31, 2003 and 2002 was $15,555 and $15,204, respectively. 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, 2003, no matters were submitted to a vote of the Company's security holders, through the solicitation of proxies. 6 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 6/30/02 $.51 $.51 9/30/02 $.28 $.22 12/31/02 $.26 $.25 3/31/03 $.23 $.22
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, 2003, the number of holders of Company's common stock was 113. 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. 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, 2003, the Company received proceeds from the sale of marketable securities in the amount of $25,000 and proceeds from the sale of assets in the amount of $700. The Company acquired a used delivery van for $9,394. As a result, the Company had net cash provided by investing activities of $16,306 for the year ended March 31, 2003. 7 For the year ended March 31, 2002, the Company received proceeds from the sale of marketable securities in the amount of $75,000 resulting in net cash provided by investing activities of $75,000. For the year ended March 31, 2003, the Company did not pursue any financing activities. 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. Results of Operations. The Company sells approximately 1,000 different products at varying mark ups ranging from 20 to 40 percent. The Company has two types of customers, beauty salons and the general public. The gross profit margin on sales of merchandises to the general public ranges from 30 to 40 percent depending on the product sold. The gross margin on sales of merchandise to beauty salons is somewhat less ranging from 20 to 28 percent depending on the product sold and the discount given. The Company's product margin increased in 2003 over 2002 due to a change in sales mix. Although sales decreased (wholesale decreased by 7.3% and retail decreased by 12.7%) products sold were sold at higher margins resulting in a higher gross margin for the year, 25.5% for 2003 compared to 24.57% for 2002. March 31, 2003 compared to March 31, 2002 For the year ended March 31, 2003, the Company had a net loss of $(84,785). The Company had net sales of $193,495 with a cost of goods sold of $144,103 resulting in gross profit of $49,392 for the year ended March 31, 2003. The Company had operating expenses of $157,337 for the year ended March 31, 2003. These expenses primarily consisted of officer's salaries of $32,170, employee welfare of $9,521, auto and delivery of $8,021, insurance of $3,663, office expense of $2,309, professional fees of $72,567, rent of $15,555, telephone of $3,264, utilities of $2,370, store supplies of $1,796, payroll and other taxes of $3,329, depreciation of $1,648 and other miscellaneous expenses of $1,124. 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, employee welfare of $7,943, auto and delivery of $8,382, consulting fees of $171,990, professional fees of $37,377, rent of 8 $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, depreciation of $214 and other miscellaneous expenses of $1,611. The Company's product margin increased from year ended March 31, 2002 to March 31, 2003 by approximately 1% (from 24.5% to 25.5%). The increase is a direct result from the change in sales mix, and higher volume purchases from suppliers resulting in lower unit cost. In 2002, the Company had 1,682 invoices to customers, while in 2003, the Company had only 1,530 invoices, a decrease of 9%, resulting in a $22,592 decrease in sales for 2003. Professional fees increased due to higher audit fees, 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. Liquidity and Capital Resources: 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. Critical Accounting Policies The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in the Company's financial statements and the accompanying notes. The amounts of assets and liabilities reported in our balance sheets and the amounts of revenues and expenses reported for each of our fiscal periods are affected by estimates and assumptions which are used for, but not limited to, the accounting for allowance for doubtful accounts, fair 9 market values of marketable securities, asset impairments, inventory and income taxes. Actual results could differ from these estimates. The following critical accounting policies are significantly affected by judgments, assumptions and estimates used in the preparation of the financial statements. Revenue is recognized when earned in accordance with applicable accounting standards. Net sales are recognized at the time products are shipped to customers. Over-the-counter sales are recorded at point of sale. The allowance for doubtful accounts is based on the Company's assessment of the collectability of specific customer accounts, credit worthiness and economic as well as the aging of the accounts receivable balances. If there is a deterioration of a major customer's credit worthiness or actual defaults are higher than the Company's historical experience, the Company's estimates of recoverability of amounts due the Company could be adversely affected. The Company has elected to classify all of its investments in equity securities as available-for-sale and report them at fair value. Realized gains and losses are recorded in earnings (loss) and changes in the unrealized gain or loss is excluded from earnings (loss) and reported as a component of other comprehensive income (loss). The Company's inventory consists of finished goods and is valued at lower of cost or market with cost being determined on the first-in, first-out (FIFO) method. The Company also considers obsolescense, excessive levels, deterioration and other factors in evaluating net realizable value. The Company periodically evaluates the net realizable value of long- lived assets, including property and equipment, relying on a number of factors including operating results, business plans, economic projections and anticipated future cash flows. An impairment in the carrying value of an asset is recognized whenever future cash flows (undiscounted) from an asset are estimated to be less than its carrying value. The amount of the impairment recognized is the difference between the carrying value of the asset and its fair value. Deferred income taxes are provided on the liability method whereby deferred income tax assets are recognized for deductible temporary differences and operating loss carry forwards 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 change in tax laws and rates on the date of enactment. 10 New Accounting Standards: The Financial Accounting Standards Board issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"). This statement addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. SFAS 144 supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." However, SFAS 144 retains the fundamental provisions of Statement No. 121 for (a) the recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. SFAS 144 was effective for the Company on April 1, 2002. The adoption of this pronouncement did not have a material impact on the Company's results of operations or financial position. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which supercedes Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity (Including Certain Costs Incurred in a Restructuring). SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and requires that a liability be recognized when it is incurred and should initially be measured and recorded at fair value. This statement is effective for exit or disposal activities that are initiated after December 31, 2002 and management does not expect the adoption to have an impact on the Company's financial position or results of operations. In November 2002, the FASB has issued FIN No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others ("FIN 45") which addresses the disclosure to be made by a guarantor in interim and annual financial statements about its obligations under guarantees. FIN 44 also requires the recognition of a liability by a guarantor at the inception of certain guarantees that are entered into or modified after December 31, 2002. The Company has adopted the disclosure requirement of FIN 45 and will apply the recognition and measurement provisions for all material guarantees. The adoption of this interpretation did not have a material impact on the Company's result of operations or financial position. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock- Based Compensation- Transition and Disclosure. "SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosure in financial statements about the effects of stock based compensation. The adoption in this pronouncement did not have a material impact on the Company's financial position or result of operations. 11 In January 2003, the FASB issued FASB Interpretation FIN No. 46, "Consolidation of Variable Interest Entities." FIN 46 clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 applies immediately to variable interest entities (VIE's) created after January 31, 2003, and to VIE's in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to VIE's in which an enterprise holds a variable interest that is acquired before February 1, 2003. FIN 46 applies to public enterprises as of the beginning of the applicable interim or annual period. The adoption of FIN 46 is not expected to have a material impact on the Company's financial position, liquidity, or results of operations. The Financial Accounting Standard Board issued "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150 establishes standards for how to classify and measure certain financial instruments with characteristics of both liabilities and equity. It requires an issuer to classify a financial instrument that is within its scope as a liability (or as an asset, in some circumstances). Most of such instruments were previously classified as equity. The Statement is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Adoption of this pronouncement is not expected to have a material impact on the Company's financial position, liquidity or results of its operations. Forward-Looking Statements This Form 10-KSB contains forward-looking statements within the meaning of the federal securities laws. These statements include those concerning the following: Our intentions, beliefs and expectations regarding the fair value of all assets and liabilities recorded; our strategies; growth opportunities; product development and introduction relating to new and existing products; the enterprise market and related opportunities; competition and competitive advantages and disadvantages; industry standards and compatibility of our products; relationships with our employees; our facilities, operating lease and our ability to secure additional space; cash dividends; excess inventory, our expenses; interest and other income; our beliefs and expectations about our future success and results; our operating results; our belief that our cash and cash equivalents will be sufficient to satisfy our anticipated cash requirements; our expectations regarding our revenues and customers; investments and interest rates. These statements are subject to risk and uncertainties that could cause actual results and events to differ materially. Creative Beauty Supply, Inc. undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-KSB. 12 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. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 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 have received to date 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 13 sales manager (engaged in sales of cosmetics) for Chattem Labs. Mr. Catizone received his Bachelor of Science degree from Fairleigh Dickerson University in 1972. 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. ITEM 10. EXECUTIVE COMPENSATION 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 $30,000 salary had been accrued.
Annual Compensation Awards Payouts --------------------------- ---------------------- ---------- Other Restricted Securities Annual Stock Underlying LTIP All Other Name and Position Year Salary($) Bonus($) Compensation($) Awards(#) Options/SARs(#) Payouts($) Compensation($) Carmine Catizone 2003 30,000 ---- ---- ---- ---- ---- ---- Chairman and 2002 30,000 ---- ---- ---- ---- ---- 136,500 President 2001 30,000 ---- ---- ---- ---- ---- ---- Daniel Generelli 2003 2,170 ---- ---- ---- ---- ---- ---- Secretary/Treasuer/ 2002 2,350 ---- ---- ---- ---- ---- ---- Director 2001 26,936 ---- ---- ---- ---- ---- ----
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. 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 14 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 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. 15 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 and REPORTS ON FORM 8-K (a) 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 (10.1) Lease agreement renewal dated April 2002 (99.1) Certifications pursuant to 18 U.S.C. Section 1350 (b) REPORTS ON FORM 8-K None ITEM 14. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, under the supervision and with the participation of our chief executive officer and chief financial officer, conducted an evaluation of our "disclosure controls and procedures" (as defined in Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-14(c)) within 90 days of the filing date of this annual report on Form 10KSB (the "Evaluation Date"). Based on their evaluation, our chief executive officer and chief financial officer have concluded that as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that all material information required to be filed in this annual report on Form 10KSB has been made known to them in a timely fashion. 16 Changes in Internal Controls There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date set forth above. PART F/S The following financial statements and schedules are filed as part of this report: Independent Auditors' Report 17 Balance Sheets March 31, 2003 and 2002 18 Statements of Operations and Comprehensive Income (Loss) Years ended March 31, 2003 and 2002 19 Statements of Stockholders' Equity Years ended March 31, 2003 and 2002 21 Statements of Cash Flows Years ended March 31, 2003 and 2002 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. 17 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders of Creative Beauty Supply, Inc. Totowa, New Jersey We have audited the accompanying balance sheets of Creative Beauty Supply, Inc. as of March 31, 2003 and 2002, and the related statements of operations and comprehensive loss, stockholders' equity and cash flows for the years 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 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 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 audits provide 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, 2003 and 2002 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/WithumSmith+Brown, P.C. Livingston, New Jersey May 27, 2003 18 CREATIVE BEAUTY SUPPLY, INC. BALANCE SHEETS MARCH 31, 2003 and 2002 ASSETS 2003 2002 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents $ 332,755 $ 383,108 Marketable securities 160,000 364,500 Accounts receivable 1,554 2,123 Inventory 63,912 66,353 Prepaid expenses 2,858 2,494 ---------- ---------- TOTAL CURRENT ASSETS 561,079 818,578 PROPERTY AND EQUIPMENT, net of accumulated depreciation 7,906 161 ---------- ---------- TOTAL ASSETS $ 568,985 $ 818,739 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable - trade $ 18,468 $ 10,887 Accrued expenses 16,095 825 Payroll taxes withheld and accrued 1,202 1,188 Deferred income taxes - 63,569 ---------- ---------- TOTAL CURRENT LIABILITIES 35,765 76,469 ---------- ---------- STOCKHOLDERS' EQUITY: Preferred stock, par value $.001, authorized 10,000,000 shares, issued and outstanding - 0 - shares - - Common stock, par value $.001, authorized 100,000,000 shares, issued and outstanding 3,494,650 3,495 3,495 Additional paid-in capital 1,288,781 1,288,781 Accumulated deficit (719,056) (634,271) Accumulated other comprehensive income (loss) (40,000) 84,265 ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 533,220 742,270 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 568,985 $ 818,739 ========== ========== See Accompanying Notes to Financial Statements. 19 CREATIVE BEAUTY SUPPLY, INC. STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS YEARS ENDED MARCH 31, 2003 AND 2002 2003 2002 ---------- ---------- NET SALES $ 193,495 $ 216,087 COST OF GOODS SOLD 144,103 163,148 ---------- ---------- GROSS PROFIT 49,392 52,939 ---------- ---------- OPERATING EXPENSES: Salaries-officers' 32,170 168,850 Payroll taxes 2,779 2,915 Auto and delivery 8,021 8,382 Consulting fees - 171,990 Employee welfare 9,521 7,943 Insurance 3,663 3,705 Office 2,309 1,760 Professional fees 72,567 37,377 Rent 15,555 15,204 Store supplies 1,796 914 Taxes 550 240 Telephone 3,264 1,991 Utilities 2,370 1,874 Miscellaneous 1,124 1,611 Depreciation 1,648 214 ---------- ---------- TOTAL OPERATING EXPENSES 157,337 424,970 ---------- ---------- LOSS FROM OPERATIONS (107,945) (372,031) ---------- ---------- OTHER INCOME: Gain on sale of securities 8,333 41,666 Interest income 14,127 11,636 Gain on sale of assets 700 - ---------- ---------- TOTAL OTHER INCOME 23,160 53,302 ---------- ---------- NET LOSS (84,785) (318,729) ---------- ---------- OTHER COMPREHENSIVE LOSS, NET OF TAXES Unrealized holding gains (loss) arising during the year, net of income taxes of $(60,200) for 2003 and $60,200 for 2002 (119,800) 79,800 Less: reclassification adjustment, net of income taxes of $3,369 for 2003 and $51,724 for 2002 (4,465) (68,567) ---------- ---------- (124,265) 11,233 ---------- ---------- 20 TOTAL COMPREHENSIVE LOSS $ (209,050) $ (307,496) ========== ========== LOSS PER COMMON SHARE, BASIC AND DILUTED $ (.02)$ (0.15) ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 3,494,650 2,184,513 ========== ========== See Accompanying Notes to Financial Statements. 21 CREATIVE BEAUTY SUPPLY, INC. STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED MARCH 31, 2003 AND 2002
Accumulated Common Stock Additional Other Number of Paid-in Accumulated Comprehensive Shares Amounts Capital Deficit Income(Loss) Total --------- -------- --------- ----------- --------- --------- 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 Net loss - - - (84,785) - (84,785) Other comprehensive loss - - - - (124,265) (124,265) --------- -------- ---------- ----------- ------------ --------- Balance, March 31, 2003 3,494,650 $ 3,495 $1,288,781 $ (719,056) $ (40,000) $533,220 ========= ======== ========== =========== ============ ========
See Accompanying Notes to Financial Statements. 22 CREATIVE BEAUTY SUPPLY, INC. STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 2003 AND 2002 2003 2002 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (84,785) $( 318,729) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 1,648 214 Gain on sale of marketable securities (8,333) (41,666) Gain on sale of delivery van (700) - Non-cash operating expenses - 308,490 Changes in operating assets and liabilities: Accounts receivable 569 283 Inventory 2,441 (3,632) Prepaid expenses (364) 1,143 Accounts payable 7,581 (7,872) Payroll taxes withheld and accrued 14 367 Accrued expenses 15,270 (1,627) ---------- ---------- Net Cash Used In Operating Activities (66,659) (63,029) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of marketable securities 25,000 75,000 Proceeds from sale of delivery van 700 - Acquisition of Property and equipment (9,394) - ---------- ---------- Net Cash Provided By Investing Activities 16,306 75,000 ---------- ---------- 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 (50,353) 147,601 CASH AND CASH EQUIVALENTS-beginning of year 383,108 235,507 ---------- ---------- CASH AND CASH EQUIVALENTS-end of year $ 332,755 $ 383,108 ========== ========== 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 presently employs only one full-time employee. Accounting Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 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 (loss) and changes in the unrealized gain or loss is excluded from earnings (loss) and reported as a component of other comprehensive income (loss). Receivables and Credit Policies: Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date or as specified by the invoice and are stated at the amount billed to the customer. Customer account balances with invoices dated over 90 days or 90 days past the due date are considered delinquent. Payments of accounts receivable are allocated to the specific invoices identified on the customer's remittance advice, or if unspecified, are applied to the earliest unpaid invoices. 24 The carrying amount of accounts receivable is reduced by a valuation allowance that reflects management's best estimate of the amounts that will not be collected. Management individually reviews all accounts receivable balances that are considered delinquent and based on an assessment of current credit worthiness, estimates the portion, if any, of the balance that will not be collected. In addition, management periodically evaluates the adequacy of the allowance based on the Company's past experience. Management considered accounts receivable at March 31, 2003 and 2002 to be fully collectible; accordingly, no allowance for doubtful accounts was provided for at March 31, 2003 and 2002. Inventory: Inventory, consisting of finished goods, is valued at lower cost or market with cost being determined on the first-in, first-out (FIFO) method. The Company also considers obsolescence, excessive levels, deterioration and other factors in evaluating net realizable value. Long-Lived Assets: The Company periodically evaluates the net realizable value of long-lived assets, including property and equipment, relying on a number of factors including operating results, business plans, economic projections and anticipated future cash flows. An impairment in the carrying value of an asset is recognized whenever future cash flows (undiscounted) from an asset are estimated to be less than its carrying value. The amount of the impairment recognized is the difference between the carrying value of the asset and its fair value. 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 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 is 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 carry 25 forwards 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 change in tax laws and rates on the date of enactment. 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 dilutive 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 (Loss): Comprehensive income (loss) includes net loss adjusted for certain revenues, expenses, gains and losses that are excluded from net earnings under generally accepted accounting principles; for the Company, such amounts consist solely of unrealized gains (losses) from marketable securities available for sale. New Accounting Standards: The Financial Accounting Standards Board issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"). This statement addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. SFAS 144 supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". However, SFAS 144 retains the fundamental provisions of Statement No. 121 for (a) the recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. SFAS 144 was effective for the Company on April 1, 2002. The adoption of this pronouncement did not have a material impact on the Company's results of operations or financial position. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which supercedes Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 26 addresses financial accounting and reporting for costs associated with exit or disposal activities and requires that a liability be recognized when it is incurred and should initially be measured and recorded at fair value. This statement is effective for exit or disposal activities that are initiated after December 31, 2002 and management does not expect the adoption to have an impact on the Company's financial position or results of operations. In November 2002, the FASB has issued FIN No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others ("FIN 45")" which addresses the disclosure to be made by a guarantor in interim and annual financial statements about its obligations under guarantees. FIN 45 also requires the recognition of a liability by a guarantor at the inception of certain guarantees that are entered into or modified after December 31, 2002. The Company has adopted the disclosure requirement of FIN 45 and will apply the recognition and measurement provisions for all material guarantees. The adoption of this interpretation did not have a material impact on the Company's result of operations or financial position. In December 2002 the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation- Transition and Disclosure. " SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosure in financial statements about the effects of stock based compensation. The adoption in this pronouncement did not have a material impact on the Company's financial position or result of operations. In January 2003, the FASB issued FASB Interpretation FIN No. 46, "Consolidation of Variable Interest Entities." FIN 46 clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 applies immediately to variable interest entities (VIE's) created after January 31, 2003, and to VIE's in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to VIE's in which an enterprise holds a variable interest that is acquired before February 1, 2003. FIN 46 applies to public enterprises as of the beginning of the applicable interim or annual period. The 27 adoption of FIN 46 is not expected to have a material impact on the Company's financial position, liquidity, or results of operations. The Financial Accounting Standard Board issued "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150 establishes standards for how to classify and measure certain financial instruments with characteristics of both liabilities and equity. It requires an issuer to classify a financial instrument that is within its scope as a liability (or as an asset, in some circumstances). Most of such instruments were previously classified as equity. The Statement is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Adoption of this pronouncement is not expected to have a material impact on the Company's financial position, liquidity or results of its operations. 2. Concentration of Credit Risk: The Company sells its product 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, 2003 the Company's uninsured cash balances approximated $236,700. 3. Supplier Concentration: For the years ended March 31, 2003 and 2002 the Company purchased approximately 56% and 59%, respectively, 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 merchandise and possible loss of sales which could affect 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. 28 5. Marketable Securities: The cost and fair value of marketable equity securities that are available-for-sale are as follows: March 31, 2003 2002 ---------- ---------- Cost $ 200,000 $ 216,666 Gross unrealized gains (losses) (40,000) 147,834 ---------- ---------- Fair values $ 160,000 $ 364,500 ========== ========== The unrealized appreciation (depreciation) of marketable equity securities reported as accumulated other comprehensive income (loss) is as follows: March 31, 2003 2002 ---------- ---------- Net unrealized gains (losses) $ (40,000) $ 147,834 Deferred income taxes - (63,569) ---------- ---------- $ (40,000) $ 84,265 ========== ========== During 2003 and 2002, sales proceeds and gross realized gains and losses on securities classified as available-for-sale were: 2003 2002 ---------- ---------- Sales Proceeds $ 25,000 $ 75,000 ========== ========== Gross Realized Gains $ 8,333 $ 41,666 ========== ========== The method used to determine the cost of securities sold was actual cost per share. 6. Property and Equipment: The components of property and equipment are as follows: March 31, 2003 2002 ---------- ---------- Delivery equipment $ 9,394 $ 9,750 Furniture and office equipment 1,500 1,500 ---------- ---------- 10,894 11,250 Less: Accumulated depreciation 2,988 11,089 ---------- ---------- $ 7,906 $ 161 ========== ========== 29 Depreciation expense for the years ended March 31, 2003 and 2002 was $1,648 and $214, respectively. 7. Income Taxes: The deferred income tax assets and liabilities at March 31, 2003 and 2002 relate to temporary differences between the financial statement carrying amounts and their tax basis. Assets and liabilities that give rise to significant portions of the net deferred tax assets and liabilities related to the following: March 31, 2003 2002 ---------- ---------- Net operating loss carry forwards $ 94,143 $ 58,811 Inventory, principally due to inventory reserves not currently deductible 2,236 - Unrealized holding (gains) losses 17,200 (63,569) ---------- ---------- 113,579 (4,758) Valuation allowance (113,579) (58,811) ---------- ---------- Net income tax asset (liability) $ - $ (63,569) ========== ========== A valuation allowance has been established equal to the full amount of the deferred tax asset as the Company is not assured at March 31, 2003 that is more likely than not that these benefits will be realized. The deferred income tax liabilities at March 31, 2002 related to an unrealized holding gain from its investments in marketable equity securities held for sale. The change in the valuation allowance for the year ended March 31, 2003 was an increase of $54,768 due to increases in federal and state net operating losses carry forwards, inventory reserves and unrealized holding losses. A reconciliation between the Federal Income Tax Rate (34%) and the effective income tax rate based on continuing operations is as follows: Year Ended March 31, 2003 2002 ---------- ---------- Statutory Federal income tax benefit $ (28,827) $ (108,368) Non-deductible items - 106,723 Valuation Allowance 28,827 1,645 ---------- ---------- Net Income Tax Expense $ - $ - ========== ========== 30 Federal net operating loss carry forwards of $231,047 will expire through the year 2018 and State net operating loss carry forwards of $173,187 will expire through the year 2010. However, state net operating loss carry forwards are suspended for use until 2005. 8. Stockholders' Equity: 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, 2003 and 2002. Non cash investing and financing activities for the year ended March 31, 2002 consisted of an exchange of 500,000 shares of common stock for marketable securities valued at $200,000 and the issuance of common stock and options for $135,630. 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 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, 2003 2002 ---------- ---------- Retail $ 109,061 $ 124,936 Wholesale 84,434 91,151 ---------- ---------- $ 193,495 $ 216,087 ========== ========== 31 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) and $1,300 a month for each of the remaining twenty four (24) months. 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. Total rent charged to operations for the years ended March 31, 2003 and 2002 was $15,555 and $15,204, respectively. The Company's minimum future annual lease payments are as follows: Year ended March 31 ------------ 2004 15,600 2005 1,300 ---------- $ 16,900 ========== 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 stockholder was one of the consultants who received options as indicated in Note 8. At the conclusion of the transaction, the corporate stockholder owned 18% of the Company's issued and outstanding shares. 32 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 7, 2003 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 7/7/2003 ----------------------- Carmine Catizone President and Director (Principal Executive Officer) /s/Daniel Generelli 7/7/2003 ------------------------ Daniel Generelli Principal Financial Officer/Controller/Director
< PAGE>33 CERTIFICATION I, Carmine Catizone, certify that: 1. I have reviewed this annual report on Form 10KSB of Creative Beauty, Inc. 2. Based on my knowledge, the annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present, in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 34 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: July 7, 2003 /s/Carmine Catizone Carmine Catizone Chief Executive Officer 35 CERTIFICATIONS I, Daniel Generelli, certify that: 1. I have reviewed this annual report on Form 10KSB of Creative Beauty, Inc. 2. Based on my knowledge, the annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present, in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 36 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: July 7, 2003 /s/Daniel Generelli Daniel Generelli Chief Financial Officer