UNITED STATES

**SECURITIES ANDEXCHANGE COMMISSION**

**Washington,D.C.****20549**

 

**FORM10-KSB**

|                                                                                                               | [X]         | ANNUAL REPORT UNDER        SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934     |
|--------------------------------------------------------------------------------------------------------------------|------------------|-------------------------------------------------------------------------------------------|
|                                                                                                               |  [        ] | For        the fiscal year ended December 31, 2002                                        |
|                                                                                                               |             |                                                                                      |
|                                                                                                               |             | TRANSITION REPORT UNDER        SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|                                                                                                               |             | For the transition period        from _______________________ to _____________            |
|                                                                                                               |             |                                                                                      |
|                                                                                                               |             | Commission file number        ________________________________                            |
|                                                                                                               |             |
| Costas,        Inc.                                                                                                |             |
| (Name of        small business issuer in its charter)                                                              |             |
|                                                                                                               |             |
| Nevada                                                                                                             |             | 88-0411500                                                                                |   |
| (State or        jurisdiction of incorporation or organization)                                                    |             | (I.R.S.        Employer Identification No.)                                               |   |
|                                                                                                               |             |                                                                                      |   |
| 3356 Eagle        Way, Rosamond, California                                                                        |             | 93560                                                                                     |   |
| (Address        of principal executive offices)                                                                    |             | (Zip        Code)                                                                         |   |
|                                                                                                               |             |
| Issuer's        telephone number: (661)-256-2168                                                                   |             |
|                                                                                                               |             |
| Securities registered under Section 12(b) of the        Exchange Act:                                              |             |
|                                                                                                               |             |                                                                                      |   |
| Title of        each class                                                                                         |             | Name of        each exchange on which registered                                          |   |
|                                                                                                               |             |                                                                                      |   |
|                                                                                                               |             |                                                                                      |   |
| Securities        registered under Section 12(g) of the Exchange Act:                                              |             |
|                                                                                                               |             |
| Common stock,        $.001 par value, 20,000,000 shares authorized                                                 |             |
| *        2,908,400        shares issued and outstanding as of December 31, 2002 |             |
| *        2,908,400        shares issued and outstanding as of March 18, 2003    |             |
|                                                                                                          |        |                                                                                 |    |    |    |

 

Checkwhether the issuer (1) filed all reports required to be filed by Section 13 or15(d) of the Exchange Act during the past 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has been subjectto such filing requirements for the past 90 days.  Yes  [X]  No []

 

Checkif disclosure of delinquent filers in response to Item 405 of Regulation S-B isnot contained in this form, and no disclosure will be contained, to the best ofregistrant's knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-KSB or any amendment tothis Form 10-KSB. [ ]

 

Stateissuer's revenues for its most recent fiscal year: $20,700 for the year endedDecember 31, 2002.

 

Statethe aggregate market value of the voting and non-voting common equity held bynon-affiliates computed by reference to the price at which the common equity wassold: $35,840 as of March 18, 2003.

 

 

 

 

 

-COVER-

 

 

 

**TABLEOF CONTENTS**

####                                                                                                                                     PAGE

PARTI................................................................................................................................................2

Item 1. Description ofBusiness...........................................................................................................2

Item 2. Description ofProperty...........................................................................................................6

Item 3. LegalProceedings...................................................................................................................7

Item 4. Submission of Matters to a Vote of SecurityHolders.............................................................. 7

PARTII...............................................................................................................................................8

Item 5. Market for Common Equity and Related StockholderMatters................................................. 8

Item 6. Management's Analysis of Financial Condition and Planof Operation..................................... 9

Item 7. FinancialStatements...............................................................................................................11

PARTIII.............................................................................................................................................25

Item 9. Directors, Executive Officers, Promoters and ControlPersons.............................................. 25

Item 10. ExecutiveCompensation......................................................................................................26

Item 11. Security Ownership of Certain Beneficial Owners andManagement................................... 26

Item 12. Certain Relationships and RelatedTransactions................................................................... 27

Item 13. Exhibits and Reports on Form8-K........................................................................................27

Item 14. Controls andProcedures.......................................................................................................28

SIGNATURES....................................................................................................................................29

 

 

 

 

 

 

 

 

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PARTI

Item1.       Description of Business

A.  Business Development and Summary

Costas, Inc., hereinafter referred to as the "Company"or "Costas," was organized by the filing of Articles of Incorporation withthe Secretary of State in the State of Nevada on December 10, 1998 (NV#C28794-1998).  The Articles of Incorporation of the Companyauthorized the issuance of twenty million (20,000,000) shares of $0.001 parvalue Common Stock and five million (5,000,000) shares of Preferred Stock. As of March 18, 2003, the Company has issued approximately 2,908,400 shares ofCommon Stock to approximately thirty-three (33) shareholders of record.

Costas is a development stage company that has a primarybusiness plan to acquire, improve, and re-market undeveloped real estate in LasVegas, Nevada and its surrounding communities.

The Company plans to generate revenues by: (a) acquiringtracts of undeveloped lands that will be marketed in various phases ofimprovement and development; (b) construction of homes on the improved land onlyafter a home has been contracted for by the purchaser or a joint ventureagreement has been reached with a existing home builder; (c) construction ofretirement housing in subdivision form if proper debt financing can be arrangedby the Company or joint venture with existing home builders can be negotiatedand executed; and (d) development and management of various mobilehome/recreational vehicle parks.

Costas so far haslimited its operations primarily to startup and development activities.  Inthe approximately four years of operation from December 10, 1998  (Date ofInception) to December 31, 2002, the Company generated revenues of $20,700 andhas incurred a net loss of $14,346.  The Company is still considered a development stage company.

The Company's executive offices are located at 3356 EagleWay, Rosamond, California 93560, phone: (661)-256-2168.

The Company's fiscal year end is December 31.

**B.   Business of Issuer**

**(1)  Principal Products and Services andPrincipal Markets**

The Company plans to acquire tracts of undeveloped land thatwill be re-marketed in various phases of improvement and development.  Itis the Company's primary intent to render improvements to undeveloped tractsof land for resale.  As of the date of this filing, the Company hasconsummated the execution of  leases with option to purchase pertaining totwo (2) parcels each located in Pahrump, Nevada.

The future value of land often depends greatly on theavailability of gas, electricity and sewer services. Some communities controltheir growth by refusing to issue permits for the installation of theseutilities. Because a local moratorium on gas or sewer installations can destroythe timing strategy for a particular development, an investor in land shouldcarefully select those parcels that can be developed with as few potentialdifficulties as possible. In the long run, growth management may result inever-increasing prices for developments and serious shortages of land forhousing. 

Investors in raw acreage can be classified as eitherspeculators or developers, as can purchasers of small lots. A larger land parcelcan be bought for resale as a single unit or for subdividing into eitherimproved or unimproved lots. In the former situation, the investor acts as aspeculator, holding the land for growth in value, and then selling the tractintact.

 

 

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Properties for potential acquisition will be identified bythe development of a network of acquisition sources, including may include realestate brokers, attorneys, outside consultants, bankers and property owners inareas where the Company has decided to focus its activities.  The currentfocus of the Company's acquisition targeting will be Las Vegas, Nevada andsurrounding communities including Pahrump, Nevada.

The Company plans to select locations for its raw landdevelopment on the basis of accessibility to major highways and thoroughfares,airports, proximity to shopping areas, medical facilities and community culturaland recreation centers.  The Company generally acquires small tracts ofland that require site improvements prior to construction.  The tracts ofland are separated into phases for both development and construction.  TheCompany typically acquires land on which construction can begin within threeyears.

Construction on Developed Tracts of Land

In limited circumstances, the Company may participate in theconstruction of various types of housing and buildings on the developed landonly after a home or building has been contracted for by the purchaser or ajoint venture agreement has been reached with a existing home builder. Further, the Company also may participate in the construction of retirementhousing in subdivision form if the proper debt financing can be arranged or ajoint venture with an existing homebuilder can be negotiated. Lastly, theCompany may improve these undeveloped tracts of land as mobile home orrecreational vehicle site pads and then either manage these developments orresell them immediately after these particular improvements have been rendered.

Subdividing for Sale or Further Development

The Company plans on eventually purchasing large plots ofraw land with the intent to improve and then subdividing the real estate foreither further development or individual resale to small to medium sizehomebuilders. 

Speculation in acreage places an investor in a somewhatpassive role while waiting for values to rise to the point where profitablesales can be made. On the other hand, development of acreage into subdivisionsrequires an investor to play a more active role in order to market the inventoryof lots. Often, investors or builders purchase raw acreage situated on theboundary of an expanding community, improve the property, subdivide it and selllots or build houses, apartments, offices or shopping centers on the land.

 A developer who improves raw land for constructionpurposes and maintains an inventory of lots as a function of this ongoingbusiness is called a land banker. Besides the purchase price of the unimprovedacreage, the costs of land banking include property taxes, interest, off- siteand on-site improvements, engineering, site development, plat acceptance, salescommissions, insurance and costs incurred because of timing constraints. Theskills, risks and responsibilities required of the land banker-developer makethis a very specialized segment of real estate investment.

To begin the development process, a land banker purchases aparcel of raw land and prepares plats and maps of the property designatingstreet locations, lot sizes and the general plan for the entire proposeddevelopment.

 

 

 

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These plats, usually drawn by licensed civil engineers, aresubmitted to the appropriate community regulating agencies for approval ofdesign and zoning. After meeting local governmental requirements, includingsubmission of a full environmental impact study, the sub divider will proceed toprepare the land and sell lots to both individuals and builders.

Depending on the amount of acreage involved in thedevelopment, the resulting subdivision may follow the style of surroundingneighborhoods or may acquire a distinct character of its own. Many large-scaledevelopments include land designated for the location of a school and/or a park,including swimming pool, tennis courts, clubhouse and, perhaps, even a golfcourse.

Most well-planned subdivisions include a set of restrictionsitemizing the type, design and quality of the improvements to be constructed onthe lots therein. These subdivision restrictions are recorded and becomecovenants that run with the land so that each lot buyer and subsequent homeowneris required to observe these restrictions. Their enforcement becomes theresponsibility of the neighborhood association formed after the project iscompleted. The restrictions are designed to create an economic and physicalhomogeneity within a neighborhood, important for maintaining property values. Byrestricting lots to residential construction, incompatible uses are eliminated.By requiring a minimum square or cubic footage for each house, an economic flooris created, limiting the neighborhood residents to those who can afford topurchase a home of the specified size.

Many builders do not have the financial capacity, theexpertise or the inclination to become involved in land development. Suchbuilders prefer to leave this type of real estate investment opportunity tothose with proven skill in the field. Smaller builders are usually content topurchase lots from a developer-land banker, either singly or in packages of from5 to 50 lots, depending on their needs. The prices paid for these lots reflectthe developer's cost of acquisition, preparation and desired rate of return onthe investment. For smaller builders, this technique of land acquisition is muchless costly and demanding than an active entry into the field of subdividing.

**(2)  Distribution Methods of the Products orServices**

Properties that have been acquired and improved will bemarketed by the Company on an individual basis through direct advertising inlocal publications or through referrals received from the development of anetwork of real estate brokers and outside consultants. 

**(3)  Status of Any Announced New Product orService**

There are no changes in status of any products and servicesdisclosed in previous filings with the SEC.  The Company remains in thedevelopment stage.

**(4)  Competitive Business Conditions and theIssuer's Competitive Position**

The industry in which the Company plans to compete is highlyfragmented. The Company believes there are many small, local competitors inlocations where it plans to purchase tracts of land.  The Company plans tocompete with these entities by purchasing small tracts of undeveloped realestate only under discounted price conditions.   Most of theCompany's competitors purchase such tracts of land either with the intent of:(1) initiating large construction projects such as planned master communities orcommercial business buildings; or (2) to hold such large tracts of land forappreciation to resale at a later date with no intention of improving the land.

If the Company decides to develop further a tract of land ithas acquired for resale, the Company will be competing with large and smallbuilders on the basis of a number of interrelated factors, including location,reputation, amenities, design, quality and price. Some competing builders havenationwide operations and substantially greater financial resources and theindustry is consolidating and competing builders are offering substantiallysimilar, standardized styles of homes. The Company's products must also competewith re-sales of existing homes and available rental housing. 

 

 

 

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The Company intends to develop only those tracts of improvedlands when the particular piece of land can be further developed with verylittle financial risk to the Company. The Company may provide the constructionof various types of housing and buildings on the developed land only after ahome or building has been contracted for by the purchaser or a joint ventureagreement has been reached with an existing homebuilder.  The Company alsomay participate in the construction of retirement housing in subdivision form ifthe proper debt financing can be arranged or a joint venture with an existinghomebuilder can be negotiated. The Company may improve these undeveloped tractsof land as mobile home or recreational vehicle site pads and then either managethese developments or resell them immediately after these particularimprovements have been rendered. The Company believes that by strictly limitingfurther development of improved land to the criteria outlined above, it canoperate profitably within its chosen industry.

**(5)  Raw Materials and Suppliers**

Not applicable.

**(6)  Customers**

The Company does not foresee that its business in the futurewill depend on one or  a few major customers.

**(7)  Patents, Trademarks, Licenses,Franchises, Concessions, Royalty Agreements, or Labor Contracts**

Costas currently does not have any patents, trademarks,franchises, concessions, royalty agreements, or labor contracts.

**(8) Government Approval of Principal Products or Services**

There is no significant federal governmental regulation thatwould impact the Company's day-to-day operations.  However, there may bevarious state and local rules, regulations, codes, or ordinances that may impactthe improvement of undeveloped land.  The Company anticipates hiring localcontractors to do all of the work in the development and improvement of any landpurchased by the Company. These contractors will be more knowledgeable aboutthese state and local rules, regulations, codes, or ordinances, and are fullybonded for any violations of state and local rules, regulations, codes, orordinances that may impact the Company.

**(9) Effects of Existing or Probable GovernmentalRegulations**

An investor in vacant land must be aware of the legal andpolitical attitudes of local governing bodies. As noted earlier, localgovernment may have a direct effect on the future development of a specificparcel of land. Some communities have passed growth management legislation thatrequires developers to have their infrastructure (streets, sewers, sidewalksutility lines, etc.) in place before they offer their properties for sale.Others have raised other barriers to development. For example, if a communitypractices a no-growth policy, it may be difficult, if not impossible, to securethe cooperation necessary to have subdivision plans approved and/or necessaryutility services installed.

 

 

 

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**(10) Research and Development Activities**

As of the date of this report, the Company has not incurredany research and development expenses and does not plan to incur any additionalresearch or development expenses over the next twelve months. 

**(11) Impact of Environmental Laws**

None.

**(12) Employees**

Excluding officers, Costas presently has no employees. Costas anticipates to rely completely on the efforts of its officers anddirectors in the near short term.

**C.  Reports to Security Holders**

**(1)  Annual Reports**

Costas will furnish its shareholders with annual financialreports certified by Costas's independent accountants.

**(2)  Periodic Reports with the SEC**

Costas is a reporting issuer with the Securities andExchange Commission.  Costas will continue to file annual reports on Form10-KSB, quarterly reports on Form 10-QSB, current reports on Form 8-K andamendments to these reports filed or furnished pursuant to Section 13(a) or15(d) of the Securities Exchange Act of 1934, as amended, as required tomaintain the fully reporting status.

**(3)  Availability of Filings**

The public may read and copy any materials Costas files withthe SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,Washington, D.C. 20549.  The public may obtain information on the operationof the Public Reference Room by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site (http://www.sec.gov) thatcontains reports, proxy and information statements, and other informationregarding issuers that file electronically with the SEC.

**Item2. Description of Property.**

The Company's principal offices are located at 3356 EagleWay, Rosamond, California 93560, telephone: (661)-256-2168.  An officerprovides office space and services without charge.

As of the date of this filing, the Company has consummatedthe execution of  leases with option to purchase pertaining to two (2)parcels each located in Pahrump, Nevada, (the Keenan Property and the ShadyProperty).  Both the Keenan Property and Shady Property are one and onequarter acre parcels with a 1200 square foot home located thereupon. Theprincipal terms of these agreements include the following:

1.               The sum of $3,500.00 in the form of a down payment on both propertieswhich sum shall be applied to the principal purchase price.

 

 

 

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2.               Lease payments on the Keenan Property for the sum of $750.00 due the 1stof each month  from December 1, 2002 until November 30, 2006. Leasepayments on the Shady Property for the sum of $750.00 due the 1st ofeach month  from January 1, 2003 until December 31, 2006.

3.               An option to purchase the Keenan Property for the principal sum of$70,000.00 which option shall expire November 30, 2006. An option to purchasethe Shady Property for the principal sum of $80,000.00 which option shall expireDecember 31, 2006.

4.               From each monthly lease payment of $750.00, the sum of $50.00 shall beallocated towards the purchase price on each property respectively.

The Company has sub-leased the Keenan Property on thefollowing terms:

1.               An initial deposit of $350.00.

2.               A minimum lease period of six (6) months.

3.               A monthly lease payment of $700.00 due on the 24th of eachmonth.

The Company assumed a sub-lease on the Shady Property on thefollowing terms in place with the present sub-lessor since August 12, 2002:

1.          An initial deposit of $400.00.

2.          A minimum lease period of twelve (12) months.

3.          A monthly lease payment of $750.00 due on the 12th of eachmonth.

**Item3. Legal Proceedings.**

Costas is not a party to any pending legal proceeding. The Company's property is not the subject of any pending legal proceeding.

**Item4. Submission of Matters to a Vote of Security Holders.**

During the fourth quarter of the fiscal year 2002, no matterwas submitted by this report or otherwise to a vote of security holders, throughthe solicitation of proxies or otherwise.

 

 

 

 

 

 

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**PARTII**

**Item5. Market for Common Equity and Related Stockholder Matters.**

**Market Information**

The Company's equity is currentlynot traded on any public market and there has been no trading market to date. As of the date of this registration statement, management has not undertaken anydiscussions, preliminary or otherwise, with any prospective market makerconcerning the participation of such market maker in the aftermarket for theCompany's securities, but the Company may initiate such discussions in thefuture.

**Outstanding Options, Conversions, and Planned Issuance ofCommon Stock**

As of the date of this report, there are no warrants oroptions outstanding to acquire any additional shares of common stock.

**Security Holders**

Costas currently has approximately 2,908,400 shares ofCommon Stock issued and outstanding held by approximately thirty-three (33)shareholders of record.

**Securities that Could Be Sold Pursuant to Rule144**

There are 2,550,000 shares of common stock held byaffiliates that Rule 144 of the Securities Act of 1933 defines as restrictedsecurities.  To date, no shares have been sold pursuant to Rule 144 of theSecurities Act of 1933.  Of the shares owned by affiliates, 2,450,000 arecurrently freely transferable, but are subject to the resale limitations asoutlined under Rule 144(e)(1)-(3).  In general, under Rule 144 as currentlyin effect, any of Costas's affiliates and any person or persons whose salesare aggregated who has beneficially owned his or her restricted shares for atleast one year, may be entitled to sell in the open market within anythree-month period a number of shares of common stock that does not exceed thegreater of (i) 1% of the then outstanding shares of our common stock, or (ii)the average weekly trading volume in the common stock during the four calendarweeks preceding such sale.  Sales under Rule 144 are also affected bylimitations on manner of sale, notice requirements, and availability of currentpublic information about Costas.  Non-affiliates who have held theirrestricted shares for two years may be entitled to sell their shares under Rule144 without regard to any of the above limitations, provided they have not beenaffiliates for the three months preceding such sale.  Further, Rule 144A ascurrently in effect, in general, permits unlimited resales of restrictedsecurities of any issuer provided that the purchaser is an institution that ownsand invests on a discretionary basis at least $100 million in securities or is aregistered broker-dealer that owns and invests $10 million in securities. Rule 144A allows Costas's existing stockholders to sell their shares of commonstock to such institutions and registered broker-dealers without regard to anyvolume or other restrictions.  Unlike under Rule 144, restricted securitiessold under Rule 144A to non-affiliates do not lose their status as restrictedsecurities.  The availability for sale of substantial amounts of commonstock under Rule 144 could reduce prevailing market prices for our securities.

**Dividends**

As of the date of this report, Costas has not declared norpaid any dividends on its Common Stock.  As of the date of this report,Costas does not have a formal dividend policy.

 

 

 

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**Transfer Agent and Registrar**

The Transfer Agent for the shares of common voting stock ofCostas is Helen Godfrey, 1st Global Stock Transfer, LLC, 7341 WestCharleston Boulevard, Suite 130, Las Vegas, Nevada 89117, (702) 656-4919.

**Recent Sales of Unregistered Securities.**

The Company was incorporated in Nevadaon December 10, 1998.  The Company is authorized to issue 20,000,000 sharesof its $0.001 par value common stock and 5,000,000 shares of its $0.001 parvalue preferred stock.

During December 1998, the Company issued 1,250,000 shares ofits $0.001 par value common stock (for services rendered in the amount of$2,000) to Frank Danesi Jr. (former officer and current director of theCompany).

During January 1999, the Company issued 300,000 shares ofits $0.001 par value common stock (in exchange for a three-year consultingagreement valued at $3,000) to Ted D. Campbell II.

During April 1999, the Company issued 900,000 shares of its$0.001 par value common stock (in exchange for the cancellation of a notepayable in the amount of $35,000) to Frank Danesi Jr. (former officer andcurrent director of the Company).

During December 2001, the Company issued 100,000 shares ofits $0.001 par value common stock (in exchange for a one-year consultingagreement valued at $100) to John W. Henderson (an officer and director of theCompany).

All founders' shares were issued in accordance withSection 4(2) of the Securities Act of 1933.

On August 12, 2002, the State of Nevada issued a permit toCostas to sell securities pursuant to registration by qualification in the state(Permit # R02-100).  The offering was exempt from federal registrationpursuant to Regulation D, Rule 504 of the 1933 Securities and Exchange Act, asamended.  On October 31, 2002, Costas closed that offering, in which itsold a total of 358,400 shares of its $0.001 par value common stock at $0.10 pershare for cash in the amount of $35,840.

There have been no other issuances of common and/orpreferred stock.

**Item 6. Management's Analysis of Financial Conditionand Plan of Operation.**

**A.  Management's Analysis of FinancialCondition**

In the approximately four (4) years of operation fromDecember 10, 1998 (Date of Inception) to December 31, 2002, Costas generatedlimited revenues of $20,700 and incurred a cumulative net loss of $14,346. Costas's loss resulted primarily from costs of start-up activities, includingconsulting fees and other general and administrative expenses. 

Costas financed its operations during the period fromDecember 10, 1998 to December 31, 2002 primarily by issuing capital stock to itsfounder, officers, and unaffiliated investors in exchange for cash and services,revenue from the gain on the sale of land and interest income on a notereceivable for sale of such land. During September 2001, Costas sold a piece ofland producing revenue on the sale of land in the amount of $20,000.Additionally, as a result of this sale of land, the Company received a notereceivable which has  a current balance of $39,982 ("Note Receivable").As of December 31, 2002, Costas has received $8,883 in interest income underthis Note Receivable. During December 1998, the Company issued 1,250,000 sharesof its $0.001 par value common stock to a former officer and current director inexchange for services rendered in the amount of $1,250. During January 1999, theCompany issued 300,000 shares of its $0.001 par value common stock in exchangefor a three-year consulting agreement with an individual.  The consultingservices were valued at $3,000.  During April 1999, the Company issued900,000 shares of its $0.001 par value common stock to a shareholder of theCompany, who is a former officer and a current director, in exchange for thecancellation of a note payable in the amount of $35,000.  During December2001, the Company issued 100,000 shares of its $0.001 par value common stock inexchange for a one-year consulting agreement with an officer and director of theCompany.  The consulting services were valued at $100.  On October 31,2002, the Company completed its offering pursuant to Regulation D, Rule 504 ofthe Securities Act of 1933, as amended, and issued a total of 358,400 shares ofits $0.001 par value common stock in exchange for cash of $35,840.  Therehave been no other issuances of common and/or preferred stock. As of the date ofthis report, the Company had 2,908,400 shares of Common Stock issued andoutstanding held by approximately thirty-three (33) shareholders of record. Asof the date of this report

 

 

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As of December 31, 2002, Costas had $58,819 in assets, $925in current liabilities, and a working capital of $8,485.  The currentassets consisted of $9,410 in cash, $1,377 in fixed assets, $7,050 in securitydeposits, a note receivable in the amount of $39,982, and note receivables torelated parties in the amount of $2,000.

**B.   Plan of Operation**

Costas is a development stage company that has a primarybusiness plan to acquire, improve, and re-market undeveloped real estate in LasVegas, Nevada and its surrounding communities. The Company plans to generaterevenues by: (a) acquiring tracts of undeveloped lands that will be marketed invarious phases of improvement and development; (b) construction of homes on theimproved land only after a home has been contracted for by the purchaser or ajoint venture agreement has been reached with a existing home builder; (c)construction of retirement housing in subdivision form if proper debt financingcan be arranged by the Company or joint venture with existing home builders canbe negotiated and executed; and (d) development and management of various mobilehome/recreational vehicle parks.

Costas may pursue strategic alliances with partners who haveestablished operations.  Costas believes that these joint venturerelationships, if successful, will allow Costas to gain insight, expertise andpenetration in markets where joint venture partners already operate, and mayincrease Costas's revenue and income growth.  No specific joint ventureagreements have been signed, and no assurance can be given that any agreementswill be effected, or if effected, will be successful.

Costas believes that it has sufficient resources to supportits operations for the next twelve to eighteen months.  However, withoutrealizing revenues, Costas will eventually face financial difficulties and mayneed to raise additional capital.** **It is the intent of Costas, inthe next twelve months, to generate revenues sufficient to operate and grow as agoing concern.

 

 

 

 

 

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**Item7. Financial Statements.**

 

 

 

 

 

Costas, Inc.

(A DevelopmentStage Company)

 

Balance Sheet

as of

December 31, 2002and 2001

 

and

 

Statement ofOperations,

Changes inStockholders' Equity, and

Cash Flows

for the year ended

December 31, 2002and 2001

and

for the period

December 10, 1998(Date of Inception)

through

December 31, 2002

 

 

 

 

 

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TABLE OF CONTENTS

 

 

|                                                 | PAGE |
|------------------------------------------------------|------|
| Independent Auditors'        Report                  | 1    |
| Balance Sheet                                        | 2    |
| Statements of Operations                             | 3    |
| Statements of Changes in        Stockholders' Equity | 4    |
| Statements of Cash Flows                             | 5    |
| Footnotes                                            | 6    |

 

 

 

 

 

 

 

 

 

 

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**Beckstead and Watts,LLP**

## Certified Public Accountants

3340 Wynn Road, Suite B

 Las Vegas, NV 89102 

702.257.1984

702.362.0540 (fax)

### INDEPENDENT AUDITORS' REPORT

 

Boardof Directors

Costas,Inc.

 

 

Wehave audited the Balance Sheet of Costas, Inc. (the "Company") (ADevelopment Stage Company), as of December 31, 2002 and 2001, and the relatedStatement of Operations, Stockholders' Equity, and Cash Flows for the yearthen ended and for the period December 10, 1998 (Date of Inception) to December31, 2002.  These financial statements are the responsibility of theCompany's management.  Our responsibility is to express an opinion onthese financial statements based on our audit.

 

Weconducted our audit in accordance with generally accepted auditing standards inthe United States of America.  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement.  An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in thefinancial statement presentation.  An audit also includes assessing theaccounting principles used and significant estimates made by management, as wellas evaluating the overall financial statement presentation.  We believethat our audit provides a reasonable basis for our opinion.

 

Inour opinion, the financial statements referred to above present fairly, in allmaterial respects, the financial position of Costas, Inc. (A Development StageCompany) as of December 31, 2002, and the results of its operations and cashflows for year then ended and for the period December 10, 1998 (Date ofInception) to December 31, 2002 and 2001, in conformity with generally acceptedaccounting principles in the United States of America.

 

Theaccompanying financial statements have been prepared assuming the Company willcontinue as a going concern.  As discussed in Note 3 to the financialstatements, the Company has had limited operations and have not commencedplanned principal operations.  This raises substantial doubt about itsability to continue as a going concern.  Management's plan in regard tothese matters are also described in Note 3.  The financial statements donot include any adjustments that might result from the outcome of thisuncertainty.

 

 

/s/Beckstead and Watts LLP

 

 March 17, 2003

F1
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**Costas, Inc.**

**(a DevelopmentStage Company)**

**Balance Sheets**

 

 

December        31,

 

2002

2001

Assets

** **

** **

** **

** **

 

 

 

 

 

Current assets:

 

 

 

 

Cash

$

9,410

$

1,055

Prepaid        expenses

 

-

 

175

Total        current assets

 

9,410

 

1,230

 

 

 

 

 

Fixed assets, net

 

1,377

 

1,656

 

 

 

 

 

Security Deposits

 

7,050

 

-

Notes Receivable

 

39,982

 

41,879

Notes Receivable - related parties

 

2,000

 

6,315

 

$

59,819

$

51,080

 

 

 

 

 

**Liabilities and        Stockholders' Equity (Deficit)**

** **

** **

** **

** **

 

 

 

 

 

Current liabilities:

 

 

 

 

Accounts        payable

$

750

$

-

Customer        deposits

 

175

 

-

             Deferred revenue

 

-

 

13,959

Total        current liabilities

 

925

 

13,959

 

 

 

 

 

Stockholders'        equity (deficit):

 

 

 

 

Preferred        stock, $0.001 par value, 5,000,000

              shares authorized, none issued and

              outstanding as of 12/31/02 and 12/31/01,

              respectively

 

-

 

-

Common        stock, $0.001 par value, 20,000,000 shares authorized, 2,908,400 and        2,550,000 shares issued and outstanding as of 12/31/02 and 12/31/01,        respectively

 

2,908

 

2,550

Additional        paid-in capital

 

72,282

 

36,800

Earnings        (deficit) accumulated during development stage

 

(16,296)

 

(2,229)

 

 

58,894

 

37,121

 

$

59,819

$

51,080

 

The accompanyingnotes are an integral part of these financial statements.

F2
 
-14-

 

 

 

**Costas, Inc.**

**(a DevelopmentStage Company)**

**Statements ofOperations**

 

 

For        the years ended        December 31,

December        10, 1998 (Inception) to December 31,

 

2002

2001

2002

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

             Real estate sales

$

20,000

$

-

$

20,000

             Rental income

 

700

 

-

 

700

                Total revenue

 

20,700

 

-

 

20,700

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

 

             Commissions

 

5,500

 

-

 

5,500

             Other cost of sales

 

541

 

-

 

541

                Total cost of sales

 

6,041

 

-

 

6,041

 

 

 

 

 

 

 

Gross Profit

 

14,659

 

-

 

14,659

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

General        & administrative expenses

 

9,855

 

2,637

 

12,492

General        & administrative expenses - related party

 

14,430

 

1,008

 

18,605

Compensation - related party

 

8,265

 

-

 

8,265

Depreciation

 

279

 

197

 

476

Total        expenses

 

32,829

 

3,842

 

39,838

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

 

            Interest income

 

4,103

 

3,693

 

8,883

 

 

 

 

 

 

 

Net (loss)

$

(14,076)

$

(159)

$

(16,296)

Weighted        average number of common shares outstanding - basic and fully diluted

 

2,610,879

 

2,458,197

 

 

Net (loss) per share        - basic and fully diluted

$

(0.01)

$

(0.00)

 

 

 

 

 

 

 

 

 

The accompanyingnotes are an integral part of these financial statements.

 

F3

-15-
 

 

 

**Costas, Inc.**

**(a DevelopmentStage Company)**

**Statements ofChanges in Stockholders' Equity**

 

 

Common        Stock

 

Additional        Paid-in Capital

 

Earnings

(Deficit)        Accumulated During Development Stage

 

Total        Stockholders'        Equity

 

Shares

Amount

December 1998

 

 

 

 

 

 

 

 

 

Founder        shares

1,250,000

$

1,250

$

-

$

-

$

1,250

          

          

          

          

          

          

          

          

          

          

Net (loss)

 

 

 

 

 

 

 

 

 

December        10, 1998 (inception) to December 31, 1998

 

 

 

 

 

 

(1,250)

 

(1,250)

 

 

 

 

 

 

 

 

 

 

Balance, December 31,        1998

1,250,000

 

1,250

 

-

 

(1,250)

 

-

 

 

 

 

 

 

 

 

 

 

January 1999

 

 

 

 

 

 

 

 

 

Issued        for services

300,000

 

300

 

2,700

 

 

 

3,000

 

 

 

 

 

 

 

 

 

 

March 1999

 

 

 

 

 

 

 

 

 

Issued        for cancellation of note payable

900,000

 

900

 

34,100

 

 

 

35,000

 

 

 

 

 

 

 

 

 

 

Net (loss)

 

 

 

 

 

 

 

 

 

For        the year ended December 31, 1999

 

 

 

 

 

 

(917)

 

(917)

 

 

 

 

 

 

 

 

 

 

Balance, December 31,        1999

2,450,000

 

2,450

 

36,800

 

(2,167)

 

37,083

 

 

 

 

 

 

 

 

 

 

Net (loss)

 

 

 

 

 

 

 

 

 

             For the year ended

             December 31, 2000

 

 

 

 

 

 

97

 

97

 

 

 

 

 

 

 

 

 

 

Balance, December 31,        2000

2,450,000

 

2,450

 

36,800

 

(2,070)

 

37,180

 

 

 

 

 

 

 

 

 

 

December 2001

             Issued for Services

100,000

 

100

 

 

 

 

 

100

 

 

 

 

 

 

 

 

 

 

Net (loss)

 

 

 

 

 

 

 

 

 

             For the year ended

             December 31, 2001

 

 

 

 

 

 

(159)

 

(159)

 

 

 

 

 

 

 

 

 

 

Balance, December 31,        2001

2,550,000

 

2,550

 

36,800

 

(2,229)

 

37,121

 

 

 

 

 

 

 

 

 

 

October 2002

             Issued for cash

358,400

 

358

 

35,482

 

 

 

35,840

 

 

 

 

 

 

 

 

 

 

Net (loss)

 

 

 

 

 

 

 

 

 

For        the year ended December 31, 2002

 

 

 

 

 

 

(14,067)

 

(14,067)

 

 

 

 

 

 

 

 

 

 

Balance, December31,        2002

2,908,400

$

2,908

$

72,282

$

(16,296)

$

58,894

 

The accompanyingnotes are an integral part of these financial statements.

F4

-16-
 

 

 

**Costas, Inc.**

**(a DevelopmentStage Company)**

**Statements ofCash Flows**

 

 

For        the years ended December 31,

December        10, 1998 (Inception) to December 31, 2002

          

2002

2001

Cash        flows from operating activities

          

          

          

          

          

          

Net (loss)

$

(14,067)

$

(159)

$

(16,296)

Shares        issued for services

 

-

 

100

 

4,350

Deferred        compensation

 

175

 

908

 

-

Shares        issued for cancellation of note payable

 

-

 

-

 

35,000

Depreciation

 

279

 

197

 

476

Adjustments        to reconcile net (loss) to net cash (used) by operating activities:

          

          

          

          

          

          

Increase        in accounts payable

 

750

 

-

 

750

Increase        in customer deposits

 

175

 

-

 

175

(Decrease)        in deferred revenue

 

(13,959)

 

-

 

-

Net cash (used) by        operating activities

 

(26,647)

 

1,046

 

24,455

          

          

          

          

          

          

          

Cash        flows from investing activities

          

          

          

          

          

          

Decrease        (increase) in note receivable

 

1,897

 

5,380

 

(39,982)

Decrease        in accrued interest

 

-

 

1,097

 

-

Decrease        (increase) in notes receivable - related party

 

4,315

 

(4,615)

 

(2,000)

Purchase        of fixed assets

 

-

 

(1,853)

 

(1,853)

(Increase)        in security deposits

 

(7,050)

 

-

 

(7,050)

Net cash provided        (used) by investing activities

 

(838)

 

9

 

(50,885)

          

          

          

          

          

          

          

Cash        flows from financing activities

 

 

 

 

 

 

Issuances        of common stock

 

35,840

 

-

 

35,840

Net cash provided by        financing activities

 

35,840

 

-

 

35,840

          

          

          

          

          

          

          

Net increase in cash

 

8,355

 

1,055

 

9,410

Cash - beginning

 

1,055

 

-

 

-

Cash - ending

$

9,410

$

1,055

$

9,410

          

          

          

          

          

          

          

Supplemental        disclosures:

 

 

 

 

 

 

Interest        paid

$

-

$

-

$

-

Income        taxes paid

$

-

$

-

$

-

          

          

          

          

          

          

          

Non-cash        transactions:

          

          

          

          

          

          

              Stock issued for services provided

$

-

$

100

$

4,350

              Number of shares issued for services

 

-

 

100,000

 

1,650,000

 

 

 

 

 

 

 

Stock        issued for cancellation of note payable

$

-

$

-

$

35,000

Number        of shares issued cancellation of note payable

          

-

 

-

          

900,000

 

The accompanyingnotes are an integral part of these financial statements.

 

F5

-17-
 

 

 

**Costas,Inc.**

**(aDevelopment Stage Company)**

**Notes**

 

**Note1 - History and organization of the company**

 

The Company was organizedDecember 10, 19980 (Date of Inception) under the laws of the State of Nevada, asCostas, Inc.  The Company has limited operations and in accordance withSFAS #7, the Company is considered a development stage company. 

 

**Note2 - Accounting policies and procedures**

 

Cashand cash equivalents

The Company maintains acash balance in a non-interest-bearing account that currently does not exceedfederally insured limits.  For the purpose of the statements of cash flows,all highly liquid investments with an original maturity of three months or lessare considered to be cash equivalents.  There were no cash equivalents asof December 31, 2002 and 2001.

                             

Impairmentof long-lived assets

Long-lived assets heldand used by the Company are reviewed for possible impairment whenever events orcircumstances indicate the carrying amount of an asset may not be recoverable oris impaired.  No such impairments have been identified by management atDecember 31, 2002 and 2001.

 

FixedAssets

The costs of fixed assetsis depreciated over the following estimated useful life of the asset utilizingthe straight-line method of depreciation:

  

Computerequipment                5 years

Leaseholdimprovements          7 years

 

Revenuerecognition

TheCompany recognizes revenue from the sale of real estate with the full accrualmethod. If the customer or buyer has inadequate initial investments (i.e.cash-payment in excess of 25%) in accordance with Statement of FinancialAccounting Standards (SFAS #66) "Accounting for Sales of Real Estate" in theperiod that sale occurs, the Company records deferred revenue. Once the Companyreceived an adequate initial investment and receives 25% or more of the purchaseprice from the customer they record the appropriate revenue and cost of sales.The Company recognizes interest income as earned.

 

TheCompany reports rental income over the lease term as it becomes receivableaccording to the provisions of the lease. However, if rentals vary from astraight-line basis, the income shall be recognized on a straight-line basisunless another systematic and rational basis is more representative of the timepattern in which use benefit from the leased property is diminished, in whichcase that basis shall be used.

 

Advertisingcosts

The Company expenses allcosts of advertising as incurred.  There were no advertising costs includedin selling, general and administrative expenses in 2002 and 2001.

 

Lossper share

Net loss per share isprovided in accordance with Statement of Financial Accounting Standards No. 128(SFAS #128) "Earnings Per Share". Basic loss per share is computed bydividing losses available to common stockholders by the weighted average numberof common shares outstanding during the period. The Company had no dilutivecommon stock equivalents, such as stock options or warrants as of December 31,2002.

 

 

F6

 
-18-

 

 

 

**Costas,Inc.**

**(aDevelopment Stage Company)**

**Notes**

 

Reportingon the costs of start-up activities

Statement of Position98-5 (SOP 98-5), "Reporting on the Costs of Start-Up Activities," whichprovides guidance on the financial reporting of start-up costs andorganizational costs, requires most costs of start up activities andorganizational costs to be expensed as incurred.  SOP 98-5 is effective forfiscal years beginning after December 15, 1998.  With the adoption of SOP98-5, there has been little or no effect on the Company's financialstatements.

 

Estimates

Thepreparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Fairvalue of financial instruments

Fair value estimatesdiscussed herein are based upon certain market assumptions and pertinentinformation available to management as of December 31, 2002 and 2001.  Therespective carrying value of certain on-balance-sheet financial instrumentsapproximated their fair values.  These financial instruments include cashand accounts payable.  Fair values were assumed to approximate carryingvalues for cash and payables because they are short term in nature and theircarrying amounts approximate fair values or they are payable on demand.

 

IncomeTaxes

Deferred income taxassets and liabilities are computed annually for differences between thefinancial statement and tax basis of assets and liabilities that will result intaxable or deductible amounts in the future based on enacted tax laws and ratesapplicable on the periods in which the differences are expected to affecttaxable income.  Valuation allowances are established when necessary toreduce deferred tax assets to the amount expected to be realized.  Incometax expense is the tax payable or refundable for the period plus or minus thechange during the period in deferred tax assets and liabilities.

 

Segmentreporting

The Company followsStatement of Financial Accounting Standards No. 130, "Disclosures AboutSegments of an Enterprise and Related Information".  The Company operatesas a single segment and will evaluate additional segment disclosure requirementsas it expands its operations.

 

Dividends

The Company has not yetadopted any policy regarding payment of dividends.  No dividends have beenpaid or declared since inception.

 

Recentpronouncements

In July 2002, the FASBissued SFAS No. 146, "Accounting for Costs Associated with Exit or DisposalActivities", which addresses financial accounting and reporting for costsassociated with exit or disposal activities and supersedes EITF No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and OtherCosts to Exit an Activity (including Certain Costs Incurred in aRestructuring)." SFAS No. 146 requires that a liability for a cost associatedwith an exit or disposal activity be recognized when the liability is incurred.Under EITF No. 94-3, a liability for an exit cost was recognized at the date ofan entity's commitment to an exit plan. SFAS No. 146 also establishes that theliability should initially be measured and recorded at fair value. Theprovisions of SFAS No. 146 will be adopted for exit or disposal activities thatare initiated after December 31, 2002.

  

 

 

 

F7

 
-19-

 

 

 

**Costas,Inc.**

**(aDevelopment Stage Company)**

**Notes**

 

In December 2002, theFASB issued SFAS No. 148, "Accounting for Stock-BasedCompensation-Transition and Disclosure -an amendment of SFAS No. 123." ThisStatement amends SFAS No. 123, "Accounting for Stock-Based Compensation", toprovide alternative methods of transition for a voluntary change to the fairvalue based method of accounting for stock-based employee compensation. Inaddition, this statement amends the disclosure requirements of SFAS No. 123 torequire prominent disclosures in both annual and interim financial statementsabout the method of accounting for stock-based employee compensation and theeffect of the method used on reported results. The adoption of SFAS No. 148 isnot expected to have a material impact on the company's financial position orresults of operations.

 

In November 2002, theFASB issued FASB Interpretation ("FIN") No. 45, "Guarantors Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees andIndebtedness of Others", an interpretation of FIN No. 5, 57 and 107, andrescission of FIN No. 34, "Disclosure of Indirect Guarantees of Indebtednessof Others". FIN 45 elaborates on the disclosures to be made by the guarantorin its interim and annual financial statements about its obligations undercertain guarantees that it has issued. It also requires that a guarantorrecognize, at the inception of a guarantee, a liability for the fair value ofthe obligation undertaken in issuing the guarantee. The initial recognition andmeasurement provisions of this interpretation are applicable on a prospectivebasis to guarantees issued or modified after December 31, 2002; while, theprovisions of the disclosure requirements are effective for financial statementsof interim or annual periods ending after December 15, 2002. The companybelieves that the adoption of such interpretation will not have a materialimpact on its financial position or results of operations and will adopt suchinterpretation during fiscal year 2003, as required.

 

In January 2003, the FASBissued FIN No. 46, "Consolidation of Variable Interest Entities", aninterpretation of Accounting Research Bulletin No. 51. FIN No. 46 requires thatvariable interest entities be consolidated by a company if that company issubject to a majority of the risk of loss from the variable interest entity'sactivities or is entitled to receive a majority of the entity's residualreturns or both. FIN No. 46 also requires disclosures about variable interestentities that companies are not required to consolidate but in which a companyhas a significant variable interest. The consolidation requirements of FIN No.46 will apply immediately to variable interest entities created after January31, 2003. The consolidation requirements will apply to entities establishedprior to January 31, 2003 in the first fiscal year or interim period beginningafter June 15, 2003. The disclosure requirements will apply in all financialstatements issued after January 31, 2003. The company will begin to adopt theprovisions of FIN No. 46 during the first quarter of fiscal 2003.

 

Stock-BasedCompensation

The Company accounts forstock-based awards to employees in accordance with Accounting Principles BoardOpinion No. 25, "Accounting for Stock Issued to Employees" and relatedinterpretations and has adopted the disclosure-only alternative of SFAS No. 123,"Accounting for Stock-Based Compensation."  Options granted toconsultants, independent representatives and other non-employees are accountedfor using the fair value method as prescribed by SEAS No. 123.

 

Yearend

The Company has adoptedDecember 31 as its fiscal year end.

 

**Note3 - Going concern**

 

TheCompany's financial statements are prepared using the generally acceptedaccounting principles applicable to a going concern, which contemplates therealization of assets and liquidation of liabilities in the normal course ofbusiness.  However, the Company has not commenced its planned principaloperations and it has not generated any revenues.  In order to obtain thenecessary capital, the Company raised funds via securities offering pursuant toRegulation D, Rule 504.  If the securities offering does not providesufficient capital, some of the shareholders of the Company have agreed toprovide sufficient funds as a loan over the next twelve-month period. However, the Company is dependent upon its ability to secure equity and/or debtfinancing and there are no assurances that the Company will be successful,without sufficient financing it would be unlikely for the Company to continue asa going concern.

F8

 

 

-20-

 

 

 

**Costas,Inc.**

**(aDevelopment Stage Company)**

**Notes**

 

**Note4 - Income taxes**

 

The Company accounts forincome taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), which requires use ofthe liability method.   SFAS No.  109 provides that deferred taxassets and liabilities are recorded based on the differences between the taxbases of assets and liabilities and their carrying amounts for financialreporting purposes, referred to as temporary differences.  Deferred taxassets and liabilities at the end of each period are determined using thecurrently enacted tax rates applied to taxable income in the periods in whichthe deferred tax assets and liabilities are expected to be settled or realized.

** **

**Note5 - Deferred compensation**

 

OnJanuary 17, 1999, the Company executed a three-year consulting agreement with anindividual in exchange for 300,000 shares of the Company's $0.001 par valuecommon stock valued at $3,000.  (See Note 9)

For        the year ended
Consulting        expenseDeferred compensation
1999

$           917

$        2,083

2000

$        1,000

$        1,083

2001

$        1,000

$             83

2002

$             83

$                -

OnDecember 1, 2001, the Company executed a one-year consulting agreement with anofficer and director of the Company in exchange for 100,000 shares of theCompany's $0.001 par value common stock valued at $100.  (See Notes 9 and12)

For        the year ended

Consulting        expense

Deferred        compensation

2001

$               8

$              92

2002

$             92

$                -

 

**Note6 - Fixed assets**

TheCompany acquired the following assets:

            For

year ended

Office        equipment

Leasehold        improvements

Depreciation        expense

2000

$                -

$                 -

$                 -

2001

$           253

$         1,600

$            197

2002

$                -

$                 -

$            297

 

**Note7 - Notes receivable**

OnApril 17, 1999, Frank Danesi, Jr., a shareholder and former officer and directorof the Company sold a parcel of land located in Pahrump, Nevada to the Companywith a value of $35,000 based on historical cost.  On September 1, 2000,the Company sold a parcel of land located in Pahrump, Nevada to an individual(buyer) for $55,000.  The resulting gain net of selling costs to theCompany of approximately $13,959 was deferred as of December 31, 2001 and 2000due to an inadequate initial investment from the buyer.  The deferredrevenue of $13,959 is included as a current liability of the Company. During March 2002, the received monthly payments which were applied against thenote receivable and as a result of this payment the buyer satisfied the minimuminitial investment requirements to achieve full profit recognition in accordancewith SFAS #66.  Accordingly, the Company has recorded the gain net ofselling costs of $13,959 in March 2002.

 

 

 

F9

** **

-21-

 

** **

** **

**Costas,Inc.**

**(aDevelopment Stage Company)**

**Notes**

** **

Ofthe total amount the Company received a total of $11,000 and paid $6,041 inselling costs and the balance of $44,000 is considered a note receivable. The note has an interest rate of 10% per annum for a period of 6 years issecured by a deed or trust.  The Company is to receive monthly payments of$500 on the eleventh day of each month beginning in October 2000.  Thefinal payment will be a balloon payment of approximately $31,419 of principaland interest.  During the years ended December 31, 2002 and 2001 theindividual is current with their payments and the interest income was $4,103 and$3,683, respectively.

** **

**Note8 - Notes receivable - related parties**

 

OnApril 12, 2001, the Company executed a promissory note with A&C Development,Inc. in the amount of $700 with no interest.  The note is due upon demand. As of December 31, 2002 no payments have been made and this entire note has beenwritten off to bad debt expense.  (See Note 12)

 

OnAugust 31, 2001, the Company executed a promissory note with Filo QuipCorporation, in the amount of $1,000 with no interest.  The note is dueupon demand.  As of December 31, 2002, no payments have been made and thisentire note has been written off to bad debt expense.  (See Note 12)

 

Duringthe period ended December 31, 2001, the Company loaned $1,515 to a shareholderand former officer and director of the Company.  Also, during the periodended December 31, 2002 the Company loaned an additional $1,950 to thisindividual.  The note bears no interest and is due upon demand.  As ofDecember 31, 2002 no payments have been made and $3,465 has been written off tocompensation expense.  (See Note 12)

 

Duringthe period ended December 31, 2001, the Company loaned $3,100 to a shareholderof the Company.  The note bears no interest and is due upon demand. As of December 31, 2002 no payments have been made and this entire note has beenwritten off to compensation expense.  (See Note 12)

 

Duringthe period ended December 31, 2002, the Company loaned $4,000 to an entity owned100% by a few shareholders of the Company.  The note bears no interest andis due upon demand.  As of December 31, 2002, there was one payment of$2,000 to repay the loan.  As of December 31, 2002, the total amount due is$2,000.  (See Note 12)

 

**Note9 - Stockholders' equity**

 

TheCompany is authorized to issue 20,000,000 shares of its $0.001 par value commonstock and 5,000,000 shares of its $0.001 par value preferred stock.

 

OnDecember 11, 1998, the Company issued 1,250,000 shares of its $0.001 par valuecommon stock to a shareholder of the Company, who is a former officer anddirector, in exchange for services valued at $1,250.  (See Note 12)

 

OnJanuary 17, 1999, the Company issued 300,000 shares of its $0.001 par valuecommon stock in exchange for a three-year consulting agreement with anindividual.  The consulting services are valued at $3,000.  (See Note5)

 

OnApril 17, 1999, the Company issued 900,000 shares of its $0.001 par value commonstock to a shareholder of the Company, who is a former officer and director, inexchange for the cancellation of a note payable in the amount of $35,000. (See Note 12)

 

OnDecember 1, 2001, the Company issued 100,000 shares of its $0.001 par valuecommon stock in exchange for a one-year consulting agreement with an officer anddirector of the Company.  The consulting services are valued at $100. (See Notes 5 and 12)

 

 

F10

-22-
 

 

 

**Costas,Inc.**

**(aDevelopment Stage Company)**

**Notes**

 

 

OnDecember 31, 2002, the Company completed its offering pursuant to Regulation D,Rule 504 of the Securities Act of 1933, as amended, and issued a total of358,400 shares of its $0.001 par value common stock in exchange for cash of$35,840.

 

Therehave been no other issuances of common and/or preferred stock.

 

**Note10 - Warrants and Options**

 

As ofDecember 31, 2002 and 2001, there were no warrants or options outstanding toacquire any additional shares of common and/or preferred stock.

** **

**Note11 - Contracts**

 

OnNovember 8, 2002, the Company executed a lease agreement with an entity to leaseresidential property in Pahrump, Nevada for a period of four years starting onDecember 1, 2002 with monthly rent of $750.  The Company has the option topurchase this property for $73,000 and can exercise at anytime until November30, 2006.  During the year ended December 31, 2002, the Company paid a$3,500 refundable deposit which will be applied against the purchase price ofthe property.  In addition, $50 of the monthly rent will get applied as acredit against the purchase price of the property.  The future minimumlease payments are as follows:

For        the year ended

Payments

2002

$               750

2003

$            9,000

2004

$            9,000

2005

$            9,000

2006

$            8,250

 

**Note12 - Related party transactions**

 

OnDecember 11, 1998, the Company issued 1,250,000 shares of its $0.001 par valuecommon stock to a shareholder of the Company, who is a former officer anddirector.  (See Note 9)

 

OnApril 17, 1999, Frank Danesi, Jr., a shareholder and former officer and directorof the Company sold a parcel of land to the Company in exchange for a notepayable in the amount of $35,000.  On the same day, the Company issued Mr.Danesi 900,000 shares of its $0.001 par value common stock in exchange for thecancellation of the $35,000 note payable.  (See Note 9)

 

OnApril 12, 2001, the Company executed a promissory note with A&C Development,Inc. in the amount of $700 with no interest.  The note is due upon demand. As of December 31, 2002 no payments have been made and this entire note has beenwritten off to bad debt expense.  (See Note 8)

 

OnAugust 31, 2001, the Company executed a promissory note with Filo QuipCorporation, in the amount of $1,000 with no interest.  The note is dueupon demand.  As of December 31, 2002, no payments have been made and thisentire note has been written off to bad debt expense.  (See Note 8)

 

OnDecember 1, 2001, the Company issued 100,000 shares of its $0.001 par valuecommon stock in exchange for a one-year consulting agreement with an officer anddirector of the Company.  The consulting services are valued at $100. (See Notes 5 and 9)

 

Duringthe period ended December 31, 2001, the Company loaned $1,515 to a shareholderand a former officer and director of the Company.  Also, during the periodended December 31, 2002 the Company loaned an additional $1,950 to thisindividual.  The note bears no interest and is due upon demand.  As ofDecember 31, 2002 no payments have been made and $3,465 has been written off tocompensation expense.  (See Note 8)

 

 

F11

 

-23-

 

 

 

**Costas,Inc.**

**(aDevelopment Stage Company)**

**Notes**

 

Duringthe period ended December 31, 2001, the Company loaned $3,100 to a shareholderof the Company.  The note bears no interest and is due upon demand. As of December 31, 2002 no payments have been made and this entire note has beenwritten off to compensation expense.  (See Note 8)

 

Duringthe period ended December 31, 2002, the Company loaned $4,000 to an entity owned100% by a few shareholders of the Company.  The note bears no interest andis due upon demand.  As of December 31, 2002, there was one payment of$2,000 to repay the loan.  As of December 31, 2002, the total amount due is$2,000.  (See Note 8)

 

Officespace and services are provided without charge by an officer, director andshareholder.  Such costs are immaterial to the financial statements and,accordingly, have not been reflected therein.  The officers and directorsof the Company are involved in other business activities and may, in the future,become involved in other business opportunities.  If a specific businessopportunity becomes available, such persons may face a conflict in selectingbetween the Company and their other business interests.  The Company hasnot formulated a policy for the resolution of such conflicts.

 

 

**Note13 - Subsequent events**

** **

OnJanuary 1, 2003, the Company executed a lease agreement with an entity to leaseresidential property in Pahrump, Nevada for a period of four years starting onJanuary 1, 2003 with monthly rent of $750.  The Company has the option topurchase this property for $80,000 and can exercise at anytime until December31, 2006.  During the year ended December 31, 2002, the Company paid a$3,500 refundable deposit which will be applied against the purchase price ofthe property.  In addition, $50 of the monthly rent will get applied as acredit against the purchase price of the property.  The future minimumlease payments are as follows:

 

For        the year ended

Payments

2003

$            9,000

2004

$            9,000

2005

$            9,000

2006

$            9,000

 

** **

** **

 

 

 

 

 

 

 

 

 

 

 

 

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**PART III**

**Item9. Directors, Executive Officers, Promoters and Control Persons**

**A.  Directors, Executive Officers andSignificant Employees**

The names, ages, and positions of Costas's directors,executive officers, and significant employees are as follows:

 

**NAME**

**AGE**

**POSITION**

**DIRECTOR        SINCE**

John W. Henderson

59

President,        Treasurer, Secretary, and Director

November        2001

Frank Danesi Jr.

49

Director

November        1998

**John W. Henderson**, President, Treasurer, Secretary,and Director Mr. Henderson is a retired Air Force Chief Master Sergeant(1963-1987) who served in the Vietnam War and during his distinguished careerwas awarded the Air Force Commendation Medal with Two Oak Leaf Clusters and aMeritorious Service Medal. The DAF Civil Service currently employs Mr. Hendersonwhere he is the 412th Test Wing, Shadow Logistic Test Flight's MaintenanceManager in charge of the base support fleets. In May 1990 he went to work forthe DAF Civil Service as an F-16 dedicated crew chief and was later promoted tothe 412th Test Wing, Shadow Logistic Test Flight's Maintenance Manager wherehe is responsible for the overall management of the base support fleets whichincludes the T -38, T -39, F-16 and the KC-135 flights. He was tasked to providea cost effective maintenance organization consisting of a total civil servicework force. He quickly multi-skilled the existing technicians and reduced theover-all manpower requirements by 50%, while generating $33 million dollars inrevenue annually. The flight generates 65% of all the sorties flown at the AirForce Flight Test Center with only 19% of the on-equipment manpower.

**Frank Danesi Jr.**, Director Mr. Danesi is a retiredofficer (Major) from the United States Air Force with over 15 years experiencedirecting and commanding aircraft maintenance/munitions organizations worldwideas large as 700 personnel with assets valued at $2.5 billion and annualoperating budgets exceeding $3 million. He recently has served as President ofALD Services, Inc., a logistics-consulting firm for developing and operatingcompanies. As ALD's President, he took the company from concept to fieldsupport in less than 6 months while also designing the copyrighted software.After only 2 years, the company received its OTCBB listing. Mr. Danesi iscurrently the President of Go Public First, Inc., a corporate consulting firm,which specializes in assisting small companies to access capital. He holds a BSfrom Ursinus College and an MBA from LaSalle University.

**B.   Family Relationships**

None.

**C.  Involvement on Certain Material LegalProceedings During the Last Five Years**

No director, officer, significant employee or consultant hasbeen convicted in a criminal proceeding, exclusive of traffic violations. No director, officer, significant employee or consultant has been permanently ortemporarily enjoined, barred, suspended or otherwise limited from involvement inany type of business, securities or banking activities.  No director,officer or significant employee has been convicted of violating a federal orstate securities or commodities law.
****
 

 

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**Item10. Executive Compensation.**

**Summary Compensation Table**

**NAME**

**POSITION**

**COMPENSATION**

John W. Henderson

President,        Treasurer, Secretary, and Director

None

Frank Danesi Jr.

Director

None

As of the date of this Registration Statement, no salary hasbeen paid to the Company's officers and directors.  Officers anddirectors of the Company will not receive any compensation until the Companybecomes profitable from revenue producing operations.  The Board ofDirectors will determine the amount of their compensation, which will depend onthe profitability of the Company.

In the future, the Board of Directors may set annual bonusesbased on profitability and performance of the Company.

**Employment Contracts**

The Company has no employment agreements with any of itsofficers or directors.

**Item11. Security Ownership of Certain Beneficial Owners and Management.**

**Security Ownership of Certain Beneficial Ownersand Management**

The following table sets forth certain information as of thedate of this report with respect to the beneficial ownership of the Common Stockof Costas by (i) each director, (ii) each executive officer, (iii) the directorsand officers of Costas as a group, (iv) and each person known by Costas to ownbeneficially more than five percent (5%) of the Common Stock.  Unlessotherwise indicated, the owners have sole voting and investment power withrespect to their respective shares.

Title        of Class

Name        of Beneficial Owner (1)

Number        of Shares

%        of Class

Common Stock

John W. Henderson,        President and Director(1)

100,000

3.44%

Common        Stock

Frank Danesi Jr.,        Director(2)

2,150,000

73.92%

Common        Stock

Ted D. Campbell II(3)

305,000

10.49%

Common Stock

Officers and Directors as a Group

2,250,000

77.36%

Footnotes:

(1). Theaddress for John W. Henderson is 3356 Eagle Way, Rosamond, California 93560.

(2). Theaddress for Frank Danesi Jr. is 8787 West Washburn Road, Las Vegas, Nevada89149.

(3). Theaddress for Ted D. Campbell II is 9508 Royal Lamb Drive, Las Vegas, Nevada89145.

 

 

 

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**Change inControl**

No arrangements exist that may result in a change of controlof Costas.

**Item12. Certain Relationships and Related Transactions.**

On April 17, 1999, Frank Danesi, a shareholder and formerofficer and director of the Company sold a parcel of land to the Company inexchange for a note payable in the amount of $35,000.  On the same day, theCompany issued Mr. Danesi 900,000 shares of its $0.001 par value common stock inexchange for the cancellation of the $35,000 note payable.  (See Note 10 - Stockholders' equity).

On December 1, 2001, the Company issued 100,000 shares ofits $0.001 par value common stock in exchange for a one-year consultingagreement with an officer and director of the Company.  The consultingservices are valued at $100.  (See Note 4 - Prepaid expenses).

During the period ended December 31, 2001, the Companyloaned $1,515 to a shareholder and a former officer and director of the Company. Also, during the period ended October 31, 2002 the Company loaned an additional$1,950 to this individual.  The note bears no interest and is due upondemand.  As of December 31, 2001 and October 31, 2002 no payments have beenmade.

During the period ended December 31, 2001, the Companyloaned $3,100 to a shareholder of the Company.  The note bears no interestand is due upon demand.  As of December 31, 2001 and October 31, 2002 nopayments have been made.

During the period ended October 31, 2002, the Company loaned$2,000 to an entity owned 100% by a few shareholders of the Company.  Thenote bears no interest and is due upon demand.  As of October 31, 2002 nopayments have been made.

Office space and services are provided without charge by John Henderson, President of the Company.  Such costs are immaterial to thefinancial statements and, accordingly, have not been reflected therein. The officers and directors of the Company are involved in other businessactivities and may, in the future, become involved in other businessopportunities.  If a specific business opportunity becomes available, suchpersons may face a conflict in selecting between the Company and their otherbusiness interests. The Company has not formulated a policy for the resolutionsof such conflicts.

**Item13. Exhibits and Reports on Form 8-K.**

**(a)  Exhibits required by** Item601 of Regulation S-B

Exhibit          Number

Name          and/or Identification of Exhibit

 

 

3.

Articles        of Incorporation & By-Laws

 

(i)                 Articles of Incorporation of the        Company filed December 10, 1998 and Amendments Thereto, incorporated by        reference to the Registration Statement on Form 10-SB, as amended,        previously filed with the SEC.

 

(ii)                By-Laws of the Company adopted        December 11, 1998, incorporated by reference to the Registration        Statement on Form 10-SB, as amended, previously filed with the SEC.

 

 

 

 

99.

Additional        Exhibits

 

Certification        Pursuant to Title 18, United States Code, Section 1350, as Adopted        Pursuant to Section 906 Of The Sarbanes-Oxley Act Of 2002.

 

 

 

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**(b) Reports on Form 8-K**

Costas filed no Current Reports on Form 8-K during the lastquarter of the fiscal year ended December 31, 2002.

**Item14. Controls and Procedures.**

Based on their most recent review, which was completedwithin ninety days of the filing of this report, the Company's PrincipalExecutive Officer and Principal Financial Officer have concluded that theCompany's disclosure controls and procedures are effective to ensure thatinformation required to be disclosed by the Company in the reports it files orsubmits under the Securities Exchange Act of 1934, as amended, is accumulatedand communicated to the Company's management, including its Principal ExecutiveOfficer and Principal Financial Officer, as appropriate to allow timelydecisions regarding required disclosure and are effective to ensure that suchinformation is recorded, processed, summarized and reported within the timeperiods specified in the Securities and Exchange Commission's rules and forms. There were no significant changes in the Company's internal controls or in otherfactors that could significantly affect those controls subsequent to the date oftheir evaluation.
****
 

 

 

 

 

 

 

 

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**SIGNATURES**

In accordance with Section 13 or 15(d) of the Exchange Act,the registrant caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 

Costas,        Inc.

(Registrant)

 

By:        /s/ John W. Henderson,        President

 

March        18, 2003

In accordance with the Exchange Act, this report has beensigned below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.

 

 

 

Signature

Title

Date

 

 

 

/s/        John W. Henderson

President,        Principal Executive Officer, Director

March        18, 2003

John        W. Henderson

 

 

 

 

 

 

 

 

/s/        John W. Henderson

Principal        Financial Officer

March        18, 2003

John        W. Henderson

 

 

 

 

 

/s/        John W. Henderson

Principal        Accounting Officer

March        18, 2003

John        W. Henderson

 

 

 

 

 

 

 

 

 

 

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Certificationpursuant to the Sarbanes-Oxley Act of 2002

I,John W. Henderson, President and Principal Executive Officer of Costas, Inc.,certify that:

1.             Thisannual report fully complies with the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934 and that the information contained in thisannual report fairly presents, in all material respects, the financial conditionand results of operations of the registrant;

2.             Ihave reviewed this annual report on Form 10-KSB of Costas, Inc.;

3.             Basedon my knowledge, this annual report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this annual report;

4.             Basedon my knowledge, the financial statements, and other financial informationincluded in this annual report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this annual report;

5.             Theregistrant's other certifying officer and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange Act Rules13a-14 and 15d-14) for the registrant and we have:

a)  designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant is made known to us by others, particularly duringthe period in which this annual report is being prepared;

b)  evaluatedthe effectiveness of the registrant's disclosure controls and procedures as of adate within 90 days prior to the filing date of this annual report("Evaluation Date"); and

c)  presentedin this annual report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

6.             Theregistrant's other certifying officer and I have disclosed, based on our mostrecent evaluation, to the registrant's auditors and the audit committee of theregistrant's board of directors [or persons performing the equivalent function]:

a)  allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant's ability to record, process, summarizeand report financial data and have identified for the registrant's auditors anymaterial weaknesses in internal controls; and

b)  anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant's internal controls; and

7.             Theregistrant's other certifying officer and I have indicated in this annual reportwhether or not there were significant changes in internal controls or in otherfactors that could significantly affect internal controls subsequent to our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

Date:     March 18, 2003

By:      /s/ John W. Henderson

JohnW. Henderson, President and Principal Executive Officer
 
 

 

 

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Certificationpursuant to the Sarbanes-Oxley Act of 2002

I,John W. Henderson, Principal Financial Officer of Ginseng Forest, Inc., certifythat:

1.             Thisannual report fully complies with the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934 and that the information contained in thisannual report fairly presents, in all material respects, the financial conditionand results of operations of the registrant;

2.             Ihave reviewed this annual report on Form 10-KSB of Costas, Inc.;

3.           Basedon my knowledge, this annual report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this annual report;

4.           Basedon my knowledge, the financial statements, and other financial informationincluded in this annual report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this annual report;

5.           Theregistrant's other certifying officer and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange Act Rules13a-14 and 15d-14) for the registrant and we have:

a)  designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant is made known to us by others, particularly duringthe period in which this annual report is being prepared;

b)  evaluatedthe effectiveness of the registrant's disclosure controls and procedures as of adate within 90 days prior to the filing date of this annual report("Evaluation Date"); and

c)   presentedin this annual report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

6.           Theregistrant's other certifying officer and I have disclosed, based on our mostrecent evaluation, to the registrant's auditors and the audit committee of theregistrant's board of directors [or persons performing the equivalent function]:

a)  allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant's ability to record, process, summarizeand report financial data and have identified for the registrant's auditors anymaterial weaknesses in internal controls; and

b)  anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant's internal controls; and

7.           Theregistrant's other certifying officer and I have indicated in this annual reportwhether or not there were significant changes in internal controls or in otherfactors that could significantly affect internal controls subsequent to our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

Date:   March 18, 2003

By:      /s/ John W. Henderson

JohnW. Henderson, Principal Financial Officer
 
 

 

 

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