FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: June 30, 1995
Commission File Number: 0-15754
CREATIVE TECHNOLOGIES CORP.
(Exact name of registrant as specified in its charter)
NEW YORK 11-2721083
(State or other jurisdiction of(IRS Employer Identification Number)
incorporation of organization)
170 53rd Street, Brooklyn, New York 11232
(Address of principal executive offices) (Zip Code)
(718) 492-8400
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock, Par Value $.03 4,997,854
(Title of each class)(Outstanding at June 30, 1995)
<PAGE>
CREATIVE TECHNOLOGIES CORP.
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Condensed Financial Statements
(Unaudited)
Balance Sheet as at June 30, 1995 3
Statements of Operations
for the Three and Six Months ended
June 30, 1995 and June 30, 1994
Statement of Stockholders' Equity
for the Six Months ended June 30, 1995 5
Statements of Cash Flows
for the Six Months ended
June 30, 1995 and June 30, 19946
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
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<TABLE>
CREATIVE TECHNOLOGIES CORP
CONDENSED BALANCE SHEET
AS AT JUNE 30, 1995
(Unaudited)
<CAPTION>
Assets
<S> <C>
Current assets:
Cash $ 60,000
Inventories 5,348,000
Accounts receivable-net 3,693,000
Prepaid expenses and other assets 715,000
Deferred tax benefit 400,000
Total Current Assets 10,216,000
Fixed assets - at cost (less accumulated depreciation
and amortization of $1,329,000) 3,063,000
Intangible and other assets 224,000
Deferred tax benefit 45,000
Total $13,548,000
</TABLE>
<TABLE>
<CAPTION>
Liabilities
<S> <C>
Current liabilities:
Notes payable $ 3,497,000
Due to Shawmut Capital Corp. 4,022,000
Accounts payable and accrued expenses. 926,000
Total Current Liabilities 8,445,000
Stockholders' Equity
Common stock - $.03 par value; authorized
20,000,000 shares; issued and outstanding
4,998,000 shares 150,000
Additional paid - in capital 6,149,000
Deficit (1,196,000)
Total Stockholders' Equity 5,103,000
Total $13,548,000
<FN>
See notes to condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
CREATIVE TECHNOLOGIES CORP.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net Sales $4,647,000 $4,513,000 $8,577,000 $12,891,000
Cost of Sales 1,690,000 1,976,000 3,778,000 7,228,000
Gross Profit 2,957,000 2,537,000 4,799,000 5,663,00
Operating Expenses:
Selling, general and
administrative expenses 1,213,000 1,167,000 2,495,000 2,298,000
Advertising expense 1,593,000 1,127,000 2,562,000 1,911,000
Interest expense 248,000 114,000 514,000 206,000
3,054,000 2,408,000 5,571,000 4,415,000
Net income (loss) before
provision for income taxes (96,000) 129,000 (772,000) 1,248,000
Provision for income taxes 20,000 178,000
Net Income (Loss) $(96,000) $109,000 $(772,000) $1,070,000
Net income (loss) attributable to
common shareholders (96,000) 108,000 (772,000) 1,036,000
Primary earnings per common share $(.02) $.02 $(.16) $.24
Fully diluted earnings per
common share $(.02) $.02 $(.16) $.21
<FN>
See notes to condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
CREATIVE TECHNOLOGIES CORP.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(Unaudited)
<CAPTION>
Common Stock Additional
Number of Par Paid-in
Shares Value Capital Deficit
<S> <C> <C> <C> <C>
Balance December 31, 1994 4,967,000 $148,000 $6,141,000 $(424,000)
Exercise of options 31,000 2,000 8,000
Net(loss) (772,000)
Balance
June 30, 1995 4,998,000 $150,000 $6,149,000 $(1,196,000)
<FN>
See notes to condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
CREATIVE TECHNOLOGIES CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
Net cash provided by (used in) operating activities ($5,259,000) $1,471,000
Cash flows from investing activities:
Acquisition of fixed assets (486,000) (1,091,000)
Acquisition of intangibles (40,000) (23,000)
Net cash (used in) investing activities (526,000) (1,114,000)
Cash flows from financing activities:
Proceeds from credit facility 4,022,000
Proceeds from notes payable 2,480,000
Repayment of notes payable (1,084,000)
Exercise of options 10,000 30,000
Dividends paid (400,000)
Net cash provided by (used in) financing activities 5,428,000 (370,000)
Net (decrease) in cash (357,000) (13,000)
Cash at beginning of period 417,000 99,000
Cash at end of period $60,000 $86,000
Supplemental disclosures of cash low information
Interest paid $509,000 $207,000
Taxes paid 365,000 193,000
<FN>
See notes to condensed financial statements
</TABLE>
<PAGE>
CREATIVE TECHNOLOGIES CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation S-X. Accordingly they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 30, 1995
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1995. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-KSB for the year ended December 31, 1994.
Note B - Inventories
Inventories, which are stated at the lower of cost (first-in, first-out) or
market are summarized as follows:
June 30,
1995
Finished Goods $2,933,000
Work in Process
and Parts 2,415,000
Total $5,348,000
Note C - Income Taxes
The Company's net operating loss carry forwards for income tax reporting
purposes aggregate approximately $902,000 as of December 31, 1994.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The Company designs, manufactures and distributes small electric appliances
that are used in the home kitchen. Currently, the Company's top selling items
are a series of fresh pasta making machines and the Grill Express, a novel food
griller.
In 1993, the Company obtained a short term loan in the amount of $1,000,000
from an entity one of whose director is a director of the Company. The loan
currently bears interest 18% per annum. The loan was renewed from time to time
and is currently due September 30, 1995. During the second quarter the Company
repaid loans for $584,000, borrowed $250,000 from related parties at interest of
18% per annum due on a short term basis, and borrowed $1,000,000 from Shawmut
(see below). At June 30, 1995, the Company had a total of $3,497,000 in notes
payable outstanding of which $2,580,000 are guaranteed by two major shareholders
one of whom is an officer of the Company. The loans were used for seasonal
working capital and the Company expects to repay these loans out of working
capital and profits, if any, derived from operations, from the credit line with
Shawmut Capital Corporation ("Shawmut"), or other borrowings.
For the six months period ended June 30, 1995 net cash used by operating
activities was $5,259,000. Net cash of $526,000 was used in investing
activities and net cash of $5,428,000 was provided by financing activities. As
a result, for the six month period ended June 30, 1995, cash decreased by
$357,000 to $60,000. The Company has a satisfactory relationship with its
suppliers. The accounts receivable increased to $3,693,000 at June 30, 1995
from $1,370,000 at December 31, 1994, reflecting the change from a factor
arrangement in which the company factored its accounts receivables to a line of
credit secured in part by the accounts receivables. The accounts payable and
other liabilities decreased to $926,000 at June 30, 1995 from $3,430,000 at
December 31, 1994.
Until April 19, 1995, the Company sold substantially all of the trade
receivables at various levels of recourse to Rosenthal & Rosenthal, Inc. (the
"factor"). The factor preapproved the sales which the Company sold to the
factor. The factor made advances to the Company and charged the Company 2%
above prime. The factoring commissions payable at the time of purchase was one
percent of the first $10,000,000 of the receivables sold to the factor, .875% of
the next $10,000,000 and .75% on all sales of receivables over $20,000,000.
On April 19, 1995, the Company obtained a one year credit facility from Shawmut
in the total amount of up to $15,000,000 consisting of a term loan of $1,000,000
and revolving credit facility of up to $15,000,000 less the outstanding amount
of the term loan. The term loan is payable in twelve equal monthly
installments. Loans on the revolving credit facility are available in the
amount equal to 70% of the net amount of the Eligible Accounts Receivables (as
defined in the agreement) plus the lesser of $7,500,000 or the sum of 60% of the
Eligible Inventory (as defined in the agreement).
<PAGE>
The Company pays interest on the Term Loan and on the outstanding revolving
credit loans at the rate of 1.25% over the prime rate of the Shawmut Bank
Connecticut, N.A.
The Company pays a fee equal to 1/2% per annum of the average monthly
amount by which $15,000,000 exceeds the sum of the outstanding principal balance
of the revolving credit loans, the principal balance of the term loan plus any
outstanding letters of credit or guarantees. In addition, the Company pays
certain other administrative fees. Shawmut obtained a security interest in all
of the Company's current and non-current assets.
The credit facility requires the Company to maintain certain levels of
profitability, working capital, tangible net worth, net cash flow and interest
coverage ratio and places certain other restrictions on the Company.
The Company paid a closing fee to Shawmut in the amount of $100,000 and a
finder's fee to Dresner Investment Services Inc. in the amount of $120,000. The
Company no longer factors its receivables.
The company is currently looking to raise additional debt or equity.
<PAGE>
Results of Operations
The Company had net sales of approximately $4,647,00 and $8,577,000 for the
three and six month periods ended June 30, 1995 as compared to net sales of
approximately $4,513,000 and $12,891,000 for the three and six month periods
ended June 30, 1994. The decrease in comparative sales for the six month
period was the result of a slowdown in the sale of pasta machines in the six
months of 1995 compared to the six months of 1994.
The gross profit margin for the quarter ended June 30, 1995 was 63.6% as
compared to 56.2% for the quarter ended June 30, 1994. The gross profit margin
for the six month period ended June 30, 1995 was 56% as compared to 43.9% for
the six month period ended June 30, 1994. The increase in the gross profit
margin is the result of reduced production cost and increased sales of the Grill
Express directly to consumers by use of the infomercial. The benefit of the
high margins is partly offset by the increased media purchases (advertising
expense) associated with infomercial sales which are part of operating expenses.
Profit on sales after cost of goods sold and media purchases for the quarters
ending June 30, 1995 and June 30, 1994 was 29% and 31% and for the six month
period ending June 30, 1995 and June 30, 1994 was 26% and 29% respectively.
Selling, general and administrative expenses were $1,213,000 and $1,167,000
or 26% of net sales in the three month periods ended June 30, 1995 and June 30,
1994. The selling, general and administrative expenses were $2,495,000 in the
six month period ended June 30, 1995 as compared to $ 2,298,000 for the six
month period ended June 30, 1994. Advertising expenses were $1,593,000 and
$1,127,000 in the three month periods ended June 30, 1995 and June 30 1994. The
advertising expenses were $2,562,000 and $1,911,000 in the six month periods
ended June 30, 1995 and June 30, 1994. The increase of $466,000 for the
comparative quarters and $651,000 for the comparative six month periods was due
to an increase in airings of our new Grill Express infomercial which was
introduced during the first quarter of 1995.
Interest expense increased to $248,000 and $514,000 for the three and six
month periods ended June 30, 1995 as compared to $114,000 and $206,000 for the
three and six month periods ended June 30, 1994. The increase was due to
increased borrowings and higher rates.
Due to the foregoing for the three month period ended June 30, 1995, the
Company reported a net loss of $96,000 as compared to a net income of $108,000
for the three month period ended June 30, 1994. For the six month period ended
June 30, 1995, the Company reported a net loss $772,000 as compared to a net
income of $1,036,000 for the six month period ended June 30, 1994. The primary
net earnings per common share were $(.02) and $(.16) for the three and six
months periods ended June 30, 1995 as compared to the primary net earnings per
common share of $.02 and $.24 for the three and six month periods ended June 30,
1994. The fully diluted net earnings per common share were $(.02) and $(.16)
for the three and six month periodsended June 30, 1995 as compared to $.02 and
$.21 for the three and six month periods ended June 30, 1994.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. The Registrant did not file reports on Form
8-K during the three months ended June 30, 1995.
<PAGE>
CREATIVE TECHNOLOGIES CORP.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CREATIVE TECHNOLOGIES CORP.
Registrant
Dated: August 9, 1995 By: S/Richard Helfman
Richard Helfman, President
