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: September 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 5,827,854
(Title of each class) (Outstanding at September 30, 1995)
<PAGE>
CREATIVE TECHNOLOGIES CORP.
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Condensed Financial Statements
(Unaudited)
Balance Sheet as at September 30, 1995 3
Statements of Operations
for the Three and Nine Months ended
September 30, 1995 and September 30, 1994 4
Statement of Stockholders' Equity
for the Nine Months ended September 30, 19955
Statements of Cash Flows
for the Nine Months ended
September 30, 1995 and September 30, 1994 6
Notes to Condensed Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
9-12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit 27
Financial Data Schedule 15
<PAGE>
<TABLE>
CREATIVE TECHNOLOGIES CORP.
CONDENSED BALANCE SHEET
AS AT SEPTEMBER 30, 1995
(Unaudited)
<CAPTION>
Assets
<S>
Current assets: <C>
Cash $ 681,000
Inventories 5,232,000
Accounts receivable-net 4,073,000
Prepaid expenses and other assets 455,000
Deferred tax benefit 400,000
Total Current Assets 10,841,000
Fixed assets - at cost (less accumulated depreciation
and amortization of $2,022,000) 2,480,000
Intangible and other assets 228,000
Deferred tax benefit 45,000
Total $13,594,000
</TABLE>
<TABLE>
<CAPTION>
Liabilities
<S> <C>
Current liabilities:
Notes payable $3,497,000
Due to Shawmut Capital Corp. 4,500,000
Accounts payable and accrued expenses. 1,306,000
Total Current Liabilities9,303,000
Stockholders' Equity
Common stock - $.03 par value; authorized
20,000,000 shares; issued and outstanding
5,828,000 shares 175,000
Additional paid - in capital 6,954,000
Deficit (2,838,000)
Total Stockholders' Equity4,291,000
Total $13,594,000
<FN>
See notes to condensed financial statements.
</TABLE>
3
<PAGE>
<TABLE>
CREATIVE TECHNOLOGIES CORP.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net Sales $3,831,000 $7,601,000 $12,408,000 $20,492,000
Cost of Sales2,321,000 3,965,000 6,099,000 11,193,000
Gross Profit 1,510,000 3,636,000 6,309,000 9,299,000
Operating Expenses:
Selling, general and administrative expenses
1,414,000 1,454,000 3,909,000 3,752,000
Advertising exp1,465,000 696,000 4,027,000 2,607,000
Interest expense273,000 131,000 787,000 337,000
3,152,000 2,281,000 8,723,000 6,696,000
Net (loss) income before provision for
income taxes(1,642,000) 1,355,000 (2,414,000) 2,603,000
Provision for
income taxes -- 196,000 -- 374,000
Net (Loss) Income
$(1,642,000) $1,159,000$(2,414,000) $2,229,000
Net (loss) income attributable to common shareholders
$(1,642,000) $1,158,000$(2,414,000) $2,208,000
Primary earnings per common share
$(.32) $.23 $(.48) $.48
Fully diluted earnings per common share
$(.32) $.23 $(.48) $.44
<FN>
See notes to condensed financial statements.
</TABLE>
4
<
<PAGE>
<TABLE>
CREATIVE TECHNOLOGIES CORP.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 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 options31,000 2,000 8,000
Sale of Stock 830,000 25,000 805,000
Net (loss) (2,414,000)
Balance - September 30, 1995
5,828,000 $175,000 $6,954,000 $(2,838,000)
<FN>
See notes to condensed financial statements.
</TABLE>
5
<PAGE>
<TABLE>
CREATIVE TECHNOLOGIES CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
Net cash (used in) provided by operating activities
($5,822,000) $205,000
Cash flows from investing activities:
Acquisition of fixed assets (596,000) (1,384,000)
Acquisition of intangibles (55,000) (39,000)
Net cash (used in) investing activities(651,000) (1,423,000)
Cash flows from financing activities:
Proceeds from credit facility 4,500,000 --
Proceeds from notes payable 2,730,000 1,816,000
Repayment of notes payable (1,333,000) (250,000)
Exercise of options 10,000 42,000
Dividends paid -- (400,000)
Proceeds from sale of common stock 830,000 --
Net cash provided by financing activities6,737,000 1,208,000
Net increase (decrease) in cash 264,000 (10,000)
Cash at beginning of period 417,000 99,000
Cash at end of period $681,000 $89,000
Supplemental disclosures of cash flow information
Interest paid $704,000 $325,000
Taxes paid 364,000 214,000
<FN>
See notes to condensed financial statements.
</TABLE>
6
<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 nine month period
ended September 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- Cash
Included in cash at September 30, 1995 is a $650,000
certificate of deposit with a bank as collateral for the banks
issuance of a $656,000 revolving letter of credit to enable the
Company to purchase merchandise. The letter of credit expires
December 31, 1995.
Note C - Inventories
Inventories, which are stated at the lower of cost (first-in,
first-out) or market are summarized as follows:
September 30, 1995
Finished Goods $2,836,000
Work in Process and Parts 2,396,000
Total $5,232,000
7
<PAGE>
CREATIVE TECHNOLOGIES CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note D - Due to Shawmut Capital Corp.
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 was payable in twelve equal
monthly installments and is guaranteed by a major stockholder
who is an officer of the Company. The revolving credit
facility is limited to advance rates against available Eligible
Accounts and Eligible Inventory (as defined in the agreement).
At September 30, 1995 total amounts owed under this credit
facility were:
Note payable $667,000
Due to Shawmut Capital Corporation 4,500,000
$ 5,167,000
The loan agreement 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. At September 30, 1995 the
Company was in default of certain of these covenants. The
Company and Shawmut entered into a Post Default Agreement
effective November 1, 1995, in which Shawmut agreed to continue
to extend financing to the Company and to forebear from
accelerating the loan until December 31, 1995, to limit loans
available under the credit facility to $5,500,000 and to
slightly reduce the advance rates against Eligible Accounts.
The Company is presently in discussion with various lending
institutions seeking replacement financing.
Note E - Income Taxes
The Company's net operating loss carry forwards for income tax
reporting purposes aggregated approximately $902,000 as of
December 31, 1994.
Note F - Other Matters
Pursuant to a private placement, the Company sold 830,000
shares of common stock at $1 per share during September 1995.
8
<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 at 18% per annum. The
loan was renewed from time to time and is currently due September
30, 1996. During the third quarter of 1995 the Company repaid loans
of $250,000, borrowed on a short term basis $250,000 from others at
interest of 18% per annum, and borrowed $1,000,000 from Shawmut
Capital Corporation ("Shawmut") (see below). At September 30, 1995,
the Company had a total of $3,497,000 in notes payable outstanding
of which $2,830,000 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
other borrowings, or from additional equity to be raised through a
private placement.
For the nine month period ended September 30, 1995, net cash used by
operating activities was $5,822,000, net cash of $651,000 was used
in investing activities and net cash of $6,737,000 was provided by
financing activities. As a result, for the nine month period ended
September 30, 1995, cash increased by $264,000 to $681,000. The
Company has a satisfactory relationship with its suppliers. The
accounts receivable increased to $4,073,000 at September 30, 1995
from $1,370,000 at December 31, 1994, reflecting the change from a
factoring 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 $1,306,000 at September 30, 1995 from $3,430,000 at December 31,
1994.
Until April 19, 1995, the Company sold substantially all of its
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 were 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. The Company no longer factors its receivables.
9
<PAGE>
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 was payable in twelve equal monthly installments and is
guaranteed by a major stockholder who is an officer of the Company.
The revolving credit facility is limited to advance rates against
available Eligible Accounts and Eligible Inventory (as defined in
the agreement).
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. and pays certain additional
fees.
The loan agreement 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. At September 30, 1995 the Company was in default of
certain of these covenants. The Company and Shawmut entered into a
Post Default Agreement effective November 1, 1995, in which Shawmut
agreed to continue to extend financing to the Company and to
forebear from accelerating the loan until December 31, 1995, to
limit loans available under the credit facility to $5,500,000 and to
slightly reduce the advance rates against Eligible Accounts. The
Company is presently in discussion with various lending institutions
seeking replacement financing.
Pursuant to a private placement the Company expects to raise
$2,000,000 in new capital by the sale of 2,000,000 shares of common
stock at a $1 per share. During the months of September and October
1995 the Company sold 830,000 shares and 458,000 shares
respectively. The Company may seek to raise additional equity, if
necessary.
10
<PAGE>
Results of Operations
The Company had net sales of $3,831,00 and $12,408,000 for the three
and nine month periods ended September 30, 1995 as compared to net
sales of $7,601,000 and $20,492,000 for the three and nine month
periods ended September 30, 1994. The decrease in sales for the
nine month comparative period is attributable to the retail softness
in demand and the reduction in unit selling price caused by the
large supply of competitive machines which were available on the
market. Also contributing to the sales decrease was an inability to
meet demand for sales of the Grill Express because of a shortage of
merchandise caused by production delays by one of our major
suppliers who has since been replaced. In addition, in the quarter
ended September 30, 1995, the Company wrote off account receivables
it had previously been carrying.
The gross profit margins for the quarters ended September 30, 1995
and 1994 were 39.4% and 47.8% respectively. The decrease in gross
profit margin is attributable to the write off of receivables and
the aforementioned reduction in unit selling price in order to meet
competition and to reduce inventory. The gross profit margins for
the nine month periods ended September 30, 1995 and 1994 were 50.8%
and 45.4% respectively. The increase in the gross profit margin is
attributable to increased sales of the Grill Express directly to
consumers by use of the infomercial. The benefit of the high
margins is offset by the increased media purchases (advertising
expense) associated with infomercial sales which are part of
operating expenses. Profit margins on sales after cost of goods
sold and media purchases for the quarters ended September 30, 1995
and September 30, 1994 were 1.2% and 38.7% respectively and for the
nine month periods ended September 30, 1995 and September 30, 1994
were 18.4% and 32.7% respectively.
Selling, general and administrative expenses were $1,414,000 and
$1,454,000 or 36.9% and 19.1% of net sales respectively in the
three month periods ended September 30, 1995 and September 30, 1994.
The selling, general and administrative expenses were $3,909,000 in
the nine month period ended September 30, 1995 as compared to $
3,752,000 for the nine month period ended September 30, 1994.
During the quarter ended September 30, 1995, the Company wrote off
all costs associated with the acquisition of the Shawmut credit
facility.
Advertising expenses were $1,465,000 and $696,000 respectively for
the quarters ended September 30, 1995 and September 30 1994.
Advertising expenses were $4,027,000 and $2,607,000 respectively
for nine month periods ended September 30, 1995 and September 30,
1994. The increase of $769,000 for the comparative quarters and
$1,420,000 for the comparative nine month periods were due to an
increase in airings of a new Grill Express infomercial which was
introduced during the first quarter of 1995 and the initial airings
in the quarter ended September 30, l995 of the Wonder Cooker
infomercial. Also contributing to the increased expenses in the
quarter and nine month periods was the write off during the quarter
ended September 30, 1995 of infomercial production costs for the
Grill Express, Wonder Cooker, and Pasta Express.
11
<PAGE>
Interest expense increased to $273,000 and $787,000 for the three
and nine month periods ended September 30, 1995 as compared to
$131,000 and $337,000 for the three and nine month periods ended
September 30, 1994. The increase was due to increased borrowings
and higher rates.
Due to the foregoing, the Company reported for the three month
periods ended September 30, 1995 and 1994 a net loss of $1,642,000
and net income of $1,159,000 respectively. For the nine month
periods ended September 30, 1995 and 1994 there was a net loss of
$2,414,000 and net profit of $2,229,000 respectively.
12
<PAGE>
PART II - OTHER INFORMATION
Item 6. a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
The Registrant did not file reports on Form
8-K during the three months ended September 30, 1995.
13
<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 : November 14, 1995 By: S/Richard Helfman
Richard Helfman, President
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1995
<PERIOD-END> Sep-30-1995
<CASH> 681,000
<SECURITIES> 0
<RECEIVABLES> 4,073,000
<ALLOWANCES> 0
<INVENTORY> 5,232,000
<CURRENT-ASSETS> 10,841,000
<PP&E> 4,502,000
<DEPRECIATION> 2,022,000
<TOTAL-ASSETS> 13,594,000
<CURRENT-LIABILITIES> 9,303,000
<BONDS> 0
<COMMON> 175,000
0
0
<OTHER-SE> 4,116,000
<TOTAL-LIABILITY-AND-EQUITY>13,594,000
<SALES> 12,408,000
<TOTAL-REVENUES> 12,408,000
<CGS> 6,099,000
<TOTAL-COSTS> 6,099,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 787,000
<INCOME-PRETAX> (2,414,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,414,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,414,000)
<EPS-PRIMARY> (.48)
<EPS-DILUTED> (.48)
</TABLE>
