<PAGE>
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: March 31, 1999
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 $.09 4,127,444
- ---------------------------- ------------------------------
(Title of each class) (Outstanding at March 31, 1999)
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Condensed Consolidated Financial Statements
(Unaudited)
Balance Sheet as at March 31, 1999 3
Statement of Operations
For the Three Months ended
March 31, 1999 and March 31, 1998 4
Statement of Stockholders' Deficiency
For the Three Months ended March 31, 1999 5
Statement of Cash Flows
For the Three Months ended
March 31, 1999 and March 31, 1998 6
Notes to Condensed Consolidated Financial Statements 7 - 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13 - 15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Exhibit 27 18
Financial Data Schedule
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Assets
Current assets:
<S> <C>
Cash $ 5,000
Accounts receivable-net 2,941,000
Inventories 942,000
Prepaid expenses and other current assets 249,000
-------
Total current assets 4,137,000
Fixed assets - less accumulated depreciation
and amortization of $351,000 169,000
Other assets 825,000
-------
Total assets $ 5,131,000
============
Liabilities and Stockholders Deficiency
Current liabilities:
Loans payable - financial institution $ 2,314,000
Notes payable - related parties 3,985,000
Accounts payable and accrued expenses 4,089,000
Due to related party 488,000
-------
Total current liabilities 10,876,000
Subordinated note payable - affiliate 400,000
-------
Total liabilities 11,276,000
----------
Redeemable Preferred Stock - $.01 par value; authorized 5,000,000 shares; 4,000
shares of nonconvertible stock designated as 1997-A preferred stock - $1,000
stated value; issued and outstanding 3,500 shares (redemption and
liquidation value $3,500,000) 319,000
-------
Stockholders' Deficiency
Preferred stock - $.01 par value; authorized 5,000,000 shares: 10,000 shares
of convertible stock designated as 1996 preferred stock - $1,000 stated
value; issued and outstanding 600 shares (liquidation
value $600,000) 600,000
10,000 shares of convertible stock designated as 1996-A preferred stock -
$1,000 stated value; issued and outstanding 1,170 shares (liquidation
value $1,170,000) 1,170,000
Common Stock - $.09 par value; authorized 20,000,000 shares, issued and
outstanding 4,127,000 shares 371,000
Additional paid-in capital 8,576,000
Accumulated deficit (17,181,000)
-----------
Stockholders' deficiency (6,464,000)
----------
Total liabilities and stockholders deficiency $ 5,131,000
============
See notes to condensed consolidated financial statements
</TABLE>
3
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1999 1998
---- ----
Net Sales $ 4,123,000 $ 3,393,000
Cost of sales 2,675,000 2,138,000
--------- ---------
Gross profit 1,448,000 1,255,000
--------- ---------
Operating expenses:
Selling, general and administrative expenses 917,000 715,000
Warehousing expense 288,000 298,000
Interest expense and financing costs 217,000 235,000
------- -------
1,422,000 1,248,000
---------
Net income 26,000 7,000
Less undeclared dividends on preferred stock (158,000) (158,000)
-------- --------
Net loss applicable to common shares $ (132,000) $ (151,000)
=========== ===========
Per common share - basic & diluted
Net loss $ (.03) $ (.04)
=========== ===========
Weighted average number of shares 4,111,000 4,127,000
=========== ===========
See notes to condensed consolidated financial statements.
4
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE THREE MONTHS ENDED MARCH 31,1999
(Unaudited)
<TABLE>
<CAPTION>
1996 1996-A
Preferred Stock Preferred Stock Common Stock Additional
Number Number Number Paid-in
of shares Amount of Shares Amount of Shares Amount Capital
--------- ------ --------- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 600 $600,000 1,170 $1,170,000 4,127,000 $371,000 $8,692,000
Increase in carrying value of (11,000)
1997-A preferred stock issued
in connection with acquisition
1997-A preferred stock dividend accrued
(105,000)
Net income for the period
Balance at March 31, 1999 600 $600,000 1,170 $1,170,000 4,127,000 $371,000 $8,576,000
=== ======== ===== ========== ========= ======== ==========
<CAPTION>
Accumulated
Deficit Total
- ------- -----
<C> <C>
$(17,188,000) $(6,355,000)
(11,000)
(105,000)
7,000 7,000
$(17,181,000) $(6,464,000)
============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1999
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income $ 26,000 $ 7,000
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 22,000 19,000
Amortization of goodwill 6,000 9,000
Noncash professional fees 54,000 --
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 68,000 (66,000)
Decrease in inventories 412,000 407,000
Decrease (increase) in prepaid expenses and other current assets 4,000 (55,000)
Decrease in accounts payable and accrued expenses (477,000) (663,000)
Increase in due to related party -- 120,000
--------- ---------
Net cash provided by (used in) operating activities 115,000 (222,000)
--------- ---------
Cash flows from investing activities:
Acquisition of fixed assets (3,000) --
Cash flows from financing activities:
Net (repayments of) proceeds from loans payable - financial institution (108,000) 31,000
Proceeds from notes payable -- 200,000
Repayment of notes payable (19,000) (5,000)
--------- ---------
Net cash (used in) provided by financing activities (127,000) 226,000
--------- ---------
Net (decrease) increase in cash (15,000) 4,000
Cash at beginning of period 16,000 1,000
--------- ---------
Cash at end of period $ 1,000 $ 5,000
========= =========
Supplemental disclosures of cash flow information Cash paid during the period
for:
Interest $ 133,000 $ 98,000
========= =========
Supplemental schedule of noncash financing activities:
Issuance of common stock for services $ 54,000 $ 0
========= =========
See notes to condensed consolidated financial statements.
</TABLE>
6
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note - A Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the rules and regulations of the Securities and
Exchange Commission. 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 three-month period ended March 31, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. 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, 1998.
Creative Technologies Corp. ("CTC") and Subsidiaries (collectively the
"Company") are engaged in importing and marketing small household products
(principally to department and discount stores, catalogues and other retailers)
and medical, janitorial and dietary products to hospitals and other healthcare
facilities.
The consolidated financial statements include the accounts of CTC and its wholly
owned subsidiaries; IHW, Inc. and Ace Surgical Supply Co., Inc. ("Ace"). All
material intercompany balances and transactions have been eliminated in
consolidation.
The Company computes earnings per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128 Earnings per Share. Basic net loss
per common share is based on the weighted-average number of shares outstanding
during the period while diluted net loss per common share considers the dilutive
effect of stock options and warrants reflected under the treasury stock method.
Both basic net loss per share and diluted net loss per share are the same since
the Company's outstanding stock options and warrants have not been included in
the calculation because their effect would have been antidilutive.
Note - B Notes Payable and Related Party Transactions
At March 31, 1999, the Company had outstanding related party notes payable
totaling $3,985,000. Of this amount, $3,235,000 bears interest at 12% and
$750,000 bears interest at 18%. These notes are all due on demand and are
payable to various individuals who are stockholders, entities whose principals
are stockholders of the Company, and the Company's retirement plan. Certain of
these related party note holders have been granted a security interest in the
assets of CTC subordinated to the rights of the financial institution described
below. Notes payable aggregating $3,893,000 are personally guaranteed by certain
stockholders of the Company.
At March 31, 1999, the Company owed $2,314,000 pursuant to a loan and security
agreement entered into with a financial institution whereby the Company is
required to maintain an outstanding combined loan balance of not less than
$1,500,000, but no more than $3,000,000, as defined, which expires June 2001.
The loan is collateralized by substantially all of the assets of the Company and
is partially guaranteed by an officer of the Company. Under the agreement, the
Company receives revolving credit advances based on accounts receivable and
inventory available, as defined, and is required to pay interest at a rate equal
to the greater of 9% or the prime rate (7.75% at March 31, 1999) plus 2.5% plus
other fees and all of the lenders out-of-pocket costs and expenses. The
agreement, among
7
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
other matters, restricts the Company with respect to (i)incurring any lien or
encumbrance on its property or assets, (ii)entering into new indebtedness,
(iii)incurring capital expenditures in any fiscal year in an amount in excess of
$100,000, (iv) declaring or paying dividends on common or preferred stock and
(v) requires an officer of the Company to maintain certain ownership percentages
at March 31, 1999.
At March 31, 1999, the Company owed a related party $488,000 for the rental of
its office and warehousing space. During April 1999, the related party sold the
building occupied by the Company and the Company is moving into substantially
less office and warehousing space at the same location.
At March 31, 1999, the Company had an outstanding note payable (aggregating
$400,000) to an affiliate subordinated to the obligations due the financial
institution discussed above. Interest is payable on the note at the rate of 12%
per annum.
Pursuant to an October 27,1997 merger agreement between the Company and Ace, the
Company agreed to continue an obligation to pay $10,000 per month each in
consulting fees to two related parties, a principal stockholder and the spouse
of a principal stockholder of the Company. During the three month period ended
March 31, 1999 and 1998, $30,000 was paid to each of these individuals.
Note - C Preferred Stock
During October 1997, in connection with the acquisition of Ace, the board of
directors designated 4,000 shares of redeemable preferred stock as "1997-A
Preferred Stock" having a stated value of $1,000 per share. The holders of
1997-A Preferred Stock are entitled to:
(i) receive cumulative dividends at the rate of $120 per annum, when, as and
if declared by the board of directors of the Company;
(ii) redemption of their preferred stock on the later of 20 years from date of
issuance or October 1, 2017 at a redemption price of $1,000 per share plus
accrued but unpaid dividends; and
(iii) liquidation preference of $1,000 per share plus accrued but unpaid
dividends.
The holders of 1997-A Preferred Stock are not entitled to:
(i) convert the 1997-A Preferred Stock into common stock; or
(ii) vote at any meeting of the stockholders of the Company unless the
dividends are in arrears longer than one year at which time the holders of
the 1997-A Preferred Stock shall be entitled to 1,000 votes per share and
shall vote along with the holders of common stock as one class.
At March 31, 1999, $181,000 of dividends was in arrears longer than one year and
as a result, holders of the 1997-A Preferred Stock are entitled to 3,500,000
votes along with holders of 4,127,000 shares of common stock.
8
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
At the effective date of the Ace merger, the estimated fair value of the 1997-A
Preferred Stock amounted to approximately $265,000 pursuant to a valuation by an
independent financial advisory firm.
Cumulative unpaid 1997-A Preferred Stock dividends aggregated approximately
$601,000 at March 31, 1999.
In June 1996, the board of directors designated 10,000 shares of preferred stock
as "1996 Preferred Stock" valued at $1,000 per share. The holders of 1996
Preferred Stock are entitled to:
(i) receive cumulative dividends at the rate of $120 per annum payable
quarterly in cash or common stock at the option of the Company;
(ii) convert each share of preferred stock into approximately 333 shares of
common stock subject to adjustment, as defined;
(iii) redemption of their preferred shares on June1, 1999 at $1,000 per share
payable in cash or shares of common stock at the option of the Company, as
amended;
(iv) liquidation preferences of $1,000 per preferred share; and
(v) no voting rights.
The Company, at its option, has the right to redeem all or any portion of the
1996 Preferred Stock at $1,100 per share plus accrued and unpaid dividends prior
to June1, 1999, as amended.
Management intends to satisfy the cumulative unpaid 1996 Preferred Stock
dividends, which aggregated approximately $204,000 at March31, 1999 through the
issuance of securities, and, therefore, such amounts have not been accrued.
On September 30, 1996, the board of directors designated 10,000 shares of
preferred stock as "1996-A Preferred Stock" valued at $1,000 per share. The
holders of 1996-A Preferred Stock are entitled to:
(i) receive cumulative dividends at the rate of $120 per annum payable
quarterly in cash or common stock at the option of the Company;
(ii) convert each share of preferred stock into approximately 1,600 shares of
common stock subject to adjustment, as defined;
(iii) redemption of their preferred shares on October 1, 1999 at $1,000 per
share payable in cash or shares of common stock at the option of the
Company, as amended;
(iv) liquidation preferences of $1,000 per preferred share; and
(v) no voting rights.
9
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company, at its option, has the right to redeem all or any portion of the
1996-A Preferred Stock at $1,100 per share plus accrued and unpaid dividends
prior to October1, 1999, as amended.
Management intends to satisfy the cumulative unpaid 1996-A Preferred Stock
dividends, which aggregated approximately $359,000 at March 31, 1999 through the
issuance of securities, and, therefore, such amounts have not been accrued.
Note - D Product Liability and Litigation
The Company has received notice that several consumers claim to have suffered
finger injuries while using one of the Company's appliance products. All but one
of the claims is covered by the Company's product liability insurance carrier.
The Company denies any wrongdoing with respect to this claim and is currently in
settlement discussions. Should a satisfactory settlement not be reached, the
Company is prepared to defend itself with respect to this claim. The ultimate
outcome of this claim is not expected to have a material effect on the Companys
financial position, results of operations or cash flows. The Company redesigned
the appliance in August 1992, and believes that the modification made should
minimize the possibility of such injury. The Consumer Product Safety Commission
(the "CPSC") made a preliminary determination that the Company's appliance
product represents a "substantial product hazard" as that term is defined in the
Consumer Product Safety Act.
The Company proposed and the CPSC accepted a voluntary corrective action plan
which began implementation during 1997, whereby the Company would replace
certain parts of the appliances manufactured prior to August 1992. As of March
31, 1999 such voluntary corrective action plan was completed.
Various lawsuits, claims and proceedings have been or may be instituted or
asserted against the Company in the normal course of business. While the amounts
claimed or expected to be claimed may be substantial, the ultimate liability
cannot be determined because of the inherent uncertainties surrounding the
litigation and the considerable uncertainties that exist. Based on facts
currently available, management believes that the disposition of matters that
are pending or asserted will not have a materially adverse effect on the
financial position or results of operations of the Company.
Note E Business Segments
In accordance with SFAS No. 131, the Companys business segments are organized
around its product lines, small household products and medical, janitorial and
dietary products. The following table is a summary of these segments for the
three-month period ended March 31, 1998 and 1999.
10
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Month Period Ended March 31, 1998
<TABLE>
<CAPTION>
Medical,
Janitorial
and
Small Dietary
Household Products Products Corporate Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated
customers $ 1,932,000 $2,191,000 $ - - $4,123,000
Intersegment sales 5,000 - - $ (5,000) -
- ------------------------------------------------------------------------------------------------------------------------------------
Total sales $ 1,937,000 $2,191,000 $ - $ (5,000) $4,123,000
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 74,000 $ 297,000 $ (128,000) $ - $ 243,000
Interest expense (149,000) (68,000) - - (217,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Profit (loss) before
provision for income
tax $ (75,000) $ 229,000 $ (128,000) $ - $ 26,000
- ------------------------------------------------------------------------------------------------------------------------------------
Depreciation and
amortization of fixed
assets $ 17,000 $ 5,000 $ - $ - $ 22,000
- ------------------------------------------------------------------------------------------------------------------------------------
Amortization of
intangibles $ - $ 6,000 $ - $ - $ 6,000
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 3,000 $ - $ - $ - $ 3,000
- ------------------------------------------------------------------------------------------------------------------------------------
Identifiable assets at
March 31, 1998 $2,761,000 $3,105,000 $ 484,000 $ (1,046,000) $5,334,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Three Month Period Ended March 31, 1999
<TABLE>
<CAPTION>
Medical,
Janitorial
Small and
Household Products Dietary
Products Corporate Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $ 1,644,000 $ 1,749,000 $ - - $3,393,000
Intersegment sales 1,000 - - $ (1,000) -
- ------------------------------------------------------------------------------------------------------------------------------------
Total sales $ 1,645,000 $ 1,749,000 $ - $ (1,000) $3,393,000
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 152,000 $ 181,000 $ (91,000) $ - $ 242,000
Interest expense (172,000) (63,000) - - (235,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Profit (loss) before
provision for income
tax $ (20,000) $ 118,000 $ (91,000) $ - $ 7,000
- ------------------------------------------------------------------------------------------------------------------------------------
Depreciation and
amortization of
fixed assets $ 14,000 $ 5,000 $ - $ - $ 19,000
- ------------------------------------------------------------------------------------------------------------------------------------
Amortization of
intangibles $ - $ 9,000 $ - $ - $ 9,000
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ - $ - $ - $ - $ -
- ------------------------------------------------------------------------------------------------------------------------------------
Identifiable assets at
March 31, 1999 $ 1,948,000 $ 2,668,000 $ 484,000 $ (794,000) $4,306,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
Creative Technologies Corp. (CTC") is a holding company owning the stock of two
operating subsidiaries, IHW Inc. ("IHW") and Ace Surgical Supplies Co., Inc.
(Ace), collectively (the Company). Ace, in business since 1974, was acquired by
CTC in October 1997. It distributes medical, janitorial and dietary products in
the tri-state area, generally to hospitals, nursing homes and medical care
facilities. IHW, which was incorporated in 1997, is the exclusive importer and
distributor for various European manufacturers of moderate to high-end
housewares. The companies whose products are currently being distributed by IHW
are Brabantia, Soehnle, Ergotrade, MAWA Metallwarenfabrik, Foppa Pedretti
S.p.A., and Bredemeijer. IHW is continually looking to distribute other
complementary lines that meet its various criteria.
For the three-month period ended March 31, 1999, cash used in operating
activities was $222,000 and cash of $226,000 was provided by financing
activities. As a result, at March 31, 1999 cash increased by $4,000 to $5,000
compared to $1,000 at December 31, 1998. The Company had a negative working
capital of $6,739,000 at March 31, 1999.
Accounts payable and other liabilities decreased to $4,089,000 at March 31, 1999
from $4,647,000 at December 31, 1998 primarily due to a reduction of inventory
and increased borrowings from other sources.
During the three month period ended March 31, 1999 debt to a financial
institution increased by $31,000 to $2,314,000 and notes to related parties
increased by $195,000 to $3,985,000.
At March 31, 1999, the Company had outstanding related party notes payable
totaling $3,985,000. Of this amount, $3,235,000 bears interest at 12% and
$750,000 bears interest at 18%. These notes are all due on demand and are
payable to various individuals who are stockholders, entities whose principals
are stockholders of the Company, and the Company's retirement plan. Certain of
these related party note holders have been granted a security interest in the
assets of CTC subordinated to the rights of the financial institution described
below. Notes payable aggregating $3,893,000 are personally guaranteed by certain
stockholders of the Company.
At March 31, 1999, the Company owed $2,314,000 pursuant to a loan and security
agreement entered into with a financial institution whereby the Company is
required to maintain an outstanding combined loan balance of not less than
$1,500,000, but no more than $3,000,000, as defined, which expires June 2001.
The loan is collateralized by substantially all of the assets of the Company and
is partially guaranteed by an officer of the Company. Under the agreement, the
Company receives revolving credit advances based on accounts receivable and
inventory available, as defined, and is required to pay interest at a rate equal
to the greater of 9% or the prime rate (7.75% at March 31, 1999) plus 2.5% plus
other fees and all of the lenders out-of-pocket costs and expenses. The
agreement, among other matters, restricts the Company with respect to
(i)incurring any lien or encumbrance on its property or assets, (ii)entering
into new indebtedness, (iii)incurring capital expenditures in any fiscal year in
an amount in excess of $100,000, (iv) declaring or paying dividends on common or
preferred stock and (v) requires an officer of the Company to maintain certain
ownership percentages at March 31, 1999.
At March 31, 1999, the Company owed a related party $488,000 for the rental of
its office and warehousing space. During April 1999, the related party sold the
building occupied by the Company and the Company is moving into substantially
less office and warehousing space at the same location.
13
<PAGE>
At March 31, 1999, the Company had an outstanding note payable (aggregating
$400,000) to an affiliate subordinated to the obligations due the financial
institution discussed above. Interest is payable on the note at the rate of 12%
per annum.
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 Issue and has
developed an implementation plan to resolve the issue. The Company presently
believes that, with modifications to existing software, conversions to new
software and the replacement of certain hardware, the Year 2000 problem will not
pose significant operational problems for the Companys computer systems as so
modified and converted. The Company is presently testing certain software that
has already been modified. The Company does not anticipate that the total cost
of implementing its year 2000 plan will have a material effect on its financial
condition.
14
<PAGE>
Results of Operations
The Company had net sales of $3,393,000 and $4,123,000, respectively, for the
three month periods ended March 31, 1999 and March 31, 1998. The decrease in
sales is primarily attributable to Ace shifting away from lower margin sales and
a general seasonal decline in IHWs sales.
Gross profit margins for the first quarter ended March 31, 1999 and March 31,
1998 were 37% and 35%, respectively. The increase in gross profit margin is
attributable to IHW receiving better pricing on certain key Brabantia items in
exchange for buying container loads, placing purchase orders well in advance of
shipments, a stronger dollar relative to certain foreign currencies and a shift
in Aces sales to more profitable items.
Selling, general and administrative expenses were $715,000 and $917,000 or 21%
and 22% of net sales, respectively, in the three month periods ended March 31,
1999 and March 31, 1998, and reflects managements continuing cost cutting
programs and better efficiencies from consolidating Ace and IHW.
Interest expense increased to $235,000 for the three-month period ended March
31, 1999 as compared to $217,000 for the three-month period ended March 31,
1998. The increase of $18,000 was primarily due to increased borrowings.
Inventory was $942,000 at March 31, 1999 compared to $1,697,000 on March 31,
1998. The decrease in inventory is primarily the result of lower sales and Ace
and IHW relying more on just in time inventory from their suppliers. Accounts
receivable was $2,941,000 at March 31, 1999 compared to $3,204,000 at March 31,
1998. The decrease in receivables reflects the decrease in sales in the first
quarter of 1999 as compared to the first quarter of 1998.
Due to the foregoing, the Company reported a net profit of $7,000 compared to a
net profit of $26,000 respectively, for the three-month periods ended March 31,
1999 and March 31, 1998.
15
<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 March 31, 1999.
16
<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: May 14, 1999 By: /s/ Richard Helfman
- ------ ------------ ------------------------
Richard Helfman, President
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,000
<SECURITIES> 0
<RECEIVABLES> 3,226,000
<ALLOWANCES> 285,000
<INVENTORY> 942,000
<CURRENT-ASSETS> 4,137,000
<PP&E> 520,000
<DEPRECIATION> 351,000
<TOTAL-ASSETS> 5,131,000
<CURRENT-LIABILITIES> 10,876,000
<BONDS> 0
319,000
1,770,000
<COMMON> 371,000
<OTHER-SE> (8,605,000)
<TOTAL-LIABILITY-AND-EQUITY> 5,131,000
<SALES> 3,393,000
<TOTAL-REVENUES> 3,393,000
<CGS> 2,138,000
<TOTAL-COSTS> 2,138,000
<OTHER-EXPENSES> 1,013,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 235,000
<INCOME-PRETAX> 7,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,000
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
