<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: September 30, 2000
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 16,698,870
--------------------------------------------------------------------------------
(Title of each class) (Outstanding at September 30, 2000)
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Condensed Consolidated Financial Statements
Balance Sheet as at September 30, 2000 and December 31, 1999 3
Statement of Operations
For the Three and Nine Months ended
September 30, 2000 and September 30, 1999 4
Statement of Stockholders' Deficiency
For the Nine Months ended September 30, 2000 5
Statement of Cash Flows
For the Nine Months ended
September 30, 2000 and September 30, 1999 6
Notes to Condensed Consolidated Financial Statements 7 - 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14 - 16
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a vote of Securities Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibit 27 19
Financial Data Schedule
2
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Assets Unaudited Audited
Current assets:
Cash $ 11,000 $ 63,000
Accounts receivable-net 3,359,000 3,170,000
Inventories 1,626,000 1,772,000
Prepaid expenses and other current assets 276,000 278,000
-------------- -------------
Total current assets 5,272,000 5,283,000
Fixed assets - less accumulated depreciation of $44,000 and $23,000 respectively 91,000 107,000
Other assets 789,000 816,000
-------------- -------------
Total Assets $ 6,152,000 $ 6,206,000
============== =============
Liabilities and Stockholders' Deficiency
Current liabilities:
Loans payable - financial institution $2,995,000 $ 2,266,000
Notes payable-others 1,082,000 -
Notes payable - related parties 2,339,000 3,439,000
Accounts payable and accrued expenses 4,187,000 4,980,000
Due to related party 517,000 636,000
-------------- -------------
Total current liabilities 11,120,000 11,321,000
Notes payable - related parties 517,000 476,000
Subordinated note payable - affiliate 400,000 400,000
-------------- -------------
Total liabilities 12,037,000 12,197,000
-------------- -------------
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) 387,000 351,000
-------------- -------------
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 550 shares and 600 shares,
respectively (liquidation value $550,000 and $600,000) 550,000 600,000
10,000 shares of convertible stock designated as 1996-A preferred stock -
$1,000 stated value; issued and outstanding 340 shares and 1,170 shares,
respectively (liquidation value $340,000 and $1,170,000) 340,000 1,170,000
Common Stock - $.09 par value; authorized 45,000,000 shares, issued and
outstanding 16,699,000 shares and 4,127,000 shares, respectively 1,503,000 371,000
Additional paid-in capital 8,047,000 8,649,000
Accumulated deficit (16,712,000) (17,132,000)
-------------- -------------
Stockholders' deficiency (6,272,000) (6,342,000)
-------------- -------------
Total Liabilities and Stockholders' Deficiency $ 6,152,000 $ 6,206,000
============= ============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $4,201,000 $4,287,000 $10,763,000 $11,710,000
Cost of sales 2,769,000 2,755,000 7,176,000 7,422,000
---------- ---------- --------- ----------
Gross profit 1,432,000 1,532,000 3,587,000 4,288,000
---------- ---------- --------- ----------
Operating expenses:
Selling, general and administrative expenses 767,000 818,000 2,122,000 2,450,000
Warehousing expense 203,000 238,000 723,000 671,000
Interest expense and financing costs 234,000 253,000 692,000 747,000
---------- ---------- --------- ----------
1,204,000 1,309,000 3,537,000 3,868,000
---------- ---------- --------- ----------
Net income 228,000 223,000 50,000 420,000
Less undeclared dividends on
preferred stock (158,000) (132,000) (474,000) (269,000)
---------- ---------- --------- ----------
Net income (loss) applicable to common shares $70,000 $ 91,000 $(424,000) $ 151,000
======= ======== ========= =========
Net income (loss) per common share -
basic $.02 $.01 $(.10) $.02
==== ==== ====== ====
diluted $.00 $.00 $(.10) $.01
===== ==== ====== ====
Weighted average number of shares -
basic 4,127,000 16,699,000 4,127,000 9,496,000
--------- ---------- --------- ---------
diluted 23,457,000 26,588,000 4,127,000 26,588,000
---------- ---------- --------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
1996 1996-A
Preferred Stock Preferred Stock Common Stock Additional
Number Number Number Paid-in Accumulated
of shares Amount of Shares Amount of Shares Amount Capital Deficit Total
--------- ------ --------- ------ --------- ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 600 $600,000 1,170 $1,170,000 4,127,000 $371,000 $8,649,000 $(17,132,000) $(6,342,000)
Conversion of 50 shares of
1996 preferred stock
into common shares (50) (50,000) 715,000 65,000 (15,000)
Conversion of 830 shares of
1996-A preferred stock into
common shares (830) (830,000) 11,857,000 1,067,000 (237,000)
Increase in carrying value of
1997-A preferred stock issued (35,000) (35,000)
in connection with acquisition
1997-A preferred stock
dividend accrued (315,000) (315,000)
Net income for the period 420,000 420,000
Balance at Sept 30, 2000 550 $550,000 340 $340,000 16,699,000 $1,503,000 $8,047,000 $(16,712,000) $(6,272,000)
=== ======== ===== ======== ========== ========== ========== ============= ============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 2000
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $50,000 $420,000
Adjustments to reconcile net income
to net cash (used in) operating activities:
Depreciation and amortization 37,000 22,000
Amortization of goodwill 26,000 27,000
Changes in operating assets and liabilities:
Increase in accounts receivable (539,000) (189,000)
Decrease in inventories 285,000 146,000
(Increase) decrease in prepaid expenses and other current assets (161,000) 2,000
Increase (decrease) in accounts payable and accrued expenses 8,000 (1,107,000)
----- ----------
Net cash used in operating activities (294,000) (679,000)
------- -------
Cash flows from investing activities:
Acquisition of fixed assets (87,000) (6,000)
------ ------
Cash flows from financing activities:
Net proceeds from (repayments of) loans payable - financial institution (64,000) 729,000
Proceeds from notes payable - other - 1,082,000
Proceeds from notes payable - related parties 200,000 144,000
Repayment of notes payable - related parties (244,000) (1,203,000)
Proceeds from related parties 685,000 -
Repayment to related parties (187,000) (119,000)
-------- --------
Net cash provided by financing activities 390,000 633,000
------- -------
Net increase (decrease) in cash 9,000 (52,000)
Cash at beginning of period 1,000 63,000
------ ------
Cash at end of period $ 10,000 $ 11,000
======== ========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $728,000 $ 533,000
======== =========
Income Taxes $ 8,000
=======
Supplemental schedule of non cash financing activities:
Payments of $685,000 of principal and $352,000 of interest to noteholders
by guarantors on behalf of the Company $1,037,000 $ -
========== =========
Note issued to guarantors $1,037,000 $ -
========== =========
Restructuring of related party debt including interest of $233,000 $ 420,000 $ -
========== =========
Net fixed assets transferred to a related party in satisfaction of certain
obligations $ 135,000 $ -
========== =========
Issuance of 12,571,000 shares of common stock for 50 shares of 1996 preferred
stock and 830 shares of 1996-A preferred stock:
common stock 1,132,000
additional paid in capital (252,000) $ - $ 880,000
--------- --------- ==========
</TABLE>
See notes to condensed consolidated financial statements.
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 and nine-month periods
ended September 30, 2000 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2000. 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, 1999.
Creative Technologies Corp. ("CTC") and Subsidiary (collectively the "Company")
are engaged in importing and marketing small household products (principally to
specialty 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 subsidiary, IHW, Inc. ("IHW") and IHW's wholly owned subsidiary, Ace
Surgical Supply Co., Inc. ("Ace") which IHW acquired from CTC on November 15,
1999. All material intercompany balances and transactions have been eliminated
in consolidation.
Basic net income per common share is based on the weighted-average number of
shares outstanding during the period while diluted net income 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 for the nine-month period ended September 30, 1999, 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 September 30, 2000, the Company had outstanding related party notes payable
totaling $2,856,000 as follows:
Twelve Months Ended
September 30, Amount
------------- ------
2001 $2,339,000
2002 339,000
2003 178,000
-------
2,856,000
---------
Current Portion 2,339,000
---------
$ 517,000
----------
7
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Of this amount, $2,115,000 bears interest at 12% and $741,000 bears interest at
18%. These notes 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 $2,683,000 are
personally guaranteed by certain stockholders of the Company.
At September 30, 2000 the Company had outstanding notes to others totaling
$1,082,000 which bear interest at 12% and are due on demand. The Company pledged
all of the shares of Ace and IHW to the holders of these notes, subject to the
prior security interest of the financial institution and other noteholders.
At September 30, 2000, the Company owed $2,995,000 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 (9.50% at September 30, 2000) plus 2.5%
plus other fees and all of the lender's 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 throughout the term of the agreement.
At September 30, 2000, 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.
At September 30, 2000 the Company owed a related party $496,000 for the prior
rental of its office and warehousing space. During April 1999, the related party
sold the building occupied by the Company and the Company moved into office and
warehousing space at the same location. In addition, the company also owed this
entity an additional $165,000 for net advances received from them of which
$144,000 are due September 30, 2002. Interest on these obligations are payable
at the rate of 12% per annum.
Included in prepaid expenses and other current assets at September 30, 2000 is
an amount due from a major shareholder, consisting of interest and principle,
aggregating $116,000. The note is due on demand, is collateralized, and interest
on the loan is at 12% per year.
Pursuant to the 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 principal stockholders of the Company. During the nine-month periods each
ended September 30, 2000 and 1999, $90,000 was charged to operations for each of
these individuals.
8
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note - C Product Liability and Litigation
Various lawsuits, claims and proceedings have been or may be instituted or
asserted against the Company in the normal course of business. 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 - D Business Segments
In accordance with SFAS No. 131, the Company's 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 and nine-month periods ended September 30, 1999 and 2000.
9
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Month Period Ended September 30, 1999
<TABLE>
<CAPTION>
Small Medical
Household Janitorial &
Products Dietary Products Corporate Elimination's Consolidated
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $2,524,000 $1,677,000 $- $- $4,201,000
----------------------------------------------------------------------------------------------------------------
Total sales $2,524.000 $1,677,000 $- $- $4,201,000
----------------------------------------------------------------------------------------------------------------
Operating income (loss) $411,000 $173,000 $(122,000) $- $462,000
Interest expense (178,000) (56,000) - - (234,000)
----------------------------------------------------------------------------------------------------------------
Net income (loss) $233,000 $117,000 $(122,000) $- $228,000
----------------------------------------------------------------------------------------------------------------
Depreciation and
amortization of fixed
assets $4,000 $2,000 $- $- $6,000
----------------------------------------------------------------------------------------------------------------
Amortization of
intangibles $- $9,000 $- $- $9,000
----------------------------------------------------------------------------------------------------------------
Capital expenditures $17,000 $- $- $- $17,000
----------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Nine Month Period Ended September 30, 1999
<TABLE>
<CAPTION>
Small Medical
Household Janitorial &
Products Dietary Products Corporate Elimination's Consolidated
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $5,754,000 $5,009,000 $- $- $10,763,000
Intersegment sales 1,000 - - (1,000) -
-------------------------------------------------------------------------------------------------------------
Total sales $5,755,000 $5,009,000 $- $(1,000) $10,763,000
-------------------------------------------------------------------------------------------------------------
Operating income (loss) $596,000 $462,000 $(316,000) $- $742,000
Interest expense (518,000) (174,000) - - (692,000)
-------------------------------------------------------------------------------------------------------------
Net Income (loss) $78,000 $288,000 $(316,000) $- $50,000
-------------------------------------------------------------------------------------------------------------
Depreciation and
amortization of
fixed assets $27,000 $10,000 $- $- $37,000
-------------------------------------------------------------------------------------------------------------
Amortization
of intangibles $- $26,000 $- $- $26,000
-------------------------------------------------------------------------------------------------------------
Capital expenditures $87,000 $- $- $- $87,000
-------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Month Period Ended September 30, 2000
<TABLE>
<CAPTION>
Medical,
Janitorial
Small and
Household Dietary
Products Products Corporate Eliminations Consolidated
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $ 2,847,000 $ 1,440,000 $ - - $4,287,000
----------------------------------------------------------------------------------------------------------------------
Total sales $ 2,847,000 $ 1,440,000 $ - $ - $4,287,000
----------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 445,000 $ 161,000 $ (130,000) $ - $ 476,000
Interest expense (210,000) (43,000) - - (253,000)
----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 235,000 $ 118,000 $ (130,000) $ - $ 223,000
----------------------------------------------------------------------------------------------------------------------
Depreciation of
fixed assets $ 6,000 $ 1,000 $ - $ - $ 7,000
----------------------------------------------------------------------------------------------------------------------
Amortization of
intangibles $ - $ 9,000 $ - $ - $ 9,000
----------------------------------------------------------------------------------------------------------------------
Capital expenditures $ - $ - $ - $ - $ -
----------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Nine Month Period Ended September 30, 2000
<TABLE>
<CAPTION>
Medical,
Janitorial
Small and
Household Dietary
Products Products Corporate Eliminations Consolidated
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $ 7,357,000 $ 4,353,000 $ - - $11,710,000
----------------------------------------------------------------------------------------------------------------------
Total sales $ 7,357,000 $ 4,353,000 $ - $ - $11,710,000
----------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 1,034,000 $ 456,000 $ (323,000) $ - $ 1,167,000
Interest expense (605,000) (142,000) - - (747,000)
----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 429,000 $ 314,000 $ (323,000) $ - $ 420,000
----------------------------------------------------------------------------------------------------------------------
Depreciation of
fixed assets $ 19,000 $ 3,000 $ - $ - $ 22,000
----------------------------------------------------------------------------------------------------------------------
Amortization of
intangibles $ - $ 27,000 $ - $ - $ 27,000
----------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 6,000 $ - $ - $ - $ 6,000
----------------------------------------------------------------------------------------------------------------------
Identifiable assets at $ 3,702,000 $ 2,682,000 $ 484,000 $ (716,000) $ 6,152,000
Sept 30, 2000
----------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<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
IHW, Inc. ("IHW") an operating company which in turn owns the stock of Ace
Surgical Supplies Co., Inc. ("Ace") an operating company, collectively (the
"Company"). Ace, in business since 1974, was acquired by CTC in October 1997 and
transferred to IHW in November 1999. It distributes janitorial, dietary and
medical products in the tri-state area, generally to hospitals, nursing homes
and assisted living facilities. Ace is currently expanding its customer base to
include various other facilities including educational, hospitality,
institutional and entertainment. 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 International BV, Soehnle-Waagen GmBH +
Co., MAWA Metallwarenfabrik Wagner GmbH, Foppa Pedretti S.p.A., and Evoluzione,
SRL. IHW is continually looking to distribute other complementary lines that
meet its various criteria.
For the nine-month period ended September 30, 2000, cash used in operating
activities was $679,000, cash used in investing activities was $6,000 and cash
of $633,000 was provided by financing activities. As a result, at September 30,
2000, cash decreased by $52,000 from $63,000 at December 31, 1999 to $11,000 at
September 30, 2000. The Company had a negative working capital of $5,848,000 at
September 30, 2000.
Accounts payable and other liabilities decreased to $4,187,000 at September 30,
2000 from $4,980,000 at December 31, 1999 primarily due to increased borrowings
from the financial institution and a reduction in inventory.
During the nine-month period ended September 30, 2000, debt to a financial
institution increased by $729,000 to $2,995,000 and notes payable increased by
$23,000 to $4,338,000.
At September 30, 2000, the Company had outstanding related party notes payable
totaling $2,856,000 as follows:
Twelve Months Ended
September 30 Amount
------------ ------
2001 $2,339,000
2002 339,000
2003 178,000
----------
2,856,000
Current Portion 2,339,000
----------
$ 517,000
==========
Of this amount, $2,115,000 bears interest at 12% and $741,000 bears interest at
18%. These notes 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 payables aggregating $2,683,000 are
personally guaranteed by certain stockholders of the Company.
At September 30, 2000, the Company owed $2,995,000 pursuant to a loan and
security agreement with a financial institution, which expires June 2001. The
Company, under this agreement is required to maintain an outstanding
14
<PAGE>
combined loan balance of not less than $1,500,000, but no more than $3,000,000.
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 (9.50% at September 30, 2000) plus 2.5%
plus other fees and all of the lender's 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 throughout the term of the agreement.
At September 30, 2000, 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.
At September 30, 2000 the Company owed a related party $496,000 for the prior
rental of its office and warehousing space. During April 1999, the related party
sold the building occupied by the Company and the Company moved into office and
warehousing space at the same location. In addition, the company also owed this
entity an additional $165,000 for net advances received from them, of which
$144,000 are due September 30, 2002. Interest on these obligations are payable
at the rate of 12% per annum.
During the month of June 2000 the Company and certain holders of the 1996 and
1996-A Preferred Stock agreed to convert 50 shares and 830 shares of the 1996
and 1996-A Preferred, respectively, into a total of 12,572,000 shares of Common
Stock, the cumulative dividends on these preferred shares, in the amount of
$126,000 were forfeited by the holders.
15
<PAGE>
Results of Operations
The Company had net sales of $4,287,000 and $4,201,000, respectively, for the
three-month periods ended September 30, 2000 and September 30, 1999 and
$11,710,000 and $10,763,000, respectively, for the nine-month periods ended
September 30, 2000 and September 30, 1999. The increase in sales is primarily
due to higher IHW sales which more then offset lower Ace sales.
Gross profit margins for the third quarter ended September 30, 2000 and
September 30, 1999 were 36% and 34%, respectively and for the nine-month periods
ended September 30, 2000 and September 30, 1999 were 37% and 33%, respectively.
The increase in gross profit margin is attributable to a strong dollar and
higher gross profit margin on Ace's sales.
Selling, general and administrative expenses were $818,000 and $767,000 or 19%
and 18% of net sales, respectively, in the three-month periods ended September
30, 2000 and September 30, 1999, and $2,450,000 and $2,122,000 or 21% and 20% of
net sales, respectively, in the nine month periods ended September 30, 2000 and
September 30, 1999. Selling, general and administrative expenses increased
because of higher selling expenses and increased payroll and professional fees.
Warehousing expenses were $238,000 and $203,000 or 6% and 5% of net sales,
respectively, for the three-month periods ended September 30, 2000 and September
30, 1999, and $671,000 and $723,000 or 6% and 7% of net sales respectively for
the nine-month periods ended September 30, 2000 and September 30, 1999. The
decrease for the nine-month period is primarily attributable to lower expenses
associated with the Company's move into smaller warehouse space and utilizing
outside warehousing.
Interest expense increased to $253,000 from $234,000 for the three-month period
ended September 30, 2000, compared to the three-month period ended September 30,
1999, and increased to $747,000 from $692,000 for the nine-month period ended
September 30, 2000 compared to the nine-month period ended September 30, 1999.
The increase of $19,000 for the three-month period ended September 30, 2000
compared to the three-month period ended September 30, 1999 and $55,000 for the
nine-month period ended September 30, 2000 compared to the nine-month period
ended September 30. 1999 was primarily due to higher levels of outstanding
borrowings and an increase in the prime rate.
Inventory was $1,626,000 at September 30, 2000 compared to $1,063,000 at
September 30, 1999. The increase in inventory is primarily the result of
increased sales. Accounts receivable net was $3,359,000 at September 30, 2000
compared to $3,415,000 at September 30, 1999. The increase in receivables
reflects the increase in net sales.
Due to the foregoing, the Company reported a net profit of $223,000 compared to
a net profit of $228,000 respectively, for the three-month periods ended
September 30, 2000 and September 30, 1999, and a net profit of $420,000 compared
to a net profit of $50,000, respectively, for the nine-month periods ended
September 30, 2000 and September 30, 1999.
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PART II OTHER INFORMATION
Item 4. Submission of matters to a vote of Securities Holders. The Company held
its annual shareholders' meeting on August 16, 2000. Richard Helfman,
David Guttmann and Lala Bessler were re-elected directors. In addition,
the shareholders approved the increase in the number of shares under
the Company's 1998 Employee Stock Option Plan to 2,000,000 shares.
There were 15,584,785 votes for the increase, 14,739 votes against and
1,674 votes abstained. The shareholders also approved an amendment to
the Company's Certificate of Incorporation, to increase the number of
authorized shares of common stock to 45,000,000. There were 15,584,785
votes for, 12,844 votes against and 2,073 votes abstained.
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, 2000.
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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, 2000 By: S/Richard Helfman
------------------------ -----------------
Richard Helfman, President
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