<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, 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
Incorporation of organization) Identification Number)
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, 2000)
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Condensed Consolidated Financial Statements
Balance Sheet as at March 31, 2000 and December 31, 1999 3
Statement of Operations
For the Three Months ended
March 31, 2000 and March 31, 1999 4
Statement of Stockholders' Deficiency
For the Three Months ended March 31, 2000 5
Statement of Cash Flows
For the Three Months ended
March 31, 2000 and March 31, 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 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
MARCH 31, 2000
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Assets Unaudited Audited
Current assets:
Cash $ 1,000 $ 63,000
Accounts receivable-net 3,115,000 3,170,000
Inventories 1,877,000 1,772,000
Prepaid expenses and other current assets 269,000 278,000
------------ ------------
Total current assets 5,262,000 5,283,000
Fixed assets - less accumulated depreciation of $28,000 and $23,000 respectively 102,000 107,000
Other assets 806,000 816,000
------------ ------------
Total Assets $ 6,170,000 $ 6,206,000
============ ============
Liabilities and Stockholders' Deficiency
Current liabilities:
Loans payable - financial institution $ 3,057,000 $ 2,266,000
Notes payable-others 1,082,000 --
Notes payable - related parties 2,359,000 3,439,000
Accounts payable and accrued expenses 4,246,000 4,980,000
Due to related party 621,000 636,000
------------ ------------
Total current liabilities 11,365,000 11,321,000
Notes payable related parties 448,000 476,000
Subordinated note payable - affiliate 400,000 400,000
------------ ------------
Total liabilities 12,213,000 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) 363,000 351,000
------------ ------------
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 600 shares (liquidation
value $600,000) 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 1,170,000
Common Stock - $.09 par value; authorized 20,000,000 shares, issued and
outstanding 4,127,000 shares 371,000 371,000
Additional paid-in capital 8,532,000 8,649,000
Accumulated deficit (17,079,000) (17,132,000)
------------ ------------
Stockholders' deficiency (6,406,000) (6,342,000)
------------ ------------
Total Liabilities and Stockholders' Deficiency $ 6,170,000 $ 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
March 31,
1999 2000
----------- -----------
<S> <C> <C>
Net Sales $ 3,393,000 $ 3,566,000
Cost of sales 2,138,000 2,218,000
--------- ---------
Gross profit 1,255,000 1,348,000
--------- ---------
Operating expenses:
Selling, general and administrative expenses 715,000 845,000
Warehousing expense 298,000 220,000
Interest expense and financing costs 235,000 230,000
------- -------
1,248,000 1,295,000
--------- ---------
Net income 7,000 53,000
Less undeclared dividends on preferred stock (158,000) (158,000)
-------- --------
Net loss applicable to common shares $ (151,000) $ (105,000)
=========== ===========
Per common share - basic & diluted
Net loss $ (.04) $ (.03)
=========== ===========
Weighted average number of shares 4,127,000 4,127,000
=========== ===========
</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 THREE MONTHS ENDED MARCH 31,2000
(Unaudited)
<TABLE>
<CAPTION>
1996 1996-A
Preferred Stock Preferred Stock Common Stock
Number Number Number
of shares Amount of Shares Amount of Shares Amount
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 600 $600,000 1,170 $1,170,000 4,127,000 $371,000
Increase in carrying value of
1997-A preferred stock issued
in connection with acquisition
1997-A preferred stock
dividend accrued
Net income for the period
Balance at March 31, 2000 600 $600,000 1,170 $1,170,000 4,127,000 $371,000
=== ======== ===== ========== ========= ========
<CAPTION>
Additional
Paid-in Accumulated
Capital Deficit Total
------- ------- -----
<S> <C> <C> <C>
Balance at January 1, 2000 $8,649,000 $(17,132,000) $(6,342,000)
Increase in carrying value of (12,000)
1997-A preferred stock issued (12,000)
in connection with acquisition
1997-A preferred stock
dividend accrued (105,000) (105,000)
Net income for the period 53,000 53,000
Balance at March 31, 2000 $8,532,000 $(17,079,000) $(6,406,000)
========== ============= ============
</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,
1999 2000
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,000 $ 53,000
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation 19,000 5,000
Amortization of goodwill 9,000 9,000
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (66,000) 55,000
(Increase) decrease in inventories 407,000 (105,000)
Decrease (increase) in prepaid expenses and other current assets (55,000) 10,000
Decrease in accounts payable and accrued expenses (663,000) (839,000)
(Decrease) increase in due to related party 120,000 (15,000)
--------- ---------
Net cash used in operating activities (222,000) (827,000)
--------- ---------
Cash flows from financing activities:
Net proceeds of loans payable - financial institution 31,000 791,000
Proceeds from notes payable 200,000 --
Repayment of notes payable (5,000) (26,000)
--------- ---------
Net cash provided by financing activities 226,000 765,000
--------- ---------
Net (decrease) increase in cash 4,000 (62,000)
Cash at beginning of period 1,000 63,000
--------- ---------
Cash at end of period $ 5,000 $ 1,000
========= =========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 98,000 $ 176,000
========= =========
Income Taxes -- $ 8,000
========= =========
</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 period ended March 31, 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 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, 2000, the Company had outstanding related party notes payable
totaling $2,807,000 as follows:
Twelve Months Ended
March 31, Amount
2001 $2,359,000
2002 162,000
2003 229,000
2004 57,000
----------
2,807,000
Current Portion 2,359,000
----------
$ 448,000
==========
7
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Of this amount, $2,066,000 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 $2,751,000 are
personally guaranteed by certain stockholders of the Company.
At March 31, 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 March 31, 2000, the Company owed $3,057,000 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.
During March 2000, the Company received from the financial institution an over
advance of $200,000 payable beginning on May 1 through June 23, 2000. 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 (9.00% at March 31, 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 March 31, 2000, the Company was not in compliance with certain provisions of
the agreement, which have been waived by the financial institution.
In addition, at March 31, 2000, the Company was in default of other provisions
of the loan and security agreement. The Company is attempting to obtain a waiver
from the financial institution. Prior to granting such a waiver, the financial
institution has requested certain documents each in form and substance
satisfactory to the financial institution. The Company is attempting to satisfy
the requirements imposed by the financial institution. One of the remedies upon
the occurrence of an event of default is to demand immediate repayment of the
debt and terminate the loan and security agreement.
At March 31, 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 March 31, 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
8
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
$125,000 for net advances received from them. Interest on these obligations are
payable at the rate of 12% per annum.
Included in prepaid expenses and other current assets at March 31, 2000 is an
amount due from a related party aggregating $130,000.
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 related parties, a principal stockholder and the spouse of a principal
stockholder of the Company. During the three-month periods ended March 31, 2000
and 1999 $30,000, was charged to operations for 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 per $1,000, 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, 2000, $601,000 of dividends were 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.
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
$1,021,000 at March 31, 2000.
9
<PAGE>
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 June 1, 2000 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 June 1, 2000, as amended.
Management intends to satisfy the cumulative unpaid 1996 Preferred Stock
dividends, which aggregated approximately $276,000 at March 31, 2000 through the
issuance of securities of the Company.
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, 2000 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.
10
<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 October 1, 2000, as amended.
Management intends to satisfy the cumulative unpaid 1996-A Preferred Stock
dividends, which aggregated approximately $499,000 at March 31, 2000 through the
issuance of securities of the Company.
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. The
Company's product liability insurance carrier covers these claims.
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 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 periods ended March 31, 1999 and 2000.
11
<PAGE>
Three Month Period Ended March 31, 1999
<TABLE>
<CAPTION>
Medical,
Janitorial
Small and
Household Dietary
Products 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 $ 3,493,000 $ 484,000 $ (794,000) $ 5,131,000
- -------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Three Month Period Ended March 31, 2000
<TABLE>
<CAPTION>
Medical,
Janitorial
Small and
Household Dietary
Products Products Corporate Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $ 2,026,000 $ 1,540,000 $ -- -- $ 3,566,000
- -----------------------------------------------------------------------------------------------------------
Total sales $ 2,026,000 $ 1,540,000 $ -- $ -- $ 3,566,000
- -----------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 192,000 $ 173,000 $ (82,000) $ -- $ 283,000
Interest expense (178,000) (52,000) -- -- (230,000)
- -----------------------------------------------------------------------------------------------------------
Profit (loss) before
provision for income
tax $ 14,000 $ 121,000 $ (82,000) $ -- $ 53,000
- -----------------------------------------------------------------------------------------------------------
Depreciation and
amortization of
fixed assets $ 4,000 $ 1,000 $ -- $ -- $ 5,000
- -----------------------------------------------------------------------------------------------------------
Amortization of
intangibles $ -- $ 9,000 $ -- $ -- $ 9,000
- -----------------------------------------------------------------------------------------------------------
Capital expenditures $ -- $ -- $ -- $ -- $ --
- -----------------------------------------------------------------------------------------------------------
Identifiable assets at $ 3,399,000 $ 2,951,000 $ 484,000 $ (664,000) $ 6,170,000
March 31, 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. IHW is
continually looking to distribute other complementary lines that meet its
various criteria.
For the three-month period ended March 31, 2000, cash used in operating
activities was $827,000 and cash of $765,000 was provided by financing
activities. As a result, for the three-month period ended March 31, 2000, cash
decreased by $62,000 from $63,000 at December 31, 1999 to $1,000 at March 31,
2000. The Company had a negative working capital of $6,103,000 at March 31,
2000.
Accounts payable and other liabilities decreased to $4,246,000 at March 31, 2000
from $4,980,000 at December 31, 1999 primarily due to increased borrowings from
the financial institution.
During the three month period ended March 31, 2000, debt to a financial
institution increased by $791,000 to $3,057,000 and notes to related parties
decreased by $26,000 to $3,889,000.
At March 31, 2000, the Company had outstanding related party notes payable
totaling $2,807,000 as follows:
Twelve Months Ended
March 31 Amount
-------- ------
2001 $2,359,000
2002 162,000
2003 229,000
2004 57,000
----------
2,807,000
Current Portion 2,359,000
----------
$ 448,000
==========
Of this amount, $2,066,000 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 $2,751,000 are
personally guaranteed by certain stockholders of the Company.
At March 31, 2000, the Company owed $3,057,000 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.
During March 2000, the Company received from the financial institution an over
advance of $200,000 payable beginning on May 1 through June 23, 2000. 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 (9.00% at March 31, 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. The Company is in
technical default of certain non-monetary provisions of its loan and security
agreement. The Company is negotiating to obtain a waiver from the financial
institution. See Note B of the notes to the condensed combined financial
statements for a more detailed description of this transaction.
At March 31, 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 March 31, 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 $125,000 for net advances received from them. Interest on
these obligations are payable at the rate of 12% per annum.
15
<PAGE>
Results of Operations
The Company had net sales of $3,566,000 and $3,393,000, respectively, for the
three-month periods ended March 31, 2000 and March 31, 1999. The increase in
sales is primarily due to higher IHW sales which more then offset lower Ace
sales.
Gross profit margins for the first quarter ended March 31, 2000 and March 31,
1999 were 38% and 37%, 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 $845,000 and $715,000 or 23%
and 21% of net sales, respectively, in the three-month periods ended March 31,
2000 and March 31, 1999. This increase is primarily due to an increase in
payroll and related expenses and an increase in professional fees.
Warehousing expenses were $220,000 and $298,000 or 6% and 9% of net sales,
respectively, for the three-month periods ended March 31, 2000 and March 31,
1999. The decrease of $78,000 is primarily attributable to lower expenses
associated with the Company's move into smaller warehouse space.
Inventory was $1,877,000 at March 31, 2000 compared to $942,000 at March 31,
1999. The increase in inventory is primarily the result of large opportune
purchases made from Brabantia at year-end and outstanding first quarter purchase
orders to Brabantia that were non-cancelable. Inventory is expected to start
reducing in the second quarter through sales and less purchases. Accounts
receivable net was $3,115,000 at March 31, 2000 compared to $2,941,000 at March
31, 1999. The increase in receivables reflects the increase in IHW sales.
Due to the foregoing, the Company reported a net profit of $53,000 compared to a
net profit of $7,000 respectively, for the three-month periods ended March 31,
2000 and March 31, 1999.
16
<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, 2000.
17
<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 18, 2000 By: S/Richard Helfman
---------------------
Richard Helfman, President
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 3,371,000
<ALLOWANCES> 256,000
<INVENTORY> 1,877,000
<CURRENT-ASSETS> 5,262,000
<PP&E> 130,000
<DEPRECIATION> 28,000
<TOTAL-ASSETS> 6,170,000
<CURRENT-LIABILITIES> 11,365,000
<BONDS> 0
363,000
1,770,000
<COMMON> 371,000
<OTHER-SE> (8,547,000)
<TOTAL-LIABILITY-AND-EQUITY> 6,170,000
<SALES> 3,566,000
<TOTAL-REVENUES> 3,566,000
<CGS> 2,218,000
<TOTAL-COSTS> 2,218,000
<OTHER-EXPENSES> 1,065,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 230,000
<INCOME-PRETAX> 53,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 53,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,000
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
