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, 2001
Commission File Number: 0-15754
CREATIVE TECHNOLOGIES CORP.
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(Exact name of registrant as specified in its charter)
NEW YORK 11-2721083
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(State or other jurisdiction of (IRS Employer Identification Number)
Incorporation of organization)
170 53rd Street, Brooklyn, New York 11232
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(Address of principal executive offices)(Zip Code)
(718) 492-8400
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(Registrant's telephone number, including area code)
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(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 17,198,831
- ---------------------------- -----------------------------------
(Title of each class) (Outstanding at September 30, 2001)
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Condensed Consolidated Financial Statements
Balance Sheet as at September 30, 2001 and December 31, 2000 3
Statement of Operations
For the Three and Nine Months ended
September 30, 2001 and September 30, 2000 4
Statement of Cash Flows
For the Nine Months ended
September 30, 2001 and September 30, 2000 5
Notes to Condensed Consolidated Financial Statements 6 - 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
2
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, December 31,
2001 2000
---- ----
Assets Unaudited Audited
Current assets:
Cash $ 52,000 $ 24,000
Accounts receivable-net 2,910,000 2,828,000
Inventories 2,357,000 1,736,000
Prepaid expenses and other current assets 354,000 219,000
------------ ------------
Total current assets 5,673,000 4,807,000
Fixed assets - less accumulated depreciation of $78,000 and $53,000 respectively 83,000 78,000
Other assets 754,000 778,000
------------ ------------
Total Assets $ 6,510,000 $ 5,663,000
============ ============
Liabilities and Stockholders' Deficiency
Current liabilities:
Loans payable - financial institution $ 3,064,000 $ 2,844,000
Notes payable-others 1,082,000 1,082,000
Notes payable - related parties 1,622,000 2,328,000
Accounts payable and accrued expenses 4,986,000 3,881,000
Subordinated Note Payable- Affiliate 120,000 --
Due to related party 64,000 64,000
------------ ------------
Total current liabilities 10,938,000 10,199,000
Notes payable related parties 901,000 851,000
Subordinated note payable - affiliate 260,000 400,000
------------ ------------
Total liabilities 12,099,000 11,450,000
------------ ------------
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) 440,000 400,000
------------ ------------
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 (liquidation value $550,000) 550,000 550,000
10,000 shares of convertible stock designated as 1996-A preferred stock - $1,000
stated value; issued and outstanding 340 shares (liquidation value $340,000) 340,000 340,000
1,000 shares of convertible stock designated as 2000 preferred stock - $1,000
stated value; issued and outstanding 200 shares (liquidation value $200,000) 200,000 200,000
Common Stock - $.09 par value; authorized 45,000,000 shares, issued and
outstanding 17,199,000 and 16,699,000 shares respectively 1,548,000 1,503,000
Additional paid-in capital 8,110,000 7,929,000
Accumulated deficit (16,777,000) (16,709,000)
------------ ------------
Stockholders' deficiency (6,029,000) (6,187,000)
------------ ------------
Total Liabilities and Stockholders' Deficiency $ 6,510,000 $ 5,663,000
============ ============
See notes to condensed consolidated financial statements
3
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 2001 2000 2001
------------ ------------ ------------ ------------
Net Sales $ 4,287,000 $ 4,010,000 $ 11,710,000 $ 12,238,000
Cost of sales 2,755,000 2,608,000 7,422,000 7,897,000
------------ ------------ ------------ ------------
Gross profit 1,532,000 1,402,000 4,288,000 4,341,000
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative expenses 818,000 1,049,000 2,450,000 2,979,000
Warehousing expense 238,000 265,000 671,000 766,000
Interest expense and financing costs 253,000 200,000 747,000 664,000
------------ ------------ ------------ ------------
1,309,000 1,514,000 3,868,000 4,409,000
------------ ------------ ------------ ------------
Net income (loss) 223,000 (112,000) 420,000 (68,000)
Less undeclared dividends on
preferred stock (132,000) (151,000) (269,000) (453,000)
------------ ------------ ------------ ------------
Net income (loss) applicable to common shares $ 91,000 $ (263,000) $ 151,000 $ (521,000)
============ ============ ============ ============
Net income (loss) per common share -
basic $.01 $(.02) $.02 $(.03)
==== ===== ==== =====
diluted $.00 $(.02) $.01 $(.03)
==== ===== ==== =====
Weighted average number of shares -
basic 16,699,000 16,943,000 9,496,000 16,781,000
============ ============ ============ ============
diluted 26,588,000 16,943,000 26,588,000 16,781,000
============ ============ ============ ============
See notes to condensed consolidated financial statements.
4
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
2000 2001
---- ----
Cash flows from operating activities:
Net income (loss) $ 420,000 $ (68,000)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 22,000 25,000
Amortization of goodwill 27,000 26,000
Decrease in allowance for doubtful accounts (15,000) (63,000)
Changes in operating assets and liabilities:
Increase in accounts receivable (174,000) (19,000)
Decrease (Increase) in inventories 146,000 (621,000)
Decrease (Increase) in prepaid expenses and other current assets 2,000 (135,000)
Increase in other assets -- (2,000)
(Decrease) Increase in accounts payable and accrued expenses (1,107,000) 873,000
----------- -----------
Net cash provided by (used in) operating activities (679,000) 16,000
----------- -----------
Cash flows from investing activities:
Acquisition of fixed assets (6,000) (35,000)
Proceeds from sale of fixed assets -- 5,000
----------- -----------
Net cash used in investing activities (6,000) (30,000)
----------- -----------
Cash flows from financing activities:
Net proceeds of loans payable - financial institution 729,000 220,000
Proceeds from notes payable - other 1,082,000 --
Repayment of notes payable - related parties (1,203,000) (158,000)
Repayment of notes payable- subordinated -- (20,000)
Proceeds from notes payable- related parties 144,000 --
Repayment to related parties (119,000) --
----------- -----------
Net cash provided by financing activities 633,000 42,000
----------- -----------
Net (decrease) increase in cash (52,000) 28,000
Cash at beginning of period 63,000 24,000
----------- -----------
Cash at end of period $ 11,000 $ 52,000
----------- -----------
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 533,000 $ 497,000
----------- -----------
Income Taxes $ 8,000 $ 12,000
----------- -----------
Supplemental schedule of non-cash financing activities:
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 $ --
----------- =========== ===========
Restructuring of related party debt including:
principle $ 498,000
accrued interest 84,000
fair value of common stock (35,000) $ -- $ 547,000
----------- =========== ===========
See notes to condensed consolidated financial statements.
5
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 accounting principles generally accepted in the United
States of America 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, 2001 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2001. 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, 2000.
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"). 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 for the three-month and nine-month periods ended September
30, 2001, 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, 2001, the Company had outstanding related party notes payable
totaling $2,523,000 as follows:
Twelve Months Ended
September 30, Amount
------------- ------
2002 $1,622,000
2003 901,000
----------
2,523,000
Current Portion 1,622,000
----------
$ 901,000
----------
Of this amount, $2,289,000 bears interest at 12% and $234,000 bears interest at
18%. These notes are payable to various individuals who are stockholders,
entities whose principals are stockholders of the Company, and the
6
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 $2,006,000
are personally guaranteed by certain stockholders of the Company.
A related party noteholder whose note amounted to $741,000 agreed to restructure
the terms of his note and as a result 500,000 shares of common stock was issued
to him, interest accrued in the amount of $84,000 and principal in the amount of
$498,000 were exchanged for stock. The difference between the interest and
principal totaling $582,000 and the fair value of the stock issued in the amount
of $35,000 equaling $547,000, has been recorded as a capital contribution. The
remaining debt of $243,000 is being repaid to him in varying monthly
installments over twenty-three months with interest at the rate of 18% per
annum.
At September 30, 2001 the Company had outstanding notes to others totaling
$1,082,000 that 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, 2001, the Company owed $3,064,000 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 $4,000,000, as defined, which expires June 2003.
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 7.5% or the prime rate (6.00% at September 30, 2001) plus 2%
plus other fees. The agreement, among other matters, has certain restrictions as
defined.
At September 30, 2001, the Company had an outstanding note payable (aggregating
$380,000) 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. This note is being repaid at a rate of $10,000 per month.
At September 30, 2001 the Company owed a related party $64,000 for the prior
rental of its office and warehousing space. Interest on these obligations are
payable at the rate of 12% per annum.
Included in prepaid expenses and other current assets at September 30, 2001 is
an amount due from a major stockholder, consisting of interest and principle,
aggregating $93,000. 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 major stockholders of the Company. During the nine-month periods ended
September 30, 2001 and 2000, $90,000 was charged to operations for each of these
individuals.
Note - C Product Liability and Litigation
Various lawsuits, claims and proceedings were or in the future may be instituted
or asserted against the Company in the normal course of business. At present
there are no active or pending litigation.
7
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note - D Stock Options
During June 2001, the company granted 1,610,000 options to purchase common
shares to various employees, officers, and directors. These options expire on
June 6, 2006, and have a price of .07 cents per share, the fair market value of
the stock on the date of issuance.
Note - E Reclassification
Certain 2000 amounts have been reclassified to conform to the 2001
classification. These reclassifications had no effect on reported net income.
Note - F Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No's
141 and 142, "Business Combinations" and "Goodwill and Other Intangibles". FASB
141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method. Under FASB 142, goodwill is no longer
subject to amortization over its estimated useful life. Rather, goodwill is
subject to at least an annual assessment for impairment applying a fair-value
based test. Additionally, an acquired intangible asset should be separately
recognized if the benefit of the intangible asset is obtained through
contractual or other legal rights, or if the intangible asset can be sold,
transferred, licensed, rented or exchanged, regardless of the acquirer's intent
to do so. The Company is in the process of determining the impact of these
pronouncements on its financial position and results of operations.
Note - G 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, 2000 and 2001.
8
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three-Month Period Ended September 30, 2000
Small Medical
Household Janitorial &
Products Dietary Products Corporate Elimination's Consolidated
- --------------------------------------------------------------------------------------------------------------
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 income
(loss) $ 325,000 $ 161,000 $ (10,000) $ -- $ 476,000
Interest expense (70,000) (43,000) (140,000) -- (253,000)
- --------------------------------------------------------------------------------------------------------------
Net income (loss) $ 255,000 $ 118,000 $ (150,000) $ -- $ 223,000
- --------------------------------------------------------------------------------------------------------------
Depreciation
of fixed assets $ 6,000 $ 1,000 $ -- $ -- $ 7,000
- --------------------------------------------------------------------------------------------------------------
Amortization
of intangibles $ -- $ 9,000 $ -- $ -- $ 9,000
- --------------------------------------------------------------------------------------------------------------
Capital expenditures $ -- $ -- $ -- $ -- $ --
- --------------------------------------------------------------------------------------------------------------
9
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Nine-Month Period Ended September 30, 2000
Medical,
Janitorial
Small and
Household Dietary
Products Products Corporate Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------
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 income (loss) $ 914,000 $ 455,000 $ (202,000) $ -- $ 1,167,000
Interest expense (183,000) (142,000) (422,000) -- (747,000)
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 731,000 $ 313,000 $ (624,000) $ -- $ 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
- ------------------------------------------------------------------------------------------------------------------------
10
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three-Month Period Ended September 30, 2001
Medical,
Janitorial
Small and
Household Dietary
Products Products Corporate Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated
customers $ 2,589,000 $ 1,424,000 $ -- -- $ 4,013,000
Intersegment sales (2,000) (1,000) (3,000)
- ---------------------------------------------------------------------------------------------------------------------------
Total sales $ 2,587,000 $ 1,423,000 $ -- $ -- $ 4,010,000
- ---------------------------------------------------------------------------------------------------------------------------
Operating income (loss) $ 73,000 $ 129,000 $ (114,000) $ -- $ 88,000
Interest expense (43,000) (39,000) (118,000) -- (200,000)
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 30,000 $ 90,000 $ (232,000) $ -- $ (112,000)
- ---------------------------------------------------------------------------------------------------------------------------
Depreciation of
fixed assets $ 7,000 $ 2,000 $ -- $ -- $ 9,000
- ---------------------------------------------------------------------------------------------------------------------------
Amortization of
intangibles $ -- $ 9,000 $ -- $ -- $ 9,000
- ---------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ -- $ 19,000 $ -- $ -- $ 19,000
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
11
CREATIVE TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Nine-Month Period Ended September 30, 2001
Medical,
Janitorial
Small and
Household Dietary
Products Products Corporate Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated
customers $ 7,892,000 $ 4,358,000 $ -- -- $ 12,250,000
Intersegment sales (7,000) (5,000) (12,000)
- ---------------------------------------------------------------------------------------------------------------------------
Total sales $ 7,885,000 $ 4,353,000 $ -- $ -- $ 12,238,000
- ---------------------------------------------------------------------------------------------------------------------------
Operating income (loss) $ 310,000 $ 436,000 $ (150,000) $ -- $ 596,000
Interest expense (151,000) (125,000) (388,000) -- (664,000)
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 159,000 $ 311,000 $ (538,000) $ -- $ (68,000)
- ---------------------------------------------------------------------------------------------------------------------------
Depreciation
fixed assets $ 20,000 $ 5,000 $ -- $ -- $ 25,000
- ---------------------------------------------------------------------------------------------------------------------------
Amortization of
intangibles $ -- $ 26,000 $ -- $ -- $ 26,000
- ---------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 6,000 $ 29,000 $ -- $ -- $ 35,000
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
12
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"). IHW also owns the stock of Ace Surgical Supplies Co., Inc.
("Ace") an operating company, (collectively the "Company"). Ace, in business
since 1974, 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 were distributed in 2001 by IHW were
Brabantia International BV, MAWA Metallwarenfabrik Wagner GmbH ("Mawa"), Foppa
Pedretti S.p.A. and Evoluzione S.R.L. IHW is continually looking to distribute
other complementary lines that meet its various criteria.
For the nine-month period ended September 30, 2001, cash provided by operating
activities was $16,000, cash used in investing activities was $30,000 and cash
of $42,000 was provided by financing activities. As a result, at September 30,
2001, cash increased by $28,000 from $24,000 at December 31, 2000 to $52,000 at
September 30, 2001. The Company had a negative working capital of $5,265,000 at
September 30, 2001.
Accounts payable and other liabilities increased to $4,986,000 at September 30,
2001 from $3,881,000 at December 31, 2000 primarily due to an increase in
inventory attributable to lower then projected sales.
During the nine-month period ended September 30, 2001, debt to a financial
institution increased by $220,000 to $3,064,000 and notes payable to related
parties decreased by $656,000 to $2,523,000.
At September 30, 2001, the Company had outstanding related party notes payable
totaling $2,523,000 as follows:
Twelve Months Ended
September 30 Amount
------
2002 1,622,000
2003 901,000
----------
2,523,000
Current Portion 1,622,000
----------
$ 901,000
==========
Of this amount, $2,289,000 bears interest at 12% and $234,000 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 $2,006,000 are
personally guaranteed by certain stockholders of the Company.
A related party note holder whose note amounted to $741,000 agreed to
restructure the terms of his note and as a result 500,000 shares of common stock
was issued to him, interest accrued in the amount of $84,000 and principal in
the amount of $498,000 were exchanged for stock. The difference between the
interest and principal totaling $582,000 and the fair value of stock issued in
the amount of $35,000 equaling $547,000, has been recorded as a capital
contribution. The remaining debt of $243,000 is being repaid to him in varying
monthly installments over twenty-three months with interest at the rate of 18%
per annum.
13
At September 30, 2001, the Company owed $3,064,000 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 $4,000,000, as defined, which expires June 2003.
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 7.5% or the prime rate (6.00% at September 30, 2001) plus 2%
plus other fees. The agreement, among other matters, has certain restrictions as
defined.
At September 30, 2001, the Company had an outstanding note payable (aggregating
$380,000) 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. This note is being repaid at a rate of $10,000 per month.
At September 30, 2001 the Company owed a related party $64,000 for the prior
rental of its office and warehousing space. Interest on these obligations are
payable at the rate of 12% per annum.
14
Results of Operations
The Company had net sales of $4,010,000 and $4,287,000, respectively, for the
three-month periods ended September 30, 2001 and September 30, 2000 and
$12,238,000 and $11,710,000, respectively, for the nine-month periods ended
September 30, 2001 and September 30, 2000. Sales in the month of September were
lower then projected because of the disruption of business caused by the events
of September 11th. Nine month sales are still ahead of last year because of the
increased sales of small household products realized in the first half of the
year.
Gross profit margins for the third quarter ended September 30, 2001 and
September 30, 2000 were 35% and 36%, respectively, and for the nine-month
periods ended September 30, 2001 and September 30, 2000 were 35% and 37%,
respectively. The decrease in gross profit margin is primarily attributable to
foreign exchange cost fluctuations.
Selling, general and administrative expenses were $1,049,000 and $818,000 or 26%
and 19% of net sales, respectively, in the three-month periods ended September
30, 2001 and September 30, 2000, and $2,979,000 and $2,450,000 or 24% and 21% of
net sales, respectively, in the nine-month periods ended September 30, 2001 and
September 30, 2000. The increase in amount of expenses is primarily due to an
increase in payroll and related expenses.
Warehousing expenses were $265,000 and $238,000 or 7% and 6% of net sales,
respectively, for the three-month periods ended September 30, 2001 and September
30, 2000, and $766,000 and $671,000 or 6% each year of net sales respectively
for the nine-month periods ended September 30, 2001 and September 30, 2000.
Warehousing expenses increased in absolute terms because of higher sales, but
remained constant as a percentage of overall sales.
Interest expense decreased to $200,000 from $253,000 for the three-month period
ended September 30, 2001, compared to the three-month period ended September 30,
2000, and decreased to $664,000 from $747,000 for the nine-month period ended
September 30, 2001 compared to the nine-month period ended September 30, 2000.
The decrease of $83,000 for the nine-month period ended September 30, 2001
compared to the nine-month period ended September 30, 2000 was primarily due to
lower interest rates, effectively reducing the cost of borrowings and the
reduction in notes payable related party.
Inventory was $2,357,000 at September 30, 2001 compared to $1,626,000 at
September 30, 2000. The increase in inventory is primarily attributed to lower
then projected sales. Accounts receivable net was $2,910,000 at September 30,
2001 compared to $3,359,000 at September 30, 2000. The decrease in receivables
is reflective of the decrease in sales.
Due to the foregoing, the Company reported a net loss of $(112,000) compared to
a net profit of $223,000, respectively, for the three-month periods ended
September 30, 2001 and September 30, 2000, and a net loss of $(68,000) compared
to a net profit of $420,000, respectively, for the nine-month periods ended
September 30, 2001 and September 30, 2000.
15
PART II OTHER INFORMATION
Item 6. a. Exhibits
NONE
b. Reports on form 8-K
The Registrant did not file reports on Form 8-K during the three
months ended September 30, 2001.
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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.
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Registrant
Dated: November 13, 2001 By: S/ Richard Helfman
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Richard Helfman, President
17