1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2001.
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION FROM _______ TO ________.
COMMISSION FILE NUMBER 0-29369
CREATIVE TECHNOLOGIES HOLDINGS, INC.
------------------------------------
(Name of Small Business Issuer in its charter)
Nevada 88-0409146
--------------------------------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1800 Avenue of the Stars, Suite 600
Los Angeles, California 90067
--------------------------------------- -------
(Address of principal executive offices) (Zip code)
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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
As of June 30, 2001, there were outstanding 14,200,000 shares of the
Registrant's Common Stock, $.001 par value.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
CREATIVE TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2001
TABLE OF CONTENTS
PAGE(S)
ACCOUNTANTS' REVIEW REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEET 2
STATEMENTS OF OPERATIONS 3
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6 - 12
3
JOSEFINA C. DE LA CRUZ, C.P.A.
A Professional Corporation
Josefina C. De la Cruz, CPA 2700 N Main Street, Suite 900
Rebecca Q. Masinsin, CPA Santa Ana, CA 92705
Timothy Vo, CPA Tel. No. (714) 558-8703
Marissa B. Zacarias, IT Manager Fax No. (714) 558-7940
--------------------------------------------------------------------------------
ACCOUNTANT'S REVIEW REPORT
To the Board of Directors
Creative Technologies Holdings, Inc. and Subsidiaries
Los Angeles, California
We have reviewed the accompanying consolidated balance sheet of Creative
Technologies Holdings, Inc., and Subsidiaries (Development Stage Companies), as
of June 30, 2001 and the related consolidated statements of operations, changes
in stockholders' equity and cash flows for the six months then ended, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of Creative Technologies Holdings, Inc. and Subsidiaries. The
financial statements of Creative Technologies Holdings, Inc. as of June 30, 2000
and the period December 31, 1996 (inception) to June 30, 2000 were audited by
other auditors whose report dated July 14, 2000, expressed an unqualified
opinion on those financial statements.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 13 to the financial
statements, the Company has no established source of revenue, suffered recurring
losses from operations and a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Josefina C. de la Cruz, CPA
A Professional Corporation
Santa Ana, California
August 8, 2001
--------------------------------------------------------------------------------
MEMBER - AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
SEC PRACTICE GROUP
CALIFORNIA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
TAX PRACTICE GROUP
1
4
CREATIVE TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30, 2001
ASSETS
CURRENT ASSETS
Cash $ 27,837
Advances to employees 17,179
Prepaid expenses 12,988
Due from affiliates (Note 4) 92,465
-----------
Total current assets 150,469
-----------
PROPERTY AND EQUIPMENT, NET (Note 3) 172,933
-----------
OTHER ASSETS
Deposits 25,976
-----------
Total other assets 25,976
-----------
TOTAL ASSETS $ 349,378
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES (Note 5)
Accounts payable $ 697,613
Payroll taxes payable 10,741
Loan payable (Note 6) 50,000
-----------
Total current liabilities 758,354
MINORITY INTERESTS (Note 8) (720,378)
-----------
STOCKHOLDERS' EQUITY (Note 9)
Common stock,par value $0.001; 25,000,000 shares
authorized; 14,200,000 shares issued and outstanding 14,200
Paid-in capital 2,525,142
Accumulated deficit (2,227,940)
-----------
Total stockholders' equity 311,402
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 349,378
===========
See accompanying notes and accountants' review report.
2
5
CREATIVE TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
CUMULATIVE FROM
12/6/96 (DATE FOR THE THREE MONTHS FOR THE SIX MONTHS
OF INCEPTION) TO ENDED ENDED
JUNE 30, 2001 JUNE 30 JUNE 30
---------------- ----------------------------- -----------------------------
2001 2000 2001 2000
------------ ----------- ------------ -----------
REVENUE $ -- $ -- $ -- $ -- $ --
----------- ------------ ----------- ------------ -----------
EXPENSES
General and Administrative Expenses 2,680,540 251,153 65,812 1,291,335 65,812
Development Expenses 114,796 -- -- -- --
Depreciation and Amortization (Note 3) 49,781 10,911 -- 31,800 --
----------- ------------ ----------- ------------ -----------
TOTAL EXPENSES 2,845,117 262,064 65,812 1,323,135 65,812
----------- ------------ ----------- ------------ -----------
NET OPERATING LOSS (2,845,117) (262,064) (65,812) (1,323,135) (65,812)
OTHER INCOME (EXPENSE)
Interest Income 1,350 -- -- 753 --
Loss on Disposal of Assets (Note 7) (158,551) (158,551) -- (158,551) --
----------- ------------ ----------- ------------ -----------
TOTAL OTHER INCOME AND EXPENSES (157,201) (158,551) -- (157,798) --
----------- ------------ ----------- ------------ -----------
NET LOSS BEFORE MINORITY INTERESTS (3,002,318) (420,615) (65,812) (1,480,933) (65,812)
MINORITY INTERESTS' SHARE OF LOSS 774,378 98,812 -- 374,183 --
----------- ------------ ----------- ------------ -----------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $(2,227,940) $ (321,803) $ (65,812) $ (1,106,750) $ (65,812)
=========== ============ =========== ============ ===========
NET LOSS PER COMMON SHARE
BASIC ($0.03) ($0.03) ($0.09) ($0.03)
============ =========== ============ ===========
DILUTED ($0.03) ($0.03) ($0.09) ($0.03)
============ =========== ============ ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 12,600,000 2,100,000 12,600,000 2,100,000
============ =========== ============ ===========
DILUTED 12,600,000 2,100,000 12,600,000 2,100,000
============ =========== ============ ===========
See accompanying notes and accountants' review report.
3
6
CREATIVE TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
FROM DECEMBER 31, 1996 (INCEPTION) TO JUNE 30, 2001
ADDITIONAL TOTAL
COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 21,000 $ 2,100 $ -- $ (2,100) $ --
Net loss year ended December 31, 1997 -- --
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 21,000 2,100 -- (2,100) --
Net loss year ended
December 31, 1998 -- --
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 21,000 2,100 -- (2,100) --
November 29, 1999
Adjustment from No Par Value
to $0.001 on 21,000 shares (2,079) 2,079 --
November 29, 1999
Forward Stock Split 100:1 2,079,000 2,079 (2,079) --
Net loss year ended
December 31, 1999 (350) (350)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 2,100,000 2,100 -- (2,450) (350)
Issuance of 8,500,000 shares of
common stock in exchange
for 500,000 common shares of
a Subsidiary on October 25, 2000 8,500,000 8,500 491,500 -- 500,000
Issuance of 2,000,000 shares in
exchange for cancellation of
$500,000 debt on
November 8, 2000 2,000,000 2,000 498,000 -- 500,000
Net loss for the year ended
December 31, 2000 -- -- (1,118,740) (1,118,740)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2000 12,600,000 12,600 989,500 (1,121,190) (119,090)
Issuance of 1,600,000 shares in
exchange for cancellation of
$1,537,242 debt on June 30, 2001 1,600,000 1,600 1,535,642 -- 1,537,242
Net loss for the six months
ended June 30, 2001 (1,106,750) (1,106,750)
----------- ----------- ----------- ----------- -----------
Balance, June 30, 2001 14,200,000 $ 14,200 $ 2,525,142 $(2,227,940) $ 311,402
=========== =========== =========== =========== ===========
See accompanying notes and accountants' review report.
4
7
CREATIVE TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30
(UNAUDITED)
Cumulative from
12/6/96 (Date of
Inception) to
June 30, 2001 2001 2000
----------------- ------------ ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,227,940) $(1,106,750) $ (65,812)
Adjustment to reconcile net loss to net cash used
by operating activities
Depreciation and amortization 49,781 31,800 --
Minority interests in net loss of subsidiary (774,378) (374,183) --
(Gain) loss on disposal of property 158,551 158,551 --
Decrease (increase) in:
Advances to employees (17,179) (305) --
Prepaid expenses (77,928) -- --
Other receivables (83,746) (53,746) (11,337)
Security deposits 38,964 51,952 --
Increase (decrease) in:
Accounts payable 684,652 186,455 202
Accrued liabilities 66,960 55,120 6,711
Advances from officers 24,750 -- --
Payroll taxes payable 10,741 (19,451) 3,739
----------- ----------- ---------
NET CASH USED IN OPERATING ACTIVITIES (2,146,772) (1,070,557) (66,497)
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (374,071) (17,840) --
Principal payments on notes (5,833) -- --
Principal payments on capital lease (1,361) (693) --
----------- ----------- ---------
NET CASH USED IN INVESTING ACTIVITIES (381,265) (18,533) --
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 2,039,342 1,537,242 100,000
Increase in notes receivable (102,115) -- --
Increase in due to affiliates 30,147 30,147 --
Proceeds of notes payable 1,057,300 -- --
Proceeds from line of credit 50,000 -- --
Payment of long term debt (518,800) (518,800) --
----------- ----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,555,874 1,048,589 100,000
----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH 27,837 (40,501) 33,503
CASH AT BEGINNING OF PERIOD -- 68,338 --
----------- ----------- ---------
CASH AT END OF PERIOD $ 27,837 $ 27,837 $ 33,503
=========== =========== =========
See accompanying notes and accountants' review report.
5
8
CREATIVE TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2001
NOTE 1 - ORGANIZATION HISTORY AND BASIS OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements include the accounts
of Creative Technologies Holdings Inc. (CTHI), formerly Morning Splendor
Management, Inc. and its Subsidiaries, Creative Technology & Interactive
Entertainment Group, Inc. (CTIEGI) and Creative Technology &
Entertainment Group, Inc. (CTEGI) collectively referred to as "the
Company". CTIEGI is 100% owned Subsidiary and CTEGI is 70% subsidiary of
CTIEGI.
Creative Technologies Holdings Inc. was incorporated as Morning Splendor
Management, Inc. on December 6, 1996 under the laws of the State of
Nevada to engage in any lawful activity, including but not limited to
selected mergers and acquisitions. The Company has been in the
developmental stage since inception. Other than the acquisition of
CTIEGI, a subsidiary, the Company has no operating history and revenue.
Creative Technology and Interactive Entertainment Group, Inc. (CTIEGI)
was incorporated on June 26, 2000 under the laws of the State of Nevada.
Other than the issuance of stock to its original shareholders, and
acquisition of about 70% of CTEGI, a development stage company, it has
no operations and revenues as of June 30, 2001.
Creative Technology and Entertainment Group, Inc. (CTEGI) was
incorporated under the laws of the State of Nevada on May 19, 2000 for
the purpose of developing online gaming and interactive entertainment
software. CTEGI is a development stage company and as such has no
revenues or earnings from operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy
The consolidated financial statements include the accounts of
the Company and all of its wholly owned and majority-owned
subsidiaries. All significant inter-company accounts and
transactions have been eliminated in consolidation.
Investments in unconsolidated affiliates are accounted for
using the equity method when the Company owns at least 20% but
no more than 50% of such affiliates. Under the equity method,
the Company records its proportionate shares of profits and
losses based on its percentage interest in earnings of
companies 50% or less.
Method of Accounting
The Company prepares its financial statements on the accrual
method of accounting, recognizing income when earned and
expenses when incurred.
6
9
CREATIVE TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2001
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with
maturity of Six months or less to be cash equivalents for
purpose of reporting cash flows.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation
is computed using the straight-line method over the estimated
useful lives of the related assets, less residual value where
appropriate as follows:
Software 3 years
Office Equipment 5 years
Furniture and Fixtures 7 years
Leasehold Improvements 5 years or remaining term of
lease, whichever is shorter
Income Taxes
Income taxes are provided for using the liability method of
accounting in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for
Income Taxes." A deferred tax asset or liability is recorded
for all temporary differences between financial and tax
reporting. Deferred tax expense (benefit) results from the net
change during the year of deferred tax assets and liabilities.
Reporting on Costs of Start-Up Activities
Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs
of Start-Up Activities" provides guidance on the financial
reporting of start-up and organization costs. It requires most
costs of start-up activities and organization costs to be
expended as incurred. With the adoption of SOP 98-5, there has
been little or no effect on the company's financial
statements.
7
10
CREATIVE TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2001
Research and Development Costs
In accordance with Statement of Financial Accounting Standards
No. 2 (SFAS 2), "Accounting for Research and Development
Costs," all research and development (R&D) costs are expensed
when they are incurred. Assets used in R&D activity, such as
machinery, equipment, facilities and patents that have
alternative future use either in R&D activities or otherwise
are capitalized.
Loss Per Share
Net loss per share is provided in accordance with Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings
Per Share." Basic loss per share is computed by dividing
losses available to common stockholders by the weighted
average number of common shares outstanding during the period.
Diluted loss per share reflects per share amounts that would
have resulted if dilutive common stock equivalents had been
converted to common stock. As of June 30, 2001, the Company
had no dilutive common stock such as stock options.
Year End
The Company has selected December 31 as its year-end.
NOTE 3 - PROPERTY AND EQUIPMENT, NET
Property and equipment as of June 30, 2001 consist of the following:
CTHI CTEGI TOTAL
------- --------- ---------
Office equipment $ -- $ 148,965 $ 148,965
Software -- 50,387 50,387
Furniture and fixtures 2,731 -- 2,731
Automobile -- 2,900 2,900
------- --------- ---------
Total property and equipment 2,731 202,252 204,983
Accumulated depreciation (290) (31,760) (32,050)
------- --------- ---------
Property and equipment, net $ 2,441 $ 170,492 $ 172,933
======= ========= =========
Depreciation and amortization expense for the six months ended June 30,
2001 amounted to $31,800.
8
11
CREATIVE TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2001
NOTE 4 - DUE FROM AFFILIATES
Other receivables consist of total funds due from other affiliates in
the amount of $92,465.
NOTE 5 - CURRENT LIABILITIES
Current liabilities consist of the following:
CTHI CTIEGI CTEGI TOTAL
------- ------ -------- ---------
Accounts payable $33,000 $-- $664,613 $697,613
Payroll taxes payable -- -- 10,741 10,741
Loan payable -- -- 50,000 50,000
------- ---- -------- --------
Total $33,000 $-- $725,354 $758,354
======= ==== ======== ========
NOTE 6 - LOAN PAYABLE
CTEGI has a $50,000 promissory note payable on demand in the form of a
line of credit with a financial institution. The line carries a
variable rate of interest at the Wall Street Journal prime rate plus
1.00% per annum (10.5% at June 30, 2001). Monthly payment requirements
on the line consist of accrued interest only. As of June 30, 2001, the
Company owed $50,000 against the credit line and is personally
guaranteed by an officer of CTEGI.
NOTE 7 - LOSS ON DISPOSITION OF PROPERTY AND EQUIPMENT
CTEGI terminated its lease and abandoned the leased office premises in
Falls Church, Virginia. As a result, it incurred a loss on the
unamortized leasehold improvements in the amount of $25,491.
Additionally, other losses on disposition of equipments and phone
system amounted to $133,059. Total loss on disposition of CTEGI's
equipment and other assets total $158,551 at June 30, 2001.
NOTE 8 - MINORITY INTERESTS
On August 21, 2000, a stock investment agreement with conditional
promissory note was entered between CTEGI and CTIE. CTIE acquired about
73.3% of CTEGI's total issued and outstanding shares consisting of
fourteen million (14,000,000) shares for four million three hundred
fifty four thousand dollars (US$4,354,000). Terms and conditions of the
agreement are:
9
12
CREATIVE TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2001
Initial payment was $400,000 and the balance of US$3,954,000
payable in (10) monthly consecutive installments on the 15th
day of each month beginning August 2000 and ending on May 2001
(the maturity date). The obligation is represented by a
non-interest bearing conditional promissory note.
The payments on the promissory note are subject to the
realization of the Company's expected financial projection in
the "Business Plan" and achievement of the "Development
Milestone Projection" for the development of Inner G software
system.
At June 30, 2001, the balance of the conditional promissory
note receivable by CTEGI is $1,961,500. Negotiations are in
process for the extension and revision of the stock purchase
agreement. Other than the minority interest below, all the
inter-company accounts have been eliminated.
Minority interests consist of the following:
5,333,334 shares of common stock,
par value $.01 $ 53,334
Paid-in capital 666
Minority interests' share of deficit (774,378)
---------
Total Minority Interests $(720,378)
=========
NOTE 9 - STOCKHOLDERS' EQUITY
The authorized common stock of CTHI consists of 25,000,000 shares with
a par value of $0.001 of which 12,600,000 common shares are issued and
outstanding at June 30, 2001.
On December 6, 1996, CTHI issued 21,000 shares of its no par value
common stock in consideration of $2,100 in cash.
On November 29, 1999, the State of Nevada approved the restated
Articles of Incorporation of CTHI that increased its capitalization
from 25,000 shares to 25,000,000 shares of common stock. The no par
value of its common stock was changed to $0.001 par value and the value
of the common shares was adjusted by $2,079.00 decrease in common stock
and increase of paid-in capital by the same amount. On November 29,
1999, CTHI forward split its common stock 100:1; thus increasing the
number of outstanding shares of common stock from 21,000 shares to
2,100,000 shares.
10
13
CREATIVE TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2001
On August 31, 2000, CTIEGI issued 500,000 shares of its $0.001 par
value common stock in consideration of $500,000 cash. These shares were
exchanged for CTHI shares under a plan and agreement of reorganization
with CTIEGI and Morgan & Lynch, Inc. (MLI) on October 25, 2000. Under
the plan, the Company issued 8,500,000 shares of its common stock to
MLI in exchange for MLI's ownership of 500,000 share of common stock of
CTIEGI.
On November 8, 2000, the Company entered into a stock purchase
agreement with Netsat Holdings, Limited (NHL), a foreign corporation.
Pursuant to the agreement, the Company issued 2,000,000 shares of its
common stock in exchange for cancellation of $500,000 debt to NHL.
On June 25, 2001, CTHI entered into a stock purchase agreement with
NetSat Holdings, Ltd., whereby CTHI issued 1,600,000 shares of common
stock at a price of $0.96 per share in cancellation of indebtedness
owed to NetSat Holdings, Ltd., for a total aggregate amount of
$1,537,242.
The issued and outstanding shares of 14,200,000 common shares at June
30, 2001 are as follows:
Regulation S shares 3,600,000
Other Restricted Shares 9,950,000
Free Trading Shares 650,000
----------
Total 14,200,000
==========
NOTE 10 - INCOME TAXES
There is no provision for federal income taxes for the six months ended
June 30, 2001 due to the net loss sustained during the period. No state
income tax provision was made because in Nevada, the state of the
Company's domicile and operations, taxes on income are not imposed.
The Company currently has no issues that create timing differences that
would mandate deferred tax expense. Net operating losses would create
possible tax assets in future years. Due to the uncertainty as to the
utilization of net operating loss carry forwards, a valuation allowance
has been made as to the utilization of net operating loss carry
forward, to the extent of any tax benefit that net operating losses may
generate.
The Company's total deferred tax assets as of June 30, 2001 is as
follows:
11
14
CREATIVE TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2001
Net operating loss carry forward $ 3,002,318
===========
Current tax asset value of net operating
loss carry forwards at statutory rate $ 450,348
Valuation allowance (450,348)
-----------
Net deferred tax (asset) liability $ --
===========
Current Income Tax Expense $ --
===========
Deferred Income Tax Expense (Benefit) $ --
===========
NOTE 11 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
There were no cash payments made for income taxes for the six months
ended June 30, 2001. Cash payments for interest during the year
amounted to $8,346.00.
NOTE 12 - COMMITMENTS
The Company leases its corporate headquarters under an operating lease
expiring in December 2001. The agreement does not provide for an option
to extend the terms of the lease.
Rent expense for the six months ended June 30, 2001 amounted to
$100,893.
NOTE 13 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and liquidation of liabilities
in the normal course of business. However, the Company does not have an
established source of revenues to cover its development and operating
costs and to allow it to continue as a going concern. Current sources
of funds for development costs of the Company are periodic funding of
and advances from its investors. Funding from investors, however, have
been set for a specified period and amount. The Company's only source
of funds would be additional advances from its investors if it
continues to have no source of revenues.
On April 9, 2001, CTEGI, the subsidiary that operates in Falls Church,
Virginia, has downsized its operations and terminated majority of its
employees involved in its development operations. The funding of
CTEGI's technology development has been temporarily deferred as a
result of CTEGI's major changes in its business development plan.
12
15
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
All statements, trend analysis and other information contained
in this Report relative to markets for the Company's products and trends in
revenues, gross margin and anticipated expense levels, as well as other
statements including words such as "believe," "anticipate," "expect,"
"estimate," "plan" and "intend" and other similar expressions, constitute
forward-looking statements. Those forward-looking statements are subject to
business and economic risks, and the Company's actual results of operations may
differ from those contained in the forward-looking statements. The following
discussion of the financial condition and results of operations of the Company
should also be read in conjunction with the Financial Statements and Notes
related thereto included elsewhere in this Report.
(1) Results of Operations
The six months ended June 30, 2001 did not generate any
revenues for the company. In addition, the Company incurred general,
administrative and development expenses in the amount of $1,291,335 for the six
months ended June 30, 2001. A significant portion of this amount supported
Creative Technology and Entertainment Group, Inc., a development stage company
engaged in developing online gaming and interactive entertainment software.
Creative Technology and Entertainment Group, Inc. has no revenues or earnings
from operations.
Net loss per share was at $0.09 for the six months ended June 30,
2001.
(2) Liquidity
As of June 30, 2001, the Company had negative working capital.
The Company plans to raise additional capital through sale of its equity
securities. The additional capital will be used to provide financing necessary
to position the Company as a provider of interactive games through the Internet.
Item 3. Qualitative and Quantitative Disclosures About Market Risk.
The Company has neither considered or conducted any research
concerning qualitative and quantitative market risk.
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PART II
OTHER INFORMATION
Item 1 - Legal Proceedings None
Item 2 - Changes in the Rights of the Company's
Security Holders None
Item 3 - Defaults by the Company on its
Senior Securities None
Item 4 - Submission of Matter to Vote of Security
Holders None
Item 5 - Other Information None
Item 6 - Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
the report is filed.
SIGNATURE
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.
Dated: August 15, 2001 CREATIVE TECHNOLOGIES HOLDINGS, INC.
By: /s/ CHRIS ALBORNOZ
----------------------
Chris Albornoz
President
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