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 SEPTEMBER 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 September 30, 2001, there were outstanding 22,050,000 shares of the
Registrant's Common Stock, $0.001 par value.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
1
PART I
FINANCIAL INFORMATION
Item I. Financial Statements
CREATIVE TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
TABLE OF CONTENTS
PAGE (S)
--------
INDEPENDENT ACCOUNTANTS' REPORT 3
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets 4
Statements of Operations 5
Statements of Changes in Stockholders' Equity 6
Statements of Cash Flows 7
Notes to Financial Statements 8 - 15
SUPPLEMENTARY INFORMATION
Schedule of General, Administrative and Development Expenses 16
2
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
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
Creative Technologies Holdings, Inc. and Subsidiaries
Los Angeles, California
We have reviewed the accompanying consolidated balance sheets of Creative
Technologies Holdings, Inc., and Subsidiaries (Development Stage Companies), as
of September 30, 2001, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the nine 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.
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.
Our review was made for the purpose of expressing limited assurance that there
are no material modifications that should be made to the financial statements in
order for them to be in conformity with generally accepted accounting
principles. The information included in the accompanying schedule of general,
administrative and development expenses is presented only for supplementary
analysis review of the basic financial statements, and we are not aware of any
material modifications that should be made to it.
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
November 08, 2001
- --------------------------------------------------------------------------------
MEMBER - AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS'
SEC PRACTICE GROUP
CALIFORNIA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS'
TAX PRACTICE GROUP
3
CREATIVE TECHNOLOGIES HOLDINGS INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2001 2000
(UNAUDITED) (AUDITED)
------------- ------------
ASSETS
CURRENT ASSETS
Cash $ 16,278 $ 68,338
Advances to employees 4,058 16,874
Prepaid expenses 12,988 64,940
----------- -----------
Total current assets 33,324 150,152
----------- -----------
INVESTMENTS
Investment in other company (Note 3) 785,000 --
PROPERTY AND EQUIPMENT, NET (Note 4) 83,575 383,245
OTHER ASSETS
Due from affiliates -- 132,115
Deposits 25,976 25,976
----------- -----------
Total other assets 25,976 158,091
----------- -----------
TOTAL ASSETS $ 927,875 $ 691,488
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES (Note 5)
Accounts payable $ 555,400 $ 437,197
Payroll taxes payable 515 30,192
Accrued liabilities 73,960 18,840
Advances from officers 24,750 24,750
Due to affiliates 49,599 --
Loans payable (Note 6) 49,900 50,000
Notes payable -- 586,467
Capital lease payable -current portion -- 2,681
----------- -----------
Total current liabilities 754,124 1,150,127
----------- -----------
LONG-TERM LIABILITIES
Capital lease payable -- 6,646
----------- -----------
TOTAL LIABILITIES 754,124 1,156,773
----------- -----------
MINORITY INTERESTS (Note 8) -- --
STOCKHOLDERS' EQUITY (Note 9)
Common stock, par value $0.001; 25,000,000 shares
authorized; 22,050,000 shares issued and outstanding 22,050 12,600
Paid-in capital 3,302,292 989,500
Accumulated deficit (3,150,591) (1,467,385)
----------- -----------
Total stockholders' equity 173,751 (465,285)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 927,875 $ 691,488
=========== ===========
See accompanying notes and independent accountants' report.
4
CREATIVE TECHNOLOGIES HOLDINGS INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
CUMULATIVE FROM FOR THE
12/6/96 (DATE THREE MONTHS ENDED NINE MONTHS ENDED
OF INCEPTION) TO SEPTEMBER 30, SEPTEMBER 30,
SEPTEMBER 30, ---------------------------- ----------------------------
2001 2001 2000 2001 2000
---------------- ------------ ------------ ------------ ------------
Revenue $ -- $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------
Operating expenses
General, administrative and
development expenses 2,987,302 192,911 670,665 1,484,246 736,477
Depreciation and amortization (Note 4) 49,918 137 751 31,937 751
------------ ------------ ------------ ------------ ------------
Total operating expenses 3,037,220 193,048 671,416 1,516,183 737,228
------------ ------------ ------------ ------------ ------------
Loss from operations (3,037,220) (193,048) (671,416) (1,516,183) (737,228)
Other income (expenses)
Interest income 1,350 -- 105 753 105
Interest expense (10,170) (9,225) (9,225)
Loss on disposal of assets (Note 7) (158,551) -- -- (158,551) --
------------ ------------ ------------ ------------ ------------
Total other income (expenses) (167,371) (9,225) 105 (167,023) 105
------------ ------------ ------------ ------------ ------------
Net loss before minority shareholders (3,204,591) (202,273) (671,311) (1,683,206) (737,123)
Net loss allocated to minority shareholders 54,000 -- -- -- --
------------ ------------ ------------ ------------ ------------
Net Loss for the period $ (3,150,591) $ (202,273) $ (671,311) $ (1,683,206) $ (737,123)
============ ============ ============ ============ ============
Net Loss per common share $ (0.02) $ (0.32) $ (0.13) $ (0.35)
============ ============ ============ ============
Weighted average number of common shares 13,202,563 2,100,000 13,202,563 2,100,000
============ ============ ============ ============
See accompanying notes and independent accountants' report.
5
CREATIVE TECHNOLOGIES HOLDINGS INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FROM DECEMBER 31, 1996 (INCEPTION) TO SEPTEMBER 30, 2001
(UNAUDITED)
COMMON STOCK ADDITIONAL TOTAL
----------------------------- 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 -- -- (1,464,935) (1,464,935)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2000 12,600,000 12,600 989,500 (1,467,385) (465,285)
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
Issuance of 7,850,000 shares in
exchange for cancellation of
$785,000 debt on
September 30, 2001 7,850,000 7,850 777,150 785,000
Net loss for the nine months
ended September 30, 2001 (1,683,206) (1,683,206)
----------- ----------- ----------- ----------- -----------
Balance, September 30, 2001 22,050,000 $ 22,050 $ 3,302,292 $(3,150,591) $ 173,751
=========== =========== =========== =========== ===========
See accompanying notes and independent accountants' report.
6
CREATIVE TECHNOLOGIES HOLDINGS INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30
(UNAUDITED)
CUMULATIVE FROM
12/6/96 (DATE OF NINE MONTHS ENDED
INCEPTION) TO SEPTEMBER 30,
SEPTEMBER 30, -----------------------------
2001 2001 2000
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,150,591) $(1,683,206) $ (737,123)
Adjustment to reconcile net loss to net cash used
by operating activities
Depreciation and amortization 49,918 31,937 751
Provision for bad debts 85,409 85,409 --
Minority interests in net loss of subsidiary (54,000) -- --
(Gain) loss on disposal of property 158,551 158,551 --
Decrease (increase) in:
Advances to employees (4,058) 12,816 (13,169)
Prepaid expenses (25,976) 51,952 (8,575)
Other receivables (115,409) (85,409) --
Security deposits (12,988) -- (32,300)
Increase (decrease) in:
Accounts payable 616,400 118,203 191,868
Accrued liabilities 66,960 55,120 18,840
Due to affiliates 49,599 49,599
Advances from officers 24,750 -- 95,250
Payroll taxes payable 515 (29,677) 57,557
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (2,310,920) (1,234,705) (426,901)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (247,049) 109,182 (53,166)
Principal payments on notes (5,833) -- --
Principal payments on capital lease (9,995) (9,327) --
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (262,877) 99,855 (53,166)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 2,039,342 1,537,242 553,650
Increase in notes receivable (102,115) -- --
Increase in due to affiliates 132,115 132,115 --
Proceeds (payments) of notes payable 470,833 (586,467) --
Proceeds (payments) of line of credit 49,900 (100) --
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,590,075 1,082,790 553,650
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 16,278 (52,060) 73,583
CASH, BEGINNING OF PERIOD -- 68,338 --
----------- ----------- -----------
CASH, END OF PERIOD $ 16,278 $ 16,278 $ 73,583
=========== =========== ===========
See accompanying notes and independent accountants' report.
7
CREATIVE TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
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 September 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 company has adopted the provisions of Accounting Research
Bulletin No. 51 (ARB 51), "Consolidated Financial Statements,"
as amended by Statement of Financial Accounting Standard No. 94
(SFAS 94), "Consolidation of All Majority-Owned Subsidiaries"
for its consolidation guidelines whereby a parent company that
has controlling financial interest represented by direct or
indirect ownership of more than 50% voting interest be
consolidated, except those in which (a) control of the
subsidiary is temporary or (b) significant doubt exists
regarding the parent's ability to control the subsidiary.
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.
8
CREATIVE TECHNOLOGIES HOLDINGS INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
Method of Accounting
The Company prepares its financial statements on the accrual
method of accounting, recognizing income when earned and
expenses when incurred.
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.
9
CREATIVE TECHNOLOGIES HOLDINGS INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
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 September 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 - INVESTMENT IN OTHER COMPANY
On September 29, 2001, Creative Technology Holdings, Inc. entered into a
stock purchase agreement with Ridgeway Commercial Ventures, Limited
(Ridgeway), a Belize Corporation. CTHI acquired 49% interest in LET THE
FUN BEGIN A.V.V., a company incorporated under the laws of Aruba.
Initial investment is $785,000 in exchange for a 6% interest bearing
promissory note. On September 30, 2001, 7,850,000 common shares of CTHI
were issued to Ridgeway for $0.10 a share in cancellation of the note
payable for $785,000.
Let the Fun Begin A.V.V. has three wholly owned subsidiaries:
(a) Let the Games Begin N.V., a Curacao-based offshore
entity formed on September 20, 2000.
(b) Let the Play Begin N.V., a Curacao-based offshore entity
formed on October 5, 1998.
(c) Cyber Entertainment, N.V., a Curacao-based onshore
entity formed on July 17, 2000.
Cyber Entertainment, N.V. holds a gaming license from the territory of
Curacao. At September 30, 2001, all the above entities have no
operations. The adjustment on the investment account for the company's
proportionate share of the income or loss for the period is zero. The
carrying value of the investment account at September 30, 2001 is
$785,000, the original cost of the investment.
10
CREATIVE TECHNOLOGIES HOLDINGS INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
NOTE 4 - PROPERTY AND EQUIPMENT, NET
Property and equipment as of September 30, 2001 consist of the
following:
CTHI CTEGI TOTAL
-------- -------- --------
Office Equipment $ -- $ 38,469 $ 38,469
Software -- 50,387 50,387
Furniture and fixtures 2,731 -- 2,731
Automobile -- 2,900 2,900
-------- -------- --------
Total property and equipment 2,731 91,756 94,487
Accumulated depreciation (427) (10,485) (10,912)
-------- -------- --------
Property and equipment, net $ 2,304 $ 81,271 $ 83,575
======== ======== ========
Depreciation and amortization expense for the nine months ended
September 30, 2001 amounted to $31,937.
NOTE 5 - CURRENT LIABILITIES
Current liabilities consist of the following:
CTHI CTIEGI CTEGI TOTAL
-------- -------- -------- --------
Accounts payable $ 89,147 $ -- $466,253 $555,400
Payroll taxes payable -- -- 515 515
Accrued liabilities -- -- 73,960 73,960
Advances from officers 350 -- 24,400 24,750
Due to affiliates 11,099 38,500 -- 49,599
Loan payable -- -- 49,900 49,900
-------- -------- -------- --------
Total $100,596 $ 38,500 $615,028 $754,124
======== ======== ======== ========
NOTE 6 - LOAN PAYABLE
CTEGI has a $49,900 promissory note payable on demand in the form of a
line of credit with a financial
11
institution. The line carries a variable rate of interest at the Wall
Street Journal prime rate plus 1.00% per annum (10.5% at September 30,
2001). Monthly payment requirements on the line consist of accrued
interest only. As of September 30, 2001, the Company owed $49,900
against the credit line and is personally guaranteed by an officer of
CTEGI.
12
CREATIVE TECHNOLOGIES HOLDINGS INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
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 $133,060. Total loss on disposition of CTEGI's equipment and
other assets total $158,551 at September 30, 2001.
NOTE 8 - MINORITY INTEREST
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:
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 September 30, 2001, the balance of the conditional promissory
note receivable by CTEGI is $1,876,868. 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.
At September 30, 2001, minority interests consist of the
following:
5,333,334 shares of common stock,
par value $0.01 $ 53,334
Paid-in capital 666
Minority interests' share of deficit (54,000)
--------
Total Minority Interests $ --
========
The majority interest was allocated the entire accumulated
deficit attributed to the minority interest in excess of the
balance of the capital stock pursuant to the Accounting Research
Bulletin No. 51 (ARB 51), paragraph 15. If future earnings will
materialize, the majority interest will be credited to the
extent of such losses previously absorbed.
13
CREATIVE TECHNOLOGIES HOLDINGS INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
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 24,200,000 common shares are issued and
outstanding at September 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.
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.
On September 29, 2001, CTHI entered into a stock purchase agreement with
Ridgeway Commercial Ventures Ltd., a foreign corporation, whereby CTHI
issued 7,850,000 of its $.001 par value common stock in exchange for
cancellation of $785,000 indebtedness which the latter owed to
Ridgeway.
The issued and outstanding shares of 22,050,000 common shares at
September 30, 2001 are as follows:
Regulation S shares 11,450,000
Other Restricted Shares 9,950,000
Free Trading Shares 650,000
----------
Total 22,050,000
==========
14
CREATIVE TECHNOLOGIES HOLDINGS INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
NOTE 10 - INCOME TAXES
There is no provision for federal income taxes for the nine months ended
September 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 September 30, 2001 is as
follows:
Net operating loss carry forward $(3,204,591)
===========
Current tax asset value of net operating
loss carry forwards at statutory rate $ 480,690
Valuation allowance (480,690)
-----------
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 nine months
ended September 30, 2001. Cash payments for interest during the nine
month period amounted to $9,225. The investment in other company for
$785,000 was in exchange for an interest bearing promissory note that
was cancelled by the issuance of 7,850,000 common shares of CTHI.
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 nine months ended September 30, 2001 amounted to
$95,721.
15
CREATIVE TECHNOLOGIES HOLDINGS INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
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 all 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.
16
CREATIVE TECHNOLOGIES HOLDINGS INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
SCHEDULE OF GENERAL, ADMINISTRATIVE AND DEVELOPMENT EXPENSES
SEPTEMBER 30, 2001
(UNAUDITED)
CUMULATIVE FROM
12/06/96 (DATE NINE MONTHS ENDED
OF INCEPTION) TO SEPTEMBER 30,
SEPTEMBER 30, --------------------------------
2001 2001 2000
---------------- ---------- ----------
Salaries & wages $1,081,505 $ 511,097 $ 224,710
Professional fees 771,206 412,356 232,593
Travel & promotions 193,420 84,297 51,608
Rent 172,966 96,132 25,977
Recruiting 128,989 27,116 68,600
Development expenses 114,806 -- 94,932
Service contract fees 97,000 97,000 --
Taxes & licenses 89,604 39,327 395
Bad debts 85,410 85,410 --
Office supplies 57,231 23,283 15,930
Telephone 56,942 37,022 5,145
Insurance 48,549 15,506 9,794
Office expenses 43,818 26,422 4,250
Computer expenses 30,442 19,323 1,211
Marketing expenses 5,625 5,625 --
Postage & delivery 5,418 1,412 833
Payroll administration 3,605 2,299 400
Dues & subscription 766 619 99
---------- ---------- ----------
$2,987,302 $1,484,246 $ 736,477
========== ========== ==========
See accompanying notes and independent accountants' report.
17
Item II. 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 products of Creative Technologies Holdings,
Inc. ("Company" or "Registrant") 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.
(i) Revenues
The nine months ended September 30, 2001 did not generate any revenues
for the Company. Its subsidiary, Creative Technology and Entertainment Group,
Inc., a development stage company engaged in developing online gaming and
interactive entertainment software, has no revenues or earnings from operations.
When the software product is completed and marketed, revenues are expected to
start.
(ii) General, Administrative and Development Expenses
The Company incurred general, administrative and development expenses in
the amount of $1,484,246 for the nine months ended September 30, 2001, compared
to $736,477 for the same period last year.
Salaries and wages in the amount of $511,097 as well as professional
fees in the amount of $412,356 comprise approximately sixty percent of the
general, administrative and development expenses for the nine months ended
September 30, 2001. For the same period last year, salaries and wages in the
amount of $224,710 as well as professional fees in the amount of $232,593
comprise approximately sixty percent of general, administrative and development
expenses.
A significant portion of general, administrative and development
expenses 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.
(iii) Depreciation and Amortization
Depreciation and amortization expense increased from $751 in the first
nine months of 2000 to $31,937 in the first nine months of 2001. The increase
was due to increased capital expenditures, particularly the acquisition of
office equipment and software.
18
(iv) Net Loss per Share
Net loss per share was at $0.13 for the nine months ended September 30,
2001, compared to a net loss per share of $0.35 for the same period last year.
The decrease was attributable mainly to additional issuance of shares.
(v) Liquidity
Since its formation, the Company has financed its operating activities
through funds from investors. Its investment in Let the Fun Begin A.V.V. was
financed through a note which was converted to equity stock.
As of September 30, 2001, the Company had an accumulated deficit in the
amount of $3,150,591. Investors of the Company advanced funds to the Company for
its development operations and investment. As of September 30, 2001, investors
have advanced $2,322,242 which had been cancelled in exchange for issuance of
9,450,000 shares of common stock of the Company.
Item III. Qualitative and Quantitative Disclosures About Market Risk.
The Company has neither considered nor conducted any research concerning
qualitative and quantitative market risk.
PART II
OTHER INFORMATION
Item 1 - Legal Proceedings (None per Item 103 of Reg. S-B)
Item 2 - Changes in the Rights of the Company's Security Holders
(a) Regulation S Issuance
On September 28, 2001, 1,600,000 shares of common stock of the Company
were issued to Netsat Holdings Ltd. in exchange for cancellation of indebtedness
in the amount of $1,537,242. The unregistered sale of equity securities was made
pursuant to Regulation S promulgation under the Securities Act of 1933.
On September 29, 2001, 7,850,000 shares of common stock of the Company
were issued to Ridgeway Commercial Ventures Ltd. in exchange for cancellation of
indebtedness in the amount of $785,000. The unregistered sale of equity
securities was made pursuant to Regulation S promulgation under the Securities
Act of 1933.
Item 3 - Defaults by the Company on its Senior Securities (None)
19
Item 4 - Submission of Matter to Vote of Security Holders (None)
Item 5 - Other Information
(a) Acquisition of Equity Interest in Let the Fun Begin, Inc. from
Ridgeway Commercial Ventures Limited
On September 29, 2001, the Company acquired forty nine percent (49%) of
the equity interest of Ridgeway Commercial Ventures Ltd. in Let the Fun Begin
A.V.V. in exchange for an interest-bearing Note in the amount of $785,000. The
said Note was converted to shares of common stock of the Company as of September
29, 2001 at $0.10 per share.
Let the Fun Begin A.V.V., an Aruba-based offshore entity incorporated on
September 6, 2000, has three wholly-owned subsidiaries: (1) Let the Games Begin
N.V., a Curacao-based offshore entity formed on September 20, 2000; (2) Let the
Play Begin N.V., a Curacao-based offshore entity formed on October 5, 1998; and
(3) Cyber Entertainment N.V., a Curacao-based onshore entity formed on July 17,
2000.
Cyber Entertainment N.V. holds a gaming license from the territory of
Curacao. The license was issued by government decree dated October 11, 2000
pursuant to Article 2 of the Netherlands Antilles Act on Offshore On-line Gaming
and Gambling.
Cyber Entertainment N.V. was purchased by Let the Fun Begin A.V.V. from
Fiducia Escrow Services Ltd. for the purchase price of US$250,000.00. The
purchase was made pursuant of a Transfer of Shares dated July 27, 2000 wherein
Fiducia Escrow Services Ltd. sold and transferred to Let the Fun Begin A.V.V.
all of its rights and interests in and title to 6,000 fully paid shares in the
capital stock of Cyber Entertainment N.V.
The Company's wholly-owned subsidiaries Let the Games Begin N.V., Let
the Play Begin N.V. and Cyber Entertainment N.V. currently have no operations.
Item 6 - Exhibits and Reports on Form 8-K
(a) The Articles of Incorporation and by-laws of the Company appear in
Form 10SB12G filed February 7, 2000 and are incorporated herein by reference.
(b) No reports on Form 8-K were filed during the quarter for which the
Report is filed.
20
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: November 14, 2001 CREATIVE TECHNOLOGIES HOLDINGS INC.
By: /s/ CHRIS ALBORNOZ
----------------------------------
Chris Albornoz
President
21