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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- ----------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________.
COMMISSION FILE NO. 0-22622
CREATOR CAPITAL LIMITED
(formerly known as INTERACTIVE ENTERTAINMENT LIMITED)
(Exact name of registrant as specified in its charter)
BERMUDA I.R.S. NO. 98-0170199
(Jurisdiction of Incorporation) (I.R.S. Employer Identification No.)
Cedar House, 41 Cedar Street
Hamilton HM 12, Bermuda
(Address of principal executive offices)
Registrant's telephone number, including area code: (441)-295-2244; (604)
947-2555
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
Common Stock, Par Value $0.01 OTC Bulletin Board
per share ("Common Stock")
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based upon the closing price of $0.05 for the Common Stock as
reported by the OTC Bulletin Board March 29, 2001 is $2,505,176
The number of shares outstanding of the issuer's Common Stock, as of March 31,
2001: 50,103,529
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 2001 Annual Meeting of
Shareholders, which will be filed within 14 business days, are incorporated
by reference into Part III hereof.
CREATIVE CAPITAL LIMITED
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
Part 1
Item 1 Corporate History and Development 1
Business Overview 1
The Product 2
The Industry 2
Competition 2
Market and Marketing 2
Manufacturing 2
Sky Games System Acquisition 3
The Amalgamations 3
Major Customers 4
Employees 4
Item 2 Properties 4
Item 3 Legal Proceedings 4
Item 4 Submission of Matters to a Vote of Security Holders 4
Part II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters 5
Item 6 Selected Financial Data 7
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Overview 7
Results of Operations 9
Liquidity and Capital Resources 10
Forward-Looking Information 11
Item 8 Financial Statements and Supplementary Data 11
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 11
Part III
Item 10 Directors and Executive Officers of the Registrant 11
Item 11 Executive Compensation 11
Item 12 Security Ownership of Certain Beneficial Owners and Management 12
Item 13 Certain Relationships and Related Transactions 12
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 12
Signatures 15
Report of Independent Auditors F-1
Financial Statements F-2 - F-18
PART I
ITEM 1. BUSINESS
Corporate History and Development
Creator Capital Limited (the "Company" or "CCL"), formerly Interactive
Entertainment Limited was incorporated pursuant to the laws of the Province
of British Columbia on January 28, 1981 under the name Tu-Tahl Petro Inc.
On May 10, 1990, the Company changed its name to Creator Capital Inc. The
Company was reincorporated through the continuance of its corporate
existence from the Province of British Columbia to the Yukon Territory on
July 15, 1992. On January 23, 1995, the Company changed its name to Sky
Games International Ltd. ("SGI"). Effective February 22, 1995, the Company
continued its corporate existence from the Yukon Territory to Bermuda as an
exempted company under the Companies Act 1981 (Bermuda) (the "Bermuda Act").
In June, 1997, the Company changed its name to Interactive Entertainment
Limited following consummation of the amalgamation of the Company's wholly-
owned subsidiary, SGI Holding Corporation Limited ("SGIH"), and SGIH's
formerly 80% owned subsidiary, then known as Interactive Entertainment
Limited ("Old IEL"). This was followed immediately by an amalgamation of SGI
with the survivor of the first amalgamation (the "Amalgamations"). Pursuant
to a Special Resolution passed by shareholders at the September 19, 2000
Annual General Meeting, the Company changed its name to Creator Capital
Limited. Unless the context otherwise requires, the term "Company" refers
to Creator Capital Limited ("CCL"), its wholly-owned subsidiaries, IEL
(Singapore) Pte. Ltd., Sky Games International Corporation ("SGIC"), and
Inflight Interactive Ltd. ("IIL"), Creator Island Equities Inc. ("CIEI"),
and for periods prior to June 17, 1997, also SGIH and Old IEL, which was the
Company's principal operating subsidiary from December 30, 1994, through
such Amalgamations.
IEL (Singapore) Pte. Ltd. was struck off the Singapore Register of Companies,
at the Company's request, on September 23, 2000. Currently, IIL (UK) and CIEI
(Canada), SGIC (US), each of which are wholly owned subsidiaries, are
considered to be inactive.
The initial purpose of the Company was natural resource exploration and
development. Beginning in January 1991 the Company concentrated its efforts
on acquiring, developing and commercializing a gaming technology marketed as
Sky GamesT for inflight use by international airline passengers and patrons in
other non-traditional gaming venues. In pursuit of this purpose, the Company
in 1991 acquired the principal assets of Nevada-based Sky Games International,
Inc. ("SGII"). In late 1994, the Company formed Old IEL as a joint venture
with subsidiaries of Harrah's Entertainment, Inc., ("Harrah's"). This
resulted in the transfer to Old IEL of the Company's inflight gaming business
and the execution of a management agreement with Harrah's with respect to Old
IEL and other related relationships. Pursuant to such management agreement,
Old IEL's operations were managed by a Harrah's subsidiary. The description
herein of the Company's operations from December 30, 1994 through June 17,
1997 with respect to inflight gaming activities refers to the operations of
Old IEL under the management of this subsidiary of Harrah's.
Business Overview
The Sky Games system was developed to introduce gaming to international airline
passengers. The system is designed to enable users to play a number of casino-
type games from their seats by way of a built-in, color, interactive, in-seat
monitor. The Company believed that an opportunity existed to introduce casino
games on international air flights. In April of 1996, the Company announced
the signing of contracts for the provision of gaming services to Singapore
Airlines ("SIA"). The first flight with gaming was launched on June 1, 1998.
A second aircraft was added in mid-October, 1998. Passenger participation was
disappointing. On November 12, 1998, the Company announced that it had been
unable to attract the additional capital necessary for continued development
of its Sky Games inflight gaming business. The Company also announced that
it had discontinued all operations associated with the Sky Games product
line. All employees were terminated as of November 13, 1998. Those former
employees that subsequently had been retained on a part-time contract basis
to continue operations and support the Sky Play product, are no longer
associated with CCL. Two former employees, through their corporate entity,
have been contracted to attend to the Sky Play business.
On January 13, 1998, CCL completed the acquisition of all the outstanding
capital stock of Inflight Interactive Limited ("IIL") in exchange for 500,000
shares of the Company's $.01 par value common stock (the "Common Stock").
IIL is a United Kingdom developer and provider of amusement games to the
airline industry. The acquisition was accounted for using the purchase method.
The games are marketed under the name Sky Play. As at December 31, 2000 Sky
Play games were operating on a number of airlines, including Air China,
American Airlines, Cathay Pacific, Continental, Egypt Air, Emirates Air,
Japan Air Lines, Lauda Air and Malaysia Airlines.
The Product
Sky Play offers airlines the choice of up to 19 amusement games. Unlike
Nintendo-style games, which are designed to keep the player challenged and
interested over long periods of time, and which generally require player
skill developed over a period of time, CCL has selected and developed the Sky
Play amusement games which have very simple rules, are already well known or
easy to learn, and are very simple to play. Games are licensed to airlines
for a monthly license fee for each game and each aircraft.
The Company has been granted federal registration of the Sky Games logo and the
slogan "We Make Time Fly" by the U.S. Patent and Trademark Office. At this
time the Company has not applied for any patents.
The Industry
The Boeing Company's 2000 Current Market Outlook forecast passenger traffic
growth of 4.8% annually over the next 20 years. The report noted that, to
meet that growth, airlines are expected to add over 22,300 airplanes to their
fleets, worth more than $1.5 trillion in 1999 US Dollars. Boeing estimates
that approximately 28% of these new aircraft will be intermediate and large
aircraft, which CCL believes, will represent a substantial market for IFE
systems and inflight content.
The Company anticipates that the IFE industry will grow rapidly over the next
three to five years as airlines commit to interactive IFE hardware based on
improved product reliability and competition. Accordingly, the Company is
committed to building its core business by focusing on the airline market.
However, CCL is also prepared for other venues such as cruise ships, ferry
boats, trains and hotel rooms.
Competition
The Company has several competitors for its amusement games most of whom are
small companies like CCL.. The largest market share of the amusement game
business for airlines is believed to be held by Nintendo. CCL believes that
it has the second largest market share and is the only provider of amusement
games to the airline industry with games operational on more than one IFE
platform.
Market and Marketing
In the very competitive airline market, airlines are seeking a distinctive,
competitive edge to attract and retain paying customers. Entertainment and
service systems are forming a part of the airlines' current business
strategy. CCL believes that the principal benefit of its product to the
airlines, is the ability to enhance entertainment offerings to passengers.
IFE systems are capital intensive; however, providing passenger service and
comfort, especially for first and business class travelers, is a major area
of competition for airlines. The target market for Sky Play has been
domestic and foreign airlines, which have committed to the purchase of or
installed IFE systems.
Manufacturing
As a software producer and operator, the Company has no manufacturing
capability. CCL's software is designed to interface with in-cabin hardware,
including onboard computers, file servers, distribution and communication
systems, manufactured by various suppliers for the airlines.
Sky Games System Acquisition
On November 7, 1991, the Company entered into an agreement, with subsequent
amendments, with Sky Games International, Inc. ("SGII") to purchase
technology, proprietary rights and prototypes of the casino games known as
"Sky Games." The purchase price of the assets was 300,000 shares of the
Company's $.01 par value common stock (the "Common Stock") issued to SGII
at a deemed price of $1.65 per share, plus an additional 3,000,000 shares of
Common Stock held in escrow to be released on the basis of one share for
each U.S. $1.78 of net cash flow generated from the assets over a ten-year
period (the "Performance Shares"). Of the 3,000,000 shares, 2,000,000 were
issued to SGII and 1,000,000 shares to Anthony Clements, an advisor to and
director of the Company. The Performance Shares are held in escrow by
Montreal Trust Company of Canada. As of April 30, 1997, the holders of the
Performance Shares agreed with the Company to tender such shares to the
Company when and if they are released from the escrow, and the Company has
agreed to cancel such shares. The holders of the Performance Shares have also
granted an irrevocable proxy to a bank which has irrevocably agreed not to vote
such shares. Even though the Performance Shares are subject to cancellation
and may not be voted, they remain issued and outstanding. Therefore, the
management of the Company has included the Performance Shares in the
outstanding.
The Amalgamations
Effective as of December 30, 1994, the Company, through SGIH, and Harrah's
Interactive Investment Company ("HIIC") completed the formation of Old IEL
as a joint venture corporation incorporated as an exempted company under the
Bermuda Act. At the same time, (i) Old IEL entered into a management
agreement (the "Management Agreement") with Harrah's Interactive
Entertainment Company (the "Manager"), (ii) the prior consulting agreement
between Harrah's and SGIC was terminated, (iii) SGIC assigned all right,
title and interest in the Sky Games system and related trademarks and trade
names to the Company, and (iv) the Company licensed the Sky Games system and
certain related trademarks and trade names to Old IEL. In connection with
the Amalgamations, the contractual agreements with the affiliates of Harrah's
were terminated.
The ownership interests of the Company and HIIC in Old IEL were 80% and 20%,
respectively, prior to the Amalgamations. The Company and HIIC had funded a
total of $5 million to Old IEL. Additional capital, if not available from
third parties, was to have been provided by the Company and HIIC in
proportion to their shareholdings. The Executive Committee of Old IEL was
to determine whether additional capital was to be provided as equity or debt.
Under the shareholders agreement, each party had certain options with respect
to the other party's stock. The shareholders agreement was terminated
effective June 17, 1997.
The Manager had been granted, and had assumed, broad responsibility for
managing the business of Old IEL. This included completing the development
of and improving the Sky Games software and all other systems, marketing to
airlines and customers and day-to-day gaming operations. The Management
Agreement had a two-year term, but could have been renewed at the Manager's
option for successive two-year terms up to a maximum term of 10 years. The
Manager had a right of first negotiation on a renewal agreement. Management
fees were dependent on the amount of gross revenues with a maximum fee of
7.5% of gross revenues and a minimum monthly fee of $10,000. Old IEL was
required to pay all operating costs (including capital expenditures) of the
business, which included the cost of services and goods provided by the
Manager and its affiliates under the Management Agreement.
The Amalgamations were consummated on June 17, 1997. In conjunction with the
Amalgamations, the Management Agreement was terminated, and management of the
Company assumed direct responsibility for day to day operations. The Company
also entered into a Continuing Services Agreement with Harrah's for certain
services.
The Company had exclusively licensed Old IEL to use certain of the Sky Games
trademarks, trade names and other trade rights. This license was replaced
in the Amalgamations by a similar license to Harrah's for use of the
Company's software, as it existed on June 17, 1997, in traditional casino
venues owned, operated or managed by Harrah's. The license is royalty-free,
worldwide and non-terminable.
In 1994, the Company terminated certain contractual rights previously granted
to BEA in connection with the development of an earlier generation product for
inflight gaming use. In connection with this termination, the Company issued
a U.S. $2,500,000 convertible promissory note due March 30, 1997. The unpaid
balance of the note, including accrued interest, was exchanged for Redeemable
Convertible Class A Preference Shares in the Company on June 16, 1997.
Major Customers
The Company's Sky Play customers include Air China, American Airlines, Cathay
Pacific Airways, Continental, Egypt Air, Emirates Air, Japan Air Lines, Lauda
Air, and Malaysia Airlines. The two largest customers accounted for
approximately 35% of Sky Play revenue during 2000.
Employees
All employees were terminated as of November 13, 1998. Those former employees
that subsequently had been retained on a part-time contract basis to continue
operations and support the Sky Play product, are no longer associated with IEL.
Two former employees, through their corporate entity, have been contracted to
attend to the Sky Play business
ITEM 2. PROPERTIES
Not applicable.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual General Meeting of shareholders held on September 19, 2000,
shareholders voted in favour of the following resolutions: (i) change the
name of the Company to "Creator Capital Limited" ("CCL"); (ii) increase
the Company's authorized shares to 105,003,000 and its authorized share capital
to US$1,050,030.00; (iii) give the Board of Directors the discretion to effect
a consolidation of the Company's authorized share capital and outstanding shares
by up to 10 to 1 (which would decrease the authorized shares and authorized
share capital and increase the par value of its shares by the selected ratio),
and, also in its discretion, subsequently to decrease the par value of the
Company's Common Stock to $.001 per share and increase the Company's
authorized shares to 105,003,000;
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since October 16, 2000 the Company's Common Shares have traded on the OTC
Bulletin Board under the symbol "CTORF". Prior to October 16, 2000 and
since March 25, 1999, the Company's Common Shares had traded on the OTC
Bulletin Board under the symbol "IELSF." From July 8, 1997 until March 24,
1999, the Company's Common Shares had been traded on the NASDAQ SmallCap
Market under the symbol "IELSF." From March 1, 1994 until July 8, 1997, the
Company's Common Shares traded on the NASDAQ SmallCap Market under the symbol
"SKYGF."
On October 5, 1998, the Company was notified by NASDAQ that the Company's
shares had failed to maintain a bid price greater than or equal to $1.00 per
share for the prior thirty consecutive trading days and were therefore
subject to delisting. The delisting was effective on March 24, 1999.
The table below sets forth, for each fiscal quarter within the last two years,
the reported high and low closing prices of the Common Stock as reported by the
NASDAQ SmallCap and OTC Bulletin Board Markets.
Twelve Months Ended
Twelve Months Ended
December 31, 2000
December 31, 1999
High
Low
High
Low
First Quarter
$0.8130
$0.0200
$0.1300
$0.0313
Second Quarter
$0.5630
$0.1000
$0.2188
$0.1250
Third Quarter
$0.1500
$0.0400
$0.2188
$0.0625
Fourth Quarter
$0.2250
$0.0315
$0.0976
$0.0250
As of March 31, 2001, there were 231 shareholders of record. Since certain of
CCL's Common Shares are held by brokers or other nominees, the number of record
holders may not be representative of the number of beneficial holders. CCL
believes there are approximately 2,200 beneficial holders of the Company's
Common Shares
CCL has not paid any cash dividends on its Common Stock and does not anticipate
paying any such dividends in the foreseeable future.
In June, 1997, the company issued 2,737 Class A Preference Shares in exchange
for a promissory note in the amount of $2,737,000. During 1998, the Company
and the holder agreed that the Company would redeem the Class A Preference
Shares in installments beginning June 30, 1998. As of August 31, 1998, the
Company had redeemed 500 shares at their redemption price of $1,000 per
share. The Company was unable to redeem additional shares. As of March 31,
2000, 2,237 Class A Preference Shares remained outstanding and were
convertible at $0.4626855 into 4,834,818 shares of Common Stock on that date.
If the Class A Preference Shares are converted into Common Stock, HIIC has the
right to receive additional shares of Common Stock at $0.01 per share. As of
March 31, 2000, HIIC would be entitled to receive 476,320 shares. The actual
number of shares of Common Stock issuable upon conversion may be higher or
lower and is based on a discount to the 20 day average of the mean closing
bid and ask price of the Company's Common Stock. It is also inversely
proportional to the market price of the Company's Common Stock i.e. if the
average share price decreases, the number of shares of Common Stock issuable
increases. Dividends of $252,126 on the Class A Preference Shares are in
arrears from October 1, 1998 and are included in Accounts Payable and
Accrued Expenses on the Company's financial statements.
In October 1997, the Company sold 462,847 shares of Common Stock in a private
placement for $1.5 million (approximately $1,352,000 net of offering
expenses). An additional 286,123 shares were sold for $750,000 on April 21,
1998 followed by another 286,123 shares for $750,000 on June 8, 1998. The
investor received a warrant to purchase 243,205 shares of Common Stock at an
exercise price of $2.62125 through April 21, 2000. The investor also
received a warrant for the purchase of 243,205 shares of Common Stock
at an exercise price of $2.62125 through June 5, 2000.
On December 17, 1997, the Company issued 1,000 shares of Series A Convertible
Preference Shares of the Company's Class B Preferred Stock for a total
consideration of $1,000.000. The Class B Series A Preference Shares are
convertible into a number of shares of Common Stock, determined by dividing
the stated value of $1,000 per share by the lesser of: $3.2038 (the "Fixed
Conversion Price") and a price (the "Floating Conversion Price") calculated
as 85% of the average of the three lowest closing bid prices for the Common
Stock during the thirty trading days occurring immediately prior to, but not
including, the conversion date. Dividends are cumulative and may be paid, at
the option of the Company and with prior notice, in additional shares of
Common Stock at an annual dividend rate of 8%. Warrants for the purchase of
61,718 shares of Common Stock were issued in connection with the issuance of
the Series A Class B Convertible Preference Shares. The warrants expired on
December 17, 1999. The Company exercised an option of selling a second
tranche with 123,432 warrants for an aggregate purchase price of $2,000,000
on July 24, 1998. As of December 31, 1999, 680 shares of the Class B Series
A Preference Shares had been submitted for conversion into 25,600,012 shares
of Common Stock. All Common Stock issuable upon the conversions has been
issued except for 3,492,426 shares. In January, 1999, two holders of the
Class B Series A Preference Shares agreed to amend the conversion terms so
that the Floating Conversion Price will not be less than $0.25 per share.
As of December 31, 1999, a total of 1,720 shares of the Class B Series A
Preference Shares were outstanding. As of March 31, 2000, 1,000 Class B
Series A Preference Shares, convertible at $0.25 per share, had been
submitted for conversion into 4,480,000 shares of Common Stock. As of
March 31, 2000, 600 of the Class B Series A Preference Shares were submitted
for conversion into 22,588,233 shares of Common Stock. The remaining 120
Class B Series A Preference Shares are convertible into 480,000 shares of
Common Stock at $0.25 per share. Subsequent to the year end, these shares
were submitted for conversion, and 480,000 common shares were issued on
January 8, 2001
On February 20, 1998, the Company sold 300 shares of Series B Class B
Convertible Preferred Stock at $1,000 per share. The Series B Class B
Convertible Preferred Shares have the same dividend and conversion features
as the Series A Class B Convertible Preferred Shares. The investor also
received a warrant to purchase 18,515 shares of Common Stock at a price of
$3.2038 for 18 months. As of December 31, 1999, 38 shares of the Series B
Class B shares had been converted into 663,274 shares of Common Stock and
262 shares remained outstanding. As of March 31, 2000, the 262 outstanding
Series B Class B Preference Shares had been submitted for conversion into
9,863,529 shares of Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
(in thousands except per share and share data)
Ten Months
Twelve Months
Twelve Months Ended December 31
Ended
December 31
Ended
February 28
2000
1999
1998
1997
1997
Statement of Operations Data:
Loss before extraordinary
item
$ 1,159
$ 1,023
$ 29,056
$ 16,312
$ 4,180
Extraordinary (gain)loss
- -
$ (84)
- -
$ 1,824
- -
Net loss
$ 1,159
$ 939
$ 29,056
$ 18,136
$ 4,180
Loss per share before
extraordinary item
$ 0.02
$ 0.03
$ 1.40
$ 1.06
$ 0.46
Extraordinary item
- -
$ .12
- -
Loss per share
$ 0.02
$ 0.03
$ 1.40
$ 1.18
$ 0.46
Weighted number of common
shares outstanding
50,000,000
47,785,147
20,998,189
15,562,834
9,043,687
Number of common shares
outstanding at period end
50,000,000
50,000,000
24,367,414
19,428,334
9,789,020
As of
As of December 31,
February 28
2000
1999
1998
1997
1997
Balance Sheet Data:
Working capital (deficit)
$ (827)
$ (535)
$ (330)
$ 697
$ (172)
Total assets
$ 628
$ 1,434
$ 2,509
$ 27,511
$ 3,525
Long term debt
$ 67
$ 81
- -
$ 530
$ 2,600
Redeemable preferred stock
2,237
2,237
2,237
2,737
- -
Shareholders' equity
(deficit)
$ 580
$ 579
$ 1,885
$ 26,337
$ (333)
Equity (deficit) per
common share
$ 0.01
$ 0.01
$ 0.08
$ 1.36
$ (0.03)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Creator Capital Limited ("CCL" or the "Company"), formerly known as Interactive
Entertainment Limited ("IEL"), also formerly known as Sky Games International
Ltd. ("SGI"), is a Bermuda exempted company which was incorporated on January
28, 1981. Until November 12, 1998, the Company's activities had been focused
on providing inflight gaming software and services by developing,
implementing and operating a computer-based interactive video entertainment
system of gaming and other entertainment activities on, but not limited to,
the aircraft of international commercial air carriers.
On December 30, 1994, the Company entered into a Shareholders Agreement with
SGI Holding Corporation Limited ("SGIH"), a wholly-owned subsidiary of SGI,
and an affiliate of Harrah's Entertainment, Inc. ("Harrah's"), to form a
corporation then known as Interactive Entertainment Limited ("Old IEL"), the
result of which was that Old IEL became owned 80% by SGIH and 20% by
Harrah's. Pursuant to a management agreement, (the "Management Agreement"),
Old IEL was managed by an affiliate of Harrah's.
At a Special General Meeting of shareholders held on June 16, 1997, pursuant
to a Plan and Agreement of Merger and Amalgamation dated May 13, 1997, (the
"Amalgamation Agreement"), Old IEL was merged into SGIH and then into SGI
(the "Amalgamations"). Prior to the Amalgamations, Harrah's owned 20% of the
capital stock of Old IEL and did not own any capital stock or other securities
of SGI and had no representatives on the Board of Directors. As a result of
the amalgamation of Old IEL and SGIH and the termination of the Management
Agreement, the outstanding shares of Old IEL common stock held by Harrah's
were converted into 5,879,040 shares of $.01 par value common stock of the
Company (the "Common Stock"). Harrah's also received 1,007,875 shares of
Common Stock upon conversion of a loan, (the "Harrah's Loan"), made to Old
IEL. Harrah's therefore became the largest shareholder of the Company
holding approximately 38.6% of the outstanding shares at the time of the
amalgamation. As at March 31, 2001, Harrah's remained the largest
shareholder of the Company, holding 13.77% of the outstanding shares.
Pursuant to the Amalgamation Agreement, Harrah's was provided with the right to
appoint persons to the Board and to specified committees in a number generally
proportionate to their share holdings calculated on a "fully diluted" basis as
defined in the Company's bye-laws. Additionally, Harrah's was provided with
the right to approve specified significant corporate actions by the Company
for as long as the ownership of Common Stock by Harrah's is in excess of 20%
(10% in some cases) of the outstanding voting shares of Common Stock,
computed on a fully-diluted basis.
Upon consummation of the Amalgamations, SGI changed its name to Interactive
Entertainment Limited.("IEL").
As of December 31, 1998, IEL had a contract to provide its gaming software to
Singapore Airlines, ("SIA"), which has various termination provisions. On
March 22, 1999, SIA notified the Company that it was exercising its
termination rights under the contract. The contract with Singapore Airlines
was the Company's only contract to provide its gaming software to an airline.
Gaming is prohibited on the aircraft of U.S. commercial air carriers and on
all flights to and from the United States. Other countries may introduce
similar prohibitions, which could limit the prospects for additional
contracts.
At the Annual General Meeting of shareholders held on September 19, 2000,
shareholders voted in favour of the following resolutions: (i) change the
name of the Company to "Creator Capital Limited" ("CCL"); (ii) increase the
Company's authorized shares to 105,003,000 and its authorized share capital to
US$1,050,030.00; (iii) give the Board of Directors the discretion to effect a
consolidation of the Company's authorized share capital and outstanding shares
by up to 10 to 1 (which would decrease the authorized shares and authorized
share capital and increase the par value of its shares by the selected
ratio), and, also in its discretion, subsequently to decrease the par value
of the Company's Common Stock to $.001 per share and increase the Company's
authorized shares to 105,003,000; CCL's principal activities through December
31, 2000, consisted of simplifying, and redesigning the Sky Games inflight
gaming software and marketing and supporting the Sky Play PC amusement game
software.
CCL continues to provide its amusement game software to Air China, American
Airlines, Cathay Pacific Airways, Continental, EgyptAir, Japan Air Lines,
Lauda Air, and Malaysia Airlines.. Emirates Air was added as a client in
2000, while Virgin Atlantic ceased to be a client. CCL's Sky Play revenues
increased from US$507,000 during 1999 to US$537,000 during 2000.
On January 13, 1998, the Company completed the acquisition of all of the
outstanding stock of Inflight Interactive Limited ("IIL") in exchange for
500,000 shares of the Company's Common Stock. IIL is a U.K. developer and
provider of amusement games to the airline industry. CCL currently operates
the "IIL" games under the name SkyPlay. Sky Play games are currently
installed and operating on Air China, American Airlines, Cathay Pacific,
Continental, EgyptAir, Emirates Air, Japan Air Lines, Lauda Air, and Malaysia
Airlines. During 2000, the number of airline customers remained at nine, and
the number of installed aircraft (excluding trials) increased from 119 to 150.
As of March 31, 2001 the number of installed aircraft increased from 150 to
162.
Results of Operations
Twelve Months Ended December 31, 2000 and December 31, 1999
Revenue increased from $506,723 to $537,365. The revenue increase is due to
the addition of one airline customer, and the addition of new aircraft with
previous customers. One airline also ceased to be a customer during 2000.
General and administrative expenses decreased from $407,109 in 1999 to $219,319
in 2000, due to the increase in the use of outside consulting and contract
services.
Consulting and contract services expenses increased from $30,876 to $192,126
due to a shift to the use of external services.
Depreciation and amortization expenses decreased from $947,366 to $883,494.
All remaining excess furniture and fixtures were disposed at the beginning
of the year. Legal expenses decreased from $47,968 to $14,381 as the last of
the previous gaming issues were resolved. During 2000, legal expenditures
were related solely to the corporate and business functions of the Company.
Marketing expense increased from $9,825 in 1999 to $20,041 in 2000. This
increase was due to a greater emphasis on Sky Play marketing efforts and
shareholder relations.
In 1999, CCL incurred expenses of $16,162 for the discontinuation of the gaming
operation and $70,312 due to the write down and/or disposal of assets. There
were no such expenses during 2000.
Twelve Months Ended December 31, 1999 and December 31, 1998
Revenue increased from $266,259 to $506,723. The revenue increase is due to
the addition of two airline customers and the addition of new aircraft with
previous customers.
General and administrative expenses decreased by approximately $2.2 million due
to the termination of all employees in November, 1998 and cessation of the
inflight gaming operations.
Consulting and contract labor expenses decreased by $313,000 primarily due to
elimination of development costs related to the inflight gaming product.
Depreciation and amortization expenses decreased by $7.97 million due to the
1998 write off of $13.2 million in goodwill related to the June, 1997
purchase of the minority interest in Old IEL and a write down in the carrying
value of its software by $1.4 million.
The Company incurred $357,000 in expenses in late 1998 related to the closing
of the Sky Games operations. This expense was primarily for severance
payments to former employees. There was no comparable expense in 1999.
Following the closing of the Sky Games operations in 1998, the Company wrote
off $1.9 million for the value of the Singapore Airlines agreements and the
remainder of the unamortized goodwill in the amount of $13.2 million related
to the June, 1997 purchase of the minority interest in Old IEL. The Company
also wrote down the carrying value of its software by $1.4 million.
Liquidity and Capital Resources
At December 31, 1999 the Company had a working capital deficit of approximately
$535,000. During 1999, the Company's primary source of funding was through
cash flow generated from operations. Prior to 1999, the primary source of
funding was through sales of its equity and securities convertible into
Common Stock.
In June, 1997, the company issued 2,737 Class A Preference Shares in exchange
for a promissory note in the amount of $2,737,000. During 1998, the Company
and the holder agreed that the Company would redeem the Class A Preference
Shares in installments beginning June 30, 1998. As of August 31, 1998, the
Company had redeemed 500 shares at their redemption price of $1,000 per
share. The Company was unable to redeem additional shares. As of March 31,
2000, 2,237 Class A Preference Shares remained outstanding and were
convertible at $0.4626855 into 4,834,818 shares of Common Stock on that date.
If the Class A Preference Shares are converted into Common Stock, HIIC has the
right to receive additional shares of Common Stock at $0.01 per share. As of
March 31, 2000, HIIC would be entitled to receive 476,320 shares. The actual
number of shares of Common Stock issuable upon conversion may be higher or
lower and is based on a discount to the 20 day average of the mean closing
bid and ask price of the Company's Common Stock and is inversely proportional
to the market price of the Company's Common Stock i.e. if the average share
price decreases, the number of shares of Common Stock issuable increases.
Dividends of $252,126 on the Class A Preference Shares are in arrears from
October 1, 1998 and are included in Accounts Payable and Accrued Expenses on
the Company's financial statements.
In October 1997, the Company sold 462,847 shares of Common Stock in a private
placement for $1.5 million (approximately $1,352,000 net of offering expenses).
An additional 286,123 shares were sold for $750,000 on April 21, 1998 followed
by another 286,123 shares for $750,000 on June 8, 1998. The investor also
received a warrant to purchase 243,205 shares of Common Stock at an exercise
price of $2.62125 through April 21, 2000 and a warrant for the purchase of
243,205 shares of Common Stock at an exercise price of $2.62125 through June
5, 2000.
On December 17, 1997, the Company issued 1,000 shares of Series A Convertible
Preference Shares of the Company's Class B Preferred Stock for a total
consideration of $1,000.000. The Class B Series A Preference Shares are
convertible into a number of shares of Common Stock, determined by dividing the
stated value of $1,000 per share by the lesser of: $3.2038 (the "Fixed
Conversion Price") and a price (the "Floating Conversion Price") calculated
as 85% of the average of the three lowest closing bid prices for the Common
Stock during the thirty trading days occurring immediately prior to, but not
including, the conversion date. Dividends are cumulative and may be paid, at
the option of the Company and with prior notice, in additional shares of
Common Stock at an annual dividend rate of 8%. Warrants for the purchase of
61,718 shares of Common Stock were issued in connection with the issuance of
the Series A Class B Convertible Preference Shares. The warrants expired on
December 17, 1999. The Company exercised an option of selling a second
tranche with 123,432 warrants for an aggregate purchase price of $2,000,000 on
July 24, 1998. As of December 31, 1999, 1,280 shares of the Class B Series A
Preference Shares had been submitted for conversion into 28,550,710 shares of
Common Stock. All Common Stock issuable upon the conversions has been issued
except for 3,492,426 shares. In January, 1999, two holders of the Class B
Series A Preference Shares agreed to amend the conversion terms so that the
Floating Conversion Price will not be less than $0.25 per share. As of
December 31, 1999, a total of 1,720 shares of the Class B Series A Preference
Shares were outstanding. As of March 31, 2000, 1,000 Class B Series A
Preference Shares convertible at $0.25 per share, had been submitted for
conversion into 4,000,000 shares of Common Stock. As of March 31, 2000, 600
of the Class B Series A Preference Shares were submitted for conversion
into 22,588,233 shares of Common Stock. The remaining 120 Class B Series A
Preference Shares are convertible into 480,000 shares of Common Stock at
$0.25 per share. Subsequent to the year end, these shares were submitted
for conversion, and 480,000 common shares were issued on January 8, 2001.
As of February 20, 1998, the Company sold 300 shares of Series B Class B
Convertible Preferred Stock at $1,000 per share. The Series B Class B
Convertible Preferred Shares have the same dividend and conversion features
as the Series A Class B Convertible Preferred Shares. The investor also
received a warrant to purchase 18,515 shares of Common Stock at a price of
$3.2038 for 18 months. As of December 31, 1999, 38 shares of the Series B
Class B shares had been converted into 663,274 shares of Common Stock and
262 shares remained outstanding. As of March 31, 2000, the 262 outstanding
Series B Class B Preference Shares had been submitted for conversion into
9,863,529 shares of Common Stock.
Forward-Looking Information
This Form 10-K contains forward-looking statements that include, among others,
statements concerning the Company's plans to implement its software products,
commence generating revenue from certain of its products, expectations as to
funding its capital requirements, the impact of competition, future plans and
strategies, statements which include the words "believe," "expect," and
"anticipate" and other statements of expectations, beliefs, anticipated
developments and other matters that are not historical facts. These
statements reflect the Company's views with respect to such matters.
Management cautions the reader that these forward-looking statements are
subject to risks and uncertainties that could cause actual events or results
to materially differ from those expressed or implied by the statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements and Supplementary Data are provided as an exhibit to
Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 6, 2000, Ernst & Young (U.K.) resigned as auditors of CCL's wholly
owned subsidiary IIL. Ernst & Young confirmed that there were no
circumstances connected with their resignation which should be brought to
the attention of the members or creditors of IEL. Kevin Kearney and
Associates of the U.K. has accepted the appointment as U.K. auditor to IIL.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
See the information set forth in the sections of the Proxy Statement entitled
"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance," which sections are incorporated herein by reference.
EXECUTIVE OFFICERS
See the information set forth in the section of the Proxy Statement entitled
"Executive Officers and Significant Employees," which section is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
See the information set forth in sections of the Proxy Statement entitled
"Executive Compensation," "Summary Compensation Table," and "Option Grants
in the Last Fiscal Year" which sections are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information set forth under "Security Ownership by Directors, Officers
and Five Percent (or More) Shareholders" as set forth in the Proxy Statement
and incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the information set forth in the section of the Proxy Statement entitled
"Certain Relationships and Related Transactions," which section is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) EXHIBITS
1. Financial Statements
Consolidated Balance Sheets at December 31, 2000 and December 31, 1999.
Consolidated Statements of Operations for:
Twelve Months Ended December 31, 2000
Twelve Months Ended December 31, 1999
Twelve Months Ended December 31, 1998
Consolidated Statements of Shareholder's Equity
December 31, 1997 through December 31, 2000
Statements of Cash Flow
Twelve Months Ended December 31, 2000
Twelve Months Ended December 31, 1999
Twelve Months Ended December 31, 1998
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
3. Other Exhibits
EXHIBIT
DESCRIPTION
2.
Plan and Agreement of Merger and Amalgamation, dated as of May 13, 1997, among
the Company, SGI Holding Corporation Limited, IEL and Harrah's Interactive
Investment Company. (Incorporated by reference to the same numbered exhibit
to the Registrant's Form 8-K as filed with the SEC on June 27, 1997.)
3.i(a)
Articles of Incorporation (Yukon Territory). (Incorporated by reference to
Exhibit 1.1 to the Registrant's Annual Report on Form 20-F (File No. 0-22622)
as filed with the SEC on October 12, 1993.)
3.i(b)
Certificate of Continuance (Bermuda). (Incorporated by reference to Exhibit
1.2 to the Registrant's Annual Report on Form 20-F (File No. 0-22622) as
filed with the SEC on September 16, 1996.)
3.ii
Bye-Laws as amended. (Incorporated by reference to the same numbered exhibit
to the Registrant's Annual Report on Form 10-K/A No. 2 as filed with the SEC
on July 8, 1998.)
4.1
Escrow Agreement dated May 27, 1992, as amended, among Montreal Trust Company
of Canada, the Company and certain shareholders. (Incorporated by reference
to Exhibit 3.2 to the Registrant's Annual Report on Form 20-F (File No.
0-22622)as filed with the SEC on October 12, 1993.)
4.2
Redemption Agreement, dated as of February 25, 1997, between the Company and
Anthony Clements and Rex Fortescue. (Incorporated by reference to Exhibit
3.12 to the Registrant's Annual Report on Form 20-F (File No. 0-22622) as
filed with the SEC on September 12, 1997.)
4.3
Redemption and Cancellation Agreement, dated as of April 30, 1997, between the
Company and Sky Games International, Inc. (Incorporated by reference to
Exhibit 3.13 to the Registrant's Annual Report on Form 20-F (File No.
0-22622) as filed with the SEC on September 12, 1997.)
4.4
Shareholder Rights Agreement, dated June 17, 1997, between the Company and
Harrah's Interactive Investment Company. (Incorporated by reference to
Exhibit 3.15 to the Registrant's Annual Report on Form 20-F (File No.
0-22622) as filed with the SEC on September 12, 1997.)
4.5
Registration and Preemptive Rights Agreement, dated June 17, 1997, between the
Company and Harrah's Interactive Investment Company. (Incorporated by
reference to Exhibit 4(a) to the Registrant's Form 8-K as filed with the SEC
on June 27, 1997.)
4.6
Registration Rights Agreement, dated June 17, 1997, between the Company and B/E
Aerospace, Inc. (Incorporated by reference to Exhibit 4(b) to the Registrant's
Form 8-K as filed with the SEC on June 27, 1997.)
4.7
Subscription Agreement, dated as of October 22, 1997, between the Company and
Henderson International Investments Limited. (Incorporated by reference to
Exhibit 3.22 to the Registrant's Quarterly Report on Form 10-Q/A No. 1 as
filed with the SEC on July 8, 1998.)
4.8
Subscription Agreement, dated as of October 22, 1997, between the Company and
Michael A. Irwin. (Incorporated by reference to Exhibit 3.23 to the
Registrant's Quarterly Report on Form 10-Q/A No. 1 as filed with the SEC on
July 8, 1998.)
4.9
First Amendment to Registration and Preemptive Rights Agreement dated March 18,
1998 between the Company and Harrah's Interactive Investment Company.
(Incorporated by reference to Exhibit 99.22 to the Registrant's Amended
Registration Statement on Form S-3 as filed with the SEC on July 15, 1998.)
4.10
First Amendment to Subscription Agreement between the Company and Henderson
International Investments Limited dated as of April 2, 1998. (Incorporated
by reference to Exhibit 99.23 to the Registrant's Amended Registration
Statement on Form S-3 as filed with the SEC on July 15, 1998.)
4.11
Securities Purchase Agreement between the Company and each of Marshall Capital
Management, Inc. (formerly Proprietary Convertible Investment Group, Inc.) and
CC Investments, LDC dated as of December 17, 1997. (Incorporated by reference
to Exhibit 99 to the Registrant's Form 8-K as filed with the SEC on December
24, 1997.)
4.12
Registration Rights Agreement between the Company and each of Marshall Capital
Management, Inc. (formerly Proprietary Convertible Investment Group, Inc.) and
CC Investments, LDC dated as of December 17, 1997. (Incorporated by reference
to Exhibit 4(c) to the Registrant's Form 8-K as filed with the SEC on December
24, 1997.)
4.13
Securities Purchase Agreement between the Company and Palisades Holding, Inc.
dated February 20, 1998. (Incorporated by reference to Exhibit 99.6 to the
Registrant's Amended Registration Statement on Form S-3 as filed with the
SEC on July 15, 1998.)
4.14
Registration Rights Agreement between the Company and Palisades Holding, Inc.
dated February 20, 1998. (Incorporated by reference to Exhibit 99.5 to the
Registrant's Amended Registration Statement on Form S-3 as filed with the SEC
on July 15, 1998.)
4.15
Securities Agreement between the Company and B/E Aerospace, Inc. dated June 25,
1998. (Incorporated by reference to Exhibit 99.1 to the Registrant's Form 8-K
filed with the SEC July 2, 1998.)
10.5*
Services Agreement, dated as of November 7, 1995, between IEL and Singapore
Airlines Limited. (Incorporated by reference to Exhibit 3.9 to the
Registrant's Annual Report on Form 20-F (File No. 0-22622) as filed with the
SEC on September 16, 1996.)
10.6*
Software License and Software Services Agreement, dated as of November 7, 1995,
between IEL and Singapore Airlines Limited. (Incorporated by reference to
Exhibit 3.10 to the Registrant's Annual Report on Form 20-F (File No.
0-22622) as filed with the SEC on September 16, 1996.)
10.7
Sublease Agreement dated as of June 5, 1997, between IEL and Harrah's Operating
Company, Inc. (Incorporated by reference to Exhibit 3.11 to the Registrant's
Annual Report on Form 20-F (File No. 0-22622) as filed with the SEC on
September 12, 1997.)
10.8
Consulting Agreement, dated as of April 30, 1997, between the Company and James
P. Grymyr. (Incorporated by reference to Exhibit 3.14 to the Registrant's
Annual Report on Form 20-F (File No. 0-22622) as filed with the SEC on
September 12, 1997.)
10.9*
Software License Agreement, dated June 17, 1997, between the Company and
Harrah's Interactive Investment Company. (Incorporated by reference to
Exhibit 3.16 to the Registrant's Annual Report on Form 20-F (File No.
0-22622) as filed with the SEC on September 12, 1997.)
10.10
Continuing Services Agreement, dated June 17, 1997, between the Company and
Harrah's Interactive Entertainment Company. (Incorporated by reference to
Exhibit 3.17 to the Registrant's Annual Report on Form 20-F (File No.
0-22622) as filed with the SEC on September 12, 1997.)
10.11
Termination Agreement and Release, dated as of June 17, 1997, among the
Company, SGI Holding Corporation Limited, IEL, Harrah's Interactive
Investment Company, and Harrah's Interactive Entertainment Company.
(Incorporated by reference to Exhibit 3.21 to the Registrant's Annual Report
on Form 20-F (File No. 0-22622) as filed with the SEC on September 12, 1997.)
27**
Financial Data Schedule
*Confidential treatment has been granted.
**Submitted herewith.
(b) REPORTS FILED ON FORM 8-K
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Creator Capital Limited
By: /s/ Deborah Fortescue-Merrin
Chairman and President
Dated: April 04, 2001
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Michael L Bartlett Director April 4, 2001
Michael L. Bartlett
/s/ Anthony P. Clements Director April 4, 2001
Anthony P. Clements
/s/ Deborah Fortescue-Merrin Chairman, President and Director April 4, 2001
Deborah Fortescue-Merrin
/s/ B.J. (Jack) Iles Director April 4, 2001
Jack Iles
/s/ Anastasia Kostoff-Mann Director, Vice President April 4, 2001
Anastasia Kostoff-Mann
/s/ Stephen Rosenberg Director April 4, 2001
Stephen Rosenberg
REPORT OF INDEPENDENT AUDITORS
To the Shareholders
Creator Capital Limited
We have audited the accompanying balance sheets of Creator Capital Limited
(formerly Interactive Entertainment Limited) as of December 31, 2000 and
1999, and the related statements of operations, shareholders' equity, and
cash flows for the year ended December 31, 2000 and 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audits in accordance with generally accepted audited
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statements presentation. We believe that
our audit provided a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Company as of December 31,
2000 and 1999, and the results of operations and cash flows for the year
ended December 31, 2000 and 1999, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has limited operations, products, or
facilities, and requires significant resources to implement its plan of
operations that raises substantial doubt about its ability to be a going
concern. Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Vancouver, BC "BUCKLEY DODDS"
March 21, 2001 Chartered Accountants
CREATOR CAPITAL LIMITED
CONSOLIDATED BALANCE SHEETS
(FORMERLY INTERACTIVE ENTERTAINMENT LIMITED)
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
December 31,
2000
1999
Current Assets
Cash and cash equivalents
$ 74,314
$ 56,785
Accounts and notes receivable
161,900
92,481
Prepaid expenses
76,755
89,106
Total current assets
312,969
238,372
Furniture, fixtures and equipment, at cost
451,175
447,666
Less: accumulated depreciation
(293,222)
(203,667)
Furniture fixtures and equipment, net
157,953
243,999
Software development costs, net
140,425
421,271
Goodwill
17,103
530,196
Total assets
$ 628,450
$ 1,433,838
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses
$ 244,168
$ 244,910
Accrued dividends
878,454
510,263
Notes payable, current liabilities
18,000
18,000
Total current liabilities
1,140,622
773,173
Notes payable, long term
67,822
81,322
1,208,444
854,495
Shareholders' equity
Class A preferred shares, $0.01 par value, authorized - 3,000
shares, outstanding - 2,237 shares
22
22
Class B preferred shares, $0.01 par value, authorized - 5,000,000
shares, outstanding - 2,075 shares and 2,662 shares
21
21
Common shares, $0.01 par value, authorized -100,000,000
shares, outstanding - 50,000,000 and 50,000,000 shares
500,000
500,000
Additional paid-in-capital
65,616,313
65,616,313
Accumulated deficit
(66,696,350)
)
(65,537,013)
(579,994)
579,343
Total liabilities and shareholders' equity
$ 628,450
$ 1,433,838
APPROVED BY THE DIRECTORS:
"Deborah Fortescue-Merrin" Director
"Stephen Rosenberg" Director
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
CREATOR CAPITAL LIMITED
(FORMERLY INTERACTIVE ENTERTAINMENT LIMITED)
CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve Months
Twelve Months
Twelve Months
Ended
Ended
Ended
December 31,
December 31,
December 31,
2000
1999
1998
Revenue
$ 537,365
$ 506,723
$ 266,259
Operating Expenses
General and administrative
219,319
407,109
2,639,601
Consulting and contract labor
192,126
30,876
343,667
Marketing
20,041
9,825
174,058
Legal
14,381
47,968
295,781
Interest expense
1,832
1,573
188,249
Depreciation and amortization
883,494
947,366
8,917,960
Interest income
(3,681)
(2,333)
(34,865)
Business discontinuation expenses
-
16,612
287,298
Write-down/sale of assets
1,270
70,312
16,510,507
1,328,782
1,529,308
29,322,256
Loss before extraordinary item
791,147
1,022,585
29,055,997
Early extinguishment of debt
- -
83,936
-
Net Loss
$ 791,147
$ 1,305,800
$ 29,055,997
BASIC AND DILUTED LOSS PER SHARE
Numerator for basic and diluted loss per share:
Loss before extraordinary item
$ 791,147
$ 1,022,585
$ 29,055,997
Preferred stock dividends
368,191
367,151
389,339
Loss to common shareholders before
extraordinary item
1,159,338
1,389,736
29,445,336
Extraordinary item
-
(83,936)
- -
Loss to common shareholders
$ 1,159,338
28,082,401
$ 1,305,800
$ 29,445,336
Denominator for basic and diluted loss
per share -- weighted average
shares outstanding
50,000,000
47,785,147
20,988,199
Loss before extraordinary item
$ 0.02
$ 0.03
$ 1.40
Extraordinary loss
-
-
- -
Net loss per share
$ 0.02
$ 0.03
$ 1.40
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENT
CREATOR CAPITAL LIMITED
(FORMERLY INTERACTIVE ENTERTAINMENT LIMITED)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Class A Preferred
Stock
Class B Preferred
Stock0
Common Stock
Additional
Number
Number
Number
Paid-in
Accumulated
of
Shares
Amount
of Shares
Amount
of Shares
Amount
Capital
Deficit
Total
Balance, December 31, 1997
2,737
$ 27
1,000
$ 10
22,953,334
$229,533
$60,916,669
$(34,808,937)
$26,337,300
Net income (loss)
(29,055,997)
(29,055,997)
Preferred stock dividends
(389,340)
(389,340)
Purchase of Inflight Interactive Ltd
500,000
5,000
1,534,438
23,062
1,562,500
Issuance of shares
572,246
5,722
1,404,278
1,410,000
Issuance of shares on debenture
Conversion
250,299
2,503
527,497
530,000
Issuance of shares as interest on
Debentures
2,563
26
5,467
5,493
Redemption of Class A
preferred
Stock
(500)
(5)
(499,995)
(500,000)
Issuance of Class B
preferred
Stock
2,300
23
2,275,977
2,276,000
Conversion of Class B preferred
into common
(638)
(6)
3,613,972
36,140
(36,134)
Issuance of options for
consulting
51,000
51,000
Capital raising activity
(341,814)
(341,814)
Eliminate effect of purchased
Retained earnings
23,062
(23,062)
Balance December 31, 1998
2,237
$ 22
2,662
$ 27
27,892,414
$279,924
$65,860,445
$(64,254,274)
$ 1,885,143
Net income (loss)
(938,649)
938,649
Preferred stock dividends
(367,151)
(367,151)
Conversion of Class B preferred
Into common
(587)
(6)
22,107,586
221,076
(221,070)
- -
Eliminate effect of purchased
Retained earnings
(23,062)
$ 23,062
-
Balance, December 31, 1999
2,237
$ 22
2,075
$ 21
50,000,000
$500,000
$65,616,313
$(65,537,012)
$579,343
Net Income (loss)
(791,147)
(791.147)
Preferred stock dividends
(368,191)
(368,191)
Balance, December 31, 2000
2 ,237
22
$ 2,075
$ 21
50,000,000
$500,000
$65,616,313
$(66,969,350)
$ ( 579,994)
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENT
CREATOR CAPITAL LIMITED
(FORMERLY INTERACTIVE ENTERTAINMENT LIMITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Twelve Months
Twelve Months
Twelve Months
Ended
Ended
Ended
December 31,
December 31,
December 31,
2000
1999
1998
OPERATING ACTIVITIES
Net Loss
$(791,147)
000,000
$ (938,649)
$ (29,055,975)
Reconciliation of net loss to net cash used in operating activities
Depreciation and amortization
883,494
947,369
8,917,960
Write-down/sale of assets
1,270
15,147,573
69,047
16,510,507
Other
-
-
4,394
Issuance of options for consulting
-
-
50,000
Non-cash interest expense
-
-
5,494
Changes in assets/liabilities
Accounts receivable
(69,419)
(10,125)
(26,071)
Prepaid expenses
12,351
26,126
(18,030)
Other assets
-
-
165,599
Accounts payable and accrued expenses
367,449
131,559
(62,561)
Net cash provided by/(used in) operating activities
403,998
225,236
(3,508,704)
INVESTING ACTIVITIES
Purchases of furniture and fixtures and equipment
(8,508)
-
(7,672)
Proceeds from sales of property and equipment
3,730
3,646
10,388
Software development
-
- -
(101,280)
Net cash provided by/(used in) operating investing
activities
(4,778)
3,646
(98,564)
FINANCING ACTIVITIES
Issuance of common stock
-
-
1,310,563
Issuance of preferred stock
-
-
2,041,823
Borrowings on note payable
- -
191,919
-
Payment on notes payable
(13,500)
(92,597)
- -
Redemption of preferred stock
- -
-
(500,000)
Payment of preferred stock dividends
(368,191)
(367,151)
(389,340)
Net cash provided by/(used in) financing activities
(381,691)
(267,82)
2,563,046
Net (decrease)/increase in cash
17,529
(38,857)
(1,144,222)
Cash, beginning of period
56,785
95,642
1,239,864
Cash, end of period
$ 74,314
$ 56,785
$ 95,642
Supplemental Cash Flow Information:
Cash paid for income taxes
$ 685
$ 537
$ 434
Cash paid for interest
$ 1,832
$ 1,573
$ -
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
CREATOR CAPITAL LIMITED
(FORMERLY INTERACTIVE ENTERTAINMENT LIMITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 NATURE OF OPERATIONS
The Company is a Bermuda exempted company which, in June 1997, changed its name
from Sky Games International Ltd. ("SGI") to Interactive Entertainment Limited.
and on September 27, 2000 changed its name to Creator Capital Limited. The
Company's activities have been focused on providing inflight gaming and
entertainment software and services by developing, implementing and operating
or licensing computerized video gaming and other entertainment software on,
but not limited to the aircraft of international commercial air carriers.
Gaming software was marketed using the name Sky GamesT, and the entertainment
software is marketed using the name Sky Play.
On January 13, 1998, the Company completed the acquisition of all the
outstanding capital stock of Inflight Interactive Limited ("IIL") in exchange
for 500,000 shares of Common Stock. IIL is a United Kingdom developer and
provider of amusement games to the airline industry. The games are marketed
under the name Sky Play and are currently operating on a number of airlines,
including Air China, American Airlines, Cathay Pacific, Continental,
Egyptair, Emirates Air, Lauda Air, Malaysia Airlines and Virgin Atlantic.
The Company is currently earning positive cash flow from Sky Play. In
addition Management is seeking to expand this business as well as other
ventures.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers cash on hand, deposits in banks and short-term
investments with maturities of three months or less as cash and cash
equivalents.
Software Development
All software production costs have been capitalized until the software was
available for general release to customers, in accordance with the provisions
of Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.
Amortization of the software costs over a three year period started in June,
1998 upon release of the software to SIA. Software development costs were
written down in December, 1998 to a value representing the value attributable
to the Sky Play software.
Property and Equipment
The Company's property and equipment is recorded at cost and depreciated using
the straight-line and declining balance methods over its estimated economic
life which is generally three to five years.
Additions and improvements that materially extend the useful lives are
capitalized, while repairs and maintenance costs are expensed as incurred.
Depreciation expense was approximately $89,554, $153,000 and $214,000 for
the years ended December 31, 2000, 1999 and 1998, respectively.
CREATOR CAPITAL LIMITED
(FORMERLY INTERACTIVE ENTERTAINMENT LIMITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill
The goodwill, which arose from the acquisition of IIL is being amortized on a
straight-line basis over three years. Management regularly evaluates whether
or not the future undiscounted cash flows are sufficient to recover the
carrying amount of this asset. Additionally, management continually monitors
such factors as the competitive environment and advances in the computer
software and hardware industries. If the estimated future undiscounted cash
flows are not sufficient to recover the carrying amount of this assets and,
accordingly, an impairment has occurred, management intends to write down
the carrying amount to its estimated fair value based on discounted cash
flows. Amortization expense attributable to the IIL purchase was
approximately $513,000 for the year ended December 31, 2000 and 1999 and
approximately $496,000 the period from the date of acquisition (January 13,
1998) through December 31, 1998.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standard No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of, management continually evaluates whether events or changes
in circumstances indicate that the carrying amount of long-lived assets may
not be recoverable. Based on management's evaluations, and as discussed
below, significant impairments of long-lived assets occurred during the year
ended December 31, 1998.
The goodwill, which arose from the acquisition of the minority interest of Old
IEL discussed in Note 3, was being amortized on a straight-line basis over
three years. During the year ended December 31, 1998, management determined
that, with the cessation of gaming operations, the future undiscounted cash
flows were not sufficient to recover the carrying amount of this asset.
Accordingly, an impairment had occurred, and unamortized goodwill in the
amount of $13.2 million was written off in 1998.
In conjunction with the acquisition of the minority interest of Old IEL, the
Company allocated approximately $1,856,000 of the purchase price to the
value of an agreement with Singapore Airlines. Management determined that,
with the cessation of gaming operations, the value of the contract was
impaired and the value was written off in 1998.
The Company also allocated a portion of the purchase price of the acquisition
of the minority interest of Old IEL to the value of the Company's software.
Additional direct development costs were also incurred for a total cost of
$2.5 million. Upon the cessation of inflight gaming, it was determined that
an impairment had occurred since the future cash flows were not sufficient
to recover the carrying amount of the asset. Since a portion of the asset
continues to have value for the Company's continuing operations future cash
flows were re-estimated resulting in a write down of $1.4 million in 1998.
In December, 1999, the Company decided to dispose of all furniture, fixtures
and equipment that was not currently in use for its Sky Play operations.
Assets with an original cost of $281,000 and a net book value of $75,000
were written down to an estimate net realizable value of $5,000 and a
valuation adjustment expense of $70,000 was incurred.
CREATOR CAPITAL LIMITED
(FORMERLY INTERACTIVE ENTERTAINMENT LIMITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock-Based Compensation
The Company accounts for employee stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, (APB No. 25) and related
interpretations.
Loss Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share (SFAS No. 128). SFAS No. 128 replaced the calculation
of primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. For the periods ended December 31,
2000, December 31, 1999 and December 31, 1998, there is no difference between
basic and diluted loss per share as all stock options, warrants, convertible
debentures and convertible preferred stock are antidilutive for the periods
presented. All loss per share amounts for all periods have been presented,
and where appropriate, restated to conform to the SFAS No. 128 requirements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries: Sky Games International Corp. (a Nevada
corporation), Creator Island Equities Inc., (a Yukon Territory corporation),
IEL (Singapore) Pte. Ltd. (a Singapore corporation), and, since January 13,
1998, Inflight Interactive Limited (an U.K. corporation). For periods
prior to the acquisition of the minority interest in Old IEL discussed in
Note 3, the consolidated financial statements also include the accounts of
SGI Holding Corporation Ltd. and the Company's 80% ownership of Old IEL.
All material intercompany transactions have been eliminated in consolidation.
Comprehensive Income
The Company adopted SFAS No. 130 Reporting Comprehensive Income effective
January 1, 1998. SFAS No. 130 established standards for the reporting and
display of comprehensive income and its components in a full set of general-
purpose financial statements. The requirements of SFAS No. 130 include:
(a) classifying items of other comprehensive income by their nature in a
financial statement and (b) displaying the accumulated balance of other
comprehensive income separately from retained earning and additional paid-in
capital in the equity section of the balance sheet. The Company's
comprehensive income (loss) is substantially equivalent to net income (loss)
for the twelve months ended December 31, 2000, 1999 and 1998
CREATOR CAPITAL LIMITED
(FORMERLY INTERACTIVE ENTERTAINMENT LIMITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Segment Reporting
In 1998, the Company adopted SFAS No. 131 Disclosures about Segments of an
Enterprise and Related Information effective for fiscal years beginning after
December 15, 1997. This statement requires financial statements to disclose
information about products and services, geographic areas and major customers
based on a management approach. The management approach requires disclosing
financial and descriptive information about an enterprise's reportable
operating segments based on reporting information the way that management
organizes the segments for making decisions and assessing performance. It
also eliminates the requirement to disclose additional information about
subsidiaries that were not consolidated. For the year ending December 31,
2000, the adoption had no material impact to the Company's disclosure
information and its results of operations.
Pensions
FASB Statement Number 132, Employers' Disclosures about Pensions and Other Post-
retirement Benefits, became effective for fiscal years beginning after
December 15, 1997, and revises employers' disclosures about pension and other
post-retirement benefit plans. It does not change the measurement or
recognition of those plans. It standardizes the disclosure requirements for
pensions and other post-retirement benefits to the extent practicable,
requires additional information on changes in the benefit obligations and fair
values of plan assets that will facilitate financial analysis, and eliminates
certain disclosures. Since the Company has no pension or post-retirement
benefit plans, the pronouncement had no effect in the period.
Derivative Instruments and Hedging Activities
FASB Statement Number 133, Accounting for Derivative Instrument Hedging
Activities, becomes effective for fiscal years beginning after June 15, 1999,
and establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging
activities. The Company does not believe this pronouncement will have a
material effect on its financial statements in the near future.
Mortgage - Backed Securities
FASB Statement Number 134, Accounting for Mortgage-Backed Securities Retained
after the Securities of Mortgage Loans for Held for Sale by a Mortgage Banking
Enterprise, becomes effective for fiscal years beginning after December 15,
1998. It is not expected apply to the Company.
Foreign Currency Translation
Foreign currency assets and liabilities are translated into United States
dollars at the exchange rate prevailing at the balance sheet date. Revenue
and expenses are translated at the average exchange rate during the year.
Translation gains and losses are not material.
CREATOR CAPITAL LIMITED
(FORMERLY INTERACTIVE ENTERTAINMENT LIMITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Website Development Costs
Emerging Issues Task Force Issue No.00-2, Accounting for Web Site Development
Costs (EITF 00-2). Becomes effective for periods beginning after June 30,
2000, and establishes accounting and reporting standards for costs incurred
to develop a web site based on the nature of each cost. In general, the
pronouncement requires that costs incurred to develop a web site be
capitalized and amortized to expense over the expected useful life of the
site. The Company has not incurred web site development costs.
Revenue Recognition
Revenue for Sky Games was recognized at the end of each month upon
accumulation of monthly gaming totals and calculation of the settlement with
Singapore Airlines. Revenue for Sky Play is recognized each month upon the
invoicing of customers.
NOTE 3 ACQUISITION OF MINORITY INTEREST
Prior to June 17, 1997, the Company operated its principal business activities
through its indirectly 80%-owned subsidiary, Interactive Entertainment Limited
("Old IEL"). The remaining 20% of Old IEL was held by an affiliate of
Harrah's Entertainment, Inc. ("Harrah's"). Harrah's also managed the
operations of Old IEL.
Effective June 17, 1997, Old IEL was merged into the Company. As part of the
Amalgamation, the Management Agreement with Harrah's was terminated. Harrah's
received a total of 5,879,040 shares of the Company's $.01 par value common
stock (the "Common Stock") in exchange for its 20% ownership interest in Old
IEL and as consideration for the termination of the Management Agreement.
The Amalgamation has been accounted for under the purchase method. The shares
issued to Harrah's were valued at $26,255,793 based on the average quoted
market price of the Company's Common Stock when the Amalgamation was
announced, or $4.466 per share. The total value of the shares issued was
allocated among the assets acquired, including the Company's agreement with
Singapore Airlines and the Company's software under development. This
transaction represents a non-cash transaction for purposes of the
Consolidated Statements of Cash Flows.
Prior to the Amalgamation, Harrah's had agreed, pursuant to a funding
agreement, to loan up to $1,000,000 (the "Harrah's Loan") to Old IEL. Upon
closing of the Amalgamation, the outstanding principal and accrued interest
of the Harrah's Loan converted automatically into 1,007,875 shares of Common
Stock at $1.00 per share. Since the Harrah's Loan was convertible into
Common Stock at less than the current market, a beneficial conversion
feature was included in the Harrah's Loan. This beneficial conversion
feature was valued at $3,466,000 and has been included in interest expense
for the ten months ended December 31, 1997.
NOTE 4 CONVERTIBLE DEBENTURES
During the ten months ended December 31, 1997, the Company issued $2,163,250
of 8% convertible debentures due in 1999. At December 31, 1997, $1,633,250
of the debentures had been converted into 808,520 shares of Common Stock.
The outstanding balance of convertible debentures as of December 31, 1997
totaled $530,000.
CREATOR CAPITAL LIMITED
(FORMERLY INTERACTIVE ENTERTAINMENT LIMITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 CONVERTIBLE DEBENTURES (Continued)
Subscription dates ranged from July 7 through September 29, 1997. The
debentures were convertible at the lower of 85% of the average of the
closing bid prices of the Common Stock for the five trading days immediately
preceding the execution by the subscriber of its individual subscription for
debentures, or 77.5% of the average of the closing bid prices of the Common
Stock for the five trading days immediately preceding the date of conversion.
The debentures contained a feature that provided for conversion into Common
Stock at a price below the current market at the time of issue. The value
of this beneficial conversion feature, totaling approximately $628,000, was
capitalized in other assets with a corresponding increase to additional paid-
in capital. Placement fees of $149,000 incurred upon sale of the debentures
were also capitalized. The value of the conversion feature and the placement
fees were amortized to interest expense over the original life of the
debenture. Any unamortized amount was expensed upon conversion of the
debenture. At December 31, 1997, the unamortized deferred interest charge
and unamortized placement fees of $148,000 were included in other assets.
The last portions of the debentures were converted into Common Stock during
the first quarter of 1998.
NOTE 5 LEASES
The Company leased certain facilities under an operating lease expiring April
30, 1999. Total lease and rent payments amounted to approximately $46,000 and
$105,600, for the twelve-month periods ended December 31, 1999 and 1998,
respectively.
NOTE 6 EMPLOYEE BENEFITS
On July 1, 1997, the Company established an employee savings plan that
qualifies under Section 401(k). All employees of the Company may
participate after completion of one year of service by deferring from 1
percent to 16 percent of their eligible compensation. There is no provision
for Company contributions to the Plan.
NOTE 7 SHAREHOLDERS' EQUITY
In December 1994, the Company discontinued an engineering and marketing
arrangement with B/E Aerospace, Inc. ("BEA"). As part of the termination,
the Company issued to BEA a promissory note in the original principal amount
of $2.5 million at 12% per annum. On February 28, 1997, an agreement was
reached with BEA to exchange the note in the amount of $2,737,000, including
accrued and unpaid interest, for Class A Preference Shares at $1,000 per
share. The exchange for 2,737 Class A Preference Shares was completed in
June 1997. During 1998, the Company and BEA agreed that the Company would
redeem the Class A Preference Shares in installments beginning June 30, 1998.
As of August 31, 1998, the Company had redeemed 500 shares at their
redemption price of $1,000 per share. The Company was unable to redeem
additional shares, as there were no authorized common shares available to be
issued. The Class A Preference Shares are convertible at any time into a
number of shares of Common Stock, determined by dividing $1,000 per share of
Class A Preference Shares, plus any accrued and unpaid dividends thereon by:
(August 31, 1999), a conversion price equal to 60% of the Market Price.
Dividends on the Class A Preference Shares are cumulative and payable
quarterly at an annual dividend rate of 9%. The Company, at its option, may
redeem the Class A Preference Shares, in whole or in part, at any time and
from time to time, at a redemption price of $1,000 per share plus any
accrued and unpaid dividends thereon. The Company is not required to redeem
the Class A Preference Shares.
CREATOR CAPITAL LIMITED
(FORMERLY INTERACTIVE ENTERTAINMENT LIMITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 SHAREHOLDERS' EQUITY (Continued)
Dividends on the Class A Preference Shares were $228,305 in 1998 and $201,370
in 1999 and $201,370 in 2000 of which $50,756 for the fourth quarter of 1998,
$201,370 of 1999 and $201,370 of 2000 remained unpaid and in arrears at year-
end. The Class A Preference Shares do not have any voting rights. As of
December 31, 2000, 2,237 Class A Preference Shares remained outstanding.
If the Class A Preference Shares are converted into Common Stock, Harrah's
has the right to receive additional shares of Common Stock at $0.01 per share.
On December 17, 1997, the Company issued 1,000 shares of Series A Convertible
Preference Shares of the Company's Class B Preferred Stock for a total
consideration of $1,000.000. The Class B Series A Preference Shares are
convertible into a number of shares of Common Stock, determined by dividing
the stated value of $1,000 per share by the lesser of: $3.2038 (the "Fixed
Conversion Price") and a price (the "Floating Conversion Price") calculated
as 85% of the average of the three lowest closing bid prices for the Common
Stock during the thirty trading days occurring immediately prior to, but not
including, the conversion date. Dividends are cumulative and may be paid, at
the option of the Company and with prior notice, in additional shares of
Common Stock at an annual dividend rate of 8%. Warrants for the purchase of
61,718 shares of Common Stock were issued in connection with the issuance of
the Series A Class B Convertible Preference Shares. The warrants expired on
December 17, 1999. The Company exercised an option of selling a second
tranche with 123,432 warrants for an aggregate purchase price of $2,000,000
on July 24, 1998. As of December 31, 1999, 680 shares of the Class B Series
A Preference Shares had been submitted for conversion into 25,600,012 shares
of Common Stock. All Common Stock issuable upon the conversions has been
issued except for 3,492,426 shares. Such issuance would cause the Company
to exceed its maximum authorized capital. In January 1999, two holders of
the Class B Series A Preference Shares agreed to amend the conversion terms
so that the Floating Conversion Price will not be less than $0.25 per share.
As of December 31, 1999, a total of 1,720 shares of the Class B Series A
Preference Shares were outstanding. As of March 31, 2000, 1,000 Class B
Series A Preference Shares, convertible at $0.25 per share, had been
submitted for conversion into 4,480,000 shares of Common Stock. As of March
31, 2000, 600 of the Class B Series A Preference Shares were submitted for
conversion into 22,588,233 shares of Common Stock. The remaining 120 Class
B Series A Preference Shares are convertible into 480,000 shares of Common
Stock at $0.25 per share. Subsequent to the year-end, these shares were
submitted for conversion, and 480,000 common shares were issued on January 8,
2001.
On February 20, 1998, the Company sold 300 shares of Series B Class B
Convertible Preferred Stock at $1,000 per share. The Series B Class B
Convertible Preferred Shares have the same dividend and conversion features
as the Series A Class B Convertible Preferred Shares. The investor also
received a warrant to purchase 18,515 shares of Common Stock at a price of
$3.2038 for 18 months. As of December 31, 1999, 38 shares of the Series B
Class B shares had been converted into 663,274 shares of Common Stock and
262 shares remained outstanding. As of March 31, 2000, the 262 outstanding
Series B Class B Preference Shares had been submitted for conversion into
9,863,529 shares of Common Stock.
CREATOR CAPITAL LIMITED
(FORMERLY INTERACTIVE ENTERTAINMENT LIMITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 SHAREHOLDERS' EQUITY (Continued)
During the ten months ended December 31, 1997, the Company changed the par
value of the Common Stock from C$.01 (Canadian dollars) to $.01 (United
States dollars). The change in par value did not affect any of the existing
rights of shareholders and has been recorded as an adjustment to additional
paid-in capital and Common Stock.
NOTE 8 STOCK OPTIONS
The Company follows APB No. 25 in accounting for its employee stock options.
Under APB No. 25, no compensation expense is recognized because the exercise
price of the Company's incentive employee stock options is equal to or
greater than the market price of the underlying stock on the date of grant.
Prior to February 28, 1995, the Directors of the Company issued stock options
to employees and directors under individual agreements between the Company and
the individuals. Exercise prices and terms were determined by the Board of
Directors. At December 31, 2000, no stock options issued prior to February
28, 1995 are outstanding.
During the year ended February 29, 1996, the Company established and the
Company's shareholders subsequently approved the 1996 Stock Program for the
then upper management, directors and major shareholders of the Company.
Under this plan, the Company could grant options to purchase up to 1,500,000
shares of Common Stock at prices not less than the fair market value of the
stock on the day of grant. The 1,130,000 options issued under the 1996
Stock Program are exercisable upon the grant date and expire during 2001
through 2002. No further grants under the 1996 Stock Program will be
made by the Company.
The Company adopted on December 6, 1996, a Directors Stock Ownership Plan
covering 500,000 shares of Common Stock pursuant to which all directors
holding office at December 10th of each year will be granted options for
10,000 shares of Common Stock at the trading price on such day. On October
17, 1997, the Board of Directors of the Company approved an amendment
changing the grant date from December 10 to the date of the first meeting of
the Board of Directors following the Company's Annual General Meeting of
shareholders. The 300,000 options granted under this plan are exercisable
upon the grant date and expire ten years after the grant date. No further
grants have been made by the Company.
Effective June 16, 1997, the Company established a Management Incentive Plan
(the "MIP") by authorizing the issuance of options for 4,070,105 shares of
Common Stock. The Compensation Committee of the Board of Directors has the
authority to determine the allocation and vesting requirements for such
options issued under the MIP. The exercise price of stock options granted
under the MIP is the market price of the Common Stock on the date of the
grant. A total of 1,200,000 of the 2,195,340 options outstanding under the
plan will vest specifically on the earlier of sustaining certain stock price
levels or ten years from the date of the grant. Approximately 1.4 million
non-vested options held by employees were canceled during 1998 following
termination of employees.
CREATOR CAPITAL LIMITED
(FORMERLY INTERACTIVE ENTERTAINMENT LIMITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 STOCK OPTIONS (Continued)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
A summary of the Company's stock option activity and related information
follows:
Twelve Months Ended
Twelve Months Ended
Twelve Months Ended
December 31, 2000
December 31, 1999
December 31, 1998
Weighted
Weighted
Weighted
Average
Average
Average
Exercise
Exercise
Exercise
# Options
Price
# Options
Price
# Options
Price
Outstanding at
beginning of period
3,625,340
$ 2.38
2,960,341
$ 2.81
3,817,950
$ 3.11
Granted
- -
- -
664,999
0.47
2,434,150
1.52
Exercised
- -
- -
- -
- -
-
- -
Expired
(180,000)
3.20
- -
- -
(3,291,759)
221
Outstanding at
end of period
3,445,340
$ 3.20
3,625,340
$ 2.38
2,960,341
$ 2.81
Options exercisable
at end of period
2,225,340
$ 1.98
2,425,340
$ 2.07
1,760,341
$ 2.68
Weighted average fair
value of options
granted during the
Period
$ -
$ (1.52)
$ 1.52
Exercise prices for stock options outstanding at December 31, 2000, ranged from
$0.14 to $4.13. The weighted average remaining life of the outstanding stock
options is approximately 5 years.
Pro forma information regarding net loss and loss per share is required by
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation (SFAS No. 123) and has been determined as if the Company
had accounted for its employee stock options under the fair value method.
The fair value for these options at the date of grant was estimated using a
Black-Scholes option pricing model with the following weighted average
assumptions for the years ended December 31, 1999 and 1998, respectively:
volatility factor of the expected market value of the Company's Common Stock
of 2.808, and 0.715; weighted average expected life of the options of 5
years for each period; risk-free interest rate of 5.75% for each period;
and no dividend payments.
CREATOR CAPITAL LIMITED
(FORMERLY INTERACTIVE ENTERTAINMENT LIMITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 STOCK OPTIONS (Continued)
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require highly
subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
Twelve Months Ended Twelve Months Ended Twelve Months Ended
December 31, 2000 December 31, 1999 December 31, 1998
Net loss $ 791,147 $ 1,305,800 $ 29,055,997
SFAS No. 123 compensation
expense - - 3,332,306
SFAS No. 123 pro forma net
loss $ 791,147 $ 1,305,800 $ 32,388,303
=========== =========== ===========
Basic and diluted pro
forma loss per share $ 0.02 $ 0.03 $ 1.54
=========== =========== ===========
Because SFAS No. 123 applies only to stock-based compensation awards for the
fiscal year ended February 29, 1996 and future years, the pro forma
disclosures under SFAS No. 123 are not likely to be indicative of future
disclosures until the disclosures reflect all outstanding, nonvested awards.
NOTE 9 STOCK WARRANTS
As of December 31, 2000, the Company had outstanding stock warrants for 80,000
shares of its Common Stock as follows:
Exercise
Number of Warrants
Price
Expiration Date
4,900
$4.00
June 30, 2002
17,500
$4.80
June 30, 2002
57,600
$4.80
August 31, 2002
NOTE 10 INCOME TAXES
As a Bermuda exempted company, the Company is not currently subject to income
tax filing requirements in Bermuda. Prior to 1999, the Company operated in
the U.S. as a branch of a foreign corporation. Tax carry-forward in taxable
jurisdictions has not been determined. Deferred tax assets, if any, would
be fully reserved. There are no income tax provisions, benefits, liabilities
or assets reflected in the accompanying financial statements.
CREATOR CAPITAL LIMITED
(FORMERLY INTERACTIVE ENTERTAINMENT LIMITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 WRITE-DOWN OF ASSETS
The following assets were written down to a nominal or current value in the
period due to impairment in the assets value: (See Note 2, Impairment of Long-
Lived Assets).
Twelve Months Ended Twelve Months Ended Twelve Months Ended
December 31, 2000 December 31, 1999 December 31, 1998
Land $ - $ - $ -
Furniture, fixtures and
equipment - 70,312 134,189
Other assets - - -
Software under
development - - 1,362,934
Singapore Airlines
Agreement - - 1,856,000
Goodwill - - 13,157,84
$ - $ 70,312 $16,510,899
=========== =========== ==========
NOTE 12 RELATED PARTY TRANSACTIONS
On June 17, 1997, the Company entered into a Continuing Services Agreement with
Harrah's under which Harrah's provided certain telecommunications, computer
systems support and consulting services to the Company. The Company
incurred a cost of approximately $124,000 during the twelve month period
ended December 31, 1998.
Effective June 5, 1997, the Company entered into a lease (the "Sublease
Agreement") with Harrah's for the office space occupied by the Company.
The Sublease Agreements was for a period of 23 months at a monthly cost of
approximately $11,000. Payments under this Sublease Agreement aggregate to
approximately $132,000 in 1998 and $44,000 in 1999.
On June 17, 1997, in conjunction with the Amalgamation, the Company entered
into a Software License Agreement with Harrah's (the "License Agreement").
The License Agreement is a non-exclusive, fully-paid, perpetual, world-wide
license to Harrah's and its affiliates to use the Company's gaming technology
in non-competitive uses in traditional casino venues owned, operated or
managed by Harrah's affiliates. The License Agreement includes source codes
for all software, but neither party to the License Agreement has any
obligations to share or provide any improvements or modifications with the
other party. There was no additional consideration paid by Harrah's for the
License Agreement.
CREATOR CAPITAL LIMITED
(FORMERLY INTERACTIVE ENTERTAINMENT LIMITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 RELATED PARTY TRANSACTIONS (Continued)
Geller & Co., of which Laurence Geller is Chairman, performed consulting
services for the Company pursuant to a retainer agreement that commenced in
February, 1996 and terminated August 14, 1997. Geller & Co. was paid a
monthly retainer of $5,000. Pursuant to Geller & Co.'s retainer, a grant of
options for 200,000 shares of Common Stock with an exercise price of $3.00
and a term of ten years was also made to Geller & Co. On May 29, 1997, the
Company granted an additional 1,000,000 options with the same terms above to
Geller & Co. for Laurence Geller's services as Chairman of the Board. In
addition, Geller & Co. received 200,000 shares of Common Stock that vest
upon the closing of a major financing. The Board has determined that the
Amalgamation which occurred June 17, 1997 constituted a major financing, and,
consequently, the 200,000 share success fee has vested and an expense of
$650,000 was recognized. This amount is included on the Consolidated
Statement of Operations as general and administrative expense. Mr. Geller
was Chairman of the Board of Directors of the Company from September 30,
1996 until February 23, 1999. The annual compensation of the Chairman of
the Board was set at $100,000 and is not payable until the Company generates
sufficient cash flow from operations. The amount payable of $133,000. has
been accrued as a liability in the accounts, however management is disputing
the payment of this amount.
NOTE 13 AGREEMENT REGARDING REDEMPTION OF PERFORMANCE SHARES
When the Company acquired the rights to the inflight gaming software from Sky
Games International, Inc. ("SGII") on November 7, 1991, a portion of the
consideration was 3,000,000 shares of Common Stock which, according to then
applicable requirements, were placed in escrow, to be released on the basis
of one share for each U.S. $1.78 of net cash flow generated from the assets
over a ten-year period (the "Performance Shares"). The Performance Shares
were issued at a deemed price of $.1155 per share with 2,000,000 shares
issued to SGII (87% of the outstanding stock of which was owned by James P.
Grymyr, formerly a director of the Company, and his wife) and 1,000,000 shares
were issued to Anthony Clements, a director of the Company. An additional
525,000 shares, which were issued to Dr. Rex E. Fortescue, formerly a
director of the Company, are held in the escrow on the same terms and are
also included as Performance Shares. Each of Messrs. Clements and Fortescue,
as of April 30, 1997, have agreed to allow the Company to redeem and cancel
the Performance Shares when and if they are released from escrow for any
reason whatsoever (the "Redemption Agreement"). As consideration for such
agreement to tender the Performance Shares for cancellation by the Company in
the event they are ever released from the escrow, the Company has issued to
Messrs. Clements and Fortescue, 333,333 and 175,000 shares of Common Stock,
respectively. SGII, as of April 30, 1997, has also agreed that it will
tender the 2,000,000 Performance Shares which it holds for cancellation by
the Company when and if such Performance Shares are released from escrow for
any reason whatsoever. As consideration of such agreement, in February,
1997, the Company expensed the outstanding balance of a note made by SGII to
the Company in the approximate amount of $550,000 and has issued to SGII
80,590 shares of Common Stock (the "Redemption and Cancellation Agreement").
In the event the Performance Shares are not released prior to six months after
the end of the Company's financial year ending in the year 2002, the
Performance Shares will automatically be canceled in accordance with the
terms of the escrow agreement. The value of the 588,923 shares of Common
Stock issued as consideration for the agreement was determined to be
approximately $1,840,000 based on the closing price of the Company's Common
Stock on the date the 588,923 shares were issued. This amount was included
as additional purchase price for the acquisition of Harrah's 20% ownership
interest in Old IEL.
CREATOR CAPITAL LIMITED
(FORMERLY INTERACTIVE ENTERTAINMENT LIMITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 AGREEMENT REGARDING REDEMPTION OF PERFORMANCE SHARES (Continued)
As part of the agreements to allow the redemption and cancellation of the
Performance Shares, the holders of the Performance Shares have issued an
irrevocable proxy to a bank which has agreed not to vote the Performance
Shares at any General Meeting of Shareholders or otherwise. The irrevocable
proxy and the agreement not to vote the Performance Shares will terminate
upon the cancellation of the Performance Shares. The escrow agent is
prohibited from canceling the Performance Shares under the escrow agreement.
The Performance Shares have no rights and, therefore, are excluded from per
share calculations for all periods presented. Effective April 30, 1997, the
Performance Shares were no longer considered outstanding for financial
statement purpose.
NOTE 14 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Financial results by quarter are as follows:
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
Twelve months ended December 31, 2000
Loss before extraordinary item
$ 145,902
$ 194,776
$ 184,347
$ 266,122
Basic and diluted loss per share
$ 0.004
$ 0.006
$ 0.0055
$ .008
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
Twelve months ended December 31, 1999
Loss before extraordinary item
$ 207,270
$ 271,080
$ 227,000
$ 320,235
Extraordinary item
-
-
-
83,936
Net loss
$ 207,270
$ 271,080
$ 227,000
$ 236,299
Basic and diluted loss per share
Loss per share before
extraordinary item
$ 0.007
$ 0.008
$ 0.007
$ 0.069
Extraordinary gain per share
0.000
0.000
0.000
0.002
Loss per share
$ 0.007
$ 0.008
$0.007
$ 0.067
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