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, 2001.
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 $0.27 for the Common Stock
as reported by the OTC Bulletin Board March 27, 2002 is $24,414,531
The number of shares outstanding of the issuer's Common Stock, as of
March 31, 2002: 90,424,191
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 3
Market and Marketing 3
Manufacturing 3
Sky Games System Acquisition 3
The Amalgamations 4
Major Customers 4
Investment - China Lotteries 4
Employees 5
Item 2 Properties 5
Item 3 Legal Proceedings 5
Item 4 Submission of Matters to a Vote of Security Holders 5
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 8
Overview 8
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 12
Item 11 Executive Compensation 12
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 13
Signatures 15
Report of Independent Auditors F-1
Financial Statements F-2 - F-13
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
1. Sky Games
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, eFlyte, have been contracted to attend to the Sky Play business.
eFlyte terminated its contract with the Company as of April 22, 2001. The
technical aspect of the business is now contracted to the Company's current
C.T.O.
On April 30, 1997, the Company entered into a Consulting Agreement with
James P Grymyr, whereby he would provide consulting services to the Company
from time to time, as requested by the Company. Under the terms of this
agreement, the Company issued 586,077 shares of Common Stock to Mr. Grymyr
as consideration for all such consulting services, both past and future.
During March, 2001, Mr. Grymyr informed the Company that he did not provide
any consulting services to the Company. Furthermore, he indicated that the
agreement was never operational. A review of the Company's records, and
conversations with previous management did not reveal any evidence to the
contrary. Therefore, Mr. Grymyr offered to annul the Consulting Agreement
and return the shares to the Company for cancellation. The Company
accepted this offer under the terms of the Annulment Agreement dated,
June 20, 2001. The Company is waiting for Mr. Grymyr to complete his
undertakings as detailed in the Annulment Agreement.
2. Sky Play
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, 2001, Sky Play games were operating on a number of
airlines, including Air China, American Airlines, Cathay Pacific,
Continental, Emirates Air, Japan Air Lines, Malaysia Airlines,
3. Investment - China Lotteries
On September 22, 2001, the Company entered into an Investment agreement
with Asset China Investments Ltd. ("Asset China"). Asset China holds 70%
of the outstanding shares of Beacon Hill Enterprises Ltd. Beacon Hill
holds the license for and operates one of two major Soccer Betting Lottery
locations in Guangzhou City, Guangdong Province, People's Republic of
China. In exchange for 1,500,000 shares of the Company's Common Stock,
and an investment of up to HK$1,500,000 (US$180,050.00), the Company
receives 80% of the proceeds of the business profits generated from Asset
China's sports betting and lottery assets. To date, the Company has
forwarded HK$900,000.00 (US$108,030.00).
On November 1, 2001, the Company entered into an Investment agreement with
Lee John Associates ("Lee John"). Lee John is engaged in the business of
owning the licenses for and operating several lottery locations in Guangzhou
City, Guangdong Province, Peoples' Republic of China. In exchange for
500,000 shares of the Company's common stock, the Company shall receive
80% of the proceeds of the business profits generated from Lee John's
Lottery businesses.
The Product
1. SkyPlay
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.
2. Sky Games
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 Current Market Outlook for 2001forecast passenger
traffic growth of 4.7% annually over the next 20 years. The report noted
that, to meet that growth, airlines are expected to add over 23,460
airplanes to their fleets, worth more than $1.7 trillion in 2000 US Dollars.
Boeing estimates that approximately 30% of these new aircraft will be
intermediate and large aircraft, which CCL believes, will represent a
substantial market for IFE systems and inflight content.
Inflight Entertainment and Communications Outlook 2001, published by the
Inflight Management Development Centre (IMDC), reviews the IFE market in
detail and highlights the following key findings: 1) Airline expenditure
on IFE is expected to total US$1.95 billion for 2001 - the first time that
there has been a reduction in overall expenditure. 2) Airline expenditure
is expected to grow again during 2002, rising to approximately US$3
billion by 2005. 3) At the beginning of 2001, some 4,630 aircraft had
some form of IFE onboard, while just under 2,000 of these aircraft have
"advanced" IFE systems onboard. 4) the IMDC forecast expects 14,072
passenger aircraft with 100 or more seats to be in service by 2001, of
which 7,165 will be fitted with IFE.
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.
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 already have 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 Computershare Investor Services in Vancouver, B.C., 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
calculation of total outstanding shares.
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 Airlines, Emirates Air, Japan Air Lines,
and Malaysia Airlines. The two largest customers accounted for
approximately 35% of Sky Play revenue during 2000.
During the third and fourth quarters of 2001, both Egypt Air, and Lauda
Air informed the Company that, due to budgetary restraints, they could no
longer offer the Sky Play Amusement Games
Investment - China Lotteries
On September 22, 2001, the Company entered into an Investment agreement with
Asset China Investments Ltd. ("Asset China"). Asset China holds 70% of the
outstanding shares of Beacon Hill Enterprises Ltd. Beacon Hill holds the
license for and operates one of two major Soccer Betting Lottery locations
in Guangzhou City, Guangdong Province, People's Republic of China. In
exchange for 1,500,000 shares of the Company's Common Stock, and an
investment of up to HK$1,500.000 (US$ 191,670.00), the Company receives 80%
of the proceeds of the business profits generated from Asset China's Soccer
Betting and Lottery assets. To date, the Company has forwarded
HK$900,000.00 (US$115,000.00).
On November 1, 2001, the Company entered into an Investment agreement with
Lee John Associates ("Lee John"). Lee John is engaged in the business of
owning the licenses for and operating several lottery locations in
Guangzhou City, Guangdong Province, Peoples' Republic of China. In
exchange for 500,000 shares of the Company's common stock, the Company
shall receive 80% of the proceeds of the business profits generated from
Lee John's Lottery businesses.
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,
eFlyte, LLC had been contracted to attend to the Sky Play business.
Effective April 22, 2001, eFlyte terminated its contract with CCL. Due to
the nature of the termination and subsequent events, legal counsel has been
retained and correspondence has occurred with eFlyte's counsel.
ITEM 2. PROPERTIES
Not applicable.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any material pending legal
proceedings. CCL has retained legal counsel in the matter of the
termination by eFlyte, LLC as the managers of the Sky Play business, and
subsequent actions by eFlyte, LLC and its principals,
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;
To date, the Company has not effected a consolidation of its Common Stock.
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, 2001 December 31, 2000
High Low High Low
First Quarter $0.0600 $0.0325 $0.8130 $0.0200
Second Quarter $0.1600 $0.0300 $0.5630 $0.1000
Third Quarter $0.4200 $0.0900 $0.1500 $0.0400
Fourth Quarter $0.7700 $0.3000 $0.2250 $0.0315
As of March 31, 2002, there were 245 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 edemption
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
Ten Months
Ended
Twelve Months Ended December 31 December 31
2001 2000 1999 1998 1997
--------------------------------------------------------
Statement of Operations Data:
Gain/Loss before
extraordinary
item $(152,872) $(1,159,338) $1,389,736 $29,056,000 $16,312,000
Extraordinary
(gain)loss - - (83,936) - 1,824,000
Net Gain/Loss $(152,872) (1,159,338) (1,305,800) 29,056,000 18,136,000
Gain/Loss per share
before extraordinary
Item 0.002 0.02 0.03 1.40 1.06
Extraordinary item - - - - .12
Loss per share $0.002 $0.02 $0.03 $1.40 $1.18
Weighted number
of common shares
outstanding 70,385,000 50,000,000 47,785,147 20,998,189 15,562,834
Number of common shares
outstanding at
period end 87,302,611 50,000,000 50,000,000 24,367,414 19,428,334
(in thousands except per share and share data)
As of December 31,
2001 2000 1999 1998 1997
----------------------------------------------------
Balance Sheet Data:
Working capital
(deficit) $(701) $(827) $(535) $(330) $697
Total assets 502 628 1,434 2,509 27,511
Long term debt 66 67 81 - 530
Redeemable preferred stock
Class A
Series A 2,237 2,237 2,237 2,237 2,737
Class B
Series A 120 1720 2400 1000
Class B
Series B - 262 300
Shareholders' equity
(deficit) $ (570) $ (580) $ (579) $(1,885) $(26,337)
Equity (deficit) per
common share $0.01 $(0.01) $(0.01) $(0.08) $ (1.36)
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").
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. As of December 31, 2001, 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 the last quarter of 2001, the number of
airline customers decreased to seven, and the number of installed aircraft
decreased from 150 to 141.
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.
CCL's principal activities through December 31, 2001 consisted of:
1) assessing and analyzing the status of the Sky Games Inflight gaming
software and the Sky Play business following the departure of eFlyte,
LLC as the operational managers and technical support of business:
2) the ongoing management and support of the Sky Play business, and
3) the due diligence for and investment in the China Soccer Betting
Lottery Project.
As of December 31, 2001, both Egypt Air and Lauda Air ceased to be
clients due to budgetary constraints.
Results of Operations
Twelve Months Ended December 31, 2001 and December 31, 2000
Revenue increased from $537,365 to $561,030. The revenue increase is
due to the addition of new aircraft with previous customers.
General and administrative expenses decreased by $62,562 due to the
management of costs
Consulting and contract labor expenses decreased by $97,769 primarily
due to the change in outside technical support suppliers.
Depreciation and amortization expenses decreased by $640,255 due to
Assets being fully depreciated.
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.
Liquidity and Capital Resources
At December 31, 2001, the Company had a working capital deficit of
$549,577. Of this, $676,374 was for dividends payable that have accrued
over several fiscal periods on current outstanding Preferred shares.
Without said accrued dividends, the working capital would have been in a
positive position of $126,797. During the year, all the Class B Series
A and B Preferred shareholders converted their preferred shares, and
most of the accrued dividends thereto attached, into common shares. The
Company's net cash position is $90,870. This reflects the fact that the
cash generated from operations is the Company's primary source of
operations funding.
At December 31, 2000, the Company had working capital deficit of $827,653.
Of this, $878,454 was for accrued dividends payable on the outstanding
preferred shares. Without said accrued dividends, the working capital
would have been in a positive position of $50,801. The Company's net cash
position was $74,314. This reflects the fact that the cash generated from
operations is the Company's primary source of operations funding.
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. 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, 2001
Twelve Months Ended December 31, 2000
Twelve Months Ended December 31, 1999
Consolidated Statements of Shareholder's Equity
December 31, 1998 through December 31, 2001
Statements of Cash Flow
Twelve Months Ended December 31, 2001
Twelve Months Ended December 31, 2000
Twelve Months Ended December 31, 1999
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.)
11.11**
Investment Agreement dated September 22, 2001, between the Company
and Asset China Investments Ltd.
11.12**
Investment Agreement dated November 1, 2001, between the Company and
Lee John Associates.
27**
Financial Data Schedule
*Confidential treatment has been granted.
**Submitted herewith.
(b) REPORTS FILED ON FORM 8-K
01.01
Dated December 19, 2001, Other Events include Press Releases dated
September 25, 2001; October 4, 2001; October 18, 2001; November 1, 2001;
December 19, 2001
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
Dated: March 27, 2002
Chairman and President
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 March 27, 2002
Michael L. Bartlett
/s/ Anthony P. Clements Director March 27, 2002
Anthony P. Clements
/s/ Deborah Fortescue-Merrin Chairman, March 27, 2002
Deborah Fortescue-Merrin President and Director
/s/ B.J. (Jack) Iles Director March 27, 2002
Jack Iles
/s/ Anastasia Kostoff-Mann Director, March 27 ,2002
Anastasia Kostoff-Mann Vice President
/s/ Stephen Rosenberg Director March 27, 2002
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, 2001 and
2000, and the related statements of operations, shareholders' equity, and
cash flows for the year ended December 31, 2001 and 2000. 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, 2001 and 2000, and the results of operations and cash flows for the
year ended December 31, 2001 and 2000, 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 15, 2002 Chartered Accountants
CREATOR CAPITAL LIMITED
(FORMERLY INTERACTIVE ENTERTAINMENT LIMITED)
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, December 31,
2001 2000
Current Assets
Cash and cash equivalents $ 90,870 $ 74,314
Accounts and notes receivable 143,380 161,900
Prepaid expenses 70,079 76,755
Total current assets 304,329 312,969
Furniture, fixtures and equipment, at cost 468,343 451,175
Less: accumulated depreciation 378,932 (293,222)
Furniture fixtures and equipment, net 89,411 157,953
Advance to China Investments Limited (Note 3) 108,030
Software development costs, net - 140,425
Goodwill 17,103
Total assets $501,770 $628,450
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses 159,532 $244,168
Accrued dividends 828,091 878,454
Notes payable, current liabilities 18,000 18,000
Total current liabilities 1,005,623 1,140,622
Notes payable, long term 66,322 67,822
1,071,945 1,208,444
Shareholders' equity (Note 4)
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
- 100 shares and 2,070 shares 1 21
Common shares, $0.01 par value,
authorized -100,000,000
shares, outstanding
- 87,302,611 and 50,103,500 shares 873,026 501,035
Additional paid-in-capital 65,405,998 65,615,278
Accumulated deficit (66,849,222) (66,696,350)
(570,175) (579,994)
Total liabilities and shareholders' equity $501,770 $628,450
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,
2001 2000 1999
------------------------------------------
Revenue $561,030 $537,365 $506,723
Operating Expenses
General and administrative 156,757 219,319 407,109
Consulting and contract labor 94,357 192,126 30,876
Marketing 25,308 20,041 9,825
Legal 7,853 14,381 47,968
Interest expense 1,153 1,832 1,573
Depreciation and amortization 243,239 883,494 947,366
Interest income (18,164) (3,681) (2,333)
Business discontinuation expenses - - 16,612
Write-down/sale of assets - 1,270 70,312
510,503 1,328,782 1,529,308
Income (Loss) before extraordinary item 50,527 (791,147) (1,022,585)
Early extinguishment of debt - - 83,936
Net Loss 50,527 $(791,147) $(1,305,800)
BASIC AND DILUTED LOSS PER SHARE
Numerator for basic and diluted loss per share:
Income (Loss)
before extraordinary item 50,527 $(791,147) $(1,022,585)
Preferred stock dividends 203,399 368,191 367,151
Income (Loss) to common shareholders
before extraordinary item (152,872) (1,159,338) (1,389,736)
Extraordinary item - - (83,936)
Income (Loss) to
common shareholders (152,872) $(1,159,338) $(1,305,800)
Denominator for basic and diluted loss
per share -- weighted average
shares outstanding 70,385,000 50,000,000 47,785,147
Income (Loss)
before extraordinary item $(0.002) $(0.02) $(0.03)
Extraordinary Loss - - -
Net Income (Loss) per share $(0.002) $(0.02) $(0.03)
CREATOR CAPITAL LIMITED
(FORMERLY INTERACTIVE ENTERTAINMENT LIMITED)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Class A Class B Common Stock Additional
Preferred Preferred
Stock Stock
Number Number Number Paid-in Accumulated
of of of
Sh's Amt Sh's Amt Shares Amt Capital Deficit Total
- --------------------------------------------------------------------------
Balance December 31, 1998
2,237 $22 2,662 $27 27,892,414 $278,924 $65,860,445 $(64,254,274) $1,885,144
Net income (loss) (938,649) (938,649)
Preferred stock dividends (367,151) (367,151)
Conversion of Class B preferred
Into common
(587) (6) 22,211,115 222,111 (221,105) -
Eliminate effect of purchased
Retained earnings (23,062) $23,062 -
Balance, December 31, 1999
2,237 $22 2,075 $21 50,103,529 $501,035 $65,615,278 $(65,537,012) $579,344
Net Income (loss) (791,147) (791.147)
Preferred stock dividends (368,191) (368,191)
Balance, December 31, 2000
2,237 $22 2,075 $21 50,103,529 $501,035 $65,615,278 $(66,696,350) $(579,994)
Net Income 50,527 50,527
Preferred stock dividends (203,399) (203,399)
Conversion of accrued dividend
into Common Stock 747,317 7,473 155,218 - 162,691
Conversion of Class B preferred
into Common Stock
(1,975) (20)36,451,765 364,518 (364,498)
Balance, December 31, 2001
2,237 $22 100 $1 87,302,611 $873,026 $65,405,998 $(66,849,222) $(570,175)
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,
2001 2000 1999
-------------------------------------------
OPERATING ACTIVITIES
Net Income (Loss) $50,527 $(791,147) $ (938,649)
Reconciliation of net loss to net cash used in operating activities
Depreciation and amortization 243,239 883,494 947,369
Write-down/sale of assets - 1,270 69,047
Other - - -
Issuance of options for consulting - - -
Non-cash interest expense - - -
Changes in assets/liabilities
Accounts receivable 18,520 (69,419) (10,125)
Prepaid expenses 6,676 12,351 26,126
Other assets (108,030) - -
Accounts payable and
accrued expenses (134,999) 367,449 131,559
Net cash provided by/(used in)
operating activities $ 75,933 $ 403,998 $225,236
--------------------------------------
INVESTING ACTIVITIES
Purchases of furniture and
fixtures and equipment (17,169) (8,508) -
Proceeds from sales of
property and equipment - 3,730 3,646
Net cash provided by/(used in)
operating investing activities $(17,169) $(4,778) $3,646
--------------------------------------
FINANCING ACTIVITIES
Issuance of common stock 162,711 - -
Borrowings on note payable - - 191,919
Payment on notes payable (1,500) (13,500) (92,597)
Redemption of preferred stock (20) - -
Payment of preferred
stock dividends (203,399) (368,191) (367,151)
Net cash provided by/(used in)
financing activities $(42,208) $(381,691) $(267,82)
--------------------------------------
Net (decrease)/increase in cash 16,556 17,529 (38,857)
Cash, beginning of period 74.314 56,785 95,642
Cash, end of period 90,870 $74,314 $56,785
--------------------------------------
Supplemental Cash Flow Information:
Cash paid for income taxes - $ 685 $ 537
Cash paid for interest $1,153 $1,832 $1,57
--------------------------------------
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
Games(tm), and the entertainment software is marketed using the name Sky
Play.
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 are capitalized until the software is
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.
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 $85,711, $89,554, and $153,000 for
the years ended December 31, 2001, 2000 and 1999, respectively.
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 $17,153 for the year ended December 2001,
$513,000 for the year ended December 31, 2000.
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.
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, 2001, December 31, 2000 and December 31, 1999, 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),
and 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, 2001, 2000 and 1999.
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, 2001, 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.
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.
Revenue Recognition
Revenue for Sky Play is recognized each month upon the invoicing of
customers. Revenue for Sky Games was recognized at the end of each month
upon accumulation of monthly gaming totals.
CREATOR CAPITAL LIMITED
(FORMERLY INTERACTIVE ENTERTAINMENT LIMITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 INVESTMENT - CHINA LOTTERIES
On September 22, 2001, the Company entered into an Investment agreement
with Asset China Investments Ltd. ("Asset China"). Asset China holds 70%
of the outstanding shares of Beacon Hill Enterprises Ltd. Beacon Hill
holds the license for and operates one of two major Soccer Betting Lottery
locations in Guangzhou City, Guangdong Province, People's Republic of
China. In exchange for 1,500,000 shares of the Company's Common Stock,
and an investment of up to HK$1,500.000 (US$ 180,050.00), the Company
receives 80% of the proceeds of the business profits generated from Asset
China's sports betting and lottery assets. To date, the Company has
forwarded HK$900,000.00 (US$108,030.00).
On November 1, 2001, the Company entered into an Investment agreement
with Lee John Associates ("Lee John"). Lee John is engaged in the
business of owning the licenses for and operating several lottery
locations in Guangzhou City, Guangdong Province, Peoples' Republic of
China. In exchange for 500,000 shares of the Company's common stock,
the Company shall receive 80% of the proceeds of the business profits
generated from Lee John's Lottery businesses.
NOTE 4 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 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.
Dividends on the Class A Preference Shares were $201,370 in 1999, $201,370
in 2000, and $201,370 for 2001. They remained unpaid and are 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.
In 1997, the Company issued Series A and Series B
Convertible Preference Shares of the Company's Class B Preferred
Stock. The Class B Series A and Series B Preference Shares are
convertible shares of Common Stock. As of December 31, 2001, all but
100 Series A Convertible Preference Shares of the Company's Class B
Preferred Stock as well as cumulative dividends related thereto have
been converted into common shares.
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%.
On April 30, 1997, the Company entered into a Consulting Agreement with
James P Grymyr, whereby he would provide consulting services to the
Company from time to time, as requested by the Company. Under the terms
of this agreement, the Company issued 586,077 shares of Common Stock to
Mr. Grymyr as consideration for all such consulting services, both past and
future. During March, 2001, Mr. Grymyr informed the Company that he did
not provide any consulting services to the Company. Furthermore, he
indicated that the agreement was never operational. A review of the
Company's records, and conversations with previous management did not
reveal any evidence to the contrary. Therefore, Mr. Grymyr offered to
annul the Consulting Agreement and return the shares to the Company for
cancellation. The Company accepted this offer under the terms of the
Annulment Agreement dated June 20, 2001. The Company is waiting for
Mr. Grymyr to complete his undertakings as detailed in the Annulment
Agreement.
NOTE 5 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.
A summary of the Company's stock option activity and related information
follows:
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
December 31, 2001 December 31, 2000 December 31, 1999
----------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
# Exercise # Exercise # Exercise
Options Price Options Price Options Price
----------------- ----------------- -------------------
Outstanding
at beginning
of period 3,445,340 $3.20 3,625,340 $2.38 2,960,341 $2.81
Granted 550,000 $0.35 - 664,999 0.47
Exercised - - - - - -
Expired 2,975,340 $3.00 (180,000) 3.20 - -
Outstanding
at end of
period 1,020,000 $0.54 3,445,340 $3.20 3,625,340 $2.38
Options
Exercisable at
end of period 1,020,000 $0.54 2,225,340 $1.98 2,425,340 $2.07
Weighted average
Fair value of
options granted
during the
Period $0.35 $ - $(1.52)
Exercise prices for stock options outstanding at December 31, 2001,
ranged from $0.14 to $4.13. The weighted average remaining life of
the outstanding stock options is approximately 6 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, 2001, 2000
and 1999, respectively: volatility factor of the expected market value of
the Company's Common Stock of 4.660, and 2.808, weighted average expected
life of the options of 5 years for each period; risk-free interest rate of
3.66% for 2001, and 5.75% for 1999 and 2000 and no dividend payments.
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.
NOTE 5 STOCK OPTIONS (Continued)
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
December 31, 2001 December 31, 2000 December 31, 1999
----------------- ----------------- -----------------
Net Income (Loss) $50,527 $(791,147) $(1,305,800)
SFAS No. 123
compensation
Expense $170,500 - -
SFAS No. 123
pro forma net
Income (Loss) $119,873 $(791,147) $(1,305,800)
Basic and diluted
pro forma
Loss per share $ 0.00 $ 0.02 $ 0.03
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 6 STOCK WARRANTS
As of December 31, 2001, 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 7 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.
NOTE 8 RELATED PARTY TRANSACTIONS
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.
Mr. Laurence 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 9 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Financial results by quarter are as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Twelve months ended
December 31, 2001
Income (Loss) before
extraordinary item $(70,860) $(39,057) $51,327 $109,117
Basic and diluted loss
per share $(0.0008) $(0.0004) $(0.0006) $(0.001)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Twelve months ended
December 31, 2000
Income (Loss) before
extraordinary item $(145,902) $(194,776) $(184,347) $(266,122)
Basic and diluted loss
per share $(0.004) $(0.006) $(0.0055) $(0.008)
NOTE 10 COMPARATIVE FIGURES
Certain of the comparative figures have been restated to conform with the
presentation of the current year.