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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________
Commission file number 0-22622
CREATOR CAPITAL LIMITED
(Exact name of registrant as specified in its charter)
BERMUDA 98-0170199
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Cedar House, 41 Cedar Street
Hamilton HM 12, Bermuda
(Address of principal executive offices)
(604) 947-2555
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No _____
The registrant had 87,782,611 shares of common stock outstanding as of June 30,
2002.
Exhibit index is located on page 13.
CREATOR CAPITAL LIMITED
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - June 30, 2002 and December 31, 2001 3
Consolidated Statements of Operations - Three Months ended June 30, 2002
and June 30, 2001 4
Consolidated Statements of Operations - Six Months ended June 30, 2002
and June 30, 2001 4
Consolidated Statements of Cash Flows - Six Months ended June 30, 2002
and June 30, 2001 5
Consolidated Statement of Shareholders' Equity (Deficit) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and 10
Results of Operations
PART II. OTHER INFORMATION
Item 6.(a) Exhibits 13
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CREATOR CAPITAL LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
June 30 June 30, December 31,
2001 2002 2001
$ $ $
Current Assets -----------------------------------
Cash and cash equivalents 111,887 152,948 90,890
Accounts and notes receivable 177,450 107,707 143,380
Prepaid expenses 106,337 48,042 70,079
-----------------------------------
Total current assets 395,674 308,697 304,329
-------------------------------------
Furniture, fixtures and equipment, at cost 460,809 484,485 468,343
Less: accumulated depreciation (331,865) (424,834) (378,932)
Furniture, fixtures and equipment, net 128,944 59,651 89,411
Advance to China Investments - 115,030 108,030
Total assets 524,618 483,378 501,770
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accrued Dividends 795,448 930,709 828,091
Accounts payable and accrued expenses 273,893 136,467 159,532
Notes Payable, Current Liabilities 18,000 18,000 18,000
------------------------------------
Total current liabilities 1,087,341 1,085,176 1,005,623
Notes Payable, Long Term 66,322 66,322 66,322
------------------------------------
1,153,663 1,151,498 1,071,945
Shareholders' equity
Class A preferred shares, $0.01 par value,
Authorized - 3,000 shares,
Outstanding - 2,237 shares 22 22 22
Class B preferred shares, $0.01 par value,
Authorized - 5,000,000 shares,
Outstanding - 2,075 and 2,662 shares 1 0 1
Common shares, $0.01 par value
Authorized - 100,000,000 shares;
Outstanding 87,782,611 and
24,367,414 shares 990,251 1,065,314 873,026
Additional paid-in-capital 65,296,772 65,213,731 65,405,998
Accumulated deficit (66,916,091) (66,947,187) (66,849,222)
--------------------------------------
(629,045) (668,120) (570,175)
--------------------------------------
Total liabilities and
shareholders' equity 524,618 483,378 501,770
=====================================
CREATOR CAPITAL LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Six Months
Ended June 30, Ended June 30,
2001 2002 2001 2002
$ $ $ $
--------------------------------------------
Revenue 144,385 90,014 295,595 209,262
--------------------------------------------
Operating Expenses
Depreciation and amortization 70,212 22,950 201,222 45,901
Consulting and contract labor 24,500 21,775 57,012 61,733
General and administrative 40,778 38,206 84,756 64,500
Legal -- 9,067 2,119 14,383
Marketing 5,068 2,475 5,068 8,058
Sky Play Management 44,000 -- 80,000 12,067
--------------------------------------------
184,558 94,473 430,177 206,642
--------------------------------------------
Other (Income) and Expense
Interest income (1,116) (266) (1,581) (397)
--------------------------------------------
Net Income (loss) (39,057) (4,193) (133,001) 3,017
============================================
BASIC AND DILUTED LOSS PER SHARE
Numerator for basic and diluted
loss per share:
Net Income (loss) (39,057) (4,193) (133,001) 3,017
Preferred stock dividends (86,740) (49,294) (86,740) (100,982)
--------------------------------------------
Gain (loss) to common shareholders (125,797) (53,487) (219,741) (97,965)
============================================
Denominator for basic and
diluted loss per share:
Weighted average shares
Outstanding 50,583,529 90,424,191 50,583,529 90,424,191
==============================================
Net loss per share 0.002 0.0006 0.004 0.011
==============================================
CREATOR CAPITAL LIMITED AND SUBSIDIARIES
STATEMENTS OF CASH FLOW
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, June 30,
2001 2002
------------------------------
OPERATING ACTIVITIES
Net Loss (133,001) (97,965)
Reconciliation of net loss to net cash used
in operating activities:
Depreciation and amortization 201,222 45,902
Other
Changes in assets/liabilities:
(excluding effect of acquisition)
Accounts receivable (15,550) 35,673
Prepaid expenses (29,582) 22,037
Accounts payable and accrued expenses (53,281) (23,065)
-----------------------------
Net cash provided by (used in)
operating activities (30,192) (17,418)
-----------------------------
INVESTING ACTIVITIES
Website (11,825) (7,000)
(Purchases) sales of property and equipment (2,860) (16,142)
Net cash provided by (used in) -----------------------------
investing activities (14,685) (23,142)
-----------------------------
FINANCING ACTIVITIES
Conversion of preferred shares to common shares 170,690 20
Payment of preferred stock dividends (86,740) 102,618
Notes payable (1,500) --
Net cash provided by (used in) ----------------------------
financing activities 82,450 102,638
----------------------------
Net increase (decrease) in cash 37,573 62,078
Cash, beginning of period 74,314 90,870
----------------------------
Cash, end of period 111,887 152,948
============================
CREATOR CAPITAL LIMITED AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity (Deficit)
For the Six Months Ended June 30, 2002
June 30 June 30 December 31
2001 2002 2001
$ $ $
------------------------------------------
Balance, December 31, 2000 (1999) (66,696,350) (66,849,222) (66,696,350)
Current Period's Accruing (133,001) 3,017 50,527
Preferred Stock Dividends (86,740) (100,982) (203,399)
Balance, end of Period (66,916,091) (66,947,187) (66,849,222)
CREATOR CAPITAL LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
The consolidated financial statements of Creator Capital Limited and
Subsidiaries ("CCL" or the "Company") included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). In management's opinion, these financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of operations for the interim periods
presented. Pursuant to SEC rules and regulations, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted from these statements unless significant changes have taken place since
the end of the most recent fiscal year. For this reason, the consolidated
financial statements and notes thereto should be read in conjunction with the
financial statements and notes included in the Company's Annual Report on Form
10-K for the year ended December 31, 2001.
The Company is a Bermuda exempted company, which, on September 27, 2000 changed
its name to Creator Capital Limited, and in June 1997, changed its name to
Interactive Entertainment Limited ("IEL") from Sky Games International, Ltd.
("SGI"). 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. In November 1998, the Company ceased operations of its inflight
gaming business and currently, the Company is concentrating on its Sky Play
entertainment games business.
On January 13, 1998, the Company completed the acquisition of all the outstand-
ing 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 games are marketed under the name Sky Play and, as of
June 30, 2002, currently are operating on a number of airlines: Air China,
Cathay Pacific, Continental, Emirates, Japan Airlines and Malaysia Airlines.
The purchase agreement provides for the Company to issue up to 250,000
additional shares of Common Stock to the previous owners of IIL upon achievement
of certain milestones regarding implementation of the Company's Sky Games gaming
software with an international airline to be designated by the parties. The
acquisition was accounted for using the purchase method.
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). Subsequently,
Asset China has informed CCL that it has changed its name to Trade Watch
Consultants Ltd.
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 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 (a U.K. corporation). All material intercompany
transactions have been eliminated in consolidation.
Goodwill
The goodwill, which arose from the acquisition of IIL, is being amortized on a
straight-line basis over three years. It is now amortized out.
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.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," ("SFAS No. 130") 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 Company's comprehensive income (loss) is substantial-
ly equivalent to net income (loss) for the three months ended June 30, 2002 and
2001, respectively.
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 and
in determining the impairment of long-lived assets. Actual results could differ
from those estimates.
NOTE 3 - ACQUISITION OF MINORITY INTEREST
Prior to June 17, 1997, the Company operated its principal business activities
under the name Sky Games International, Ltd. through its indirectly 80%-owned
subsidiary then known as Interactive Entertainment Limited ("Old IEL"). The
remaining 20% of Old IEL was held by an affiliate of Harrah's Entertainment,
Inc. (which, together with its affiliates, is referred to herein as "Harrah's").
Harrah's also managed the operations of Old IEL pursuant to a management
agreement effective December 30, 1994, (the "Management Agreement").
Effective June 17, 1997, pursuant to a Plan and Agreement of Merger and Amalga-
mation dated May 13, 1997; Old IEL was merged into the Company (the "Amalgama-
tions"). As part of the Amalgamations, the Management Agreement with
Harrah's was terminated. Harrah's received a total of 5,879,040 shares of
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 Amalgamations were announced, or $4.466 per
share.
NOTE 4 - SHAREHOLDERS' EQUITY
In December 1994, the Company discontinued an engineering and marketing arrange-
ment 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. The Company redeemed 500 shares
at their redemption price of $1,000 per share during 1998, but has been unable
to redeem additional shares.
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: (i) prior
to August 31, 1999, a conversion price equal to 65% of the average mean of the
closing bid and ask prices of the Common Stock for the 20 trading days prior to
the conversion (the "Market Price") and (ii) after 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. Upon liquidation, holders of
the Class A Preference Shares will be entitled to repayment of an amount equal
to $1,000 per share plus accrued and unpaid dividends, prior to anydistribu-
tions to holders of common Stock. Unpaid dividends of $930,709 were in arrears
as of June 30, 2002 and are included on the Consolidated Balance Sheets in
Accounts Payable and Accrued Expenses. The Class A Preference Shares does not
have any voting rights.
As part of the Amalgamation, Harrah's entered into the "Registration and Pre-
Emptive Rights Agreement" under which, among other things, Harrah's has the
right to receive additional shares of Common Stock at $.01 per share in order to
maintain their ownership percentage in the Company in the event that the Class A
Preference Shares held by BEA are converted into Common Stock. The value of any
such shares of Common Stock issued to Harrah's will be accounted for as an
adjustment to the purchase price incurred in the Amalgamation when and if such
shares are issued.
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 consider-
ation 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 divid-
end 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.
As of February 20, 1998, the Company sold 300 shares of Class B Series B
Convertible Preferred Stock at $1,000 per share. The Class B Series B Convert-
ible Preferred Shares have the same dividend and conversion features as the
Class B Series A 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 September 30, 1999, 38 shares of the Series B Class B shares had been
converted into Common Stock and 262 shares remained outstanding. As of March
31, 2000, the 262 shares were submitted for conversion into 9,863,529 shares of
common stock.
The unpaid dividends were included in the March 31, 2000 conversion submission.
NOTE 6 - 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"). 2,000,000 of the Performance Shares
were 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, 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 508,333 shares of Common Stock,
respectively. SGII, as of April 30, 1997, also agreed that it would 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 (the "Redemption and Cancellation Agreement"). 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
issued to SGII 80,590 shares of Common Stock. 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 automatic-
ally be canceled in accordance with the terms of the escrow agreement.
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.
Although the Performance Shares have no rights they are still issued and out-
standing, therefore they are included in the per share calculations for all
periods presented. Effective December 31, 2000 they are considered outstanding
for financial statement purposes
Item 2: 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"), is a Bermuda exempted company, which was incorp-
orated on January 28, 1981. 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 inter-
national commercial air carriers.
On January 13, 1998, the Company completed the acquisition of all of the out-
standing 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 June 30, 2002, Sky Play games are currently
installed and operating on Air China, Cathay Pacific, Emirates Air and Japan Air
Lines. During the second quarter of 2002, the number of airline customers
decreased from six to four, and the number of installed aircraft decreased to
116.
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 and that it had discontinued all operations associated
with the Sky Games product line. The Company stated that it would refocus its
business efforts to concentrate exclusively on its non-gaming inflight Sky Play
PC games, customers and business. All employees were terminated as of November
13, 1998. Those former employees retained on a part-time contract basis to
assist with the management of Sky Play are no longer so retained. Two former
employees, through their corporate entity, have been formally contracted to
attend to the Sky Play business. The discontinuation of the Sky Games business
has not had an adverse impact on the Sky Play business.
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;
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.
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. CCL's Sky Play revenues increased from
US$537,000 during 2000 to US$561,030.
As of December 31, 2001, both Egypt Air and Lauda Air ceased to be clients due
to budgetary constraints. As of March 31, 2002, American Airlines suspended use
of the Sky Play games. Those aircraft installed with the Matsushita 2000 IFE
systems were redeployed to short haul Caribbean routes due to a budgetary
realignment of the fleet. As of June 30, 2002, Continental Airlines and
Malaysia Air ceased to be clients.
CCL's principal activities through June 30, 2002 continued to focus on those
activities outlined for December 31, 2001. CCL is continuing to develop the
www.china-lotteries.com website. The completion of this site will enable CCL to
optimize the potential of its investment in China.
Subsequent to June 30, 2002, Steve Rosenberg resigned as a Director effective
July 12, 2002 due to professional commitments. He remains active as a
consultant to the Company. On August 1, 2002, J. B. (Jack) Isles passed away
suddenly. His valuable advice and active interest in CCL will be sorely missed.
Results of Operations
Six Months Ended June 30, 2002 and 2001
Revenue from operations for the six months ended June 30, 2002 was $209,262
compared to $295,595 during the six months ended June 30, 2001. Revenue
consisted of fees generated from the Sky Play amusement games acquired with the
purchase of IIL. The decrease in revenue reflects the fact that the number of
airlines and subsequently, the number of aircraft licensed to use the Company's
software has decreased. This result is directly attributable to the current
budgetary constraints of the airline industry in general and increased
competition.
General and administrative expense decreased from $84,756 in the 2001 period to
$64,500 in the 2002 period.
Consulting and contract labor expenses have increased from $57,012 to $61,733.
Product marketing increased from $5,068 to $8,058 and legal expense I ncreased
from $2,119 to $14,383.
Depreciation and amortization expenses decreased from $201,222 to $45,901.
Net gain of $3,017 for the six months ended June 30, 2002 compared to a loss of
$133,001 for the six months ended June 30, 2001 reflects the continuing efforts
of management to contain expenses, along with the significant decrease in the
depreciation and amortization expenses.
Liquidity and Capital Resources
At June 30, 2002, the Company had a working capital deficit of $776,479. The
accruing preferred share dividends payable substantially contributed to this
deficit. The Company had positive cash flow from operations during the six
months ended June 30, 2002. It has been sufficient to provide the necessary
funds for marketing, for continued development of the Company's products but not
adequate to fund payment of the Company's dividend obligations on outstanding
preference shares. The Company has negotiated a r estructuring and reduction of
certain amounts owed to two of its largest creditors and to a deferred payment
plan on these obligations. It is current with these agreements.
Forward-Looking Information
This Form 10-Q 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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) 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
Byelaws 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 (FileNo. 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 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. (Incorp-
orated 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 on 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.
Signature
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: "Deborah Fortescue-Merrin"
President
August 12, 2002