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, 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 NO. 0-22622
CREATOR CAPITAL LIMITED
---------------------------------------------------
(formerly known as INTERACTIVE ENTERTAINMENT 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)
(441) 295-2244; (604) 947-2555
(Registrant's telephone number, including area code)
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 $0.04 for the Common Stock as
reported by the OTC Bulletin Board March 21, 2003 is $3,631,801
The number of shares outstanding of the issuer's Common Stock, as of March
21, 2003: 90,795,037
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 2003 Annual Meeting of
Shareholders, which will be filed within 21 business days, are incorporated
by reference into Part III hereof.
CREATOR 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 3
Competition 4
Market and Marketing 4
Manufacturing 4
Sky Games System Acquisition 5
The Amalgamations 5
Major Customers 6
Investment - China Lotteries 6
Employees 6
Item 2 Properties 6
Item 3 Legal Proceedings 7
Item 4 Submission of Matters to a Vote of Security Holders 7
Part II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters 7
Item 6 Selected Financial Data 9
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Overview 9
Results of Operations 11
Liquidity and Capital Resources 11
Forward-Looking Information 13
Item 8 Financial Statements and Supplementary Data 13
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 13
Part III
Item 10 Directors and Executive Officers of the Registrant 13
Item 11 Executive Compensation 13
Item 12 Security Ownership of Certain Beneficial Owners
and Management 14
Item 13 Certain Relationships and Related Transactions 14
Part IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K 14
Signatures 17
Exhibit 12.11 E-1
Exhibit 12.12 E-2
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 dis-
appointing. 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 dis-
continued 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, had been contract-
ed 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 operation-
al. A review of the Company's records, and conversations with previous manage-
ment 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$117,030.00). To date, no
business profits have been generated nor distributed. No further funds will be
forwarded and the shares will not be distributed until there are business
profits generated and distributed.
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. To date,
the company has not issued the 500,000 shares of common stock, nor closed the
transaction, as there have not yet been any business profits generated or
distributed.
CCL is completing the website (www.worldwidelotteries-china.com), which is
directed towards the international marketing and sales of the Soccer Betting
Lottery as the website's development nears completion, CCL is pursuing arrange-
ments for marketing. A tentative agreement was reached with a Credit Card
Payment processing provider in late 2002. However, CCL was unable to acquire
adequate information from the provider to complete the due diligence process.
Further payment processing providers are being approached. These entities
provide CCL with the means to accept all manners of payment.
The Product
- -----------
1. Sky Play
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 on a per game, per aircraft basis. CCL is upgrading
the games currently featured in the Sky Play PC Interactive Games Catalogue so
that they will operate on the newer versions of MAS IFE hardware being intro-
duced into the airlines industry. CCL is also simultaneously in the process of
developing several new games for the Sky Play PC Interactive Games Catalogue.
On November 6 2002, the Company was granted federal registration of the "Sky
Play" Logo and name. "Sky Play" International & Design was applied for on
August 13, 2002, and CCL is awaiting response to Office Action files on
December 10, 2002.
2. Sky Games
CCL was been granted federal registration of the "Sky Games" logo and the
slogan "We Make Time Fly" by the U.S. Patent and Trademark Office on April 14,
1998. "Sky Games" International & Design was applied for on August 13, 2002,
and CCL is awaiting response to Office Action filed on December 6, 2002.
CCL also applied to register and trademark the "Sky Casinos" International &
Design was applied for on June 24, 2002, and CCL is awaiting response to Office
Action filed December 6, 2002.
Subsequent to the year-end, on March 4, 2003, CCL received "Notice of
Publication" for "Casino Class"; "Casino Class" and Design was filed on December
10, 2002.
At this time the Company has not applied for any patents.
The Industry
- ------------
The Boeing Company's Current Market Outlook (CMO) for 2002 makes the following
observation:
"The Airline industry is in the midst of a dramatic short-term cycle.
Even the terrorism events of September 11 2001, the largest world economic
slowdown in a decade was negatively impacting air travel and airline
profitability.
In 2001, world airline traffic fell by 4%, and the first half of 2002
remains at negative growth levels. World airline losses in 2001 (US$12 billion)
far surpassed any of the losses during the Gulf War era of the early 1990's.
Airlines and passengers are experiencing increased security costs resulting
from September 11, especially in the United States. Yet, basic airline industry
dynamics have not changed."
Having made that observation, utilizing 2000 as the base year, Boeing is still
forecasting passenger traffic growth of 4.5% annually over the next 21 years,
a drop of 0.2 %. The report noted that, to meet that growth, airlines are
expected to add over 23,930 airplanes to their fleets, worth more than $1.8
trillion in 2001 US Dollars for a total worldwide fleet of almost 33,000 air-
craft. Boeing estimates that approximately 26% of these new aircraft will be
intermediate (twin-aisle) and large aircraft. However, of that 26%, deliveries
of 747-size or larger aircraft will decrease from 7% to 4%, while deliveries
of intermediate size (twin-aisle) aircraft will increase from 18% to 22%. CCL
believes these forecasts represent a substantial market for IFE systems and
inflight content over the long-term.
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 fewer
than 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.
IMDC also sees a 20% smaller market for new aircraft than Boeing, resulting
is a total of 13,900 new aircraft in 2021 vs. Boeing's prediction of 17,200
new aircraft.
According to IMDC, during 2001 IATA member airlines produced a combined
operating profit of US$9.9 billion vs. a loss of US$9.7 billion in 2000.
However, the US airline accounted for the vast majority of that loss.
IMDC also reports that during the first half of 2002, all the U.S. airlines
continued to report losses, while in the Europe and Asia-Pacific regions,
financial results were mixed, even though the majority of airlines reporting
showed gains. Air traffic increased slightly through the Asia-Pacific region
by an average 2.2%, while the North American traffic decreased by an average
11.4%, and European traffic was down an average 8.4%. It is interesting to
note that capacities had decreased worldwide.
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
- -----------
There are currently seven major competitors supplying the inflight games
marketplace: Creator Capital, DTI, eflyte, Inflight Digital, Intergame,
Nintendo, and Western Outdoor Interactive. According to IMDC, the market
share is distributed as follows:
Supplier Market Share by Aircraft Market Share by Airline Client
- -------------------------------------------------------------------------------
Creator Capital 16% 12%
Nintendo 17% 21%
Inflight Digital 27% 16%
DTI Software 40% 51%
IMDC reports that there are three main types of interactive software packages
offered by games suppliers; games; gambling software, and educational software.
Not all suppliers supply in all three areas. CCL currently offers games and
gambling software, and has plans to add educational content over the next 18
months.
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 form 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. Since the tragic events of September 11 2001, the airline
industry, especially in the United States has been seriously affected by the
slumping economy. Total airline industry losses in 2001 were almost US$12
billion. The short term effect of these losses has also resulted in a decline
of clients for CCL.
CCL is currently in the process of developing several new games for the Sky Play
PC Interactive Games Catalogue, while updating some of the current games. This
will enable CCL to offer current client fresh material, while affording an
opportunity to re-visit previous clients and potential new clients.
IMDC made the following statements in its IFE Market Monitor - September 2002
Edition:
"IMDC research has shown that, on average, 25% of passengers would like
to see PC games as feature of IFE. 4% of passengers would like to see games
on short-haul flights."
"It is clear that, as the aircraft market starts to have a relatively high
penetration of reliable interactive IFE systems, inflight games have become an
integral part of any interactive content offering. With almost every wide-body
now being delivered with an IFE system capable of providing multi-channel
entertainment, and a high proportion of these with an interactive system, it
is clear that the customer-base and the number of aircraft served by the
inflight games suppliers will significantly increaser in the coming years."
CCL feels that, while the airline industry may be having its difficulties in
the short-term, the long-term forecasts are most encouraging for the IFE games
sector as a whole.
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 generat-
ed 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 trade-
marks 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, Cathay Pacific Airways,
Emirates Air, Japan Air Lines.
During the first quarter of 2002, American Airlines ceased to be a client
due to budgetary restraints. Malaysia Airlines ceased to be a client as they
terminated their agreement with their contracted IFE Inflight content provider
who was providing them with CCL Sky Play games. Continental Airlines also
ceased to be a client at the end of the second quarter of 2002,
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 Soccer Betting and Lottery assets.
To date, the Company has forwarded HK$900,000.00 (US$117,030.00). To date, no
business profits have been generated nor distributed. No further funds will be
forwarded and the shares will not be distributed until there are business
profits generated and distributed.
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. To date,
the company has not issued the 500,000 shares of common stock, nor closed the
transaction, as there have not yet been any business profits generated or
distributed.
CCL is completing the website (www.worldwidelotteries-china.com), which is
directed towards the international marketing and sales of the Soccer Betting
Lottery as the website's development nears completion, CCL is pursuing
arrangements for marketing. A tentative agreement was reached with a Credit
Card Payment processing provider in late 2002. However, CCL was unable to
acquire adequate information from the provider to complete the due diligence
process. Further payment processing providers are being approached. These
entities provide CCL with the means to accept all manners of payment.
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 was retained and correspondence occurred with
eflyte's counsel. Such correspondence did not result in a satisfactory
resolution. In December 2002, arbitration proceedings were initiated against
eflyte, LLC. CCL is currently awaiting an Arbitration date.
ITEM 2. PROPERTIES
Not applicable.
ITEM 3. LEGAL PROCEEDINGS
CCL has retained legal counsel in the matter of the termination, effective April
22, 2001, by eFlyte, LLC as the managers of the Sky Play business, and sub-
sequent actions by eFlyte, LLC and its principals. correspondence occurred with
eflyte's counsel, however, Such correspondence did not result in a satisfactory
resolution. In December 2002, the Company initiated Arbitration proceedings
under the provisions of the management agreement with eflyte, LLC. CCL is
currently awaiting an Arbitration date.
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 Twelve Months
Ended Ended
December 31, 2002 December 31, 2001
- ------------------------------------------------------------------------
High Low High Low
- ------------------------------------------------------------------------
First Quarter $0.4600 $0.2100 $0.0600 $0.0325
Second Quarter $0.2900 $0.1400 $0.1600 $0.0300
Third Quarter $0.1700 $0.0500 $0.4200 $0.0900
Fourth Quarter $0.1000 $0.0350 $0.7700 $0.3000
As of March 31, 2003, there were 277 shareholders of record. Since certain of
CCL's Common Shares are held by brokers or other nominees, the number of record
holders may not be representative of the number of beneficial holders. CCL
believes there are approximately 2,200 beneficial holders of the Company's
Common Shares.
CCL has not paid any cash dividends on its Common Stock and does not anticipate
paying any such dividends in the foreseeable future.
In June, 1997, the company issued 2,737 Class A Preference Shares in exchange
for a promissory note in the amount of $2,737,000. During 1998, the Company and
the holder agreed that the Company would redeem the Class A Preference Shares in
installments beginning June 30, 1998. As of August 31, 1998, the Company had
redeemed 500 shares at their redemption price of $1,000 per share. The Company
was unable to redeem additional shares. As of March 31, 2000, 2,237 Class A
Preference Shares remained outstanding and were convertible at $0.4626855 into
4,834,818 shares of Common Stock on that date. If the Class A Preference Shares
are converted into Common Stock, HIIC has the right to receive additional shares
of Common Stock at $0.01 per share. As of March 31, 2000, HIIC would be
entitled to receive 476,320 shares. The actual number of shares of Common Stock
issuable upon conversion may be higher or lower and is based on a discount to
the 20 day average of the mean closing bid and ask price of the Company's Common
Stock. It is also inversely proportional to the market price of the Company's
Common Stock i.e. if the average share price decreases, the number of shares of
Common Stock issuable increases. Dividends of $252,126 on the Class A Pre-
ference 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 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
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 issu-
able upon the conversions were 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. s 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 were convertible into 480,000 shares of Common Stock
at $0.25 per share. On January 8, 2001, these shares were submitted for
conversion, and 480,000 common shares were issued.
During 2002, the 3,492,426 common shares issuable based upon conversion of
Class B Series A Preference shares during 1999, were issued. When these the
Preference Shares were submitted for conversion during 1999, the authorized
number of common shares had already been issued. Shareholders passed a
resolution at the 2000 Annual General Meeting, authorizing an increase in the
authorized number of common shares, however these shares were not issued until
2002 due to an oversight.
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
Twelve Months Ended December 31
2002 2001 2000 1999 1998
-----------------------------------------------------
Statement of
Operations Data:
Gain/Loss before
Extraord-
inary item $(284,827) $(152,872) $(1,159,338) $1,389,736 $29,056,000
------------------------------------------------------------
Extraordinary
(gain)loss - - - $ (83,936) -
------------------------------------------------------------
Net Gain/Loss $(284,827) $(152,872) $(1,159,338) $(1,305,800) $29,056,000
============================================================
Gain/Loss per share before
extraordinary item $(0.004) $(0.002) $0.02 $0.03 $1.40
Extraordinary item - - - - -
------------------------------------------------------------
Loss per share $(0.004) $(0.002) $0.02 $0.03 $1.40
Weighted number
of common 90,795,037 70,385,000 50,000,000 47,785,147 20,998,189
shares outstanding
Number of common shares
outstanding at
period end 90,795.037 87,302,611 50,000,000 50,000,000 24,367,414
(in thousands except per
share and share data)
As of December 31,
2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------
Balance Sheet Data:
Working capital
(deficit) $ (930) $ (701) $ (827) $ (535) $ (330)
Total assets 378 502 628 1,434 2,509
Long term debt 66 66 67 81 -
Redeemable preferred stock
Class A Series A 2,237 2,237 2,237 2,237 2,237
Class B Series A 120 1720 2400
Class B Series B 262 300
Shareholders' equity
(deficit) $ (855) $ (570) $ (580) $ (579) $(1,885)
Equity (deficit) per
common share $(0.01) $ (0.01) $(0.01) $(0.01) $ (0.08)
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 Agree-
ment, 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.
CCL's principal activities through December 31, 2002 consisted of the
development of the China Lotteries website. Several challenging factors
were addressed: the overall look and format of the site; the various ordering
processes and technicalities involved; the timely collection of games results,
and lottery winners for posting on the site; the written Chinese language
interpretations; the internet registrations, URL addresses and language
interpretations; the international payment processing providers; and the
marketing of the website internationally.
The advent of the PC Tablet notebook computer configuration led CCL to resurrect
its original stand-alone concept for the Sky Games Gaming system. Utilizing
various models of Fujitsu PC Tablet hardware, the CCL previewed the concept of
both a stand-alone and a wireless system at the 2002 World Airline Entertainment
Association's (WAEA) annual convention.
As at December 2002, American Airlines ceased to be a client due to budgetary
constraints. Malaysia Airlines ceased to be a client as they terminated their
agreement with their contracted IFE Inflight content provider who was providing
them with CCL Sky Play games. Continental Airlines also ceased to be a client
at the end of the second quarter of 2002,
Results of Operations
- ---------------------
Twelve Months Ended December 31, 2002 and December 31, 2001
Revenue decreased from $561,030 to $326,162. The revenue decrease is due to a
reduction in airline clients and vigorous competition from one particular PC
games provider.
General and administrative expenses increased by $54,348.
Consulting and contract labour expenses decreased by $51,791
Depreciation and amortization expenses decreased by $153,311
Legal expenses increased by $25,518. CCL increased its efforts with registering
and maintaining various trademarks pertinent to the Sky Games and Sky Play
business. Outstanding issues with eflyte, LLC, led to continuing legal expense
culminating with the filing of Arbitration proceedings in December 2002.
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.
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 share-
holders 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 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, 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 "antici-
pate" 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
CCL does not have any changes in, or disagreements with, any accountants on
accounting and financial disclosure
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, 2002 and December 31,
2001.
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. (Incorporated by reference to Exhibit 11.11 to the
Registrants Annual Report on Form 10-K (File No. 0-22622) as filed with the SEC
on April 1, 2002
11.12 Investment Agreement dated November 1, 2001, between the Company and Lee
John Associates. (Incorporated by reference to Exhibit 11.12 to the Registrants
Annual Report on Form 10-K (File No. 0-22622) as filed with the SEC on April 1,
2002
12.11 Annulment Agreement, dated as of April 10, 2001, between the Company and
James P Grymyr. (Attached to this Annual Report on Form 10K as Exhibit 12.12)
12.12 Consulting Agreement, dated as of January 2, 2002, between the Company
and Stephen M West . (Attached to this Annual Report on Form 10K as Exhibit
12.11)
27** Financial Data Schedule
*Confidential treatment has been granted.
**Submitted herewith.
(b) REPORTS FILED ON FORM 8-K
02.01 Dated January 24, 2002. Other Events include Press Release dated January
23, 2002
02-02 Dated February 22, 2002. Other Events include Press Release dated
February 21, 2002
02-03 Dated March 22, 2002. Other Events include Press Release dated March 21,
2002
02-04 Dated April 23, 2002. Other Events include Press Release dated April 22,
2002
02-05 Dated May 20, 2002. Other Events include Press Release dated May 16,
2002
02-06 Dated June 13, 2002. Other Events include Press Release dated June 13,
2002
02-07 Dated July 19, 2002. Other Events include Press Release dated July 19,
2002
02-08 Dated August 19, 2002. Other Events include Press Release dated August
15,2002
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, 2003 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, 2003
Michael L. Bartlett
/s/ Anthony P. Clements Director March 27, 2003
Anthony P. Clements
/s/ Deborah Fortescue-Merrin Chairman, March 27, 2003
Deborah Fortescue-Merrin President and Director
/s/ Anastasia Kostoff-Mann Director, March 27 ,2003
Anastasia Kostoff-Mann Vice President
Part IV
Item 14: Exhibit 12.11
Annulment Agreement, dated as of April 10, 2001, between the Company and James P
Grymyr.
This agreement was executed in 2002,and therefore is included in this Annual
Report Form 10-K
ANNULMENT AGREEMENT
THIS AGREEMENT is dated for reference this 20th day of June, 2001
BETWEEN:
CREATOR CAPITAL LIMITED
A Company incorporated in the Islands of Bermuda, having its registered
office at:
Cedar House,
41 Cedar Street,
Hamilton HM12, Bermuda
(Hereinafter called the "Company")
OF THE FIRST PART
AND:
JAMES P. GRYMYR,
A citizen and resident of the United States, having an address at
4546 Carriage Lane,
Las Vegas, Nevada,
United States of America, 89119
(hereinafter called "Grymyr")
OF THE SECOND PART
WHEREAS:
1. On April 30, 1997, the Company (then known as Interactive Entertainment
Limited) and Grymyr entered into a Consulting Agreement (attached hereto as
Schedule "A"). Under the terms of this Agreement, Grymyr would provide
consulting services to the Company as requested by the Company from time to
time. For these services both past and future, the Company issued Grymyr
586,077 common shares. These shares were subsequently valued at
US$1,142,850.
2. The Company has since determined that Grymyr did not provide any of the
proscribed consulting services under the Consulting Agreement, thereby
violating its terms.
3. Grymyr consents that he did not fulfill undertakings and covenants of the
Consulting Agreement.
4. Both the Company and Grymyr wish to annul the Consulting Agreement, thus
making it VOID AB INITIO, as at the date of April 30, 1997. As consideration,
Grymyr consents to the return of the 586,077 common shares, as issued June 12,
1997 and represented by Share Certificate Number 06744. A copy of the
certificate is attached as Schedule "B".
NOW THEREFORE THIS AGREEMENT WITNESSTH in consideration of the mutual
covenants and agreements herein contained, the parties hereto agree as
follows:
1.0 The Agreement
1.1 The Company agrees to annul the Consulting Agreement upon the receipt of
the Share Certificate Number 06744, issued June 12th, 1997, representing the
586,077 common shares. The Company agrees to issue a rescinded Amended 1997
Form 1099 of the United States Internal Revenue Code, canceling the one
originally issued during 1997.
1.2 Grymyr agrees to annul the Consulting Agreement upon the delivery of the
Share Certificate Number 06744, and he agrees not to hold the Company
responsible or liable, legally or financially for any expenses incurred, or
services rendered at any time either in the past, present or future.
1.3 These consents by both the Company and Grymyr to annul the Consulting
Agreement are VOl AB INITIO as at the April 30th 1997 effective date.
2.0 Further Assurances
2.1 The Parties hereto agree to execute such further and other assurances
and/or documents as may be necessary to complete the true intent and meaning
of this Assignment Agreement.
3.0 Notice
3.1 All notices, requests, demands and other communications required or
permitted hereunder, or desired to be given with respect to rights or
interests herein, will be in writing and must be delivered or sent by
telecopier to the Parties at their respective addresses as set out on the
first page hereof. The Telecopier numbers for the parties are:
CREATOR CAPITAL LIMITED: 441-292-8666 or 604-947-0294
JAMES P. GRYMYR: 702-732-1350
Any such notice will be deemed to have been given on the date of delivery.
4.0 Governing Law
4.1 This Agreement will be construed and enforced in accordance with the
laws of the Nation of Bermuda
5.0 Entire Agreement
5.1 This Agreement contains the entire agreement by and between the Parties
and no oral agreements; promises, statements or representations which are not
contained herein will be binding on the Parties. No amendment or modification
of this Agreement will be effective unless and until the same will be produced
in writing and duly signed and executed by the Parties.
6.0 Counterparts
6.1 This Agreement and any certificate or other writing delivered in
connection herewith may be executed in any number of counterparts and any
party hereto may execute any counterpart, each of which when executed and
delivered will be deemed to be an original and all of which counterparts of
this Agreement, or such other writing as the case may be, taken together,
will be deemed to be one and the same instrument. The execution of this
Agreement any other writing by any party hereto will not become effective
until all counterparts hereof have been executed by all the parties hereto.
7.0 Headings
7.1 The Headings are for convenience only. They do not form a part of this
Agreement and are not intended to interpret, define or limit the scope,
extent or intent of this Agreement or any provision hereof.
8.0 Time of Essence
Time will be of the essence of this Agreement.
9.0 Liability
9.1 The liability of the parties under the terms this Agreement, will be
9.2 several and joint, unless otherwise specified.
10.0 Enurement
10.1 This Agreement will enure to the benefit of and be binding upon the
10.2 parties hereto, their respective heirs, executors, administrators,
10.3 successors and assigns.
IN WITNESS WHEREOF the Parties hereto have executed this Agreement as of the
day and year above first written.
CREATOR CAPITAL LIMITED JAMES P. GRYMYR
- ------------------------ --------------------
Authorized Signatory Authorized Signatory
SCHEDULE "A"
TO
ANNULMENT AGREEMENT APRIL 10, 2001
The CONSULTING AGREEMENT Dated April 30, 1997
SCHEDULE "B"
TO
ANNULMENT AGREEMENT APRIL 10, 2001
Copy of Original Share Certificate No.: 06744 issued on June 12, 1997 in the
name of James P Grymyr
Part IV
Item 14: Exhibit 12.11
Consulting Agreement, dated as of January 2, 2002, between the Company and
Stephen M West
PROFESSIONAL SERVICES CONTRACT
THIS AGREEMENT MADE AS OF THE SECOND DAY OF JANUARY, 2002 ( the "Effective
Date")
BETWEEN:
CREATOR CAPITAL LIMITED,
A Bermuda Exempted Company, having its registered and records offices
at:
Cedar House, 41 Cedar Street,
Hamilton HM12, Islands of Bermuda;
(hereinafter referred to as "CREATOR")
OF THE FIRST PART
AND:
STEPHEN WEST SERVICES,
A proprietary business, having its business address at:
Suite 22O2, 144 West Fourteenth Avenue,
North Vancouver, British Columbia,
Canada, V7M 1P1;
(hereinafter referred to as "WEST SERVICES")
OF THE SECOND PART
WHEREAS:
A. CREATOR is the owner and operator of various computer based services and
products. As at the date of this Agreement, these include Sky Games and Sky
Play products, and the current new product "www.china-lotteries.com".
B. WEST SERVICES provides computer software technical, managerial and
maintenance services ('1 The Services"). It shall provide software
technicians to carry out all aspects of software analysis, trouble shooting,
applications and development.
C. CREATOR wishes to contract the services provided by WEST SERVICES for
CREATOR's products.
NOW THEREFORE THIS AGREEMENT WITNESSTH THAT in consideration of the mutual
covenants and agreements herein contained, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto do covenant and agree each with the
other (the "Agreement ") as follows:
10.0 DEFINITIONS: This section shall constitute a part of this Agreement.
The definitions of the following words and/or phrases shall be for this
Agreement only.
EFFECTIVE DATE: the date of reference of this Agreement, as so noted at the top
of the fronts page.
INTELLECTUAL PROPERTY: includes, but is not limited to, all inventions,
developments, patents, copyrightable subject matter, copyrights, rights of
reproduction, alteration, modification, upgrades, adaptations, revisions,
enhancement or other changes including, but limited to, changes to computer
software programmes, source codes, programmes, tapes, diskettes, data, deriv-
ative works and reuse, test data, trade secrets, and all other confidential
information and software.
THE SERVICES: the computer software technical, managerial and maintenance
services, as described in Schedule "A" hereto attached.
WEST SERVICES et al.: includes the owners, partners, principals, and employees
of WEST SERVICES.
2.0 AGREEMENT:
2.0 On the basis of the representations, warranties, covenants and agreements
of the parties contained in this Agreement, and subject to the terms of this
Agreement, CREATOR contracts with WEST SERVICES whereby WEST SERVICES provides
The Services to CREATOR's businesses and product lines.
2.1 WEST SERVICES hereby agrees to perform The Services as set forth in Schedule
"A" to this Agreement under the terms and conditions contained herein.
2.2 The Term of this Agreement shall commence January 2, 2002 for a period of
one year. It is renewable on a yearly basis with January 1 being the
anniversary date for ensuing years.
2.3 There shall be an initial probationary period of ninety calendar days. Upon
written mutual consent (provided under Schedule "B"), the term of the agreement
shall continue in effect monthly thereafter.
2.4 The Agreement may be terminated by either party delivering to the other
party written notice of termination, providing a sixty-day period to the
termination effective date.
2.5 In the event WEST SERVICES becomes unable to perform the The Services
due to illness, accident and/or WEST SERVICES' employees failure to perform
the services in a timely and competent manner as determined by CREATOR, WEST
SERVICES shall have five business days to resolve the lapse of the lack of
performance. Should WEST SERVICES be unable to resolve the lapse, this
Agreement shall immediately terminate.
THE SERVICES: Details of the definition and scope of the The Services under
this Agreement is set out under Schedule "A", hereto attached.
3.0 FEES:
3.0 During the term of this Agreement, including the initial probationary
period, CREATOR shall provide WEST SERVICES the fee of Cdn$5,000.00 monthly.
3.1 WEST SERVICES shall invoice CREATOR monthly for services provided during the
previous month. CREATOR shall pay said invoices within thirty (30) days of the
date of receipt. Upon termination of this Agreement, CREATOR shall promptly pay
WEST SERVICES all amounts due and payable hereunder.
4.0 CREATOR COVENANTS:
4.0 CREATOR shall provide appropriate information and all other material to
assist WEST SERVICES to perform its services.
4.1 CREATOR retains the right to use other sources in the achievement of this
various business goals, including The Services.
5.0 WEST SERVICES COVENANTS:
5.0 WEST SERVICES represents and warrants that it is able to enter into this
Agreement and perform The Services for CREATOR. Such abi1ity is not limited or
restricted by any agreements or understandings between WEST SERVICES, its
owners, partners or emp1oyees with other persons and/or companies.
5.1 WEST SERVICES shall defend, indemnify, and hold harm1ess CREATOR from and
against all liabilities, claims, costs, fines and damages of any type, including
Attorney and any other legal fees. This includes, but is not limited to, claims
for wages, benefits, ,taxes and worker's compensation insurance costs, premiums,
fines etc., arising out of or in any way related to WEST SERVICES' providing The
Services to CREATOR.
5.2 WEST SERVICES will not disclose nor disseminate to anyone in the normal
course of business with any details pertaining to the financial arrangement of
compensation received by WEST SERVICES, or any other individual assigned by WEST
SERVICES, from CREATOR. The exception being WEST SERVICES' accounting and income
tax requirements.
5.3 WEST SERVICES acknowledges it is solely an independent contractor.
5.4 Nothing contained in this Agreement shall be deemed to constitute either
CREATOR or WEST SERVICES as an agent, representative, partner, joint venturer,
nor employee of the other party, for any purpose. Neither party can bind the
other to any agreement with anyone else, individual or corporate.
5.5 WEST SERVICES ensures its owners, operators, and employees are permitted to
work within the legal jurisdiction which WEST SERVICES operations are located,
and from which WEST SERVICES will supply The Services to CREATOR under this
Agreement.
5.6 Where applicable, WEST SERVICES shall provide CREATOR with proof of proper
workers' compensation insurance.
5.7 WEST SERVICES shall provide CREATOR with proper Liability Insurance covering
its liability in providing The Services to CREATOR. The minimum liability
insurance coverage shall be Cdn$3,000,000. This insurance shall be kept in good
standing throughout the duration of the term of this Agreement.
5.8 WEST SERVICES et al. are not eligible for and will not participate any of
CREATOR's benefit programmes nor receive any other fringe benefits from CREATOR.
5.9 WEST SERVICES covenants it is able to provide The Services in the highest of
standards of the computer software industry, and shall do so with appropriate
business decorum.
5.10 Should CREATOR deem it necessary to contract others to aid in the
development of any project or in providing The Services, WEST SERVICES
shall fully co-operate and work in co-operation with those others.
5.11 WEST SERVICES shall provide its own tools and materials as required to
provide The Services contracted under this agreement, except where mutually
agreed.
5.12 Any expenses made by WEST SERVICES on behalf of CREATOR shall be submitted
with the appropriate invoices and explanations. Payment shall be made with the
next retainer payment. However, WEST SERVICES must confirm and obtain written
prior approval for any such expenditure. Any such request shall explain the
merits of the proposed expenditures.
5.13 Under Schedule "C", hereto attached, WEST SERVICES et al. shall provide
a list of any currently existing created or conceived inventions, notions,
patents, or developments, which could be related in any way to Creator's
businesses.
5.14 WEST SERVICES shall promptly notify CREATOR, in writing, of all
intellectual property conceived and/or developed during the tenure of its work
for CREATOR.
5.15 WEST SERVICES shall keep industry standard records of all intellectual
property developments to which it contributed during the course of this
Agreement. All such records shall be submitted to CREATOR on a regular basis.
5.16 WEST SERVICES shall maintain a daily diary of all activities under this
Agreement. On weekly basis, WEST SERVICES shall submit a written weekly report
based upon this diary.
5.17 WEST SERVICES shall assign, and does hereby assign to CREATOR all right,
title and interest to any and all intellectual property conceived and/or
developed by WEST SERVICES in the course of STEPHEN WEST's past work with
CREATOR and any future work under the terms of this Agreement.
5.18 Upon the termination of this Agreement, WEST SERVICES shall promptly
download any and all information and data onto an appropriate medium, diskette,
CD, DVD, etc. from its computers and deliver said material to CREATOR. WEST
SERVICES shall then erase all such information and data from its computers. At
that time, a certificate attesting to this shall be provided from WEST SERVICES
to CREATOR.
6.0 OWNERSHIP:
6.0 All content, documents and information (in whatever form) provided by
CREATOR to WEST SERVICES is supplied in confidence. This Agreement does not
provide WEST SERVICES with any right, licenses, nor authority to divulge,
reveal, use, nor supply said
information to WEST SERVICES best interest. Should it be necessary to provide
said information to a third party to expedite WEST SERVICES' work, WEST SERVICES
must inform CREATOR. A Confidentiality Agreement must be in place between
CREATOR and the Third Party. CREATOR shall provide said Confidentiality
Agreement. 6.1 All content, documents and information (in whatever form)
provided by CREATOR to WEST SERVICES shall be returned to CREATOR upon the
termination of this Agreement.
6.2 Should this Agreement terminate prior to the end of its term, any fees owing
shall be issued on a "pro-rata" basis for the current month. Such funds shall
be released upon return of all CREATOR materials in WEST SERVICES possession.
6.3 Under the terms of this Agreement, all rights, title and interest in all
intellectual property conceived or developed by WEST SERVICES et al in the
course of WEST SERVICES' work or services for CREATOR, shall be the sole
property of CREATOR. All software and any other intellectual property shall
be the sole property and ownership of CREATOR.
7.0 CONFIDENTIALITY:
7.0 WEST SERVICES recognizes and acknowledges CREATOR's Corporate and Business
knowledge and its businesses and projects are confidential. To enable CREATOR
to operate its businesses and projects such information flows between the
various business sectors, divisions, and/or subsidiaries/affiliates. CREATOR's
Goodwill depends upon, among other things its keeping such information
confidential. Unauthorized disclosure of the same would irreparably damage
the Company. Under this Agreement, WEST SERVICES will be privy to, and be in
possession of all such information, in order to execute The Services. Such
information includes, but is not limited to all documents, other lists, files,
drawings, prints, prototypes, models, manuals, letters, lists, notes, notebooks,
reports, computer software programmes, and all copies of any of these items, or
any other documents and/or computer software programmes relating to all such
material/information, whether or not prepared by WEST SERVICES.
7.1 At any time during the term of this Agreement, or after its termination,
WEST SERVICES et al. shall not copy, store, save, can, use or make, or make
available, either directly or indirect1y, to any person or company, including
but not limited to any competitor or potential competitor of CREATOR all
information to which it shall be privy.
7.2 Only under written express authority from CREATOR, shall WEST SERVICES
divulge any such information during the course of the performance of the The
Services.
7.3 WEST SERVICES shall ensure that its owners, partners, joint venturers,
principals and/or employees shall have executed a Confidentiality Agreement
agreeing to these provisions, and have them attached hereto under Schedule
"D". WEST SERVICES shall ensure that any future members shall execute the
Confidentiality and Intellectual Property Agreement.
7.4 Upon the termination of this Agreement, WEST SERVICES et al. shall return
all such confidential information.
8.0 INJUNCTIVE RELIEF: WEST SERVICES acknowledges and agrees that any
violation of any of this Agreement would cause immediate irreparable damage
to CREATOR. It would be extremely difficult or impossible to determine the
amount of damage caused to CREATOR. Therefore, WEST SERVICES consents to the
issuance of a temporary restraining order, preliminary and permanent injunction,
and other appropriate relief to restrain any actual or threatened violation of
this Agreement, without limiting any other remedies the Company may
have.
9.0 ARBITRATION: During the term of this Agreement, or after its termination,
before or after, or any aspect of WEST SERVICES relationship with CREATOR, or
cessation of that relationship, in the event of any dispute or claim regarding
any provision of this Agreement, WEST SERVICES agrees to submit the dispute or
claim to arbitration in the CITY OF VANCOUVER, BRITISH COLUMBIA, CANADA. An
arbitrator shall be selected in accordance with the rules of the Canadian
Arbitration Association as the exclusive remedy for any such dispute or claim.
10.0 NOTICES: Any and all notices to the Parties are to be sent to:
CREATOR: P.O. Box 280
Bowen Island, British Columbia
Canada, VON 1GO
Tel: 604-947-2555
Fax: 604-947-0294
E-mail: missyharvey@earthlink.net
WEST SERVICES: Suite 2202, 144 West Fourteenth Avenue
North Vancouver, British Columbia
Canada, V7M 1P1
Tel: 604-990-9890
Fax: 604-990-9890
E-Mail: steve.west@telus.net
GOVERNING LAW
This Agreement shall be governed by, construed in and enforced in accordance
exclusively with the Laws of the Province of British Columbia, Vancouver,
Canada.
If any provision of this Agreement is rendered inoperative or illegal by
operation of law or otherwise, all other provisions contained herein shall
remain in full force and effect, and in such cases the principle of sever-
ability shall govern.
13.0 TIME: Time is of the essence of this Agreement.
14.0 ENURITY: This Agreement shall enure to the benefit of, and be binding
upon, the Parties hereto and their respective heirs, executors, successors and
assigns.
15.0 OTHER DOCUMENTS: The Parties hereto agree to execute and deliver all
such further documents and other writings of any kind whatsoever, and all such
further acts and things as are reasonably required, to carry out the full
intent and meaning of this Agreement.
16.0 COUNTERPART: This Agreement may be signed in as many counterparts as may
be deemed necessary, each of which is signed shall be deemed to be an original,
and all such counterparts together shall constitute one and the same instrument.
IN WITNESS THEREOF the parties have hereunto set their hands and seals
effective as of the Effective Date first above written.
DULY SIGNED, SEALED AND DELIVERED
BY CREATOR CAPITAL LIMITED
BY:
/S/ DEBORAH FORTESCUE-MERRIN January 2, 2002
- ------------------------------------ Dated: ------------------
Signature
DEBORAH FORTESCUE-MERRIN
- -----------------------------------
Name
President
- -----------------------------------
Title
DULY SIGNED, SEALED AND DELIVERED
BY STEPHEN MICHAEL WEST
BY:
/s/ STEPHEN MICHAEL WEST January 2, 2002
- ------------------------------------ Dated: -----------------
Signature
STEPHEN MICHAEL WEST
- ------------------------------------
Name
- ------------------------------------
Title
PROFESSIONAL SERVICES CONTRACT
JANUARY 2, 2002
SCHEDULE "A"
The Services
Under the terms of the above noted Professional Services Contract between WEST
SERVICES AND CREATOR, the following are, but not limited to, the services:
i. Sky Play Product Management
ii. Sky Play Product Maintenance
iii. New Sky Play Product development (includes, but not limited to)
-new games software
-acquisition of outsourced new games software
iv. Sky Games Product Management
v. Sky Games Product Maintenance
vi. New Sky Games Product development (includes, but not limited to)
-new games software
-analysis of the existing software
-recommendations of improvement
-Sky Games software revisions
vii. Customer Service for both Sky Play and Sky Games
viii. Vendor Relations
ix. Assistance in the maintenance and upgrading of the corporate Website
xi. China Soccer Sports Bet Lottery and Gambling Product
xii. Assistance in the development of new products
xiii. Assistance in the development of new business ventures
PROFESSIONAL SERVICES CONTRACT
JANUARY 2, 2002
SCHEOULE "B"
WRITTEN CONSENT LETTER
April 2, 2002
Stephen M. West, Esq.
West Services
Suite 2202, 144 West Fourteenth Avenue
North Vancouver, British Columbia
Canada, V7M 1P1
Dear Mr. West:
RE: PROFESSIONAL SERVICE CONTRACT, JANUARY 2, 2002
Under Section 1.4 of the above referenced Contract, the probationary period has
expired. The Company now effects the Agreement in full for the term of the
contract to January 1, 2003.
Yours sincerely,
/S/ Deborah Fortescue-Merrin
Deborah Fortescue-Merrin
President and Director
Creator Capital Limited
PROFESSIONAL SERVICES CONTRACT
JANUARY 2, 2002
SCHEDULE "B"
WRITTEN CONSENT LETTER
April 2, 2002
Deborah Fortescue-Merrin
Creator Capital Limited
P. 0. Box 280
Bowen Island, British Columbia
Canada, VON 1GO
Ms. Fortescue-Merrin;
RE: PROFESSIONAL SERVICES CONTRACT, JANUARY 2, 2002
Thank you for your letter effecting the full term of the above referenced
Contract. I accept Agreement term.
Yours sincerely,
/s/ Stephen M. West
Stephen M. West
West Services
PROFESSIONAL SERVICES CONTRACT
JANUARY 2, 2002
SCHEDULE "C"
LIST OF PRIOR INVENTIONS, INTELLECTUAL PROPERTY,
AND ORIGINAL WORKS OF AUTHORSHIP
TILE DATE DESCRIPTION
- ------------------------------------------------------------------------
ACKNOWLEDGED:
CREATOR CAPITAL LIMITED STEPHEN MICHAEL WEST
BY:
/S/ DEBORAH FORTESCUE-MERRIN /S/ STEPHEN MICHAEL WEST
- ----------------------------------- ---------------------------
Signature Signature
DEBORAH FORTESCUE-MERRIN JANUARY 2, 2002
- ----------------------------------- ---------------------------
Name (printed) Dated
President
- -----------------------------------
Title
JANUARY 2, 2002
- -----------------------------------
Dated
PROFESSIONAL SERVICES CONTRACT
JANUARY 2, 2002
SCHEDULE "D"
CONFIDENTIALITY AGREEMENT
Names of each individual providing Agreements
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
CREATOR CAPITAL LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
(U.S. DOLLARS)
INDEX
PAGE
REPORT OF INDEPENDENT AUDITORS 3
CONSOLIDATED BALANCE SHEET 4
CONSOLIDATED STATEMENT OF OPERATIONS 5
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT 6
CONSOLIDATED STATEMENT OF CASH FLOWS 7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8-16
F-3
REPORT OF INDEPENDENT AUDITORS
To the Shareholders
Creator Capital Limited
We have audited the accompanying consolidated balance sheets of
Creator Capital Limited as of December 31, 2002 and 2001, and
the related statements of operations, stockholders' equity
(deficit), and cash flows for the year ended December 31, 2002,
2001, and 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. 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 consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Company as of December 31, 2002 and 2001, and the
results of operations and cash flows for the year ended December
31, 2002, 2001 and 2000, in conformity with accounting
principles generally accepted in the United States.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the consolidated 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 consolidated
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Vancouver, BC "BUCKLEY DODDS"
March 19, 2003 Chartered Accountants
F-4
CREATOR CAPITAL LIMITED
CONSOLIDATED BALANCE SHEETS
ASSETS
December December
2002 2001
-------- --------
Current Asset
Cash and cash equivalents $139,338 $ 90,870
Accounts receivable 50,795 143,380
Prepaid expenses 46,167 70,079
-------- --------
Total current assets 236,300 304,329
-------- --------
Furniture, fixtures and equipment, at cost 495,561 468,343
Less: accumulated depreciation (468,861) (378,932)
---------- ---------
Furniture fixtures and equipment, net 26,700 89,411
---------- ---------
Investment - China Lotteries (Note 3) 115,030 108,030
---------- ---------
Total assets $ 378,030 $501,770
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 164,541 $ 159,532
Accrued dividends payable 984,168 828,091
Notes payable, current liabilities 18,000 18,000
---------- ----------
Total current liabilities 1,166,709 1,005,623
Notes payable, long term and non-interest bearing 66,322 66,322
--------- ----------
1,233,031 1,071,945
Stockholders' 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
Common shares, $0.01 par value,
authorized -100,000,000 shares,
outstanding - 90,795,037 and 87,302,611 shares 873,027 873,027
Additional paid-in-capital 65,405,998 65,405,998
Accumulated deficit (67,134,048) (66,849,222)
------------ ------------
(855,001) (570,175)
------------ ------------
Total liabilities and stockholders' equity $ 378,030 $ 501,770
=========== ============
APPROVED BY THE DIRECTORS:
"Deborah Fortescue-Merrin" Director
"Michael Bartlett" Director
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-5
CREATOR CAPITAL LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
December 31, December 31, December 31,
2002 2001 2000
-----------------------------------------------
Revenue $ 326,162 $ 561,030 $ 537,365
--------- --------- ---------
Operating Expenses
General and administrative 211,115 156,757 219,319
Bad debt expense 20,250 - -
Consulting and contract labor 42,566 94,357 192,126
Marketing 11,455 25,308 20,041
Legal 33,371 7,853 14,381
Interest expense - 1,153 1,832
Depreciation and amortization 89,928 243,239 883,494
Interest income (1,273) (18,164) (3,681)
Write-down/sale of assets - - 1,270
-------- ------- --------
407,412 510,503 1,328,782
---------- ---------- -----------
Net income (loss) $ (81,250) $ 50,527 $ (791,147)
=========== ========== ==========
BASIC AND DILUTED LOSS PER SHARE
Numerator for basic and diluted
loss per share:
Net income (loss) $ (81,250) $ 50,527 $ (791,147)
Preferred stock dividends 203,577 203,399 368,191
----------- ----------- -----------
Loss to common shareholders $ (284,827) $ (152,872) $1,159,338)
=========== =========== ===========
Denominator for basic and diluted loss
per share - weighted average
shares outstanding 73,878,000 70,385,000 50,000,000
=========== =========== ===========
Net loss per share $ (0.004) $ ( 0.002) $ (0.02)
=========== =========== ===========
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-6
CREATOR CAPITAL LIMITED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Class A Class B
Preferred Preferred Addi-
Stock Stock Common Stock tional
-------------------------------------------
Number Number Number Paid Accumu-
of of of in lated
Sh's Amt Sh's Amt Shares Amount Capital Deficit Total
--------------------------------------------------------------------------
$ $ $ $ $ $
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 (66,996,350)(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 stock into common
stock (2,075)(21) 36,451,765 364,519 (364,498)
- -------------------------------------------------------------------------------
Balance, December 31, 2001
2,237 22 - - 87,302,611 873,027 65,405,998 (66,849,222)(570,175)
================================================================================
Net loss (81,250) (81,250)
Preferred stock dividends (203,576)(203,576)
Issuance of common stock
cash received
in prior year 3,492,426 -
- --------------------------------------------------------------------------------
Balance, December 31, 2002
2,237 22 - - 90,795,037 873,027 65,405,998 (67,134,048)(855,001)
================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED THE FINANCIAL STATEMENTS
F-7
CREATOR CAPITAL LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
December 31, December 31, December 31,
2002 2001 2000
-----------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ (81,250) $ 50,527 $(791,147)
Reconciliation of net loss to net
cash used in operating activities
Depreciation and amortization 89,928 243,239 883,494
Write-down/sale of assets - - 1,270
Changes in current assets/
liabilities
Accounts receivable 92,585 18,520 (69,419)
Prepaid expenses 23,912 6,676 12,351
Accounts payable and
accrued expenses 5,009 (84,636) 742
Accrued dividends payable 156,077 (50,363) 368,191
------- -------- -------
Net cash provided by/(used in)
operating activities 286,261 183,963 403,998
------- ------- -------
INVESTING ACTIVITIES
Purchases of furniture and
fixtures and equipment (27,216) (17,169) (8,508)
Proceeds from sales of property
and equipment - - 3,730
Investment in China - Lotteries (7,000) (108,030) -
-------- -------- -------
Net cash provided by/(used in)
operating investing activities (34,216) (125,199) (4,778)
-------- -------- -------
FINANCING ACTIVITIES
Issuance of common stock - 162,712 -
Payment on notes payable - (1,500) (13,500)
Redemption of preferred stock - (21) -
Payment of preferred
stock dividends (203,577) (203,399) (368,191)
--------- --------- ---------
Net cash provided by/(used in)
financing activities (203,577) (42,208) (381,691)
--------- --------- ---------
Net increase in cash 48,468 16,556 17,529
Cash, beginning of period 90,870 74,314 56,785
-------- -------- ---------
Cash, end of period $ 139,338 $ 90,870 $ 74,314
======== ======= =======
Supplemental Cash Flow Information:
Cash paid for income taxes $ - $ - $ 685
======== ======== ========
Cash paid for interest $ - $ 1,153 $ 1,832
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-8-16
CREATOR CAPITAL 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, 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 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, Software
development costs were written down in December, 1998 to a value representing
the value attributable to the Sky Play software.
Property and Equipment
======================
The Company's property and equipment is recorded at cost and depreciated using
the straight-line and declining balance methods over its estimated economic life
which is generally three to five years.
Additions and improvements that materially extend the useful lives are
capitalized, while repairs and maintenance costs are expensed as incurred.
Depreciation expense was approximately $89,876, $85,711 and $89,554 for the
years ended December 31, 2002, 2001 and 2000, respectively.
Goodwill
========
The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets,
effective January 1, 2002. Under SFAS No. 142, goodwill is no longer
amortized but is reviewed for impairment annually, or more frequently if
certain indicators arise. The Company completes its annual goodwill impairment
tests as of December 31 of each year for all its reporting units. Based on an
analysis of economic characteristics and how the Company operates its business,
the Company has designated its business segments as its reporting units. As
required by the statement, intangible assets that do not meet the criteria for
recognition apart from goodwill must be reclassified to goodwill. With adoption
of the statement, the Company ceased amortization of goodwill as of January 1,
2002.
Impairment of Long-Lived Assets
===============================
In accordance with Statement of Financial Accounting Standard No. 144,
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, 2002, December 31, 2001
and December 31, 2000, there is no difference between basic and diluted loss per
share as all stock options, warrants, convertible debentures and convertible
preferred stock are anti-dilutive 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 consolidated financial statements in conformity with
generally accepted accounting principles in the United States 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. Significant estimates used in these financial
statements include fair values and impairment analysis of Property and
Equipment and Investment.
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). The subsidiary
companies are all inactive and all material inter-company 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, 2002, 2001 and 2000.
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 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, 2002, 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
Postretirement Benefits, became effective for fiscal years beginning after
December 15, 1997, and revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or recognition
of those plans. It standardizes the disclosure requirements for pensions and
other postretirement 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 postretirement 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 fro 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.
Disclosure about Fair Value of Financial Instruments
====================================================
The Company estimates that the fair value of all financial instruments as of
December 31, 2002, and 2001, as defined in FASB 107, does not differ materially
from the aggregate carrying values of its financial instruments recorded in the
accompanying consolidated balance sheets. The estimated fair value amounts
have been determined by the Company using available market information and
appropriate valuation methodologies. Considerable judgment is required in
interpreting market data to develop the estimates of fair value, and according-
ly, the estimates are not necessarily indicative of the amounts the Company
could realize in a current market exchange.
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. The Company has not
incurred web site development costs.
Revenue Recognition
===================
Revenue for Sky Games is recognized each month upon the invoicing of customer.
Revenue for Sky Games is recognized at the end of each month upon accumulation
of monthly gaming totals.
Recent Accounting Pronouncements
================================
Statement of Financial Accounting Standards (SFAS) No.146,"Accounting for Costs
Associated with Exit or Disposal Activities " ( SFAS No.146), requires the
Company to recognize costs associated with exit or disposal activities when they
are incurred rather than at the date of commitment to an exit or disposal plan.
SFAS 146 replaces Emerging Issues Task Force (EITF) Issue No. 94-3, " Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)." The
provisions of SFAS NO.146 are to be applied prospectively to exit or disposal
activities initiated after December 31, 2002. The effect of adoption of SFAS
No.146 is dependent on the Company's related activities subsequent to the date
of adoption.
In November 2002, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No.45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, including Indirect Guarantees of Indebtedness of Others" (FIN 45).
FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a
liability for the fair value of an obligation assumed under a guarantee. FIN 45
also requires additional disclosures by a guarantor in its interim and annual
financial statements about the obligations associated with guarantees issued.
The recognition provisions of FIN 45 are effective for any guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective
for financial statements of interim or annual periods ending after December 15,
The adoption of FIN 45 is not anticipated to have a material effect on the
Company's financial position, results of operations, or cash flows.
Recent Accounting Pronouncements
================================
In November 2002, the EITF reached a consensus on Issue No. 00-21, "Revenue
Arrangements with Multiple Deliverables. " EITF Issue No. 00-21 provides
guidance on how to account for arrangements that involve the delivery or
performance of multiple products, services and/or rights to use assets. The
provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered
into fiscal periods beginning after June 15, 2003. The adoption of EITF 00-21
is not anticipated to have a material effect on the Company's financial
position, results of operations, or cash flows.
In December 2002, the Financial Accounting Standards Board (FASB) Issued
Statement of Financial Accounting Standards No.148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" (SFAS 148). SFAS 148 amends SFAS 123
"Accounting for Stock-Based Compensation, "to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the reported results. The
transition guidance and annual disclosure requirements are effective for fiscal
years ending after December 15, 2002. The Company will continue to account for
stock-based compensation under the provision of Accounting Principle Bond
Opinion No. 25 "Accounting for Stock Issued to Employees" using the "intrinsic
value" method. Accordingly, the adoption of SFAS 148 is not anticipated to have
a material effect on the Company's financial position, results of operations, or
cash flows.
NOTE 3 INVESTMENT - CHINA LOTTERIES
On September 22, 2001, the Company entered into an investment agreement with
Trade Watch Consultants Limited, (formerly Asset China Investments Ltd.)
("Trade Watch"). Trade Watch 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), the Company
received 80% of the proceeds of the business profits that will be generated from
Trade Watch's sports betting and lottery assets. To date, the Company has
forwarded HK$955,000 (US$115,030). As at December 31, 2002 no earnings have
been recorded as this project is in its initial stages of operation and no
business profits have been earned to date.
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 that will be generated from Lee John's Lottery businesses.
As at December 31, 2002 no earnings have been recorded as this project is in its
initial stages of operation and no business profits have been earned to date.
NOTE 4 SHAREHOLDERS' EQUITY
In 1997, the Company exchanged a promissory note in the amount of $2,737,000 for
Class A Preference Stocks at $1,000 per share.
In 1998, the Company redeemed 500 Stocks at their redemption price of $1,000 per
share. The Class A Preference Stocks are convertible at any time into Common
Stock, Dividends on the Class A Preference Stocks are cumulative and payable
quarterly at an annual dividend rate of 9%. The Company, at its option, may
redeem the Class A Preference Stocks, 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 Stocks.
Dividends on the Class A Preference Stocks were $201,370 in 2002, $201,370 in
2001, and $201,370 for 2000. They remained unpaid and are in arrears at year-
end. The Class A Preference Stock do not have any voting rights. As of
December 31, 2002, 2,237 Class A Preference Stock remained outstanding.
In 1997, the Company issued Series A and Series B Convertible Preference Stocks
of the Company's Class B Preferred Stock. The Class B Series A and Series B
Preference Stock are convertible into stock of Common Stock, . As of December
31, 2002, all Series A Convertible Preference Stock of the Company's Class B
Preferred Stock as well as cumulative dividends related thereto have been
converted into common Stocks.
Dividends are cumulative and may be paid, at the option of the Company and with
prior notice, in additional stocks 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 stocks 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 annual the Consulting Agreement and return the shares to the Company
for cancellation. The Company accepted this offer under the terms of the Annul-
ment Agreement dated June 20, 2001. The Company is waiting for Mr. Grymyr to
complete his undertakings as detailed in the Annulment Agreement. As of
December 31, 2002, Mr. Grymyr has not completed his undertakings as stated in
the Annulment Agreement. During the period ended, December 31, 2002, the
Company issued 3,492,426 Common Stock as part of a prior years conversion of
preference shares where there was a delay in issuing the common Stocks.
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 Ended Twelve Months Ended Twelve Months Ended
December 31, 2002 December 31, 2001 December 31, 2000
----------------------------------------------------------
Weighted Weighted Weighted
Average
Average Average
Exercise Exercise Exercise
# Options Price # Options Price # Options Price
----------------------------------------------------------
Outstanding at
beginning of period 1,020,000 $0.54 3,445,340 $ 3.20 3,625,340 $ 3.11
Granted - - 550,000 0.35 - 1.52
Exercised - - - - - -
Expired (20,000) 3.00 2,975,340 3.00 (180,000) 3.20
----------------------------------------------------------
Outstanding at
end of period 1,000,000 $0.49 1,020,000 $ 0.54 3,445,340 $ 3.20
==========================================================
Options exercisable
at end of period 1,000,000 $0.49 1,020,000 $ 0.54 2,225,340 $ 1.98
==========================================================
Weighted average fair
value of options
granted during the
Period $ - $ 0.35 $ -
==========================================================
Exercise prices for stock options outstanding at December 31, 2002, ranged from
$0.14 to $4.13. The weighted average remaining life of the outstanding stock
options is approximately 5 years.
Pro forma information regarding net loss and loss per share is required by
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation (SFAS No. 123) and has been determined as if the Company
had accounted for its employee stock options under the fair value method. The
fair value for these options at the date of grant was estimated using a Black-
Scholes option pricing model with the following weighted average assumptions
for the years ended December 31, 2002, 2001 and 2000, respectively: volatility
factor of the expected market value of the Company's Common Stock is nil for
2002, 4,660 and 2.808 for 2001 and 2002, respectively; weighted average expected
life of the options of 5 years for each period; risk-free interest rate of 1.5%
for 2002, 3.66% for 2001 and 5.75% for 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 sub-
jective assumptions including the expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Twelve Months Ended Twelve Months Ended Twelve Months Ended
December 31, 2002 December 31, 2001 December 31, 2000
---------------------------------------------------------
Net income (loss) $ (81,250) $ 50,527 $ (791,147)
SFAS No. 123
compensation expense - 170,500 -
----------------- ----------------- ----------------
SFAS No. 123 pro forma net
Income (loss) $ (81,250) $ (119,873) $ (791,147)
================- =============== ===============
Basic and diluted pro
forma loss per share $ (0.001) $ (0.002) $ (0.02)
================ =============== ===============
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, non-vested awards.
NOTE 6 STOCK WARRANTS
As of December 31, 2002, the Company had no outstanding stock warrants for
shares of its Common Stock as its prior year's outstanding 80,000 warrants
expired during 2002 fiscal year.
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 have 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 consolidated financial statements.
NOTE 8 CONTINGENCIES
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 flows from operations. The amount payable
of $133,000 has been accrued as a liability in the accounts; however, management
is currently 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, 2002
Net loss $ 7,210 $ (4,193) $ 4,354 $(88,621)
=========================================
Basic and diluted loss per share $(0.0005) $(0.0006) $(0.0005) $ (0.002)
=========================================
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------------------------------------
Twelve months ended December 31, 2001
Net income (loss) $(70,860) $(39,057) $51,327 $109,117
==========================================
Basic and diluted loss per shares $(0.0008) $(0.0004) $(0.0006) $ (0.001)
==========================================
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------------------------------------
Twelve months ended December 31, 2000
Net loss $(145,902) $(194,776) $(184,347) $(266,122)
============================================
Basic and diluted loss per shares $(0.0004) $(0.0006) $(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.