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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal quarter ended AUGUST 31, 1996
Commission file number 0-17642
CREATIVE LEARNING PRODUCTS, INC.
(Name of small business issuer as specified in its charter)
NEW JERSEY 22-2930106
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
150 MORRIS AVENUE, SUITE 205, SPRINGFIELD, NJ, 07081
(Address of principal executive offices)
(201) 467-0266
(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
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
--- ---
As of October 4, 1996, 16,642,483 shares of the Common Stock were
outstanding.
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CREATIVE LEARNING PRODUCTS, INC. AND SUBSIDIARIES
FORM 10-QSB INDEX
August 31, 1996
PART I
Page
Number
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheet at August 31, 1996.................................... 3
Consolidated Statements of Operations for the quarters ended
August 31, 1996 and 1995.................................................... 5
Consolidated Statements of Cash Flows for the quarters ended
August 31, 1996 and 1995.................................................... 6
Notes to Financial Statements.................................................... 7
Item 2. Management's Discussion and Analysis
or Plan of Operations....................................................... 10
PART II
Item 1. Legal Proceedings .......................................................... 12
Item 2. Changes in Securities ...................................................... 12
Item 3. Defaults Upon Senior Securities ............................................ 12
Item 4. Submission of Matters to a Vote of Security Holders ........................ 12
Item 5. Other Information .......................................................... 12
Item 6. Exhibits and Reports on Form 8-K ........................................... 12
Signatures................................................................................ 15
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CREATIVE LEARNING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
August 31, 1996
ASSETS
Current Assets:
Cash........................................................................ $ 670,363
Accounts receivable - net of allowance for doubtful accounts
of $1,871................................................................. 99,071
Inventories................................................................. 233,177
Receivable from officers.................................................... 118,687
Prepaid expenses and other current assets................................... 493,929
------------
Total current assets................................................... 1,615,227
-----------
Property and Equipment:
Land........................................................................ 2,410,452
Machinery and equipment..................................................... 83,137
Furniture and fixtures...................................................... 39,323
-------------
2,532,912
Less accumulated depreciation............................................... 84,038
-------------
Property and equipment-net............................................. 2,448,874
-----------
Other Assets:
Investment in gaming projects, net of reserve of $333,611................... 103,566
Intangibles, net of accumulated amortization of $456,664.................... 590,687
Miscellaneous............................................................... 117,425
------------
Total other assets..................................................... 811,678
------------
$4,875,779
============
See Notes to Consolidated Financial Statements.
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CREATIVE LEARNING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
August 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt........................................ $ 101,163
Short-term notes payable.................................................... 67,657
Accounts payable............................................................ 893,435
Accrued expenses and other current liabilities.............................. 157,291
------------
Total current liabilities.............................................. 1,219,546
-----------
Long-term Debt:
Long-term debt, less current maturities of $101,163........................ 924,356
-------------
Stockholders' Equity:
12% Cumulative redeemable preferred stock (2,000,000
shares authorized): Series B, par value $1.00; issued and
outstanding: none......................................................... --
Common stock, no par value; authorized: 25,000,000 shares;
issued and outstanding: 15,434,383 shares................................. 17,407,274
Additional paid-in capital.................................................. 2,879,541
Accumulated deficit......................................................... (17,554,938)
------------
Total stockholders' equity............................................. 2,731,877
--------------
$ 4,875,779
==============
See Notes to Consolidated Financial Statements.
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CREATIVE LEARNING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter Ended August 31,
1996 1995
---- ----
Net sales............................................................ $ 127,174 $ 363,193
Cost of goods sold................................................... 57,291 149,701
------------ -----------
Gross profit......................................................... 69,883 213,492
------------ -----------
Selling expenses..................................................... 34,069 99,693
General and administrative expenses.................................. 493,057 467,063
Reserve for gaming projects.......................................... 55,785 74,353
Debt conversion expense.............................................. -- 42,561
Interest expense..................................................... 27,758 20,997
------------ ------------
610,669 704,667
----------- -----------
Net loss............................................................. $ (540,786) $ (491,175)
=========== ===========
Net loss per share................................................... $ (.04) $ (.05)
============ ============
See Notes to Consolidated Financial Statements.
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CREATIVE LEARNING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended August 31,
1996 1995
Cash flows from operating activities:
Net loss....................................................... $ (540,786) $ (491,175)
------------ ------------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization................................ 61,375 65,070
Reserve for gaming projects.................................. 55,785 74,353
Debt conversion expenses..................................... -- 42,561
Changes to operating assets and liabilities:
Accounts receivable......................................... 12,228 (5,886)
Inventories................................................. (23,730) 2,813
Prepaid expenses and other current assets................... (437,082) 29,163
Accounts payable............................................ (126,074) (68,121)
Accrued expenses and other current liabilities.............. 15,687 44,921
------------- --------------
Total adjustments......................................... (441,811) 184,874
------------ -------------
Net cash used in operating activities................... (982,597) (306,301)
------------- --------------
Cash flows from investing activities:
Increase in gaming projects.................................... (159,351) (174,353)
Additions to property and equipment............................ -- (5,717)
------------- --------------
Net cash used in investing activities.................. (159,351) (180,070)
------------- --------------
Cash flows from financing activities:
Repayment of short-term borrowings............................. (8,458) (6,000)
Proceeds from short-term borrowings............................ 76,115 350,000
Repayment of long-term debt.................................... (46,956) --
Proceeds from issuances of stock............................... 1,250,000 209,590
---------- --------------
Net cash provided by financing activities............... 1,270,701 553,590
------------- --------------
Net increase in cash............................................... 128,753 67,219
Cash at beginning of the period.................................... 541,610 122,249
----------- -------------
Cash at end of the period.......................................... $ 670,363 $ 189,468
========== ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest....................... $ 53,405 $ 2,051
=========== ============
Supplemental schedule of non-cash financing activities:
Debt and other liabilities converted to Common Stock........... $ 109,983 $ 851,230
========== ============
See Notes to Consolidated Financial Statements.
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CREATIVE LEARNING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 1995
NOTE 1 - BASIS OF PRESENTATION
Creative Learning Products, Inc. (the "Company") was formed in August 1988 to
provide management and administrative services to its wholly-owned subsidiaries.
The consolidated unaudited financial statements include the accounts of the
Company and its operating subsidiaries, collectively referred to herein as
"CLP". Significant intercompany accounts and transactions have been eliminated
in consolidation.
The operating subsidiaries of the Company sell their products, consisting of
educational videos, books, gaming related items and children's paper products,
through mail order and through retailers, brokers and distributors. The Company
also is attempting to convert to an entity offering gaming facilities, a hotel
convention center, a theme park, a time sharing facility and entertainment.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles. In the
opinion of management of the Company, all material adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been made. Results of operations for the quarter ended August 31, 1996 are not
necessarily indicative of the results which may be expected for any other
interim period or for the year as a whole. To facilitate comparison with the
current periods, certain amounts in the prior periods have been reclassified.
It is suggested that the unaudited financial statements and notes thereto in
this Report be read in conjunction with the financial statements and notes
thereto in the Company's Annual Report on Form 10-KSB for the fiscal year ended
May 31, 1996 (the "Form 10-KSB"), which was previously filed.
The Company's accompanying consolidated financial statements have been
prepared on a going concern basis which contemplates continued future revenues
from operations and proceeds from sales of debt and equity securities and the
exercise of warrants and options. Management of the Company believes the sales
from continuing operations, together with its ability to raise additional
capital, will provide sufficient cash for the Company to meet its operating
requirements for the year ending May 31, 1997 ("fiscal 1997").
NOTE 2 - GAMING PROJECTS AND OTHER ACTIVITIES
CLP owns 756 acres in Christian County, Missouri, along the main highway
between Springfield, Missouri and Branson, Missouri (the "Christian County
Site"). Management is of the opinion that the Christian County Site can be used
for a time sharing facility, a theme park, a hotel/convention center and/or
other activities. Based on management's review of the current real estate market
in Christian County, Missouri, management is of the opinion that the Christian
County Site can be resold for an amount in excess of the aggregate purchase
price, and has retained a real estate broker in an attempt to sell a major
portion of such site.
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CLP and the Eastern Shawnee Tribe of Oklahoma (the "Tribe), entered into a
management agreement to develop and operate a Class A/Class III gaming facility
near Seneca, Missouri (the "Seneca Facility"). Because of a federal circuit
court decision invalidating the statutory right of the Secretary of the Interior
to dedicate land in trust for Native American Indian tribes under the Indian
Reorganization Act and a pending battle for control of the Tribe, with one of
the issues being the management agreement with CLP, CLP has suspended any
further action by it with respect to the Seneca Facility. Depending on
developments, the Company will review whether it will attempt to proceed with
the Seneca Facility.
CLP is negotiating to purchase a hull for the purpose of converting the hull
into an offshore gaming vessel. CLP plans to utilize the vessel for gaming
cruises originating in Southern Florida for part of the year and possibly New
York during the summer months. CLP is currently evaluating several sites in
Southern Florida and New York to determine where the vessel, if purchased, will
be docked. Inspection and other costs incurred through August 31, 1996 for the
potential purchase of a vessel have been deferred.
NOTE 3 - ISSUANCE OF SHORT-TERM DEBT
During July 1996, the Company entered into unsecured installment loan
agreements with two vendors in the aggregate principal amount of $76,115 at an
average annual interest rate of 10.13%, due in aggregate monthly installments of
$8,818, including interest, through April 1997.
NOTE 4 - LONG-TERM DEBT
Long-term debt consisted of the following at August 31, 1996:
10% note payable due $1,025,519
February 28, 1998 (a)...................... 101,163
------------
Less current portion....................... $ 924,356
===========
- ---------------------------
(a) On February 28, 1996, the Company, as part of its purchase of property,
was issued a 10% mortgage from the sellers in the principal amount of
$1,072,475, with payments of $50,000 (including interest) due every
three months and a final payment of principal and interest due at the
end of two years.
NOTE 5 - COMMON STOCK
Per share amounts are based upon the weighted average Common Stock shares
outstanding of 14,426,079 and 9,632,206 for the quarters ended August 31, 1996
and 1995, respectively. Losses per share of Common Stock were computed by
dividing the corresponding loss for each quarter by the weighted average number
of shares of Common Stock outstanding for each quarter. Common stock equivalents
are not included because the effect would be anti-dilutive. Fully diluted
computations are not shown because all potentially dilutive securities would
have an anti-dilutive effect on per share amounts.
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In June 1996, the Company issued to an individual for services rendered 50,000
shares of the Common Stock and a Common Stock purchase warrant expiring June 11,
2001 to purchase 50,000 shares of Common Stock at an exercise price of $1.50 per
share commencing December 12, 1996.
On June 27, 1996, the Company issued and a creditor accepted 47,000 shares of
the Common Stock in satisfaction of outstanding debt of $63,296 as of May 31,
1996.
On August 7, 1996 the Company issued to an officer of the Company, as
consideration for the officer's services in securing gaming opportunities for
CLP and part of an employment agreement dated as of September 25, 1996, a Common
Stock purchase warrant expiring August 6, 1999 to purchase, commencing February
7, 1997, 1,500,000 shares of the Common Stock at $.75 per share.
On August 7, 1996, the Company entered into a consulting agreement with an
individual, which modified a previous agreement dated April 16, 1996. A separate
consulting agreement dated April 16, 1996 with a second individual, which
included a Common Stock purchase warrant expiring April 15, 1999 to purchase
2,000,000 shares of the Common Stock, was canceled. The terms of the modified
consulting agreement were for the individual to perform financial, public
relation and gaming related consulting services for a period of two years at a
cost of $400,000, and included the issuance of Common Stock purchase warrants
expiring April 16 and August 6, 1999, respectively, to purchase, both commencing
February 7, 1997, 2,000,000 and 1,000,000 shares, respectively, of the Common
Stock both at $.75 per share. The individual also exercised his warrant expiring
April 15, 1999 to purchase 1,000,000 shares of the Common Stock at an exercise
price of $.75 per share for gross proceeds of $750,000. The individual retained
$400,000 in accordance with his consulting agreement and the Company received
net proceeds of $350,000.
On August 22, 1996, the Company, pursuant to Regulation S under the Securities
Act, sold to three non-"U.S. persons" in "off-shore transactions", for gross
proceeds of $500,000, 1,000,000 shares of the Common Stock.
During the quarter ended August 31, 1996, the Company issued 25,000 shares of
the Common Stock in exchange for various services rendered. The stock was valued
at the value of the services rendered.
NOTE 6 - SUBSEQUENT EVENTS
On September 4, 1996, the Company, pursuant to Regulation S under the
Securities Act, sold to a non-"U.S. person" in an "off-shore transaction", for
gross proceeds of $600,000, 1,200,000 shares of the Common Stock and issued a
Common Stock purchase warrant expiring September 2, 2001 to purchase 1,000,000
shares of the Common Stock at an exercise price of $1.00 per share. The Company
paid a private placement fee of $100,000 to an agent for this offering.
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CREATIVE LEARNING PRODUCTS, INC. AND SUBSIDIARIES
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion relates to operations.
SALES
Sales for the quarter ended August 31, 1996 decreased by $236,019 or 65% as
compared with sales for the corresponding prior year period. The decrease was
principally due to lower sales volume resulting from increased competition and a
shift in emphasis from marketing current products to gaming projects.
GROSS PROFIT
The gross profit for the quarter ended August 31, 1996 decreased by $143,609
or 67% as compared with the gross profit for the corresponding prior year
period. The decrease was primarily due to the decrease in sales for the current
period.
SELLING EXPENSES
Selling expenses decreased for the quarter ended August 31, 1996 by $65,624 or
66% as compared with these expenses for the corresponding prior year period. The
decrease was principally due to a shift in expenses from marketing current
products to emphasis on potential gaming projects which have not as yet produced
revenues.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased for the quarter ended August 31,
1996 by $25,994 or 6% as compared with these expenses for the corresponding
prior year period. The increase was principally due to financial consulting
costs incurred during the current period.
RESERVE FOR INVESTMENT IN GAMING PROJECTS
Reserve for investment in gaming projects for the quarter ended August 31,
1996 decreased by $18,568 or 25% as compared with this expense for the
corresponding prior year period. The decrease was principally due to the
reduction of Seneca Facility costs during the current period.
DEBT CONVERSION EXPENSE
Debt conversion expense of $42,561 for the quarter ended August 31, 1995 was
due to the accounting for debt converted to the Common Stock during the quarter
to reflect the excess of the then current market values of the Common Stock over
the transaction prices when issued.
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INTEREST EXPENSE
Interest expense for the quarter ended August 31, 1996 increased by $6,761 or
32% as compared with interest expense for the corresponding prior year period.
The increase was principally due to the interest on the mortgage on property
purchased in February 1996.
NAFTA
The North American Free Trade Act does not have a significant effect on the
consolidated operations.
INFLATION
Inflation does not have an impact on the consolidated operations.
LIQUIDITY AND CAPITAL RESOURCES
The consolidated cash balance increased in the quarter ended August 31, 1996
by $128,753 resulting in an ending cash balance of $670,363. The increase in
cash was due primarily to the proceeds from private placements and the exercise
of warrants. During the quarter ended August 31, 1996, CLP funded its operations
principally from the proceeds received from the sale of equity and debt
securities.
The Company received, as of October 4, 1996, $1,400,000 in gross proceeds from
private placements and the exercises of warrants. The Company also expects to
receive additional funds from private placements and the exercises of other
warrants and options during the balance of fiscal 1997, as to which exercises
there can be no assurance. As a result of these sources of funds the Company
believes that it has sufficient resources to fund its operations, including
those related to the gaming projects, for at least the balance of fiscal 1997.
However, there can be no assurance as to when, if at all, the gaming projects
and other activities will generate sufficient cash flow from operations so as
not to be dependent on additional financing. In addition, to open and operate
all aspects of the gaming projects and other activities may require additional
financing after fiscal 1997, even if the gaming projects and other activities
are then generating sufficient cash flow from operations to fund CLP's operating
requirements, which is not the current projection. Should additional financing
be required, there can be no assurance that it will be available or, if
available, available on acceptable terms. See the sections "Branson Project",
"Gaming Vessel Project" and "Other Gaming Projects" in Item 1 to the Form
10-KSB.
As of August 31, 1996 and the date of this filing, there were no commitments
for material capital expenditures other than those related to the Branson
Project (see the sections "Branson Project", in Item 1 and the section
"Liquidity and Capital Resources" in Item 6 to the Form 10- KSB).
CLP expects that the proceeds from the planned sales of equity securities
during the next 12 months will provide adequate funds to meet operating
requirements. There can be no assurance, however, that CLP will consummate such
security sales to meet the above.
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PART II
Item 1. Legal Proceedings.
See Item 3 to the Form 10-KSB for information as to pending
actions by (1) Parker Printing Co. and (2) Westminster, et al.
There has been no change in the status of these actions since the
Form 10-KSB was filed on September 12, 1996, except that the
Westminster action has been noticed for trial on October 16, 1995.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits marked with a footnote reference were filed with a
periodic report filed by the Company pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended, or a registration statement effective under
the Securities Act of 1933, as amended (the "Securities Act"), and are
incorporated herein by this reference:
Number Exhibit
1(a) Copy of Management Agreement dated as of October 20, 1995 between
Eastern Shawnee Tribe of Oklahoma (the "Tribe") and Creative
Gaming International, Inc.
("CGI"). (1)
1(b) Copy of Option Agreement dated as of November 8, 1995 between the
Tribe and CGI. (1)
1(c) Copy of Letter dated December 13, 1995 extending the option terms
of Exhibit 1(b) hereto. (1)
1(d) Copy of Loan Agreement relating to Exhibit 1(a) hereto. (2)
2(a) Copy of Agreement dated February 28, 1996 between Cook Hollow
Company as Seller, and CGI and the Company as Buyer. (3)
2(a)(1) Copy of Promissory Note dated February 28, 1996 from CGI to Cook
Hollow Company is Exhibit B to Exhibit 2(a) hereto. (3)
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2(a)(2) Copy of Future Advance Obligation Wraparound Deed of Trust dated
as of February 28, 1996 between CGI, Gary A. Powell, as Trustee,
and Cook Hollow Company is Exhibit C to Exhibit 2(a) hereto. (3)
2(a)(3) Copy of Wraparound Mortgage Agreement effective February 28, 1996
between CGI as Borrower, and Cook Hollow Company, as Lender, is
Exhibit D to Exhibit 2(a) hereto. (3)
2(a)(4) Copy of Indemnity Agreement effective February 28, 1996 among CGI
and the Company, as Indemnitors and Cook Hollow Company, as
Indemnitee, is Exhibit E to Exhibit 2(a) hereto. (3)
3(a) Copy of Consulting Agreement dated as of April 16, 1996 by and
between the Company and Lee S. Rosen. (4)
3(a)(1) Copy of Common Stock purchase warrant expiring April 16, 1999
issued by the Company to Lee S. Rosen was filed as Exhibit 4(b)(1)
to Exhibit 3(a) hereto. (4)
3(b) Copy of Consulting Agreement dated as of August 7, 1996 by and
between the Company and Lee S. Rosen. (5)
3(b)(1) Copy of Common Stock purchase warrant expiring April 16, 1999
issued by the Company to Lee S. Rosen. (5)
3(b)(2) Copy of Common Stock purchase warrant expiring August 6, 1999
issued by the Company to Lee S. Rosen. (5)
4(a) Copy of Employment Agreement dated as of September 25, 1996 by and
between the Company and Peter J. Jegou. (6)
4(b) Copy of Common Stock purchase warrant expiring August 6, 1999
issued by the Company to Peter J. Jegou. (6)
5 The Company's Common Stock purchase warrant expiring June 11, 2001
and Common Stock purchase warrant expiring September 2, 2001 are
substantially identical to he form of Common Stock purchase
warrant expiring April 29, 1998 filed as Exhibit 10(d)(1) to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
May 31, 1996 except as to the name of the holder, the expiration
date and the exercise price and, accordingly, pursuant to
instruction 2 to Item 601 of Regulation S-K under the Securities
Act are not individually filed.
- -----------------------
(1) Filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the quarter ended November 30, 1995 and incorporated
herein by this reference.
(2) Filed as an exhibit to the Company's Annual Report on Form 10-KSB
for the fiscal year ended May 31, 1996 and incorporated herein by
this reference.
(3) Filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the quarter ended February 29, 1996 and incorporated
herein by this reference.
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(4) Filed as an exhibit to the Company's Registration Statement on
Form S-8 filed on June 7, 1996 and incorporated herein by this
reference.
(5) Filed as an exhibit to the Company's Registration Statement on
Form S-8 filed on October 3, 1996 with respect to Consulting
Agreement dated as of August 7, 1996, and incorporated herein by
this reference.
(6) Filed as an exhibit to the Company's Registration Statement on
Form S-8 filed on October 3, 1996 with respect to Employment
Agreement dated as of September 25, 1996, and incorporated herein
by this reference.
(b) Reports on Form 8-K
None
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: October 4, 1996
CREATIVE LEARNING PRODUCTS, INC.
By: /s/ PETER J. JEGOU
------------------------------------
Peter J. Jegou
President and Chief Executive Officer
By: /s/ WALTER J. KRZANOWSKI
------------------------------------
Walter J. Krzanowski
Chief Financial Officer
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