<PAGE 1>
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 February 28, 1998
Commission file number 0-17642
CREATIVE GAMING, 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.)
75 Route 27 Lincoln Highway, 2nd floor, Iselin N.J. 08830
(Address of principal executive offices)
(732)-205-9665
(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 June 23, 1998, 876,353 shares of the Common Stock
were outstanding.
<PAGE 2>
CREATIVE GAMING, INC. AND SUBSIDIARIES
Form 10-QSB Index
February 28, 1998
PART I
Page
Item 1. Financial Statements (Unaudited): Number
Consolidated Balance Sheet at February 28, 1998 3
Consolidated Statements of Operations for the
quarters ended February 28, 1998 and 1997 5
Consolidated Statements of Operations for the nine
months ended February 28, 1998 and 1997 6
Consolidated Statements of Cash Flows for the nine
months ended February 28, 1998 and 1997 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis
or Plan of Operations 13
PART II
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security
Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 19
<PAGE 3>
CREATIVE GAMING, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
February 28, 1998
(Unaudited)
ASSETS
Current assets:
Cash $ 4,584
Accounts receivable - net of
allowance for doubtful accounts
of $4,792 17,034
Inventories 56,728
Prepaid expenses and other current assets 17,772
-----------
Total current assets 96,118
-----------
Property and equipment:
Land 288,664
Gaming vessel 250,000
Furniture and equipment, net 16,414
-----------
Net property and equipment 555,078
-----------
Other assets:
Receivable from officer 182,364
Deferred consulting expenses 106,009
Intangibles, net of accumulated amortization
of $664,675 124,732
-----------
Total other assets 413,105
-----------
$1,064,301
==========
See Notes to Consolidated Financial Statements.
<PAGE 4>
CREATIVE GAMING, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
February 28, 1998
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,001,157
Short-term loans 182,188
Accounts payable, accrued expenses and other
liabilities 1,066,653
Payable and accrued settlement expenses 374,556
Payable and accrued legal fees 639,869
-----------
Total current liabilities 3,264,423
-----------
Long-term liabilities:
Long-term debt, net of current maturities of
$1,001,157 --
----------
Collateralized settlement payable 45,844
----------
Total long-term liabilities 45,844
----------
Commitments and contingencies
Stockholders' equity:
12% Convertible redeemable preferred stock
(100,000 shares authorized); Series C, par
value $1.00; issued and outstanding:
100,000 shares: 100,000
Common stock, no par value; authorized:
3,333,333 shares; issued and outstanding:
876,353 shares 19,443,368
Additional paid-in capital 3,198,592
Accumulated deficit (24,692,082)
Unearned consulting and other expenses
related to issued and/or escrowed
common stock (295,844)
-----------
Total stockholders' equity (deficit) (2,245,966)
-----------
$ 1,064,301
===========
See Notes to Consolidated Financial Statements.
<PAGE 5>
CREATIVE GAMING, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Quarter Ended February 28,
1998 1997
Net sales $ 25,555 $ 53,717
Cost of goods sold 9,960 15,753
---------- ----------
Gross profit 16,595 37,964
---------- ----------
Selling expenses 6,263 15,756
General and administrative expenses 274,557 946,601
Gaming projects expenses 51,388 61,970
Warrant exercise expense - 161,250
Interest expense 32,368 26,055
---------- ----------
364,576 1,211,632
---------- ----------
Net loss from operations (347,981) (1,173,668)
Write down of vessel (524,046) --
Loss on disposal of assets 2,121,788 --
----------- ----------
Net loss $(2,993,815) $ (1,173,668)
============ ============
Net loss per share $ (3.42) $ (1.91)
=========== ===========
See Notes to Consolidated Financial Statements.
<PAGE 6>
CREATIVE GAMING, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Nine Months Ended November 30,
1998 1997
Net sales $ 100,407 $ 299,913
Cost of goods sold 26,912 111,319
--------- ----------
Gross profit 73,495 188,594
--------- ----------
Selling expenses 22,386 71,379
General and administrative expenses 1,159,141 2,139,152
Gaming projects expenses 167,440 244,097
Warrant exercise expense -- 411,250
Interest expense 96,444 80,933
---------- -----------
1,445,411 2,946,811
---------- -----------
Net loss from operations (1,371,916) (2,758,217)
Write down of vessel (524,046) --
Gain on disposal of assets (2,121,788) 211,983
----------- ------------
Net loss $(4,017,750) $ (2,546,234)
============ =============
Net loss per share $ (4.62) $ (4.67)
=========== =============
See Notes to Consolidated Financial Statements.
<PAGE 7>
CREATIVE GAMING, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended February 28,
1998 1997
---- ----
Cash flows from operating activities:
Net loss $ (4,017,750) $ (2,546,234)
-------------- ------------
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 82,665 176,355
Amortization of deferred consulting expenses 215,088 -
Gaming projects expenses 167,440 244,097
Write down of vessel 524,046 -
Warrant & debt conversion expenses - 491,200
(Gain) loss on disposal of assets 2,121,788 (211,983)
Changes to operating assets and liabilities:
Accounts receivable 10,910 48,105
Inventories (560) (36,479)
Prepaid expenses and other current assets 141,706 (385,166)
Accounts payable and accrued expenses 322,131 353,676
Payable and accrued legal fees 230,351 216,532
--------- -----------
Total adjustments 3,815,565 896,337
---------- -----------
Net cash used in operating activities (202,185) (1,649,897)
---------- -----------
Cash flows from investing activities:
Increase in gaming projects (167,440) (257,714)
Purchases of property (39,555) (677,859)
--------- ----------
Net cash used in investing activities (206,995) (935,573)
--------- ----------
Cash flows from financing activities:
Proceeds from short-term borrowings 99,462 69,454
Repayment of short-term borrowings (16,962) (55,773)
Repayment of long-term debt - (71,318)
Proceeds from issuances of stock 209,400 2,175,000
--------- ----------
Net cash provided by financing activities 291,900 2,117,363
--------- ----------
Net increase (decrease) in cash (117,280) (468,107)
Cash at beginning of the period 121,864 541,610
--------- ----------
Cash at end of the period $ 4,584 $ 73,503
========= ==========
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest $ 1,660 $ 82,716
======== ==========
Supplemental schedule of non-cash financing
activities:
Debt and other liabilities converted to
Common Stock $ 198,138 $ 848,060
========== ==========
See Notes to Consolidated Financial Statements.
<PAGE 8>
CREATIVE GAMING, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
February 28, 1998
(Unaudited)
Note 1 - Basis of Presentation
Creative Gaming, 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 "CGI".
Significant intercompany accounts and transactions have been
eliminated in consolidation.
CGI has been attempting to convert to an entity which will
offer offshore gaming vessels, other gaming facilities,
entertainment and development of real estate, but has been
handicapped in such efforts by the lack of sufficient financing.
CGI sells its current products, consisting of educational
videos, books, gaming related items and children's paper
products, through mail order and through retailers, brokers and
distributors.
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 and nine
months ended February 28, 1998 are not necessarily indicative of
the results that may be expected for any other interim period or
for the year as a whole. To facilitate comparison with the
current period, certain amounts in the prior period have been
reclassified.
A one-for-thirty reverse stock split of the Common Stock, no
par value (the "Common Stock"), became effective on October 31,
1997 after an Amendment to the Company's Certificate of
Incorporation was filed. Each outstanding share of the Common
Stock became one-thirtieth of a share of the new Common Stock.
The Amendment, which was authorized by the Board of Directors of
the Company on September 29, 1997, reduced the authorized shares
from 100,000,000 to 3,333,333. There was no change in the par
value of the shares. The number of shares and per share amounts
in this Report have been adjusted to reflect the reverse stock
split.
It is recommended 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, 1997
(the "Form 10-KSB"), which was previously filed.
CGI's accompanying consolidated financial statements have been
prepared on a going concern basis. During the past several
years, CGI has experienced substantial recurring losses from
operations and has a working capital deficit at February 28,
1998. CGI has been dependent, in part, on proceeds from sales of
debt and equity securities and the exercise of warrants and
options. While management believes its ability to raise
additional capital will provide sufficient cash for CGI to meet
its operating requirements for the year ending May 31, 1998
("fiscal 1998")
<PAGE 9>
and manage its working capital deficit, there can be no assurance
that CGI will obtain such financing and thus maintain its ability
to continue as a going concern.
Note 2 - Gaming Projects and Other Activities
On November 13, 1996 CGI purchased a vessel for the purpose of
converting it into an offshore gaming vessel. CGI planned to
utilize the vessel for gaming cruises originating in New York.
CGI, subject to obtaining the necessary governmental approvals,
signed a Letter of Intent to negotiate a dockage agreement in
the New York metropolitan area where the vessel, when
operational, would be docked. CGI was in the initial stages of
refurbishing the vessel when the lack of financing caused a
halt. The purchase and refurbishing costs incurred through
February 28, 1998 have been capitalized. The carrying value of
the vessel was written down to $250,000 in this Report (see Note
9).
CGI owned 756 acres, consisting of two parcels, one of
approximately 719 acres (the "Larger Tract") and the other of
approximately 37 acres (the "Smaller Tract"), in Christian
County, Missouri, along the main highway between Springfield,
Missouri and Branson, Missouri (the "Christian County Site").
Management was of the opinion that the Christian County Site
could be used for a time sharing facility, a hotel/convention
center and/or other activities. On February 4, 1998, a notice
of foreclosure on the Larger Tract was issued against the
Company by a mortgage holder. The Larger Tract was foreclosed on
March 5, 1998 in Christian County, Missouri (see notes 4 and 5).
Due to the foreclosure of the Larger Tract there can be no
assurance that the Smaller Tract can be sold.
CGI 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, which opinion was
reversed on October 15, 1996, and a then pending battle for
control of the Tribe, with one of the issues being the
management agreement with CGI, CGI had 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.
A decision to proceed with any of the gaming projects would
require the Company to seek financing, as to which there can be
no assurance that such funding would be available. Consulting
and other related gaming project costs of approximately $167,000
have been charged to operations for the nine months ended
February 28, 1998.
Note 3 - Issuance of Short-term Debt
On July 15 and 23, 1997, the Company issued promissory notes
to two lenders, both of whom are related to a director of the
Company, for the principal amounts of $25,000 and $35,000,
respectively, both at an annual interest rate of 12%, due in one
year, and secured by liens on the vessel owned by the Company.
As additional consideration for these loans, the Company issued
1,666 and 2,333 shares of the Common Stock, respectively, to the
two lenders.
<PAGE 10>
During October 1997, the Company issued a promissory note to a
lender, who is related to a director of the Company, for $15,500
at an annual interest rate of 12%, due in one year, and secured
by a lien on the vessel owned by CGI. An unrelated party also
loaned $7,000 to the Company at an annual interest rate of 12%.
Note 4 - Long-term Debt
On February 28, 1996, CGI, as part of its purchase of the
Larger Tract, was issued a 10% mortgage (the "First Mortgage")
from the sellers (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. Effective May 31, 1997, the
payment terms of the First Mortgage were extended to a payment
due June 1, 1998 for full principal balance and accrued
interest. As part of the agreement to extend the due date of the
First Mortgage, CGI issued 3,333 shares of the Common Stock to
the Sellers and placed a lien on the Smaller Tract as collateral
for the First Mortgage. In addition, a fifth mortgage was given
to a group of investors (the "Investors") as security as part of
a settlement of debt owed by the Company. On February 4, 1998,
a notice of foreclosure was issued by the Investors. The Larger
Tract was foreclosed on March 5, 1998 in Christian County,
Missouri (see note 5).
Note 5 - Contingent Liabilities and Foreclosures
On March 5, 1998, pursuant to the terms of a settlement
agreement between CGI and the Investors, the Investors
foreclosed on and obtained title to the Larger Tract, subject to
the First Mortgage lien of the Sellers on the Larger Tract (see
note 4).
If the Investors default on the First Mortgage, the Sellers
can foreclose on the Larger Tract and Smaller Tract. A wholly
owned subsidiary of CGI may have a contingent liability to the
Sellers to the extent that the proceeds from any payments and
the Sellers foreclosures do not fully satisfy the First Mortgage
obligations.
The foreclosure of the Larger Tract was accounted for as of
February 28, 1998 by writing off the recorded value of the
Larger Tract of $2,121,788 resulting in a loss on disposal of
assets. The First Mortgage principle of $1,001,157, the First
Mortgage accrued interest of $125,145 and the settlement
liability due the Investors of $313,240 continue to be reflected
as liabilities in this Report. Any reductions independent of CGI
of the First Mortgage and Investors debt obligations of CGI may
reduce the loss on disposal of assets.
Note 6 - Preferred Stock
On September 29, 1997, the Company entered into an agreement
whereby an investor group purchased 100,000 shares of Series C
12% Convertible Redeemable Preferred Stock, $1.00 par value (the
"Series C Preferred Stock"), of the Company for $100,000. The
Company also issued to the group Common Stock purchase warrants
expiring September 29, 1999 to purchase 1,000,000 shares of the
Common Stock at an exercise price of $.10 per share. The
agreement provides that each share of the Series C Preferred
Stock is convertible into 46.5 shares of the Common Stock or an
aggregate of 4,650,000 shares.
On December 12, 1997, the Series C Preferred Stock holders
agreed to accept shares of the Common Stock in lieu of dividends
due on the Series C Preferred Stock. Dividends are payable
<PAGE 11>
quarterly at an annual rate of 12% and are convertible into
shares of the Common Stock at a rate of 46.5 shares of the
Common Stock or an aggregate of 138,600 shares.
Note 7 - Common Stock
Per share amounts are based upon the weighted average Common
Stock shares outstanding of 876,353 and 869,115 for the quarter
and nine months ended February 28, 1998, respectively, and
612,967 and 545,693 for the quarter and nine months ended
February 28, 1997, respectively. Losses per share of Common
Stock were computed by dividing the corresponding loss for each
period by the weighted average number of shares of the Common
Stock outstanding for each period. 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.
On June 5, 1997, the Company issued to an investor 6,666
shares of the Common Stock for gross proceeds of $30,000 and
issued a Common Stock purchase warrant expiring June 29, 2001 to
purchase 6,666 shares of the Common Stock at an exercise price
of $7.50 per share, commencing December 30, 1997.
On June 9, 1997 the Company entered into a consulting
agreement with an individual to perform financial and public
relation consulting services for a period of three months. The
Company issued 16,666 shares of the Common Stock to the
individual for these services.
On June 12, 1997, an investor exercised its warrant expiring
January 2, 2000 to purchase 3,333 shares of the Common Stock at
$4.92 per share after the Company lowered the exercise price to
$4.92 per share.
On July 2, 1997, an individual exercised his warrant expiring
August 6, 1999 to purchase 33,333 shares of the Common Stock at
an exercise price of $1.89 per share after the Company lowered
the exercise price initially to $3.00 per share and subsequently
to $1.89 per share.
On July 29, 1997 CGI issued 3,333 shares of the Common Stock
each to two individuals for services rendered and issued to each
individual a common stock purchase warrant expiring August 5,
2000 to purchase 3,333 shares of the Common Stock at an exercise
price of $7.50 per share.
During the quarter ended August 31, 1997, the Company issued
420 shares of the Common Stock for various services rendered.
The stock was valued at the value of the services rendered.
Note 8 - Other Information
During November 1997 three additional persons, Arthur L.
Malone, Jr., David F. Brannan and Gene A. Hochevar, were named
to the Board of Directors, Arthur L. Malone, Jr. was appointed
Chairmen of the Board on January 2, 1998. Upon instruction from
the new Chairman of the Board, the Company's property, books
and records were removed from the New Jersey office. On January
28, 1998, all three newly appointed Board members resigned.
The property, books and records were subsequently returned.
<PAGE 12>
Effective December 2, 1997, upon mutual agreement, CGI's
gaming consultant terminated the cash compensation portion of
his consulting agreement.
On December 10, 1997, Walter J. Krzanowski resigned,
effective November 30, 1997, as the Treasurer, Chief Financial
Officer and Chief Accounting Officer of the Company. He
continues to serve as a consultant to the Company. No
replacement has as yet been named.
CGI, by mutual agreement with the landlord, terminated its
office lease on December 31, 1997. The lease was due to expire
on March 31, 1998.
On January 20 1998, a creditor obtained a default judgment
against CGI, Peter J. Jegou and Carol Jegou, who were guarantors
of CGI's debt, for $61,316 . CGI is negotiating a settlement
with the creditor.
Note 9 - Subsequent Events
On March 5, 1998, the Larger Tract was foreclosed on by a
mortgage holder. The financial statements in this Report have
been adjusted to reflect this event (see Notes 4 and 5).
During March 1998, the Company sold 2,000,000 shares of
public common stock obtained from the sale of a division of CGI
in November 1996 for the gross proceeds of $16,000.
On June 1, CGI entered into a Letter of Intent to sell its
vessel (see Note 2) for $250,000. The carrying value of the
vessel was written down to $250,000 in this Report. However,
there is no assurance the sale will be consummated.
<PAGE 13>
CREATIVE GAMING, 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 and nine months ended February 28, 1998
decreased by $27,162 or 51% and $199,506 or 67%, respectively,
as compared with sales for the corresponding prior year periods.
The decreases were principally due to lower sales volume with a
major customer, the sale of an operating division of CGI, and to
a shift from marketing videos and other products to emphasis on
gaming projects which have not as yet produced revenues.
GROSS PROFIT
Gross profit for the quarter and nine months ended February
28, 1998, decreased by $21,369 or 56% and $115,099 or 61%,
respectively, as compared with gross profit for the
corresponding prior year periods. Gross profit margins for the
quarter and nine months ended February 28, 1998 were 62% and
73%, respectively, as compared with 71% and 63%, respectively,
for the corresponding prior year periods. The changes were
principally due to the decreases in sales during the periods
which resulted in changes in customer and product mix with
higher gross margins.
SELLING EXPENSES
Selling expenses for the quarter and nine months ended
February 28, 1998 decreased by $9,493 or 60% and $48,993 or 69%,
respectively, as compared with these expenses in the
corresponding prior year periods. The decreases were principally
due to a shift in expenses from marketing videos and other
products to emphasis on potential gaming projects which have not
as yet produced revenues.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the quarter and nine
months ended February 28, 1998 decreased by $672,044 or 71% and
$980,011 or 46% as compared with these expenses in the
corresponding prior year periods. The decreases were principally
due to litigation costs incurred during the prior periods.
<PAGE 14>
GAMING PROJECTS EXPENSES
Gaming projects expenses decreased for the quarter and nine
months ended February 28, 1998 by $10,582 or 17% and $76,657 or
31%, respectively, as compared with this expense in the
corresponding prior year periods. The decreases were principally
due to the expenses incurred for the offshore gaming vessel
project during the prior periods.
WARRANT EXERCISE EXPENSES
Warrant exercise expense for the quarter and nine months
ended February 28, 1997, of $161,250 and $411,250, respectively,
were due to the issuances of the Common Stock during the periods
to reflect the excess of the then current market values of the
Common Stock over the transaction prices when issued.
INTEREST EXPENSE
Interest expense for the quarter and nine months ended
February 28, 1998 increased by $6,313 or 24% and $15,511 or 19%,
respectively, as compared with interest expense for the
corresponding prior year periods. The increases were principally
due to interest on a larger amount of short-term loans
outstanding during the current periods.
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
CGI's cash position was $4,584 as of February 28, 1998 as
compared with $121,864 as of May 31, 1997 or a decrease of
$117,280. Cash flows from operating activities during the nine
months ended February 28, 1998 used cash of $202,185 due to the
net loss of $4,017,750 adjusted for depreciation and
amortization of $297,753 gaming projects expenses of $167,440,
write down of gaming vessel of $524,046 and loss on disposal of
assets of $2,121,788, and offset by a decrease in current
liabilities of $552,482 and an increase in current assets of
$152,056.
During the nine months ended February 28, 1998, CGI expended
cash of $167,440 for gaming projects and $39,555 for the
conversion of a vessel into an offshore gaming vessel or an
aggregate of $206,995 in net cash used in investing activities.
The net cash provided by financing activities during the nine
months ended February 28, 1998 was $291,900, consisting of net
short-term borrowings of $82,500 and proceeds of $209,400 from
issuances of stock. These proceeds funded operational
requirements, gaming project costs and vessel refurbishing
costs. Operating liabilities of $198,138 were converted to
shares of the Common Stock during the nine months ended February
28, 1998.
<PAGE 15>
Management believes that, as a result of the cash flow from
operations and the proceeds of $291,900 received through
February 28, 1998 in recent offerings of equity and debt
financing and potential sales of equity through private
placements and exercises of outstanding Common Stock purchase
warrants, it will raise sufficient funds to meet its cash
requirements for at least the balance of fiscal 1998 based on
its current level of commitments. There can be no assurance that
the Company will be able to raise this additional financing.
Should one of the proposed gaming projects require funds for
implementation, management believes, based on its discussions
with persons in the investment banking community, that any funds
required for such a project can be obtained. There can be no
assurance that the market price of the Common Stock will be
conducive to the exercise of Common Stock purchase warrants and
stock options, nor that funds can be obtained to finance a
specific project if required will be available and, if
available, on acceptable terms. See the sections "Gaming Vessel
Project" and "Other Gaming Projects" in Item 1 to the Form 10-
KSB.
As of the date of the filing of this report, there were no
commitments for material capital expenditures. However, the
Company currently estimates that it will require approximately
$25,000,000 to make the gaming project operational (see Note 2
to Unaudited Consolidated Financial Statements).
PART II
Item 1. Legal Proceedings.
A action is pending in the Supreme Court of the State of New
York, County of New York, in which Corporate Solutions Group,
Inc. is the plaintiff and the Company and Lee S. Rosen, a former
director of the Company, are the defendants. Plaintiff is
seeking damages of $35,000, plus interest, costs and
disbursements, and punitive damages of not less than $250,000.
Plaintiff alleges that it advanced the funds to Mr. Rosen in
order to enable him to exercise a Common Stock Purchase Warrant
as to 4,667 shares of the Common Stock and that such shares,
after exercise, should have been delivered to plaintiff. The
Company is of the opinion that the claim, if any, which the
plaintiff may have is against Mr. Rosen and not the Company.
The Company is also a defendant in an action initiated in the
same court by Westminster Securities (name other plaintiff) as
plaintiffs. The plaintiffs are seeking judgement for $313,000
which they allege is the unrealized amount from the sale of
shares of he Common Stock issued by the Company to them in
settlement of another action. Because the plaintiff foreclosed
on March 5, 1998 700 acres of property owned by the Company's
subsidiary, Creative Gaming International, Inc,. in Christian
County, Missouri, the Company is seeking to dismiss the action
on the ground that any claim to damages which the plaintiffs may
have was satisfied in the foreclosure.
Creative Gaming, Inc. also owns 37 acres of adjoining
property to that described in the preceding paragraph which is
subject to a condemnation proceeding as a result of a highway
expansion. The Company has been offered $48,000 for a portion of
that property and is in the process of negotiation with the
State as to the amount.
In addition, the Company is the defendant in lawsuits pending
in which the plaintiffs who are creditors are seeking an
aggregate of $38,000 in damages.
<PAGE 16>
Item 2. Changes in Securities.
A one-for-thirty reverse stock split of the Common Stock,
no par value (the "Common Stock"), became effective on October
31, 1997 after an Amendment to the Company's Certificate of
Incorporation was filed. Each outstanding share of the Common
Stock became one-thirtieth of a share of the new common stock.
The Amendment, which was authorized by the Board of Directors of
the Company on September 29, 1997, reduced the authorized shares
from 100,000,000 to 3,333,333. There was no change in the par
value of the shares. The number of shares and per share amounts
in this Report have been adjusted to reflect the reverse stock
split.
On September 29, 1997, the Company authorized the creation of
100,000 shares of Series C 12% Convertible Redeemable Preferred
Stock, $1.00 par value (the "Series C Preferred Stock"). Each
share of the Series C Preferred Stock is convertible into 46.5
shares of the Common Stock or an aggregate of 4,650,000 shares.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
During November 1997 three additional persons were
named to the Board of Directors, one of which was appointed
Chairmen of the Board on January 2, 1998. On January 28,
1998, all three newly appointed Board members resigned (see
exhibits 10 & 11).
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. If no footnote reference is made, the
exhibit is filed with this Report.
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. ("CGII"). (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)
<PAGE 17>
2(a) Copy of Agreement dated February 28, 1996 between Cook
Hollow Company as Seller, and CGII and the Company as
Buyer. (3)
2(a)(1) Copy of Promissory Note dated February 28, 1996 from CGII
to Cook Hollow Company is Exhibit B to Exhibit 2(a)
hereto. (3)
2(a)(2) Copy of Future Advance Obligation Wraparound Deed of
Trust dated as of February 28, 1996 between CGII, 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 CGII 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 CGII and the Company, as Indemnitors and Cook
Hollow Company, as Indemnitee, is Exhibit E to Exhibit 2(a) hereto. (3)
2(a)(5) Copy of Standstill Agreement effective June 22, 1997
between Cook Hollow Company, as Seller, and CGII, as buyer. (4)
3(a) Copy of 10% Promissory Note due July 16, 1998. (8)
3(b) Copy of 10% Promissory Note due July 23, 1998. (8)
4 Copy of Consulting Agreement effective June 9, 1997
between Arthur Malone, Jr. and the Company. (6)
5 The Company's Common Stock purchase warrant expiring June
29, 2001 and the Common Stock purchase warrants expiring
August 5, 2000 are substantially identical to the 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.
6(a) Copy of Purchase and Sale Agreement dated as of October
___, 1996 by and among Jerry Ward Cars, Inc., Edward
Lockel, Jim's Truck and Equipment, Inc. and Creative
Gaming International, Inc. (5)
6(b) Copy of Sale Agreement dated March 7, 1997 between CGII
and CGI Vessel, Inc. (4)
7 Copy of 12% Cumulative Convertible Redeemable Preferred
Stock, Series C, Purchase Agreement between the Company
and a group of investors dated September 29, 1997. (7)
8 Copy of Amendment to Certificate of Incorporation filed
on October 24, 1997. (8)
9 Copy of Certificate of Designations and Preferences of
the Series C Preferred Stock filed on October 24, 1997. (7)
10 Copy of press release dated January 28, 1998 regarding
resignation of directors. (9)
<PAGE 18>
11 Copy of press release dated February 2, 1998 regarding
return of company property and the retention of an
investor relations firm to assist in the Company's
overall corporate communications. (9)
_______________________
(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.
(4) Filed as an exhibit to the Company's Annual Report on
Form 10-KSB for the fiscal year ended May 31, 1997 and
incorporated herein by this reference.
(5) Filed as an exhibit to the Company's Quarterly Report on
Form 10-QSB for the quarter ended February 28, 1997 and
incorporated herein by this reference.
(6) Filed as an exhibit to the Company's Registration
Statement on Form S-8 filed on June 23, 1997 and
incorporated herein by this reference.
(7) Filed as an exhibit to a Schedule 13D filed by Arthur L.
Malone, Jr. on October 9, 1997 and incorporated herein by
this reference.
(8) Filed as an exhibit to the Company's Quarterly Report on
Form 10-QSB for the quarter ended August 31, 1997 and
incorporated herein by this reference.
(9) Filed as an exhibit to the Company's Quarterly Report on
Form 10-QSB for the quarter ended November 30, 1997 and
incorporated herein by this reference.
(b) Reports on Form 8-K
None
<PAGE 19>
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: June 23, 1998
CREATIVE GAMING, INC.
By: /s/ PETER J. JEGOU
--------------------
Peter J. Jegou
President and Chief Executive Officer
By: /s/ KENNETH R. OLSEN
-----------------------
Kenneth R. Olsen
Acting Chief Accounting Officer