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OMB
APPROVAL
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OMB
Number: 3235-0060
Expires:
March 31, 2006
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 OR 15(d) of
The
Securities Exchange Act of 1934
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Date
of Report (Date of earliest event reported):
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March
27, 2006
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Gaming
& Entertainment Group, Inc.
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(Exact
name of registrant as specified in its charter)
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Utah
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000-28399
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59-1643698
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(State
or other jurisdiction
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(Commission
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(IRS
Employer
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of
incorporation)
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File
Number)
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Identification
No.)
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16821
Escalon Dr., Encino, CA
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91436
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code:
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(818)
400-5930
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Not
Applicable
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(Former
name or former address, if changed since last
report.)
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Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
o
Written
communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting
material pursuant to
Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement
communications
pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Potential
persons who are to respond to the collection of information contained in this
form
are
not
required to respond unless the form displays a currently valid OMB control
number.
SECTION
4 - MATTERS RELATED TO ACCOUNTANTS AND FINANCIAL
STATEMENTS
Item
4.02 Non-Reliance
on Previously Issued Financial Statements or a Related Audit Report or Completed
Interim Review
(b)
On
March
27, 2006, the Company was notified by J.H. Cohn LLP, its then existing
independent accountants, that action should be taken to prevent future reliance
on a previously issued audit report and interim reviews for the following fiscal
periods ended and included within: (i) Quarterly Report on Form 10-QSB for
the
three months ended September 30, 2004; (ii) Annual Report on Form 10-KSB for
the
fiscal year ended December 31, 2004; (iii) Quarterly Report on Form 10-QSB
for
the three months ended March 31, 2005; (iv) Quarterly Report on Form 10-QSB
for
the three months ended June 30, 2005; (v) Quarterly Report on Form 10-QSB for
the three months ended September 30, 2005. The financial statements included
in
the above filings made pursuant to the Securities Exchange Act of 1934, as
amended, should no longer be relied upon.
By
way of
background, on May 31, 2004, the Company received proceeds of $2,143,242, net
of
expenses of $301,758, from the sale of 244.5 units, at a price of $10,000 per
unit, through a private placement (“Private Placement”). Each unit consisted of
10,000 shares of common stock and a warrant to purchase 10,000 shares of common
stock at $1.50 per share. The warrants expired on May 31, 2005. Pursuant to
the
private placement, the Company provided registration rights (“Registration
Rights”) to the investors in the Private Placement and was obligated to file a
registration statement (the “Registration Statement”) no later than July 15,
2004 to register the shares of common stock and the shares of common stock
underlying the warrants issued therein.
The
Company did not file the Registration Statement by July 15, 2004, but rather
filed it on March 3, 2005. Accordingly, the Company issued to the investors
in
the Private Placement a total of 563,250 shares of common stock, which
represented 3% of the number of shares of common stock purchased by the
investors, for each month, or part thereof, of such late filing. The shares
of
common stock were registered pursuant to the Registration Statement on Form
S-3
filed with the Securities and Exchange Commission and declared effective.
On
March
27, 2006, J.H. Cohn LLP notified us that The Emerging Issues Task Force ("EITF")
is currently reviewing the accounting for securities with liquidated damages
clauses as stated in EITF 05-04, "The Effect of a Liquidated Damages Clause
on a
Freestanding Financial Instrument Subject to EITF 00-19" (“EITF 05-04”). J.H.
Cohn LLP further notified us that there are currently several views as to how
to
account for this type of transaction and that the EITF has not yet reached
a
consensus.
The
Securities and Exchange Commission (“SEC”) recently announced its
interpretation of the accounting for common stock and warrants with registration
rights under EITF 00-19. The SEC concluded that for agreements containing
registration rights where significant liquidated damages could be required
to be
paid to the holder of the instrument in the event the issuer fails to maintain
the effectiveness of a registration statement for a preset time period, the
common stock subject to such liquidated damages does not meet the tests required
for stockholders' equity classification and accordingly must be reflected
between liabilities and stockholders' equity in the balance sheet
until the conditions are eliminated. In analyzing instruments under EITF 00-19,
the SEC concluded that the likelihood or probability related to the failure
to
maintain an effective registration statement is not a factor.
In
consultation with J.H. Cohn LLP it was determined that, in accordance with
EITF
00-19, "Accounting for Derivative Financial Instruments Indexed To, and
Potentially Settled in the Company's Own Stock," (“EITF 00-19”) and EITF 05-04,
because the maximum potential liquidated damages for failure to file and have
the Registration Statement declared effective is greater than the difference
between the fair value of registered and unregistered shares, the value of
the
common stock subject to such registration rights should be classified
as temporary equity. Additionally, in accordance with EITF 00-19 and the terms
of the warrants issued in the Private Placement, the fair value of the warrants
should be recorded as a liability, with an offsetting reduction
to stockholders' equity. The warrant liability is initially measured at
fair value using the Black-Scholes option pricing model, and is then re-valued
at each reporting date, with changes in the fair value reported as non-cash
charges or credits to earnings.
Historically,
the Company classified the common stock and warrants with registration rights
described above as stockholders' equity, as it believed these securities
met the requirements necessary to record them as stockholders' equity.
After further review in accordance with the SEC’s recent interpretation of EITF
00-19 as it relates to these common shares and warrants subject to registration
rights, the Company has concluded that its financial statements for the year
ended December 31, 2004, and interim periods ended September 30, 2004, March
31,
2005, June 30, 2005 and September 30, 2005 must be restated. The restatement
includes the reclassification of common stock subject to registration rights
from stockholders' equity and into temporary equity, and the inclusion of the
liability for the fair value of penalty common stock as of forty five (45)
days
after the closing date (July 15, 2004).
Based
on
the above determination, as of December 31, 2004, the Company reclassified
$2,445,000 of common stock subject to registration rights from
stockholders' equity and into temporary equity. In March 2005, such shares
of common stock were registered under the Registration Statement on Form S-3
filed with the SEC and declared effective. Accordingly, the Company reclassified
$2,445,000 from temporary equity and into stockholders' equity.
In
addition, the Company measured the initial fair value of the warrants on the
closing date at $26,022 and recorded the fair value to warrant liability. At
the
end of each reporting period, the value of the warrants was re-measured based
on
the fair value of the underlying shares, and changes to the warrant liability
and related “gain or loss in fair value of the warrants” was recorded as a
non-cash charge or credit to earnings. The warrant liability was cancelled
when
the warrants expired on May 31, 2005. The fair value of the warrants was
estimated using the Black-Scholes option-pricing model.
For
the
years ended December 31, 2005 and 2004, the non-cash gain on fair value of
warrants was $2,717 and $23,305 respectively. The gain on fair value of warrants
is due principally to the decrease in the market value of the common stock
of
the Company. The non-cash gain on fair value of warrants has no effect on the
Company’s cash flows or liquidity.
In
addition, the Company measured the initial fair value of the penalty common
stock to be $86,365, and recorded as a non-cash charge. At the end of each
reporting period, the increase in the penalty common stock was valued based
on
the fair value of the underlying shares, and changes to the penalty common
stock
liability and related non-cash charge was recorded. The penalty common stock
liability was reclassified to stockholders' equity when the shares of
common stock were registered under the Registration Statement on Form S-3 filed
with the Securities and Exchange Commission and declared effective in March
2005
and the shares of common stock were issued.
The
restatement adjustments to the Company's consolidated balance sheets and
statements of operations for the fiscal year ended December 31, 2004 and the
interim periods ended September 30, 2004, March 31, 2005, June 30, 2005 and
September 30, 2005, have been disclosed in Note 3 to the Company’s Annual Report
on Form 10-KSB for the fiscal year ended December 31, 2005 as filed with the
SEC
on April 17, 2006. Restated statements of cash flows for the interim periods
have not been presented. The restatement adjustment had no effect on previously
reported total operating, investing and financing activities.
Following
the determination to restate the financial statements for the periods noted
above, management for the Company evaluated the effectiveness of our disclosure
controls and procedures. This evaluation was done with the participation of
our
chief executive officer and principal executive officer, Tibor N. Vertes,
and Gregory L. Hrncir, our President and principal financial and accounting
officer. Given the evolving nature of EITF 00-19 and EITF 05-04, and the
relatively recent interpretation of the SEC regarding accounting for common
stock and warrants with registration rights under EITF 00-19, among other
factors, management for the Company determined that our disclosure controls
and
procedures are effective to ensure that the information we are required to
disclose in reports that we file or submit under the Exchange Act is recorded,
processed, summarized, and reported in such reports within the time periods
specified in the SEC’s rules and forms.
SECTION
9 — FINANCIAL STATEMENTS AND EXHIBITS
Item
9.01 Financial
Statements and Exhibits
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(a) |
Financial
statements of businesses acquired.
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Not
applicable.
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(b) |
Pro
forma financial information.
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Not
applicable.
Not
applicable.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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Gaming
& Entertainment Group, Inc.
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(Registrant)
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Date:
May 23, 2006
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By:
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/s/
Gregory
L. Hrncir
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Gregory
L. Hrncir
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Its:
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President
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