For
the quarterly period ended:
|
September
30, 2007
|
o |
TRANSITION
REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF
1934
|
For
the transition period from:
|
to
|
Commission
file number:
|
000-28399
|
Utah
|
59-1643698
|
|
(State
or other jurisdiction
of
incorporation or organization)
|
(I.R.S.
Employer
Identification
No.)
|
|
4501
Hayvenhurst Ave., Encino, CA 91436
|
||
(Address
of principal executive offices)
|
||
(818)
400-5930
|
||
(Issuer’s
telephone number)
|
||
(Former
name, former address and former fiscal year, if changed since last
report)
|
19,830,602
shares of common stock, $0.01 par value, as of November 12,
2007
|
PART I - FINANCIAL INFORMATION |
3
|
Item 1. | Financial Statements |
3
|
|
Condensed
Consolidated Balance Sheets
September
30,
2007 and December 31, 2006 (Unaudited)
|
3
|
||
Condensed
Consolidated Statements of Operations
For
the
Nine and Three Months ended September 30, 2007 and 2006
(Unaudited)
|
4
|
||
Condensed
Consolidated Statement of Stockholders’ Deficiency
For
the
Nine Months ended September 30, 2007 (Unaudited)
|
5
|
||
Condensed
Consolidated Statements of Cash Flows
For
the
Nine and Three Months ended September 30, 2007 and 2006
(Unaudited)
|
6
|
||
Notes to Condensed Consolidated Financial Statements (Unaudited) |
7
|
||
Item 2. | Management’s Discussion and Analysis or Plan of Operation |
12
|
|
Results of Operations |
13
|
||
Liquidity and Capital Resources |
15
|
||
Risk Factors |
16
|
||
Item 3. | Controls and Procedures |
16
|
PART II - OTHER INFORMATION |
18
|
Item 1. | Legal Proceedings |
18
|
|
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
18
|
|
Item 3. | Defaults Upon Senior Securities |
18
|
|
Item 4. | Submission of Matters to a Vote of Security Holders |
18
|
|
Item 5. | Other Information |
18
|
|
Item 6. | Exhibits |
18
|
SIGNATURE |
19
|
ASSETS
|
|||||||
|
|
|
September
30,
|
|
|
December
31,
|
|
2007
|
2006
|
||||||
Current
Assets
|
|||||||
|
|||||||
Cash
|
$
|
14,050
|
$
|
73,367
|
|||
Total
current assets
|
14,050
|
73,367
|
|||||
Equipment
and Furnishings,
net of accumulated depreciation of $62,062
and
$53,756
|
16,604
|
30,827
|
|||||
Total
assets
|
30,654
|
104,194
|
|||||
LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
|
|||||||
Current
Liabilities
|
|||||||
Accounts
payable
|
$
|
98,068
|
$
|
103,230
|
|||
Accrued
expenses
|
574,065
|
413,452
|
|||||
Accrued
compensation - officers
|
748,373
|
540,365
|
|||||
Total
current liabilities
|
1,420,506
|
1,057,047
|
|||||
Long-Term
Liabilities
|
|||||||
Senior
secured note payable, net of unamortized debt discount of
$480,788
and $647,340
|
1,519,212
|
1,352,660
|
|||||
Total
liabilities
|
2,939,718
|
2,409,707
|
|||||
Commitments
|
|||||||
Stockholders’
Deficiency
|
|||||||
Preferred
stock, par value $10 per share; 10,000,000 shares
authorized
|
|||||||
Class
A convertible preferred stock, par value $10 per share;
|
|||||||
1,000,000
shares designated; none issued
|
-
|
-
|
|||||
Class
B preferred stock, par value $10 per share;
|
|||||||
1,000,000
shares designated; none issued
|
-
|
-
|
|||||
Common
stock, par value $.01 per share; 150,000,000 shares authorized;
|
|||||||
19,830,602
and 19,830,602 shares issued and outstanding
|
198,306
|
198,306
|
|||||
Additional
paid-in capital
|
6,791,778
|
6,791,778
|
|||||
Accumulated
deficit
|
(10,039,100
|
)
|
(9,434,618
|
)
|
|||
Accumulated
other comprehensive income - foreign currency translation
gains
|
139,952
|
139,021
|
|||||
Total
stockholders’ deficiency
|
(2,909,064
|
)
|
(2,305,513
|
)
|
|||
Total
liabilities and stockholders’ deficiency
|
$
|
30,654
|
$
|
104,194
|
Nine
Months Ended September 30,
|
Three
Months Ended September 30,
|
||||||||||||
|
|
|
2007
|
2006
|
2007
|
2006
|
|||||||
Revenues:
|
|||||||||||||
Services
|
$
|
-
|
$
|
139,777
|
$
|
-
|
$
|
-
|
|||||
Product
|
-
|
-
|
-
|
-
|
|||||||||
Total
revenues
|
-
|
139,777
|
-
|
-
|
|||||||||
Cost
of revenues:
|
|||||||||||||
Services
|
-
|
73,935
|
-
|
-
|
|||||||||
Product
|
-
|
-
|
-
|
-
|
|||||||||
Total
cost of revenues
|
-
|
73,935
|
-
|
-
|
|||||||||
Gross
margin
|
-
|
65,842
|
-
|
-
|
|||||||||
Operating
expenses:
|
|||||||||||||
Research
and development
|
-
|
150,241
|
-
|
56,223
|
|||||||||
Selling,
general and administrative expenses
|
291,415
|
594,475
|
57,220
|
150,171
|
|||||||||
Total
operating expenses
|
291,415
|
744,716
|
57,220
|
206,394
|
|||||||||
Operating
loss
|
(291,415
|
)
|
(678,874
|
)
|
(57,220
|
)
|
(206,394
|
)
|
|||||
Other
income (expense):
|
|||||||||||||
Interest
expense and amortization of debt discount
|
(331,496
|
)
|
(328,526
|
)
|
(110,120
|
)
|
(111,613
|
)
|
|||||
Other
income
|
18,429
|
22,059
|
9,553
|
5,851
|
|||||||||
Gain
on sale of assets
|
-
|
204,736
|
-
|
(4,861
|
)
|
||||||||
Total
other income (expense)
|
(313,067
|
)
|
(101,731
|
)
|
(100,567
|
)
|
(110,623
|
)
|
|||||
Net
loss
|
$
|
(604,482
|
)
|
$
|
(780,605
|
)
|
$
|
(157,787
|
)
|
$
|
(317,017
|
)
|
|
Weighted
average number of shares outstanding
|
19,830,602
|
19,830,602
|
19,830,602
|
19,830,602
|
|||||||||
Net
loss per share - basic and diluted
|
$
|
(0.03
|
)
|
$
|
(0.04
|
)
|
$
|
(0.01
|
)
|
(0.02
|
)
|
Accumulated
|
|||||||||||||||||||
Additional
|
Other
|
||||||||||||||||||
|
|
|
Common
Stock
|
|
|
Paid-in
|
Accumulated
|
Comprehensive
|
|||||||||||
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
|
Total
|
|||
Balance
at January 1, 2007
|
19,830,602
|
$
|
198,306
|
$
|
6,791,778
|
$
|
(9,434,618
|
)
|
$
|
139,021
|
$
|
(2,305,513
|
)
|
||||||
Foreign
currency translation loss (A)
|
-
|
-
|
-
|
-
|
931
|
931
|
|||||||||||||
Net
loss
|
-
|
-
|
-
|
(604,482
|
)
|
-
|
(604,482
|
)
|
|||||||||||
Balance
at September 30, 2007
|
19,830,602
|
$
|
198,306
|
$
|
6,791,778
|
$
|
(10,039,100
|
)
|
$
|
139,952
|
$
|
(2,909,064
|
)
|
||||||
2007
|
2006
|
||||||
Cash
flows from operating activities
|
|||||||
Net
loss
|
$
|
(604,482
|
)
|
$
|
(780,605
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||
Gain
on sale of assets
|
-
|
(204,736
|
)
|
||||
Amortization
of debt discount
|
166,551
|
166,551
|
|||||
Amortization
of intellectual property
|
-
|
7,730
|
|||||
Amortization
of deferred rent
|
-
|
(6,611
|
)
|
||||
Depreciation
expense
|
16,489
|
36,377
|
|||||
Changes
in operating assets and liabilities:
|
|||||||
Accounts
receivable
|
-
|
91,580
|
|||||
Accounts
payable
|
(7,727
|
)
|
(84,028
|
)
|
|||
Accrued
expenses
|
160,457
|
141,396
|
|||||
Accrued
compensation - officers
|
208,009
|
230,309
|
|||||
Net
cash used in operating activities
|
(60,703
|
)
|
(402,037
|
)
|
|||
Cash
flows from investing activities
|
|||||||
Proceed
from sale of intangible assets
|
-
|
500,000
|
|||||
Proceeds
from sale of equipment and furnishings
|
-
|
21,000
|
|||||
Acquisition
of equipment and furnishings
|
-
|
(2,278
|
)
|
||||
Net
cash provided by investing activities
|
-
|
518,722
|
|||||
Cash
flows from financing activities
|
|||||||
Payment
of note payables
|
-
|
(55,548
|
)
|
||||
Net
cash used in financing activities
|
-
|
(55,548
|
)
|
||||
Effect
of exchange rate changes on cash
|
1,386
|
1,776
|
|||||
Net
increase/(decrease) in cash
|
(59,317
|
)
|
62,913
|
||||
Cash,
beginning of period
|
73,367
|
122,318
|
|||||
Cash,
end of period
|
$
|
14,050
|
$
|
185,231
|
|||
Supplemental
disclosure of cash flow information
|
|||||||
Interest
paid
|
$
|
-
|
$
|
21,285
|
|
Shares
|
Weighted-Average
Exercise Price
|
|||||
Outstanding,
January 1, 2007
|
1,562,325
|
$
|
0.72
|
||||
Granted
|
-
|
$
|
-
|
||||
Forfeited
|
-
|
$
|
-
|
||||
Expired
|
(75,000
|
)
|
$
|
0.89
|
|||
Outstanding,
September 30, 2007
|
1,487,325
|
$
|
0.71
|
||||
Exercisable,
September 30, 2007
|
1,487,325
|
$
|
0.71
|
|
Shares
|
Weighted-Average
Exercise Price
|
|||||
Outstanding,
January 1, 2007
|
7,866,750
|
$
|
0.50
|
||||
Expired
|
(366,750
|
)
|
$
|
1.50
|
|||
Outstanding,
September 30, 2007
|
7,500,000
|
$
|
0.45
|
Geographical
area
|
Revenues
from
external
customers
|
Long-lived
assets
|
|||||
United
States
|
-
|
$
|
1,084
|
||||
United
Kingdom
|
-
|
$
|
802
|
||||
Australia
|
-
|
$
|
14,718
|
||||
-
|
$
|
16,604
|
Geographical
area
|
Revenues
from
external
customers
|
Long-lived
assets
|
|||||
United
States
|
-
|
$
|
26,438
|
||||
United
Kingdom
|
-
|
$
|
2,782
|
||||
Australia
|
$
|
139,777
|
$
|
28,735
|
|||
$
|
139,777
|
$
|
57,955
|
Item
3.
|
Controls
and Procedures
|
(a) | Exhibits. |
31.1
|
Certifications
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
31.2
|
Certifications
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
32.1
|
Certifications
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
Section 1350).
|
Gaming
& Entertainment Group, Inc.
(Registrant)
|
||
|
|
|
Date: November 9, 2007 | By: | /s/ Gregory L. Hrncir |
Gregory
L. Hrncir
President
and Secretary
|