UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1998
or
[ ] Transition Report Pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-21071
NEVSTAR GAMING & ENTERTAINMENT CORPORATION
(Exact name of small business issuer as specified in its charter)
Nevada 88-0309578
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
313 Pilot Road , Suite B, Las Vegas, Nevada 89118 (702) 269-1325
(Address of principal executive offices) (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 filing requirements for the past 90 days. Yes X No
There were 3,936,020 outstanding shares of Common Stock, par value $0.01 per
share, as of November 12, 1998.
Transitional Small Business Disclosure Format: Yes____ NO X
NevStar Gaming & Entertainment Corporation
Form 10-QSB
For the Quarter Ended September 30, 1998
INDEX
PART I. FINANCIAL INFORMATION: PAGE
ITEM 1. Financial Statements:
Balance Sheet at September 30, 1998 and
June 30, 1998 3
Statements of Operations for the Three Month
Periods Ended September 30, 1998 and 1997 4
Statements of Cash Flows for the Three Month
Periods Ended September 30, 1998 and 1997 5
Notes to financial statements 7
ITEM 2. Management's Discussion and Analysis or
Plan of Operation 10
PART II. OTHER INFORMATION:
ITEM 1. Legal Proceedings 13
ITEM 2. Changes in Securities and Use of Proceeds 13
ITEM 3. Defaults upon Senior Securities 13
ITEM 4. Submission of Matters to a Vote of Security Holders 13
ITEM 5. Other Information 13
ITEM 6. Exhibits and Reports on Form 8-K. 13
SIGNATURES 13
<PAGE>
NevStar Gaming & Entertainment Corporation
Condensed Balance Sheets
September 30, 1998 and June 30, 1998
(Dollars in Thousands)
September June
1998 1998
ASSETS (Unaudited) (Development
Current assets: Stage)
Cash and cash equivalents $ 804 $ 962
Receivables 14 459
Inventories 72 -
Prepaid expenses 519 558
Total current assets 1,409 1,979
Property and equipment(note 2) 22,678 22,842
Other assets 560 659
$24,647 $25,480
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable(note 3) $ 2,864 $ 1,743
Accounts payable 1,039 1,409
Accrued expenses 790 189
Accrued interest 274 275
Total current liabilities 4,967 3,616
Notes payable, excluding current portion(note 3) 14,186 14,882
Total liabilities 19,153 18,498
Stockholders' Equity:
Series A convertible non-voting preferred
stock, $.01 par value per share. Designated
1,500,000 shares. Issued and outstanding
64,500 at September 30, 1998 and June 30,
1998 1 1
Common stock, $.01 par value per share.
Designated 50,000,000 shares. Issued and
outstanding 3,899,672 and 3,607,491 shares
at September 30, 1998 and June 30, 1998,
respectively and 274,000 shares committed
to be issued at June 30, 1998 39 39
Additional paid-in capital 17,957 17,759
Accumulated deficit (12,503) (10,817)
Total stockholders' equity 5,494 6,982
$24,647 $25,480
See accompanying notes to financial statements.
NevStar Gaming & Entertainment Corporation
Condensed Statements of Operations
Three Month Periods Ended September 30, 1998 and 1997,
(Dollars in Thousands, Except Per Share Amounts)
(UNAUDITED) (Development
Stage)
1998 1997
Revenues:
Casino $1,734 $ -
Food & Beverage 554 -
Rooms 284 -
Other 15 -
2,587 -
Less: casino promotional allowances 208 -
Net revenues 2,379 -
Costs and expenses:
Casino 810 -
Food & beverage 442 -
Rooms 271 -
Selling, general and administrative 1,089 -
Rents 125 -
Depreciation and amortization 317 65
3,054 65
Operating loss before corporate expense (675) (65)
Corporate expenses 942 912
Operating loss (1,617) (977)
Other income (expense):
Interest expense (434) (324)
Gain on sale of land 365 -
(69) (324)
Loss before income taxes (1,686) (1,301)
Income taxes - -
Net loss $(1,686) $(1,301)
Loss per common share $ (0.43) $ (0.46)
Weighted average number
of common shares outstanding 3,899,672 2,848,166
See accompanying notes to financial statements.
NevStar Gaming & Entertainment Corporation
Condensed Statements of Cash Flows
Three Month Periods Ended September 30, 1998 and 1997
(Dollars in Thousands)
(UNAUDITED)
Cash flows from operating activities:
Net loss $(1,686) $ (1,301)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 317 65
Accretion of discount on notes payable 112 81
Common stock options and
warrants expenses 344 398
Decrease in receivables, inventories,
prepaid expenses and other assets 563 319
Increase in accounts payable
and accrued expenses 235 215
Cash used in operating activities (115) (223)
Cash flows from investing activities:
Construction costs incurred - (58)
Advance to contractor - 114
Net purchase of furniture and equipment (157) -
Cash used in investing activities (157) 56
See accompanying notes to financial statements.
NevStar Ga ming & Entertainment Corporation
Condensed Statements of Cash Flows (continued)
Three Month Periods Ended September 30, 1998 and 1997,
(Dollars in Thousands)
(UNAUDITED)
1998 1997
Cash flows from financing activities:
Issuance of notes payable 100 50
Construction loan draws, including fees 14 -
Principal repayments of notes payable - (1,377)
Proceeds from issuance of
common stock - 7,886
Cash provided by
financing activities 114 6,559
Increase (decrease) in cash
and cash equivalents (158) 6,392
Cash and cash equivalents, beginning 962 54
Cash and cash equivalents, ending $ 804 $6,446
Supplemental schedule of non-cash
investing and financing activities:
Deferral of accrued interest $ 215 $ -
Note payable for an option agreement - 200
Value allocated to warrants granted - 57
Default interest on notes waived
by shareholders - 274
Accrued interest payable added to principal - 960
Note payable forgiven by shareholder - 450
Value of warrants recorded as
original issue discount - 896
See accompanying notes to financial statements.
NevStar Gaming & Entertainment Corporation
Notes to Financial Statements
September 30, 1998
(Unaudited)
(1) Basis of Presentation
In the opinion of management, the accompanying unaudited condensed financial
statements of NevStar Gaming & Entertainment Corporation, a Nevada corporation,
include all adjustments, of a normal recurring nature, which are necessary for a
fair presentation of the results for the interim periods presented, which are
not necessarily indicative of those expected for a full year. Certain
information and footnote disclosures normally included in financial statements
have been condensed or omitted pursuant to rules and regulations of the
Securities and Exchange Commission.
Although the Company believes that the disclosures are adequate to make the
information presented not misleading, it is suggested that these condensed
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's Report on form 10-KSB for the transition
six month period ended June 30, 1998. Certain items included in the financial
statements have been reclassified to conform to the current period presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net loss per common share is based on the weighted average number of shares of
common stock outstanding. Common share equivalents attributable to
outstanding options and warrants or convertible preferred stock, computed under
the treasury stock method (134,050 and 347,974 equivalent shares, for the three
month periods ended September 1998 and 1997, respectively) have not
been included in the calculations because the result would be anti-dilutive.
(2) Property and Equipment, Net
Property and equipment, net consisting primarily of the land, building and
equipment of the Mesquite Star Hotel and Casino (which opened for business on
July 1, 1998) follows (Dollars in thousands):
September 30, June 30,
1998 1998
(Unaudited) (Development
Stage)
Land $ 4,657 $ 4,710
Buildings 15,158 15,021
Furniture and equipment 3,184 3,111
22,999 22,842
Less: accumulated depreciation
And amortization 321 -
$22,678 $22,842
Depreciation is computed over the useful lives of Buildings and improvements
(generally 15 to 30 years) and Furniture and equipment (generally 5 to 7 years)
using the straight-line method, commencing July 1, 1998.
On September 11, 1998, the Company sold a parcel of land (about 26,000 square
feet) adjacent to the Mesquite Star Hotel and Casino. A gain on the sale of
approximately $365,000 was recorded during the three month period ended
September 30, 1998.
(3) Notes Payable
A summary of notes payable follows:
September 30, June 30,
1998 1998
(Unaudited) (Development
Stage)
(Dollars in thousands)
Note payable to bank, secured by first
deed of trust on the Mesquite Star
property, bank prime rate plus 2.5%
(11% at September 30, 1998) $ 5,450 $ 5,436
Notes payable to shareholders, secured
by deeds of trust on the Mesquite Star
property. Interest is payable monthly,
either at the greater of the Bank of
Hawaii prime interest rate (8.5 percent
at June 30, 1998) plus 3 percent,
or 11 percent. Principal is due
August, 1999 7,500 7,285
Note payable, secured by deed of trust on
the Mesquite Star property. Interest is
payable monthly, either at the greater
of the Bank of Hawaii prime interest rate
(8.5 percent at March 31, 1998) plus
3 percent, or 11 percent. Principal is due
on the earlier of September, 1999; the date
of refinancing of any other lien secured by
the property which is junior in priority to
the lender's deed of trust; or the date that
the property is sold 1,099 1,099
Note payable to shareholder, unsecured and
non-interest bearing, due December, 1998 200 200
12% note payable in connection with construction
of the Mesquite Star Hotel & Casino, due no
later than May 15, 1999 600 600
12% Note payable secured deed of trust
On the Mesquite Star property 100 -
10% to 12% equipment contracts payable,
collateralized by slot machines and
Related equipment due in monthly
payments over 12 to 36 months 514 514
Capital lease obligations collateralized
by property and equipment due in
monthly payments over 36 to 60
months 2,051 2,051
17,498 17,185
Less: unamortized original issue discount 448 560
$17,050 $16,625
Less: current maturities 2,864 1,743
$14,186 $14,882
New Letter of Commitment
On September 30, 1998 a letter of commitment ("New Loan") was entered into with
Drs. Kelly and Tam replacing the March 31, 1998 and June 12, 1998 commitments.
The New Loan is for $1,000,000 with interest at 12% and defers payment of
accrued interest on the previous loan agreements until the new loan is due in
August, 1999. The deferred interest will accrue interest at 12% per annum also,
and has been reflected as a reduction in accrued interest payable and a
corresponding increase in notes payable at September 30, 1998. In addition, the
North Las Vegas option expiration date was extended to December 31, 1998 by Dr.
Tam under the New Loan agreement. As consideration for the commitment and the
initial advance, which occurred on October 1, 1998, the Company granted 32,250
warrants to purchase shares of the Company's common stock at a purchase price of
$2.50 per share and 60,000 warrants to purchase shares of the Company's common
stock at $2.00 per share. For each additional $100,000 advance, the lenders
shall receive 15,000 warrants to purchase shares of the Company's common stock
at $2.00 per share. An initial advance of $400,000 was made on October 1, 1998
net of approximately $10,000 of commitment fees, $7,500 of the lenders legal
fees and approximately $82,000 of accrued interest. The remaining commitment
fees of approximately $109,000 from the previous two commitments was charged to
expense during the three month period ended September 30, 1998.
On April 27, 1998, an unrelated third party executed a financing commitment to
loan the Company up to $250,000 secured by a deed of trust on the Mesquite Star
property, with per annum interest up to 12%. During the quarter ended September
30, 1998, the Company borrowed $100,000 pursuant to the terms of this
commitment.
(4)Resignation of Officer/Director
Jeffrey L. Gilbert, President and Chief Operating Officer and a Director of the
Company, resigned from all positions with NevStar effective September 25, 1998,
in order to pursue other opportunities. Mr. Gilbert will, however, continue to
serve NevStar as a consultant to assist the Company in certain projects and
transitional matters. The Board of Directors has named its chairman and Chief
Executive Officer, Dr. Michael J. Signorelli, as President to replace Mr.
Gilbert. The vacancy on the Board caused by Mr, Gilbert's resignation has not
yet been filled.
As part of Mr. Gilbert's severance agreement, he will receive $100,000 in
severance compensation and his 265,000 stock options fully vested on September
25, 1998. The expenses pursuant to Mr. Gilbert's severance agreement have been
charged to expense during the quarter ended September 30, 1998.
(5)Subsequent Events and Financing
On November 18, 1998, the North Las Vegas City Council reversed their Planning
Commissions's unanimous approval, and staff's recommendation in favor of NevStar
2000 (the North Las Vegas Project) and, instead, voted to reject the proposed
project. The NevStar 2000 project is planned to include a 200-room hotel with
gaming, a 60 lane bowling alley, 12 movie theaters, a retail shopping village,
food court and specialty restaurants, convention and meeting rooms , an
amphitheater and other amenities. The Company is reviewing available options,
including alternative site selection and litigation.
On September 30, 1998, the Company entered into a loan commitment with a lender
for a real estate first mortgage loan of approximately $20,000,000 which is
contingent upon multiple conditions being met. If funded, the proceeds would be
utilized, among other things, to repay the Company's existing real estate notes
payable, to provide a principal and interest reserve during the early months of
the mortgage loan, and for general corporate purposes. As of November 20, 1998,
the lender has not provided a loan to the Company pursuant to this commitment.
The Company's success is substantially dependent upon closing a loan pursuant to
this loan commitment or obtaining alternative debt or equity financing, the net
proceeds from the exercise of the Warrants, or otherwise during late 1998 or
early 1999, to continue to implement its business plan, including pursuing the
NevStar 2000 project. There can be no assurance that the Company will be able to
generate sufficient funds from these or other sources.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD LOOKING STATEMENTS
It should be noted that this document contains forward looking statements that
are subject to risks and uncertainties. Forward looking statements include
certain information relating to the Company's general business strategy,
expansion plans, new opportunities, projected operating performance and
liquidity, as well as information contained elsewhere in this Interim Report on
Form 10-QSB where statements involve the use of the words "believe", "expect",
"anticipate", "estimate" or expressions of similar import. For such statements,
the Company claims the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
The forward-looking statements in this document are subject to risks and
uncertainties that could cause the assumptions underlying such forward-looking
statements and the actual results to differ materially from those expressed or
implied by the statements. The most important factors that could prevent the
Company from achieving its goals and cause assumptions underlying the forward-
looking statements and the actual results of the Company to differ materially
from those expressed in or implied by those forward-looking statements include,
without limitation and in addition to those discussed in the various documents
filed by the Company with the Securities and Exchange Commission, the following:
(i) the highly competitive nature of the public gaming and entertainment market,
which includes the market for the small to medium size or niche hotel/casinos,
in which the Company plans to operate and the ability of the Company to
successfully compete in this market with other hotel/casino companies for the
most desirable hotel/casino customers and share of the geographical market; (ii)
the ability of the Company to successfully implement its expansion strategy;
(iii) the need to raise future working capital and the uncertainty of additional
funding (whether through financial markets, collaborative or other arrangements
with strategic partners, or from other sources); (iv) the speculative nature of
other gaming projects; (v)dependence on key personnel; and (vi) the Company's
ability to generate sufficient cash flows, operating profits, and other income
in order to fulfill its obligations for repayment of debt.
OVERVIEW
NevStar Gaming & Entertainment Corporation is a company formed to acquire,
develop, construct, own and manage hotel casino projects. The Cmpany's strategy
is to concentrate its efforts on "niche" markets such as "local" or
"neighborhood" casinos. The Company obtained its license and related approvals
from the Nevada Gaming Commission to conduct gaming at its initial hotel
casino, the Mesquite Star in Mesquite, Nevada, pursuant to an Order of
Registration, dated June 23, 1998.
The newly constructed Mesquite Star, opened for business on July 1, 1998,
consists of 210 rooms and suites, with a swimming pool, and a public area of
approximately 34,000 square feet, featuring a casino area of approximately
12,000 square feet initially containing 452 slot machines, 10 table games and
Keno, a specialty restaurant, a 160 seat coffee shop, gift shot, hotel
registration and other amenities.
During the three month period ended September 30, 1998, the Company incurred
losses of $1,686,000 which includes operating results of the Mesquite Star, and
corporate expenses (corporate expenses include approximately $286,000 of accrued
severance consisting of $110,000 cash compensation and $176,000 options
expenses, respectively, $168,000 of Warrants expenses arising pursuant to
commitment letters and loan advances, $112,000 of amortization of original issue
discount, and the remaining balance which includes salaries, public company
expenses, legal and professional and other operating expenses) arising in
connection with the pursuit of the Company's business plan. During the three
month period ended September 30, 1997, the Company incurred losses of
$1,301,000, while in the development-stage with no operating revenues.
REGULATION AND LICENSING
The ownership and operation of casino gaming facilities in Nevada are subject
to: (i) the Nevada Gaming Control Act and the regulations promulgated thereunder
(collectively, the "Nevada Act"); and (ii) various local regulation. The
Company's gaming operations are subject to the licensing and regulatory control
of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada State
Gaming Control Board (the "Nevada Board"), and the City of Mesquite, Nevada.
The Nevada Commission, the Nevada Board and the City of Mesquite, Nevada are
collectively referred to as the "Nevada Gaming Authorities."
MESQUITE STAR HOTEL & CASINO
The Company's plan of operation for the 12 month period ending September 30,
1999 includes continuing marketing of special events and promotional activities
at the Mesquite Star, which may attract more guests and visitors to the property
and to continue programs to reduce expenses. Although occupancy and revenues
improved during October, 1998 there can be no assurance that the Company's plan
of operation for the Mesquite Star will be successful.
NORTH LAS VEGAS OPTION
In September of 1997, the Company issued a $200,000 note payable, which is due
December 31, 1998, for an option to purchase a 20 percent indirect interest in a
25-acre parcel of unimproved real property in the city of North Las Vegas,
Nevada. (Planned site for the NevStar 2000 project). Upon payment, the $200,000
is intended to be used for preliminary project costs including planning,
engineering, promotion and design. The sum is not refundable, nor applicable to
the option purchase price, but may be reimbursed upon development and financing
of the project.
On November 18, 1998, the North Las Vegas City Council reversed their Planning
Commissions's unanimous approval, and staff's recommendation in favor of NevStar
2000 (the North Las Vegas Project) and, instead, voted to reject the proposed
project. The NevStar 2000 project was planned to include a 200-room hotel with
gaming, a 60 lane bowling alley, 12 movie theaters, a retail shopping village,
food court and specialty restaurants, convention and meeting rooms , an
amphitheater and other amenities. The Company is reviewing available options,
including alternative site selection and litigation.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its capital requirements by the
sale of securities to private investors, from the proceeds of secured loans and
from its Initial Public Offering. On September 30, 1998, the Company entered
into a loan commitment with a lender for a real estate first mortgage loan of
approximately $20,000,000 which is contingent upon multiple conditions being
met. If funded, the proceeds would be utilized, among other things, to repay the
Company's existing real estate notes payable, to provide a principal and
interest reserve during the early months of the mortgage loan, and for general
corporate purposes. As of November 20, 1998, the lender has not provided a loan
to the Company pursuant to this commitment.
The Company's success is substantially dependent upon closing a loan pursuant to
this loan commitment or obtaining alternative debt or equity financing, the net
proceeds from the exercise of the Warrants, or otherwise during late 1998 or
early 1999, to continue to implement its business plan, including pursuing the
NevStar 2000 project. There can be no assurance that the Company will be able to
generate sufficient funds from these or other sources.
PART II. OTHER INFORMATION
ITEM 1. Legal proceedings - Not Applicable.
ITEM 2. Changes in securities - Not Applicable.
ITEM 3. Defaults on senior securities - Not Applicable.
ITEM 4. Submission of matters to a vote of security holders - Not Applicable.
ITEM 5. Other information - Not Applicable.
ITEM 6.
(a) Exhibits:
None
(b) Reports on Form 8-K
August 24, 1998
September 25, 1998
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 20th day of November, 1998.
NEVSTAR GAMING & ENTERTAINMENT CORPORATION
By: /s/ MICHAEL J. SIGNORELLI
Michael J. Signorelli
Chairman of the Board and
Chief Executive Officer
By: /s/ Brent E. DUNCAN
Brent E. Duncan
Chief Financial Officer and
Treasurer (Principal Financial
Officer and Principal Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The accompanying Financial Data Schedule for the quarter ended September 30,
1998 is unaudited. It is suggested that it be read in conjunction with the
Company's Report on Form 10-KSB for the transition period ended June 30, 1998
and the Company's Form 10-QSB for the quarter ended September 30, 1998.
</LEGEND>
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<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 804
<SECURITIES> 0
<RECEIVABLES> 14
<ALLOWANCES> 0
<INVENTORY> 72
<CURRENT-ASSETS> 1,409
<PP&E> 22,999
<DEPRECIATION> 321
<TOTAL-ASSETS> 24,647
<CURRENT-LIABILITIES> 4,967
<BONDS> 0
0
1
<COMMON> 39
<OTHER-SE> 5,454
<TOTAL-LIABILITY-AND-EQUITY> 24,647
<SALES> 2,379
<TOTAL-REVENUES> 2,379
<CGS> 318
<TOTAL-COSTS> 318
<OTHER-EXPENSES> 3,313
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 434
<INCOME-PRETAX> (1,686)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,686)
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<NET-INCOME> (1,686)
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