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 March 31, 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)
3175 West Post Road, 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 3,606,713 outstanding shares of Common Stock, par value $0.01 per
share, as of May 11, 1998.
Transitional Small Business Disclosure Format: Yes____ NO X
<PAGE>
NevStar Gaming & Entertainment Corporation
Form 10-QSB
For the Quarter Ended March 31, 1998
INDEX
PART I. FINANCIAL INFORMATION: PAGE
ITEM 1. Financial Statements:
Balance Sheet at March 31, 1998 3
Statements of Operations for the Three Month
Periods Ended March 31, 1998 and 1997, and
the period from inception (December 2, 1993)
to March 31, 1998 4
Statements of Cash Flows for the Three Month
Periods Ended March 31, 1998 and 1997, and
the period from inception (December 2, 1993)
to March 31, 1998 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 15
ITEM 2. Changes in Securities and Use of Prioceeds 15
ITEM 3. Defaults upon Senior Securities 15
ITEM 4. Submission of Matters to a Vote of Security Holders 15
ITEM 5. Other Information 15
ITEM 6. Exhibits and Reports on Form 8-K. 15
SIGNATURES 15
<PAGE>
NevStar Gaming & Entertainment Corporation
(A Development Stage Company)
Balance Sheets
March 31, 1998
(Dollars in Thousands)
(Unaudited)
ASSETS
Cash and cash equivalents $ 1,751
Land and construction in process 17,284
Deposits and other assets 1,138
$20,173
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,682
Accrued expenses 102
Accrued interest 70
Notes payable 10,878
Total liabilities 12,732
Stockholders' Equity:
Series A convertible non-voting preferred
stock, $.01 par value per share. Designated
1,500,000 shares. Issued and outstanding
64,500 shares 1
Common stock, $.01 par value per share.
Designated 50,000,000 shares. Issued and
outstanding 3,600,463 shares 36
Additional paid-in capital 16,602
Deficit accumulated during the development-stage (9,198)
Total stockholders' equity 7,441
$20,173
See accompanying notes to financial statements.
<PAGE>
NevStar Gaming & Entertainment Corporation
(A Development Stage Company)
Statements of Operations
Three Month Periods Ended March 31, 1998 and 1997,
and Period From Inception (December 2, 1993)
to March 31, 1998
(Dollars in Thousands, Except Per Share Amounts)
(UNAUDITED)
Period from
Inception
(December 2,1993)
to
1998 1997 March 31, 1998
Revenues $ - $ - $ -
Costs and expenses:
Compensation and related costs 225 86 2,104
Professional fees 81 - 464
Outside consultants 29 7 1,035
Extension fees on notes payable - - 475
Offering costs - - 975
Rents 15 10 221
Depreciation and amortization 3 68 707
Interest, net 112 354 2,254
Other 236 114 1,126
701 639 9,361
Interest income 34 1 163
667 638 9,198
Net loss $ (667) $ (638) $(9,198)
Loss per common share $ (0.19) $ (1.03)
Weighted average number
of common shares outstanding 3,459,676 622,023
See accompanying notes to financial statements.
NevStar Gaming & Entertainment Corporation
(A Development Stage Company)
Statements of Cash Flows
Three Month Periods Ended March 31, 1998 and 1997,
and Period From Inception (December 2, 1993)
to March 31, 1998
(Dollars in Thousands)
(UNAUDITED)
Period from
Inception
(December 2,1993)
to
1998 1997 March 31,1998
Cash flows from operating activities:
Net loss $ (667) $ (638) $(9,198)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 3 68 707
Accretion of discount on notes payable 112 73 774
Common stock options and
warrants expenses - - 1,744
Loss on investment - - 34
Extension fees on notes payable - - 475
(Increase)in deposits
and other assets (686) (250) (1,338)
(Decrease) increase in accounts
payable and accrued expenses (308) 131 1,675
Cash used in operating activities (1,546) (616) (5,127)
Cash flows from investing activities:
Hotel and casino construction costs (3,281) (290) (9,903)
Purchase of investment - - (34)
Cash used in investing activities (3,281) (290) (9,937)
See accompanying notes to financial statements.
NevStar Gaming & Entertainment Corporation
(A Development Stage Company)
Statements of Cash Flows (continued)
Three Month Periods Ended March 31, 1998 and 1997,
and Period From Inception (December 2, 1993)
to March 31, 1998
(Dollars in Thousands)
(UNAUDITED) Period from
Inception
(December 2,1993)
to
1998 1997 March 31,1998
Cash flows from financing activities:
Proceeds allocated to:
Warrants and original issue discount - 220 551
Convertible notes and bridge financing - 780 2,054
Issuance of notes payable - 9 5,438
Construction loan draws, including fees 2,966 - 2,966
Proceeds from preferred stock offering - - 4,978
Principal repayments of notes payable - (14) (6,088)
Proceeds from issuance of
common stock(note 5) - - 7,771
Change in construction costs payable (521) - (855)
Cash provided by
financing activities 2,445 995 16,815
Increase (decrease) in cash
and cash equivalents (2,382) 89 1,751
Cash and cash equivalents, beginning 4,133 3 -
Cash and cash equivalents, ending $ 1,751 $ 92 $ 1,751
Supplemental schedule of non-cash
investing and financing activities:
Issuance of common stock:
payment of accrued interest $ 406 $ - $ 406
payment of pre-opening expenses 75 - 75
Issuance of note for option agreement - - 200
Value allocated to warrants granted - - 57
Accrued interest added to note principal - - 1,001
Default interest on notes waived
by shareholders - - 274
Note payable forgiven by shareholders - - 450
Value of warrants recorded as
original issue discount - - 896
Extension fees on notes payable - - 679
Construction costs incurred and payable 954 - 954
Acquisition of property:
Notes payable assumed - - 2,442
Issuance of notes payable - - 2,758
Issuance of common stock - - 28
Preferential dividend - (588)
See accompanying notes to financial statements.
NevStar Gaming & Entertainment Corporation
(A Development Stage Company)
Notes to Financial Statements
March 31, 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 fiscal
year ended December 31, 1997. 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 of 235,964 attributable to
outstanding options and warrants, computed under the treasury stock method, for
the three month period ended March 31, 1998, have not been included in the loss
per common share calculations because the result would be anti-dilutive.
(2) Land and Construction in Process
Development costs of The Mesquite Star Hotel and Casino, scheduled for
completion in May of 1998, excluding land, aggregated approximately $12,600,000
at March 31, 1998. Additional obligations under the Construction contract are
estimated at $2,200,000 at March 31, 1998.
Such costs include architectural and engineering plans, permits and approval
costs, on and off-site infrastructure improvements, and grading and foundation
work at the site, and capitalized interest. Interest of $292,000 was capitalized
while interest of $112,000, consisting of amortization of original issue
discount, was charged to expense during the three month period ended March 31,
1998.
(3) Deposits and Other Assets
A summary of deposits and other assets follows:
March 31,1998
(Dollars in thousands)
Deposits on Mesquite Star Hotel
furniture and equipment $ 709
Option to develop land 257
Loan commitment fees -
Prepaid consulting fees 36
Other 136
$1,138
(4) Notes Payable
A summary of notes payable follows:
March 31,1998
(Dollars in thousands)
Prime rate, plus 2.5% (11% at March 31, 1998),
Construction loan payable (A) $2,966
Notes payable to shareholders of $7,285,000 net
of $672,000 unamortized original
issue discount, secured by deeds
of trust on the Mesquite land. 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 August, 1999 (B) 6,613
Note payable to a former shareholder, secured by
deed of trust on the Mesquite land. 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
Note payable to shareholder, unsecured and
non-interest bearing, due September, 1998. 200
______
$10,878
Letter of Credit
On March 31, 1998, Drs. Richard Kelley and Richard Tam executed a financing
commitment to lend to the Company up to $1,000,000. The loan is to bear interest
at the greater of Bank of Hawaii prime rate of interest plus 3% per annum or 12%
per annum with a $10,000 commitment fee. The loan is to be secured by a deed of
trust encumbering the Company's property in Mesquite, Nevada. Advances can be
obtained for current working capital purposes upon 20 days advance notice no
sooner than June 1, 1998 and no later than March 26, 1999. A condition to any
advance is that the Company shall possess all gaming licenses required to fully
operate the Mesquite Star Hotel and Casino. The loan would be due and payable
one year from the initial draw date. As consideration for the loan commitment,
Drs. Kelley and Tam were issued warrants in the amount of 37,500 shares each to
purchase shares of Common Stock at an exercise price of $2.00 per share. In
addition, for each $100,000 principal amount advanced under the loan, Drs.
Kelley and Tam are to receive an additional 7,500 warrants each to purchase
shares of Common Stock at a purchase price of $2.00 per share. All warrants are
immediately exercisable for a term of five years and include a cashless exercise
feature. The warrants are subject to certain registration rights.
Construction loan (A)
In January, 1998 the Company obtained a $5,000,000 construction loan to
finance the development and construction of the Mesquite Star (the "Secured
Financing"). The principal may be increased from $5,000,000 to $5,450,000, once
certain conditions have been met, as outlined in a commitment letter dated March
27, 1998. The Secured Financing consists of a construction loan from First
Credit Bank (the "First Credit Loan") secured by a first deed of trust and UCC-1
fixture filings on the Mesquite Property. In connection with the Secured
Financing, the PMJ Debt and the Kelley Loan have subordinated to the
new first deed of trust on the Mesquite Property on the original $5,000,000 loan
and documents are being processed as required for the $450,000 loan increase. As
of March 31, 1998, the Company had drawn approximately $2,966,000 of the
available construction loan balance for payment of construction costs incurred,
including approximately $207,000 (including $50,000 loan extension fee) in
capitalized loan costs.
Under the terms of the First Credit Bank Construction Loan Agreement between
First Credit Bank and the Company (the "Bank Loan Agreement"), the First Credit
Loan is an 18-month construction loan in the principal amount of $5,000,000
which bears interest at a fluctuating rate of interest per annum equal to the
sum of prime plus 2.5%. Pursuant to the Bank Loan Agreement, upon maturity of
the 18-month construction loan, the Company could request and obtain a
three-year extension of the First Credit Loan (the "Three-Year Loan") if
certain specified conditions are met, including: (i) the timely completion of
construction of the Mesquite Star project, (ii) the Company's full payment and
performance of the Company's loan obligations to First Credit Bank during the
18-month construction phase, and (iii) payment of a loan extension fee of
$50,000 (the "Loan Extension Fee"), plus additional costs and fees associated
with the closing of the Three-Year Loan.
Notes Payable to Shareholders (B)
The Company's loan agreement with Drs. Richard Kelley and Richard Tam provides
the Company with the option of making up to $525,000 in interest payments due
after the closing of the IPO in the form of common stock. On March 31, 1998,
the Company issued 143,296 shares of common stock in payment of approximately
$406,000 of such accrued interest.
(5)Capital Stock
On September 24, 1997, the Company completed an initial public offering ("IPO")
of 1,725,000 units consisting of one share of Common Stock and two redeemable
Common Stock Purchase Warrants at $5.50 per unit. The registered holder of each
Warrant may purchase, at any time, over a five-year period commencing on
September 18, 1997, one share of the Company's Common Stock at a price of $5.50
per share. Commencing 90 days from September 18, 1997, the Warrants are subject
to redemption by the Company at $0.05 per Warrant on 30 days prior written
notice to the Warrant holders, if the closing price of the Common Stock as
reported in the NASDAQ Automated Quotation System Small Cap Market averages in
excess of $11.00 for a period of 20 consecutive trading days ending within 15
days prior to the notice of redemption. The net proceeds to the Company of
$7,739,000 were after underwriting discounts, commissions, and other costs
associated with the offering.
During June of 1997, the Company delivered an exchange offer to the holders of
the preferred shares which gave them the right to convert each of the preferred
shares into common stock at a ratio of .7 shares of common stock for every 1
share of preferred stock. As of March 31, 1998, 1,418,844 preferred shares
have been exchanged for 993,182 shares of common stock and the capital stock
accounts have been adjusted accordingly.
During January of 1998, the Company issued 21,634 shares of common stock in
payment of approximately $75,000 of pre-opening costs and expenses.
(6) Sale of Land
The Company entered into an agreement in 1998 with an unrelated
party whereby the Company has agreed to sell a portion of the Mesquite land
(27,100 square feet) for $450,000 with the closing expected to occur in May
1998. In addition, the agreement provides for future consideration of 5,199
square feet of land to be transferred to the Company.
(7)Subsequent Events
On April 1, 1998, the Company's Board of Directors approved a change in the
Company's fiscal year end from December 31 to June 30, effective June 30,1998.
The Company will file a Form 10-KSB transition report as of and for the six
month period ending June 30, 1998.
On April 27, 1998, an independent third party executed a financing commitment to
lend to the Company up to $250,000. The loan is to bear interest at the greater
of Bank of Hawaii prime rate of interest plus 3% per annum or 12% per annum with
a $2,500 commitment fee. The loan is to be secured by a deed of trust
encumbering the Company's property in Mesquite, Nevada. Advances can be
obtained for current working capital purposes upon 20 days advance notice no
sooner than June 1, 1998 and no later than March 26, 1999. A condition to any
advance is that the Company shall possess all gaming licenses required to fully
operate the Mesquite Star Hotel and Casino. The loan would be due and payable
one year from the initial draw date. As consideration for the loan commitment,
warrants were issued in the amount of 17,850 shares each to purchase shares of
Common Stock at an exercise price of $2.00 per share. In addition, for each
$50,000 principal amount advanced under the loan the lender is to receive an
additional 7,500 warrants each to purchase shares of Common Stock at a purchase
price of $2.00 per share. All warrants are immediately exercisable for a term
of five years and include a cashless exercise feature. The warrants are subject
to certain registration rights.
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 development stage company formed
in December 1993 to develop, construct and operate a hotel casino in Mesquite,
Nevada. The 210 room hotel casino, known as the Mesquite Star, which is
scheduled for completion in May 1998 and opening on or before July 1, 1998, is
expected to feature approximately 34,000 square feet of public area including
two restaurants, a video arcade, a gift shop, and 12,000 square feet of gaming.
The Company is currently in the development stage, has no revenues since
inception and has cumulative development stage losses of approximately
$9,198,000 through March 31, 1998. For the Company to commence business and
begin generating operating revenues at the Mesquite Star, receipt of necessary
gaming licenses, securing of all additional vendor and third party financing,
and implementation of the Company's marketing plans are necessary.
At May 11, 1998, construction of the Mesquite Star Hotel and Casino is estimated
to be approximately 90 to 95 percent complete. Assuming no rain or other
unforseen delays, AF Construction is expected to complete the project on
schedule during May.
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."
As of the date of this filing, the Company has not obtained the license and
related approvals from the Nevada Commission to conduct gaming at the Mesquite
Star. The Company, its directors, officers and principal stockholders have
applied for the necessary licenses, approvals and findings of suitability to own
and operate the Mesquite Star. However, there can be no assurance that the
Company and such persons will be licensed, found suitable, or granted the other
approvals that are necessary to commence gaming operations.
PLAN OF OPERATION
April 1, 1998 through March 31, 1999
The Company's plan of operation for the 12 month period ending March 31, 1999
includes completion by the contractor of the Mesquite Star Hotel and Casino
construction in May of 1998; installation of furnishings, equipment, inventories
and supplies; finalization of required financing; completion of licensing;
hiring of managers and employees, and the intended opening of the property for
business on or before July 1, 1998. However, there can be no assurance that the
Company's plan of operation and opening of the Mesquite Star will be
implemented.
The Company has hired senior management for the Mesquite Star, including the
Vice-President and General Manager, the Director of Finance, the Director of
Human Resources and other department managers, and recently began the phased
recruiting, hiring and training of support staff. Management is currently
establishing administrative and operating policies and procedures, including
advertising and marketing programs, which may be implemented at various dates
during the 12 month period ending March 31, 1999. When operational, the Mesquite
Star is expected to employ approximately 350 employees, including managers.
North Las Vegas Option
In September of 1997, the Company issued a $200,000 note payable, which is due
September 15, 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. 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.
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. The Company is using the $7,739,000 of net
proceeds received from its Initial Public Offering, $5,450,000 of secured
financing and approximately $6,750,000 of equipment and sign financing described
more fully in the following paragraphs to fund construction, furnishing, signs
and pre-opening costs and expenses of the Mesquite Star Hotel and Casino.
Post offering construction expenses is estimated at approximately $8,500,000 (of
which estimated costs for completion of the $8,000,000 contract for development
and construction of the Mesquite Star facilities, at March 31, 1998 is
approximately $2,200,000 based on the AF Construction Company, Inc.'s itemized
estimate); the acquisition of furniture, fixtures and equipment is estimated at
approximately $5,800,000; the Mikohn sign lease is $950,000 (including capital,
financing, and maintenance costs, and the $125,000 end of term purchase option);
and pre-opening costs and expenses is estimated at approximately $2,600,000
including inventories and supplies, prepaid taxes and licenses, advertising, and
payroll costs.
In May 1998, the Company received a lease proposal for approximately $850,000 of
hotel furnishings and equipment capital costs. On April 14, 1998, Company
management executed a lease contract with a capital cost of approximately
$1,028,000. Also, during April 1998, the Company executed conditional lease
commitments and proposals with a capital cost of approximately $2,585,000 under
which lease documents are currently being drafted and vendor invoices are being
submitted for processing. In February 1998 the $950,000 Mikohn sign lease was
executed. Leases or installment contracts have also been executed with various
slot machine, computer and telephone equipment vendors covering approximately
$1,300,000 of capital costs.
IGT. The Company has entered into a 36-month lease agreement with IGT, dated
April 8, 1998 concerning 159 IGT slot machines with a capital cost of
approximately $1,028,000 which commences ninety days following the commencement
of gaming operations. The lease requires monthly payments of $29,782 and
contains a purchase option of approximately 20% of the capital cost at the end
of the term.
PDS FINANCIAL CORPORATION. Under a lease proposal dated, April 14, 1998,
approximately $1,417,000 of capital costs is to be financed by PDS Financial
Corporation ("PDS") (the "PDS Financing"), for approximately $850,000 of
furniture, fixtures and equipment and approximately $567,000 for 122 gaming
devices from the PDS Slot Source inventory program. The noncancellable 36-month
lease is to start June 1, 1998. One payment of approximately $41,598 is due upon
execution of the lease, with the first monthly lease payment due July 1, 1998.
The lease is to include a purchase option at the fair market value of the assets
under lease to be determined at the end of the lease term.
TELERENT. On April 12, 1998, the Company executed a lease commitment with
Telerent covering a capital cost for furniture, carpets and equipment of
approximately $1,168,000 which will require monthly payments for the initial 36-
months of $33,903, then payments of $11,568 for the remaining 24 months. The
lease requires, among other things, a 1% commitment fee, and a security
interest, and a mortgagee's waiver, covering such furniture, carpet and
equipment.
OTHER EQUIPMENT FINANCING. Other equipment with an aggregate capital cost of
$1,300,000, to be provided by various slot machine, computer, and telephone and
vendors will require various monthly payments, upon opening of the Mesquite
Star, over 12 to 60 months.
MIKOHN SIGN. In February 1998, the Company entered into a Lease Agreement with
CasinoExcitement, Inc. (dba Mikohn Lighting & Sign), concerning the lease,
ownership, location, installation, operation and maintenance of a double-faced,
99 foot high, pylon sign (the "Sign") at the Mesquite Property(the "Mikohn
Agreement"). The Mikohn Agreement term is from July 1, 1998 through February 28,
2003 and includes a monthly rental rate of $12,500 per month, with the first
payment due on November 1, 1998. In addition, the Company has agreed to pay an
additional $50,000 in April 1998 and an additional $125,000 prior to January 31,
2000. At the end of the term of the Mikohn Agreement, the Company shall have
the option to purchase the sign for $125,000. In addition, the Company shall
have the option to purchase the sign for the net present value of the remaining
lease payments (including the end of term option amount of $125,000) discounted
at 10%, plus an additional sum of $25,000, at any time during the term.
LETTER OF CREDIT
On March 31, 1998, Drs. Richard Kelley and Richard Tam executed a financing
commitment to lend to the Company up to $1,000,000. The loan is to bear interest
at the greater of Bank of Hawaii prime rate of interest plus 3% per annum or 12%
per annum with a $10,000 commitment fee. The loan is to be secured by a deed of
trust encumbering the Company's property in Mesquite, Nevada. Advances can be
obtained for current working capital purposes upon 20 days advance notice no
sooner than June 1, 1998 and no later than March 26, 1999. A condition to any
advance is that the Company shall possess all gaming licenses required to fully
operate the Mesquite Star Hotel and Casino. The loan would be due and payable
one year from the initial draw date. Refer to note 9, Subsequent Events,
elsewhere herein, regarding an additional $250,000 Letter of Credit.
Following the opening of the Mesquite Star, the Company believes that the
Mesquite Star facilities will begin to generate cash flow from operations. In
the event (i) such sources are not sufficient to satisfy cash requirements,
including debt service, or (ii) any of such financing sources are not obtained,
the Company will be required to seek additional financing, and there can be no
assurance that such financing will be available upon terms acceptable to the
Company, or at all. In addition, to repay the PMJ Debt and the Kelley Loan, the
Company will be required to obtain funds from (i) the net proceeds from exercise
of Warrants; (ii) additional financing; (iii) positive net operating revenues
from the Mesquite Star; or (iv) the sale of additional equity securities.
Although the Company may have operating revenues from the Mesquite Star
following its opening, the Company will likely need to raise additional funds
from additional debt financing, the sale of additional equity securities, the
net proceeds of the exercise of the Warrants, or otherwise prior to September
1998 to continue to implement its business plan, including the North Las Vegas
Option. There can be no assurance the Company will be able to generate
sufficient funds from these or other sources.
The Company's success is substantially dependent upon the factors mentioned
above, including the securing of financing, the successful completion of
development and construction of the Mesquite Star Hotel and Casino and the
successful operation thereof. In addition, continued operations are dependant on
the Company's management's ability to generate positive operating revenues,
procure additional financing and/or obtain additional equity capital from the
exercise of warrants or other methods.
The Company believes that existing cash, the Secured Financing, the equipment
financing, (including conditional commitments and proposals), and the Letter of
Credit may be sufficient to satisfy its anticipated cash requirements in
connection with the construction and opening of the Mesquite Star. However,
there can be no assurance that the Company's plan of operation and opening of
the Mesquite Star will be implemented.
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. Exhibits and Reports on Form 8-K:
(a) Exhibits:
10.1 Financing Commitment - Drs. Richard Kelly and Richard Tam
10.2 Financing Commitment - Mr. Sam Hon
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the Quarter
ended March 31, 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 14th day of May, 1998.
NEVSTAR GAMING & ENTERTAINMENT CORPORATION
By: /s/ MICHAEL J. SIGNORELLI
Michael J. Signorelli
Chairman of the Board and
Chief Executive Officer
By: /s/ JEFFREY L. GILBERT
Jeffrey L. Gilbert
President, Chief Operating Officer
and Treasurer (Principal Financial
Officer and Principal Accounting Officer)
<PAGE>
Exhibit 10.1 - Financing Commitment Drs. Richard Kelley and Richard Tam
NevStar Gaming & Entertainment Corporation
3175 West Post Road
Cypress Center
Las Vegas, Nevada 89118
(702) 269-1325 FAX: (702) 269-1326
March 31, 1998
Dr. Richard R. Kelley
Outrigger Enterprises
4800 South Lafayette Street
Englewood, Colorado 80110-7011
[OR]
2375 Kuhio Avenue
Honolulu, Hawaii 96815-2939
Dr. Richard Tam
Richard Tam Enterprises
2140 West Charleston Boulevard
Las Vegas, Nevada 89102
Re: Financing Commitment
Dear Drs. Kelley and Tam:
This letter is intended to summarize the principal terms of a commitment by
Dr. Richard Kelley ("Kelley") and Dr. Richard Tam ("Tam") (Kelley and Tam are
collectively referred to herein as the "Lenders") to lend to NevStar Gaming &
Entertainment Corporation, a Nevada corporation ("NevStar"), the principal
sum of up to One Million Dollars ($1,000,000) (the "Principal Sum") on the
terms as forth below (the "Loan"):
1. Loan Amount. The Lenders agree to lend to NevStar the Principal
Sum which shall bear interest at the greater of (i) the Bank of
Hawaii prime rate of interest plus three percent (3%) or (ii)
twelve percent (12%). The initial advance pursuant to this
Agreement shall be net of an origination fee of Ten Thousand
Dollars ($10,000).
2. Security. The Loan shall be secured by a deed of trust encumbering
NevStar's hotel/casino property under construction in Mesquite,
Nevada, in favor of Kelley, and shall be governed by that certain
Amended and Restated Convertible Loan Agreement dated April 18,
1996, between NevStar and Kelley, as amended to date (the "Kelley
Loan Agreement").Lenders acknowledge that the Deed of Trust shall
be junior and subordinate to the first lien in favor of First
Credit Bank and shall be subject to Lenders' existing Intercreditor
Agreement with PMJ Enterprises, Inc.
3. Advances by the Lenders. Lenders will advance to NevStar for
current and future working capital purposes an amount as needed up
to the Principal Sum on twenty (20) days' prior written notice of
NevStar to Lenders, but no sooner than June 1, 1998 and no later
than March 26, 1999. A condition to any advance shall be that
NevStar shall possess all gaming licenses required to fully operate
the Mesquite Star Hotel and Casino.
4. Payment Terms. Interest only shall be payable monthly in arrears.
The Principal Sum and all accrued interest thereon shall be due and
payable one (1) year from the initial draw date.
5. Warrants. In consideration for this Loan Commitment, the Lenders
shall be issued warrants in the form attached hereto as Exhibit "A" to
purchase a total of seventy-five thousand (75,000) shares of
NevStar Common Stock at a per share exercise price of $2.00. In
addition, for each One Hundred Thousand Dollar ($100,000) principal
amount advanced pursuant to this commitment, the Lenders shall
receive an additional 15,000 warrants (or pro rata portion thereof
based upon a partial draw of less than $100,000 rounded to the
nearest whole warrant) to purchase shares of NevStar Common Stock
at a purchase price of $2.00. All Warrants shall be immediately
exercisable for a term of five years and shall include a cashless
exercise feature. The parties shall use best efforts to structure
the additional warrants in a manner to minimize taxation of the
Lenders. All shares of Common Stock issuable upon exercise of the
warrants shall be subject to the terms and conditions of any
lock-up agreements entered into by the Lenders with H.J. Meyers &
Co., Inc. and shall constitute "Registerable Securities" as defined
in Article X of the Stock Purchase Agreement dated as of May 9,
1997 by and between NevStar, PMJ Enterprises, Inc., Patrick J.
Shannon, and the Lenders (the "Stock Purchase Agreement"). The
Lenders and NevStar acknowledge and agree that the registration of
these shares of common stock shall be governed by Article X of the
Stock Purchase Agreement.
6. Documentation. Lenders' obligations hereunder are conditioned upon
the preparation, execution and perfection of legal documents
reasonably satisfactory to the parties and their counsel which
shall contain customary representations, warranties and conditions
acceptable to Lenders. NevStar shall pay all reasonable expenses
of Lenders in connection with the preparation of such documents,
subject to a cap on legal fees of $7,500.
7. Entire Agreement. This Agreement constitutes the entire agreement
between the parties, and supersedes all prior oral or written
agreements, understandings, representations and warranties, and
courses of conduct and dealing between the parties on the subject
matter hereof. Except as otherwise provided herein, this Agreement
may be amended or modified only by a writing executed by all of the
parties.
8. Governing Law. This Agreement will be governed by and construed under
the laws of the State of Nevada without regard to conflicts of laws
principles.
9. Jurisdiction; Services of Process. Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of,
this Letter may be brought against any of the parties in the courts
of the State of Nevada, County of Clark, or, if it has or can acquire
jurisdiction, in the United States District Court, and each of the
parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and
waives any objection to venue laid therein. Process in any action or
proceeding referred to in the preceding sentence may be served on any
party anywhere in the world.
10. Counterparts. This Agreement may be executed in one or more
counterparts, all of which when fully executed and delivered by all
parties hereto and taken together shall constitute a single
agreement, binding against each of the parties. To the maximum extent
permitted by law or by any applicable governmental authority, any
document may be signed and transmitted by facsimile with the same
validity as if it were an ink-signed document.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]<PAGE>
If you are in
agreement with the foregoing, please sign and return one copy of this
letter agreement, which thereupon will constitute our agreement with
respect to its subject matter.
Sincerely,
NEVSTAR GAMING & ENTERTAINMENT
CORPORATION, a Nevada corporation
By:
Michael J. Signorelli
Chairman and Chief Executive Officer
The undersigned hereby acknowledge and agree to the terms and conditions
set forth above, as of March 31, 1998.
Richard R. Kelley
Richard Tam
[Signature Page to Commitment Letter]
C:\MyFiles\EDGAR980310QSB\commit4W.txt.wpd
Exhibit 10.2 - Financing Commitment - Mr. Sam
NevStar Gaming & Entertainment Corporation
3175 West Post Road
Cypress Center
Las Vegas, Nevada 89118
(702) 269-1325 FAX: (702) 269-1326
April 27, 1998
Sam Hon
5521 Toyon
San Diego, California 92115
Re: Financing Commitment
Dear Mr. Hon:
This letter is intended to summarize the principal terms of a commitment by
Sam Hon ("Lender") to lend to NevStar Gaming & Entertainment Corporation, a
Nevada corporation ("NevStar"), the principal sum of up to Two Hundred
Fifty Thousand Dollars ($250,000) (the "Principal Sum") on the terms as forth
below (the "Loan"):
1. Loan Amount. The Lender agrees to lend to NevStar the Principal Sum,
which shall bear interest at the greater of (i) the Bank of Hawaii prime
rate of interest plus three percent (3%) or (ii) twelve percent (12%).
The initial advance pursuant to this Agreement shall be net of an
origination fee of Two Thousand Five Hundred Dollars ($2,500).
2. Security. The Loan and a concurrent commitment to loan the same
amount on the same terms herein of James D. Meehan (the "Meehan Commitment
Letter") shall both be secured by a single deed of trust encumbering
NevStar's hotel/casino property under construction in Mesquite, Nevada,
in favor of both Lender and James D. Meehnan. Lender acknowledges that
the Deed of Trust shall be junior and subordinate to all existing liens in
favor of First Credit Bank, PMJ Enterprises, Inc., and Drs. Richard Kelley
and Richard Tam.
3. Advances by the Lender. Lender will advance to NevStar for current
and future working capital purposes an amount as needed up to the Principal
Sum on twenty (20) days' prior written notice of NevStar to Lender, but no
sooner than June 1, 1998 and no later than March 26, 1999. A condition
to any advance shall be that NevStar shall possess all gaming licenses
required to fully operate the Mesquite Star Hotel and Casino.
If NevStar elects to take an advance of funds pursuant to either its
commitment letter for the principal sum of One Million Dollars ($1,000,000)
from Drs. Richard Kelley and Richard Tam dated March 31, 1998 (the
"Kelley/Tam Commitment Letter") or the Meehan Commitment Letter, NevStar
shall be required to take a pro rata advance of funds pursuant to this
Agreement. For purposes of example only, if NevStar elects to take an
advance of a total of $500,000, it shall take $250,000 pursuant to the
Kelley/Tam Commitment Letter and $125,000 pursuant to each of the Meehan
Commitment Letter and this Agreement.
4. Payment Terms. Interest only shall be payable monthly in arrears.
The Principal Sum and all accrued interest thereon shall be due and
payable one (1) year from the initial draw date.
5. Warrants. In consideration for this Loan Commitment, the Lender shall
be issued warrants in the form attached hereto as Exhibit "A" to purchase a
total of seventeen thousand eight hundred fifty (17,850) shares of NevStar
Common Stock at a per share exercise price of $2.00. In addition, for
each Fifty Thousand Dollar ($50,000) principal amount advanced pursuant
to this commitment, the Lender shall receive an additional seven thousand
five hundred (7,500) warrants (or pro rata portion thereof based upon a
partial draw of less than Fifty Thousand Dollars ($50,000) rounded to
the nearest whole warrant) to purchase shares of NevStar Common Stock at
a purchase price of $2.00. All Warrants shall be immediately exercisable
for a term of five years and shall include a cashless exercise feature.
The parties shall use best efforts to structure the additional warrants
in a manner to minimize taxation of the Lender.
6. Documentation. Lender's obligations hereunder are conditioned upon
the preparation, execution and perfection of legal documents reasonably
satisfactory to the parties and their counsel which shall contain customary
representations, warranties and conditions acceptable
to Lender.
7. Entire Agreement. This Agreement constitutes the entire agreement
between the parties, and supersedes all prior oral or written agreements,
understandings, representations and warranties, and courses of conduct
and dealing between the parties on the subject matter hereof. Except as
otherwise provided herein, this Agreement may be amended or modified only
by a writing executed by all of the parties.
8. Governing Law. This Agreement will be governed by and construed under
the laws of the State of Nevada without regard to conflicts of laws
principles.
9. Jurisdiction; Services of Process. Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, this
Letter may be brought against any of the parties in the courts of the
State of Nevada, County of Clark, or, if it has or can acquire
jurisdiction, in the United States District Court, and each of the
parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives
any objection to venue laid therein. Process in any action or proceeding
referred to in the preceding sentence may be served on any party anywhere
in the world.
10. Counterparts. This Agreement may be executed in one or more
counterparts, all of which when fully executed and delivered by all
parties hereto and taken together shall constitute a single agreement,
binding against each of the parties. To the maximum extent permitted by
law or by any applicable governmental authority, any document may be signed
and transmitted by facsimile with the same validity as if it were an
ink-signed document.
If you are in agreement with the foregoing, please sign and return one copy
of this letter agreement, which thereupon will constitute our agreement
with respect to its subject matter.
Sincerely,
NEVSTAR GAMING & ENTERTAINMENT
CORPORATION, a Nevada corporation
By:
Michael J. Signorelli
Chairman and Chief Executive Officer
The undersigned hereby acknowledge and agree to the terms and conditions
set forth above, as of April 27, 1998.
Sam Hon
[Signature Page to Commitment Letter]
C:\MyFiles\EDGAR980310QSB\commhonW.txt.wpd
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Information in this Financial Data schedule is unaudited and should be read
in conjunction with the Company's March 31, 1998 Form 10-QSB and December 31,
1997 Form 10-KSB.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,751
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 17,284
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,173
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
1
<COMMON> 36
<OTHER-SE> 7,404
<TOTAL-LIABILITY-AND-EQUITY> 20,173
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 555
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112
<INCOME-PRETAX> (667)
<INCOME-TAX> 0
<INCOME-CONTINUING> (667)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (667)
<EPS-PRIMARY> (0.19)
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</TABLE>
