SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB/A
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (Fee Required)
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For the Fiscal Year Ended September 30, 1995 Commission file number 0-18224
NUOASIS GAMING, INC.
Delaware 95-4176781
- ---------------------------------- --------------------
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2 Park Plaza, Suite 470, Irvine, California 92714
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (714) 553-3270
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Securities registered pursuant to Section 12(b) of
the Act:
None
Securities registered pursuant to Section 12(g) of
the Act:
Common Stock, $.01 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K, is not contained herein and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
o
As of December 29, 1995, the aggregate market value of the voting stock
(based upon the average closing bid and asked prices in the over-the-counter
market as quoted on NASD-OTC Bulletin Board as of December 29, 1995) held by
non-affiliates was approximately $3,193,584.
Class Outstanding at December 29, 1995
- ----------------------------- --------------------------------
Common Stock , $.01 par value 29,136,175 shares
Documents Incorporated by Reference:
None
Total Number of Pages Including Cover 67
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TABLE OF CONTENTS
Page
PART I
Item 1. Business ..............................................................1
Item 2. Properties ............................................................7
Item 3. Legal Proceedings .....................................................7
Item 4. Submission of Matters to a Vote of Security-Holders ..................11
PART II
Item 5. Market for the Registrant's Securities
and Related Stockholder Matters ....................................11
Item 6. Selected Financial Data, Management's Discussion and Analysis of
Financial Condition and Results of Operations ......................12
Item 7. Financial Statements .................................................16
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures ..............................................16
PART III
Item 9. Directors and Executive Officers of the Registrant.................. .17
Item 10. Executive Compensation ............................................ 27
Item 11. Security Ownership of Certain Beneficial
Owners and Management ............................................ .27
Item 12. Certain Relationships and Related Transactions ......................29
PART IV
Item 13. Exhibits and Reports on Form 8-K ................................ ...32
<PAGE>
PART I
ITEM 1. BUSINESS.
(a) Business Development
NuOasis Gaming, Inc. (the "Company", or the "Registrant") incorporated in
the State of Delaware in 1987. Since 1992, substantially all of the Registrant's
efforts were directed toward acquiring or merging with another company (or
companies), preserving remaining capital, raising additional capital and
creating a new operating entity, in addition to settling certain pending
lawsuits and other obligations of the Registrant.
The Registrant believes that maintaining an entrepreneurial atmosphere is
essential to continuing its search for additional sources of capital and new
operating opportunities. During fiscal 1994, the Registrant adopted the strategy
that would ultimately result in its separate subsidiaries becoming independent
profit centers. This would have permitted the establishment of more focused
management objectives and performance incentives, and allowed each subsidiary to
raise new equity capital, as needed, while minimizing the Registrant's financial
commitment to support the subsidiaries' growth. Since March 31, 1994, the
Registrant's operating philosophy is to supervise its wholly-owned subsidiaries
by providing centralized strategic planning, corporate development,
administrative, and other services that would not be available to many
independent companies of similar size. As of the date of filing this Amended
Report, the Registrant has no current ongoing business since the Ba-Mak
Bankruptcy proceedings. The Registrant is presently evaluating business
opportunities for possible acquisition within the gaming industry. In particular
the Registrant is currently evaluating its acquisition of a developmental stage
California company formed in 1992 to facilitate its customer's participation in
group play in the California State Lottery and the lotteries of other states
through the sale of a prepaid debit card called the HIT-LOTTO value card which
card may also include prepaid discounted long distance telephone service. If
management is successful in locating and acquiring a business opportunity on
terms which can be satisfied by the Registrant given its present negative
working capital position, it intends to make such acquisition and thereafter
manage such acquisition through a parent-subsidiary relationship where the
Registrant will operate as a holding company and supervise and provide
administrative and other services to its subsidiary business.
In September 1992, prior management redirected the Registrant's focus to the
legalized gaming business. In this connection, on December 15, 1992, the
Registrant established a gaming subsidiary in Louisiana named Phillips Gaming
International, Inc., a Louisiana corporation. On December 8, 1993, Phillips
Gaming International, Inc. changed its corporate name to Ba-Mak Gaming
International, Inc. ("Ba-Mak"). On April 8, 1993, Ba-Mak obtained a license to
distribute and conduct route operations of electronic video bingo machines to
licensed charitable gaming locations in the state of Louisiana. Operations of
Ba-Mak continued through April 20, 1995, at which time Ba-Mak converted its
Chapter 11 bankruptcy proceeding into a proceeding under Chapter 7 of the
Bankruptcy Code. As such, all gaming operations at Ba-Mak ceased, and the
Chapter 7 Trustee took possession of Ba-Mak's assets and liquidated such assets
for the benefit of Ba- Mak's bankruptcy estate. Total gaming revenues from
Ba-Mak will not recur in future years due to the bankruptcy and liquidation of
Ba-Mak. At September 30, 1995 the Registrant was not actively engaged in any
domestic gaming operations.
[NUOGAM\10K\95\95KSB.CLN]-4
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On January 13, 1994, the Registrant entered into a Stock Purchase and
Business Combination Agreement (the "Stock Purchase Agreement") with Nona
Morelli's II, Inc. ("Nona") and Nona's wholly-owned subsidiary, Casino
Management of America, Inc. ("CMA"), whereby the Registrant agreed to purchase
all of the outstanding capital stock of CMA from Nona in exchange for the
Registrant issuing to Nona a) 2,000,000 shares of common stock; b) 250,000
shares of Series B Convertible Preferred Stock; c) 6,000,000 New Class D common
stock purchase warrants; and d) an option to purchase up to an additional
6,000,000 shares of common stock. A Closing occurred on March 30, 1994, the
"Closing Date", whereby CMA became a wholly-owned subsidiary of the Registrant.
The old Board of Directors, with the exception of Gary L. Blum, resigned and
elected replacement Directors nominated by Nona.
At the Closing, the Registrant issued the following to Nona: 2,000,000
shares of common stock; 250,000 shares of a new class of convertible preferred
stock (the "Series B Preferred"); 6,000,000 New Class D common stock purchase
warrants (the "New Class D Warrants"); and an option to purchase up to an
additional 6,160,000 shares of common stock that is only exercisable under
certain conditions (the "Nona Option"). A Certificate of Designations,
Preferences and Rights, a Warrant Certificate and an Option Agreement setting
forth the terms and conditions of the Series B Preferred, the New Class D
Warrants and the Nona Option, respectively, were prepared and approved by the
Company prior to the Closing Date and filed as Exhibits to a Current Report on
Form 8-K.
Series B Preferred Stock
-------------------------
The 250,000 shares of Series B Preferred are convertible at the rate of
seventy-eight (78) shares of common stock for each share of Series B Preferred,
or a total of 19,500,000 shares of common stock if all of the shares of Series B
are converted. The Series B Preferred Stock has no redemption rights and is not
entitled to any dividends. It has a liquidation value of $2 per share in
preference to any payment on common stock, subject only to rights of the holders
of the 14% Preferred Stock. Each share is entitled to seventy-eight (78) votes
and shall be convertible into seventy-eight (78) fully paid and non-assessable
shares of common stock.
Nona Option
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The Nona Option for the purchase of up to 6,160,000 shares of common stock
is nontransferable and exercisable at $.01 per share. The total number of shares
that can be purchased upon exercise of the option is equal to the number of
shares of common stock subject to New Class A, New Class B and New Class C
warrants outstanding on March 30, 1994 that eventually expire unexercised. In
other words the option was designed to enable Nona to purchase any of the shares
underlying the New Class A, B and C Warrants that are not exercised by the
Warrantholders. The Company and the Warrant Agent have amended the respective
Warrant Agreements to extend the expiration dates of the respective Warrants to
one year after the effective date of a registration statement. One year after
the effective date of the registration statement, Nona may exercise its option
provided all the New Class A, B and C Warrants have not been exercised. Nona
does not hold any of the New Class A, B or C Warrants, nor is it currently
entitled to exercise its Option. Option certificate(s) for the actual number of
shares of stock which New Class A, B and C Warrantholders fail to purchase shall
be issued to Nona within ten (10) days of the expiration date of the New Class
A, B and C Warrants. The right to exercise the Nona Option will continue for a
period of 180 days after the last expiration date of the New Class A, B and C
Warrants. The Nona Option is non-transferable. In the event of a reverse split
after an option certificate is issued, the number of shares subject to exercise
and purchase shall be proportionately reduced.
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New Class D Warrants
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Each New Class D Warrant is exercisable at $1.00 per share and will entitle
the holder to receive upon exercise two (2) shares of common stock, or a total
of 12,000,000 shares if all of the New Class D Warrants are exercised. The New
Class D Warrants expire on March 30, 2004. American Stock Transfer & Trust
Company is the Warrant Agent for the New Class D Warrants as well as the New
Class A, B and C Warrants. To date none of the New Class D Warrants have been
exercised and Nona has been the holder of the New Class D Warrants since March
30, 1994. The New Class D Warrant are transferable only on the books of the
Company maintained at the principal office of the Warrant Agent upon delivery
thereof duly endorsed by the Holder or by his duly authorized attorney or
representative, or accompanied by proper evidence succession, assignment or
authority to transfer. The New Class D Warrants and warrant shares purchasable
upon exercise of the Warrants shall not be subject to dilution or reduction by
any reverse split. New Class D Warrants may only be exercised for the purchase
of whole warrant shares. New Class D Warrants may be exercised upon surrender to
the Company at the principal office of the Warrant Agent of the certificate or
certificates evidencing the Warrants to be exercised (except as otherwise
provided below), together with the form of election to purchase on the reverse
thereof duly filled in and signed, and upon payment to the Warrant Agent for the
account of the Company of the Warrant Price for the number of warrant shares in
respect of which such New Class D Warrants are then exercised. If the
Registrant's Class D Warrants are assigned or transferred by Nona, unless such
assignment or transfer is to a Nona affiliate or subsidiary or is the result of
a corporate reorganization or recapitalization of Nona, the exercise price may
only be paid in cash. In the event the New Class D Warrants are retained by Nona
or are assigned or transferred to a Nona affiliate or subsidiary or are assigned
or transferred as a result of a corporate reorganization or recapitalization of
Nona, the exercise price may be paid in cash, by application of the CMA Net
Asset Credit (as defined in Section 2.6 of the Stock Purchase Agreement), or by
transfer of gaming-related assets, the valuation of which shall be subject to
approval by both the Registrant and Nona.
Common Shares Issued to Nona
----------------------------
As set forth above, the Registrant issued 2,000,000 common shares to Nona.
On September 23, 1994, Nona distributed 1,508,153 of the 2,000,000 common shares
to Nona shareholders. The remaining 491,847 shares of common stock in the
Registrant were held by Nona as of September 30, 1995.
As a result of the Stock Purchase Agreement, a change in voting control of
the Registrant occurred in March 1994. Based on 30,000,000 common shares
outstanding as of the date of this Amended Report, Nona can vote 40.2% of the
Registrant's voting securities by virtue of its ownership of 491,847 shares of
common and 250,000 shares of Series B Preferred Stock and the Registrant may
become a majority-owned subsidiary of Nona, a publicly-held company whose shares
are traded on NASD-OTC Bulletin Board, if Nona converts the Series B Preferred
Stock into common stock or exercises the warrants granted to it in the Stock
Purchase Agreement. The Registrant is considered an affiliate of Nona given
Nona's voting control of the Registrant. The new Board of Directors of the
Registrant effected the corporate name change to "NuOasis Gaming, Inc." on
September 23, 1994.
Since the change in control of the Registrant, new management has sought to
divide its business segments, both development stage and operational, into
separate subsidiaries. This restructuring commenced following the change in
control on March 30, 1994. The restructuring was undertaken to allow the
Registrant to redefine its business segments, concentrate its financial and
human resources in each of its present areas of operation, and focus performance
incentives based upon separate segment, or project-specific businesses.
[NUOGAM\10K\95\95KSB.CLN]-4
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The restructuring entailed a change in Board of Directors, upper and local
management and segregating the Registrant's then operational segment from its
developmental stage segments in separate subsidiaries.
As used herein the term "Company" or "Registrant" refers to NuOasis Gaming,
Inc. and its wholly- owned subsidiaries: Ba-Mak Gaming International, Inc.
("Ba-Mak") and Casino Management of America, Inc. ("CMA"). CMA owns two
subsidiaries: NuOasis Laughlin, Inc. and NuOasis Las Vegas, Inc. The Registrant
currently maintains its executive offices at 2 Park Plaza, Suite 470, Irvine,
California 92714. The telephone number is (714) 833-5382.
Ba-Mak Gaming International, Inc.
---------------------------------
At September 30, 1994, Ba-Mak had agreements with five charitable gaming
establishments in New Orleans at which 140 video bingo machines were operating.
Ba-Mak recognized as gaming revenues the gross funds deposited in video bingo
machines. Ba-Mak realized gross profits, or "net win" as represented by the
difference between gross funds deposited into the machines and payments to
customers. Ba-Mak realized net operating profits by way of the percentage of the
net win after payments to the charitable organizations, the location owners and
the State of Louisiana for gaming taxes. On October 28, 1994, Ba- Mak filed for
protection under Chapter 11 of the U.S. Bankruptcy Code in the Eastern District
of Louisiana.
Commencing October 28, 1994 Ba-Mak, as a Debtor-in-Possession, continued to
operate as a charitable bingo route operator in Louisiana. In April 1995,
operations ceased when the bankruptcy proceeding was converted to a proceeding
under Chapter 7. Since April 1995 the Chapter 7 Trustee has liquidated Ba-Mak's
assets for the benefit of Ba-Mak's bankruptcy estate. All but 35 of the video
bingo machines were returned to the machine vendor in satisfaction of its
secured claim. The remaining 35 machines and Ba-Mak's office equipment were sold
by the Trustee. The Registrant has filed a Proof of Claim with the Bankruptcy
Court for the intercompany advances made to Ba-Mak. As of the date of this
Amended Report, the Trustee's administration of the bankruptcy estate is
ongoing. Due to the amount of priority creditor claims filed in Ba- Mak's estate
and the amount received by the Trustee, the Registrant does not anticipate
receiving any sums on its Claim.
[NUOGAM\10K\95\95KSB.CLN]-4
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Casino Management of America, Inc.
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$400,000 Receivable - Star Casino
CMA is seeking to recover a $400,000 stock subscription receivable assigned
to it by Nona. The funds due CMA were diverted by Nona's former President to
agents of Bachik Enterprises, Inc. ("Bachik") for the purpose of applying the
funds to the acquisition of an interest in a non-operating 11,000 square foot
casino in Cripple Creek, Colorado known as the Star of Cripple Creek ("Star
Casino"). Litigation on behalf of CMA has been instituted to recover the
$400,000 plus interest and costs from the responsible parties. CMA has requested
a Colorado court to impose a constructive trust against the casino property and
the operating profits if the receivable is not paid in full. CMA is in the
process of applying to have a receiver appointed for the Star Casino until the
$400,000 plus accrued interest is returned to CMA. At September 30, 1995 the
$400,000 is classified as a receivable, and offset by a reserve for collection
of $400,000.
Native American Indian Reservations.
In fiscal year 1994, CMA issued letters of intent related to the
construction, lease and management of gaming facilities on Native American
Indian reservations located in California, Arizona, and Montana. As envisioned
by each such letter of intent, CMA anticipated providing the funds to build,
furnish and equip each proposed casino and to provide casino management in
exchange for recoupment of investment and continuing management fees from the
net operating profits of each facility. Two Letters of Intent were executed;
however, both have since expired as of the date of filing of this Amended
Report. There are no other Letters of Intent executed. Due to registration
issues related to North American Indian Gaming, CMA does not intend to pursue
any domestic gaming activities in the future.
NuOasis Las Vegas, Inc. and NuOasis Laughlin, Inc.
--------------------------------------------------
Neither NuOasis Las Vegas, Inc. nor NuOasis Laughlin, Inc. have any
operations at September 30, 1995. NuOasis Las Vegas, Inc. was formed for the
purpose of acquiring gaming assets in the metropolitan Las Vegas, Nevada area.
NuOasis Laughlin, Inc. was formed for the purpose of acquiring gaming assets in
the Laughlin, Nevada area. Negotiations by each of these subsidiaries of CMA to
acquire certain gaming assets have reached an impasse. Each of the subsidiaries
of CMA intend to pursue other gaming assets in their respective geographical
segments.
(b) Patents, Trademarks and Licenses
The Registrant's domestic gaming activities, which consisted of the
activities of Ba-Mak and the proposed activities of CMA, in the past have not
relied on any patents and trademarks, but are subject to gaming licenses, food
and beverages licenses and other permits which are regulated, issued and
controlled by the respective state regulatory agencies. The Registrant continues
to analyze prospective casino properties and projects with the goal of achieving
the highest and best use of its working capital. Ba-Mak was licensed to operate
charitable bingo gaming operations in the State of Louisiana.
(c) Customer Dependence
Ba-Mak was dependent on machine play by the general public in Louisiana.
[NUOGAM\10K\95\95KSB.CLN]-4
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(d) Backlog of Orders
The Registrant's domestic gaming subsidiaries were not subject to the type
of business activities which would give rise to "orders".
(e) Competition
The Registrant competes with other gaming companies for opportunities to
acquire legal gaming sites in emerging gaming jurisdictions, and opportunities
to manage Indian gaming facilities. The Company expects many competitors to
enter new jurisdictions that authorize gaming, some of who may have more
personnel and greater financial and other resources than the Registrant.
(f) Government Regulation
(1) General
Distribution and route operations of gaming machines in both the
non-profit and commercial gaming sectors are subject to extensive and
complex governmental regulation and control under federal, state and local
law.
(2) Louisiana
To the extent applicable to Ba-Mak's operations in fiscal year 1995,
the majority of the laws governing manufacturers, distributors, gaming
locations and non-profit organizations using electronic video bingo gaming
machines as a fund raising service are found in Title 33 ("Charitable
Raffles, Bingo and Keno Licensing Law"), Title 40 and Title 55 of the
Louisiana Revised Statutes (the "Louisiana Act") and the regulations (the
"Louisiana Regulations") promulgated thereunder by the Department of Public
Safety and Corrections and administered and enforced by the Division of
Charitable Gaming Control (the "Gaming Division") of the Office of State
Police.
(3) Non-Louisiana
With respect to the Registrant's domestic gaming activities, casino
gaming in the United States is highly regulated. Owners and operators of
casinos must be licensed by the various state gaming commissions and must
provide detailed financial and other reports. Additionally, some of the
states who have just recently legalized gaming, have experienced unexpected
internal changes and modification of the rules and regulations, all of which
has served to delay and impede gaming applications filed by prospective
gaming operators. Changes in laws and regulations may limit or otherwise
materially affect types of gaming that may be conducted in these new
jurisdictions. Any such changes might have an adverse affect on the
activities and proposed activities of the Registrant. To the extent that the
Registrant utilizes certain of its assets to make investments in other
gaming companies, one or all companies may be required to submit
applications, since any holder of more than ten percent (10%) of the common
stock of a gaming entity must be found suitable.
[NUOGAM\10K\95\95KSB.CLN]-4
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(4) Bankruptcy Court
Additionally, with respect to the activities of Ba-Mak during fiscal
year 1995, gaming operations were subject to the supervision, approval and
compliance with the rules and regulations of the Bankruptcy Court, U.S.
Trustee's office and U.S. Bankruptcy Code.
(g) Employees
During fiscal 1995, Ba-Mak employed 4 full-time employees and 10 part-time
employees. All employees were located in Louisiana. Neither CMA, NuOasis
Laughlin nor NuOasis Las Vegas have any employees. The officers and directors of
NuOasis render services as independent contractors pursuant to either Consulting
Agreements or Employment Agreements with the Registrant as follows:
President Fred G. Luke (Employee)
Chief Financial Officer Steven H. Dong (Consultant)
Secretary John D. Desbrow (Consultant)
ITEM 2. PROPERTIES.
In April 1993, Ba-Mak entered into a non-cancelable lease agreement for its
office and warehouse in Louisiana. The lease expires on May 31, 1996 and
provides for monthly rent payments starting at $1,750 with annual increases of
$125. The lease has been included in Ba-Mak's bankruptcy proceedings under
Chapter 7 of the Bankruptcy Code.
At September 30, 1994, the Registrant, through Ba-Mak provided video bingo
gaming devices to five (5) charitable bingo halls in southern Louisiana. Ba-Mak
leased approximately 1,000 square feet of industrial/office space in the New
Orleans area from where it supervises the related gaming activities and where it
maintains the gaming devices. At September 30, 1995 all of Ba-Mak's property was
subject to its Chapter 7 bankruptcy proceedings.
ITEM 3. LEGAL PROCEEDINGS.
The following legal proceedings against the Registrant and/or its
subsidiaries , CMA or Ba-Mak, are pending as of the date of this report.
(a) Casino Management of America, Inc. vs. Mark Bachik and Bachik
Enterprises, Inc.
In April 1993, FTF Management Company, Inc., a Colorado corporation ("FTF")
entered into an agreement with Bachik Enterprises, Inc., a Texas corporation
("Bachik"), to purchase a 50% interest in the Star Casino. At the time of the
Agreement, FTF was controlled by then current and former officers and former
directors of Nona. Under the agreement, FTF and Bachik orally agreed to form a
joint venture to own and operate the Star Casino with each party acquiring a 50%
interest in the venture. Subsequent to the agreement, a $400,000 receivable due
Nona was allegedly diverted by Nona's former President to agents of
[NUOGAM\10K\95\95KSB.CLN]-4
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Bachik for the purpose of applying the funds to the acquisition of the Star
Casino. Concurrently with the diversion of Nona's funds, Nona's former President
was identified by local newspaper articles as the owner of Nona's interest in
the Casino. Subsequently, based on documentation received by the Registrant, the
interest in the Star Casino attributable to Nona's funds was held in the name of
FTF. Nona subsequently assigned its rights to the $400,000 receivable to CMA. As
of the date of this report, Texas counsel for CMA has instituted suit in Texas
against Bachik to recover CMA's funds improperly diverted to Bachik. The suit
was filed on May 9, 1994 in the District Court of Dallas County, Texas, Case
#CV-94-4479. The Texas action which was set for jury trial in March 1996 was
continued to October 1996 to allow for completion of discovery.
b) Casino Management of America, Inc. vs. Star Casinos International,
Inc., and Cripple Creek Properties, Inc.; Teller County, Colorado District
Court; Case No. 94-CV-144
In a further effort to recover the $400,000 receivable related to the Star
Casino, CMA, in November 1994 filed a suit in the District Court of Teller
County, Colorado against Star Casinos International, Inc. ("Star International")
and Cripple Creek Properties, Inc. ("Cripple Creek") seeking imposition of a
resulting trust, constructive seal, constructive trust, and an accounting of all
money received and expended in connection with a gaming facility known as the
Star Casino. The Defendants answered and counterclaimed for slander of title
given that CMA filed a lis pendens against the real property on which the Star
Casino is located in Cripple Creek, Colorado. CMA has asserted that the
counterclaim for slander of title is substantial frivolous and groundless due to
existing Colorado case law. Star International and Cripple Creek have filed a
counterclaim naming Richard M. Greene ("Greene") as a third party defendant
alleging breach of contract, promissory estoppel and fraud causes of action
asserting that Greene received $100,000 from them under an agreement between
Greene, FTF and Star International, that the funds would be paid to CMA. The
funds were never paid to CMA resulting in CMA filing suit. Star Casinos
International, Inc. filed a petition under Chapter 11 of the Bankruptcy Code on
May 3, 1996 and CMA's counsel is in the process of determining whether CMA shoud
move for relief from stay to pursue its equitable lien rights against the casino
real property.
(c) Nona Morelli's II, Inc. vs. Michael M. Kaier, d/b/a Investor
Development Group, Denver District Court; Case No. 94CV1258
Nona initiated this lawsuit against Michael M. Kaier ("Kaier") on February
28, 1994. In its complaint, Nona claims that Kaier did not pay the option
exercise price due Nona for 833,136 shares of Nona's common stock issued to
Kaier on or about April 27, 1993. Nona claimed damages from Kaier in the amount
of $562,417. A related case, known as Michael Kaier vs. MDM Gaming L.P. and CMA
was recently consolidated with this case for trial. Kaier has claimed that MDM
Gaming and CMA improperly withheld $45,000 from the redemption of Kaier's
one-half unit of limited partnership interest in MDM Gaming. CMA, as the
successor in interest of MDM Gaming, has asserted numerous defenses against
Kaier's claims. These defenses include an allegation that Kaier used funds from
the sale of Nona's common stock, for which he had not previously paid the option
exercise price to purchase his one-half unit of limited partnership interest in
MDM Gaming. Kaier has alleged that Nona's former President orally agreed to
reduce the option exercise price after the stock was issued. However, no
amendment was ever signed by Nona's former President and Nona's current
management discovered an attempt by Kaier to have Nona's former President sign a
back dated amendment to the Consulting Agreement. CMA has also alleged that
Kaier was improperly paid commissions and referral fees in the amount of
approximately $20,940 for referring certain partners to MDM Gaming. On August
12, 1996 both consolidated cases were dismissed with prejudice pursuant to
stipulation.
[NUOGAM\10K\95\95KSB.CLN]-4
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(d) Ba-Mak Gaming International Inc., Chapter 11 Bankruptcy, Eastern
District of Louisiana, Case No. 94-1366
On October 28, 1994, Ba-Mak filed a Chapter 11 Petition with the United
States District Court (Bankruptcy Division) for the Eastern District of
Louisiana, Bankruptcy Case #94-13661. On April 20, 1995, the Bankruptcy Court
granted the motion of the United States Trustee to convert the case to a
proceeding under Chapter 7. A Trustee was appointed to liquidate the bankruptcy
estate of Ba-Mak, and the liquidation of its assets occurred in July 1995. The
Registrant's remaining obligation in connection with Ba-Mak is a claim, in the
approximate amount of $47,000, against NuOasis Gaming for legal fees incurred
during the bankruptcy if the bankruptcy estate does not pay such legal fees in
full. The Trustee in the bankruptcy estate has been ordered to pay such fees.
(e) Charles Arnold vs. Nona Morelli's II, Inc., Casino Management of America
and MDM Gaming Partners, L.P.; Case No. 95-CV-104
In January 1995, Charles Arnold ("Arnold"), a consultant to Nona Morelli's
prior management, initiated a lawsuit in Denver, Colorado District Court against
Nona, CMA and MDM Gaming, L.P.("MDM") alleging that the defendants have denied
him a 1% equitable interest in MDM, which was allegedly verbally promised to
Arnold by Frank J. Morello, III and Frank J. Morello, II for alleged
professional services rendered to MDM. Arnold is alleging damages in an amount
of $90,000 in connection with this claim. Nona and the other defendants have
filed a third-party complaint against FTF, Theodore E. DeTello, Frank J.
Morello, II and Frank J. Morello, III, seeking full indemnification from them
for any damages to which Arnold may be entitled in accordance with a certain
Termination Agreement dated December 17, 1993 between the parties. The case has
been set for trial in November, 1996.
(f) Ruben Kitay et al. vs. Nona Morelli's II, Inc. et al.; United States
District Court for the Central District of California; Case No. 95-4375 RMT
(SHx)
On October 10, 1995, a Second Amended Complaint was filed in the U.S.
District Court for the Central District of California which named the
Registrant, Fred G. Luke, John D. Desbrow, Kenneth R. O'Neal, O'Neal & White,
P.C., a Texas professional corporation, New World Capital, Inc., Rocci Howe,
Euro- Belge (NA) N.V., Structure America, Inc., International Banking
Corporation Caribbean (IBCC), and the Luke Family Trust as defendants in an
alleged shareholder derivative action (the "Derivative Action") filed on behalf
of certain shareholders of the Registrant. The Derivative Action arose from the
Stock Purchase and Business Combination Agreement, pursuant to which Nona
Morelli's II, Inc. acquired voting control of ENP (now NuOasis Gaming) and the
events surrounding the bankruptcy of Ba-Mak Gaming International, Inc. The
Plaintiffs sought damages according to proof, interest, rescission, attorneys'
fees and exemplary damages. Outside counsel for the Registrant in the Derivative
Action, and the management of both the Registrant and Nona Morelli's believe,
among other things, that the plaintiffs do not have standing to file such
litigation, have failed to state a proper claim, and do not qualify as
representatives in a shareholder action. In response to the Registrant's filing
a Motion to Dismiss the Derivative Action, the Action was dismissed without
prejudice pursuant to stipulation.
[NUOGAM\10K\95\95KSB.CLN]-4
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<PAGE>
(g) Gustavio Farias et al. Vs. Nona Morelli's II, Inc. Et al.; United States
District Court for the Western District of California; Case No. CV-96-2617-RMT
(Shx)
On April 12, 1996, the Plaintiffs in the Kitay action referenced above
filed a complaint entitled Gustavo Farias, et al v. Nona Morelli's, II Inc., et
al, in the United States District Court for the Central District of California.
This new complaint was subsequently transferred to the Western District of
California and assigned Case No. CV-96-2617-RMT (SHx). The new complaint named
Nona, its officers, and other third parties as defendants in an alleged
shareholder derivative action (the "Refiled Action") re-filed on behalf of
certain shareholders of the Registrant. The Refiled Action arises from the Stock
Purchase and Business Combination Agreement pursuant to which Nona acquired
voting control of ENP (now NuOasis Gaming), and the events surrounding the
bankruptcy of Ba-Mak. The plaintiffs seek damages according to proof, interest,
rescission, attorneys' fees and exemplary damages. Outside counsel for the
Registrant in the Refiled Action, and the management of both the Registrant and
Nona believe, among other things, that the action was initiated by Mike Savage
and persons affiliated with him, as a part of an attempt to take control of the
Registrant; that the plaintiffs do not have standing to file such litigation;
that the plaintiffs have no competent and credible evidence to support their
allegations and that they have failed to state a proper claim; and that they do
not qualify as proper representatives in a shareholder action. The Registrant
intends to file a Motion to Dismiss the Refiled Action.
(h) Michael Savage vs. NuOasis Gaming, Inc., Los Angeles County Municipal
Court, Case No. 94C01383
In October 1994, Michael Savage, a former consultant to former management filed
an action in the Los Angeles County Municipal Court seeking alleged sums unpaid
under a Professional Services Agreement dated September 1, 1992. In November
1995, an arbitrator awarded Savage $7,500 plus interest of $825 and costs of $80
in the Municipal Court Action. The Company tendered the amount of the award to
Savage and Savage filed a Satisfaction of Judgment with the Court. On March 20,
1996 the Court denied Savage's post-judgment motion for attorneys' fees.
(i) Investigation
Since November 1991, the U.S. Securities and Exchange Commission (the "SEC")
has been conducting an investigation into trading in the Registrant's common
stock. The investigation appeared to focus on trading in the Registrant's common
stock during 1990 and 1991 by individuals who are no longer associated with the
Registrant in any managerial or employment capacity as the SEC has alleged that
a broker hired by Douglas J. Phillips and Hal B. Phillips (collectively, the
"Phillips") manipulated the trading volume of the stock in order to enable the
Phillips' to sell more of the stock which they held personally. The Registrant
has fully cooperated with the SEC in this investigation. Counsel for the
Registrant submitted a brief to the SEC arguing that proceedings should not be
instituted against the Registrant, since the Registrant itself (i) did not
benefit in any way, and (ii) has now completely disassociated itself from the
persons who were allegedly involved in the scheme and benefitted from it (except
for their status as minority shareholders). The SEC has indicated that it is not
seeking financial compensation or damages from the Registrant, but it has not
indicated whether it will bring any charges in connection with this
investigation. However, after consultation with counsel, management believes
that, ultimately, any action brought by the SEC will not have any material
adverse effect on the Registrant's future operations or consolidated financial
statements. Additionally, there was no activity under this investigation during
fiscal 1995. In July 1996, Douglas
[NUOGAM\10K\95\95KSB.CLN]-4
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<PAGE>
Phillips, the former President and Chairman of the Board and Hal Phillips, a
former officer, were indicted on stock manipulation charges. No charges were
filed against the Company or its present management.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER
MATTERS.
Since completion of the Registrant's public offering in July 1988, the
Registrant's common shares have been traded in the over-the-counter market and
had been quoted in the NASDAQ System under the symbol ENPQ commencing March 1,
1990. On May 12, 1992, the Registrant was delisted from the NASDAQ System and,
on the same day, was listed on the NASD-OTC Bulletin Board where it currently
trades under the symbol "NUOG". The Registrant's securities are not publicly
traded on any other market. Set forth below are the high and low bid prices for
the Common Stock of the Registrant for each quarterly period commencing October
1, 1993:
<TABLE>
<CAPTION>
Bid Price of Common Stock
------------------------------
Fiscal 1994 Low High
---------------------- ----- -----
<S> <C> <C>
Quarter ended 12/31/93 $0.97 $1.69
Quarter ended 03/31/94 $0.31 $0.50
Quarter ended 06/30/94 $0.06 $0.31
Quarter ended 09/30/94 $0.06 $0.31
Fiscal 1995 Low High
---------------------- ---- -----
Quarter ended 12/31/94 $.01 $.20
Quarter ended 03/31/95 $.01 $.19
Quarter ended 06/30/95 $.01 $.25
Quarter ended 09/30/95 $.01 $.24
</TABLE>
Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commissions and may not necessarily represent actual transactions.
As of December 29, 1995, the Registrant had 3,927 shareholders of record and
in excess of 2,000 persons who were beneficial shareholders of its common stock.
The Registrant has never paid cash dividends on its common stock. At the
present time, the Registrant's anticipated capital requirements are such that it
intends to follow a policy of retaining earnings, if any, in
[NUOGAM\10K\95\95KSB.CLN]-4
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<PAGE>
order to finance the development of its business. Dividends on common stock may
not be paid unless provision has been made for payment of preferred dividends.
ITEM 6. SELECTED FINANCIAL DATA, MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(a) Selected Financial Data
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto included
herein.
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------------
Operating Data: 1995 1994
---------------------------- ------------------------
<S> <C> <C>
Revenues(1) $ 884,077 $ 2,252,699
Costs and expenses $ 1,980,782 $ 6,910,155
Loss before income taxes $ (1,096,705) $ (4,657,456)
Provision for income taxes $ - $ -
Net loss $ (1,096,705) $ (4,657,456)
Net loss applicable to common stock $ (1,120,505) $ (4,681,256)
Net loss per common share: $ (.04) $ (.24)
Weighted average number of common
shares outstanding 23,785,550 19,755,113
Balance Sheet Data: 1995 1994
----------------------------- ------------------------
Working capital (deficiency) $ (580,123) $ (547,482)
Total assets $ 328,732 $ 1,859,550
Long-term debt $ - $ -
Total liabilities $ 631,555 $ 906,723
Stockholders' equity (deficiency) $ (302,823) $ 952,827
</TABLE>
(1) All revenues earned in 1995 came from Ba-Mak's operations and the
revenues are not expected to recur in 1996 since Ba-Mak filed Chapter 7
bankruptcy.
[NUOGAM\10K\95\95KSB.CLN]-4
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<PAGE>
(b) Management's Discussion and Analysis of Financial Condition and Results of
Operations
Capital Resources and Liquidity
-------------------------------
The Registrant has incurred recurring net losses and negative cash flows
from operating activities since its inception in 1988. The Registrant had cash
and cash equivalents of approximately $866 and $162,329 as of September 30, 1995
and 1994, respectively and negative working capital of $580,123 and $547,482 as
of September 30, 1995 and 1994, respectively. The decrease in cash and cash
equivalents is a direct result of the disposal of Ba-Mak under Chapter 7
bankruptcy.
As a result of the drain on the Registrant's working capital due to Ba-Mak,
the Registrant had limited cash and cash equivalents remaining as of September
30, 1995 to finance future operations. Considering the Registrant's operating
losses, negative cash flows from operating activities and Ba-Mak's Chapter 7
bankruptcy, management cannot assure that such limited liquid resources will be
sufficient to sustain the Registrant's operations and its other development
activities. The Registrant has received financial support from Nona of
approximately $177,000 during fiscal 1995, and is dependent upon Nona for future
working capital. The Registrant's plan is to keep searching for additional
sources of capital and new operating opportunities. In the interim, the
Registrant's existence is dependent on continuing financial support from Nona
which is estimated to be approximately $275,000 for the next fiscal year based
upon current agreements and obligations the Company has at September 30, 1995.
Such conditions raise substantial doubt about the Registrant's ability to
continue as a going concern. As such, the Registrants independent accountants
have modified their report to include an explanatory paragraph with respect to
the uncertainty.
As of the date of filing this Report, Ba-Mak's operations had ceased
following the bankruptcy court's conversion in April 1995 of its Chapter 11
proceeding into a proceeding under Chapter 7 of the Bankruptcy Code. The Chapter
7 Trustee took possession of Ba-Mak's assets and liquidated such assets for the
benefit of Ba-Mak's bankruptcy estate. As such, all gaming operations at Ba-Mak
ceased and accordingly, Ba-Mak has been accounted for as a disposition of an
investment. The total gaming revenues in the amount of $884,077 for the year
ended September 30, 1995 from Ba-Mak are not expected to recur in future years
due to the Chapter 7 bankruptcy. The Registrant is also pursuing other joint
venture, merger or acquisition opportunities which may provide additional
capital resources during fiscal 1996.
Results of Operations
---------------------
1995 Compared to 1994
Gaming revenues totaled $884,077 during the twelve months ended September
30, 1995, and were derived from gaming operations.
The Registrant's gaming revenues for the year ended September 30, 1995
decreased by $1,344,330 over the same period ended September 30, 1994, due to
the cessation of operations by Ba-Mak. During the twelve months ended September
30, 1995, the Chapter 11 and Chapter 7 bankruptcy proceedings significantly
hindered operations which finally ceased April 20, 1995.
Gaming operating expenses totaled $776,827 for the year ended September 30,
1995, a decrease of $1,143,729 from the prior corresponding period. The decrease
is attributable to the bankruptcy filings during the twelve months ended
September 30, 1995. The major components of the gaming operating expenses
[NUOGAM\10K\95\95KSB.CLN]-4
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<PAGE>
were location and charitable organization split costs, license and permit fees,
legal fees, salaries, payroll and applicable taxes and depreciation.
There were no investment property write-downs during fiscal 1995, compared
to a decrease of $3,209,900 from the prior corresponding period. The write-down
of $3,209,900 in fiscal 1994 was attributable to revaluing certain investments
in connection with the CMA acquisition on March 30, 1994. The investments
revalued and written down were the following:
(i) At September 30, 1994 CMA had litigation pending against the entity
owning and principals controlling the Bobby Womack's Saloon and
Gaming Parlor in Cripple Creek, Colorado ("Bobby Womack's") to
recover $215,000 previously advanced by Nona to Bobby Womack's in
contemplation of the acquisition of Bobby Womack's. The deposit of
$215,000 was written down from $215,000 to $180,000 due to
uncertainties of collection in litigation; subsequently, in October
1994, $187,000 was received pursuant to a settlement of the
litigation.
(ii) In April, 1993 CMA's predecessor, Nona, participated in the formation
of and invested, as a limited partner, in MDM Gaming Partners, L.P., a
Colorado limited partnership ("MDM Gaming") and subscribed for Units
in MDM Gaming representing a net investment of $1,143,500. Nona
subsequently acquired additional Units increasing its cash investment
in MDM Gaming to $1,353,500. MDM Gaming lent funds to the owner of the
partially completed Horseshoe Casino in Black Hawk, Colorado. The loan
contained equity conversion features pursuant to which MDM Gaming,
subject to certain restrictions, could have converted its loan into
equity in a new partnership to be formed to own and operate the
Horseshoe Casino. In December 1993, CMA contributed $39,900 to MDM
Gaming as its general partner capital contribution. Effective
September 30, 1994 Nona assigned its limited partner interest to CMA.
As a result of the assignment CMA's cash contributions to MDM Gaming
both as a general and limited partner totalled $1,393,400. On December
20, 1993 an agreement between MDM Gaming, the owner of the Horseshoe
Casino and a limited partnership which owned the Glory Hole Casino,
was finalized whereby MDM Gaming's loan was repaid and a new limited
partnership, Eagle Gaming L.P. ("Eagle Gaming") was formed to own and
operate both the Horseshoe Casino and the Glory Hole Casino. Under the
new agreement, MDM Gaming's loan was repaid. To replace the equity
conversion feature in the loan MDM Gaming and CMA, jointly received
options ("Eagle Options") to purchase equity in Eagle Gaming. MDM
Gaming dissolved in early 1994 and distributed the Eagle Options held
by MDM Gaming to CMA. CMA received a total of $1,560,753 in
liquidating cash distributions from MDM Gaming. Under the Partnership
Agreement, the general partner of MDM Gaming was entitled to receive
6.5 Units in the Partnership for services rendered and research and
development costs incurred. The Eagle Option was recorded at $585,000
representing 6.5 Units valued at $90,000 per Unit, the same price at
which Units had been sold for cash. Following the liquidation of MDM
Gaming, the Eagle Options were held solely by CMA as an asset of CMA.
CMA continued to hold the Eagle Option until the Option expired on
December 19, 1994. The exercise price of the Eagle Options was
approximately $1,050,000. The Eagle Options expired unexercised on
December 19, 1994 and the $585,000 book value of the Eagle Option was
fully reserved during fiscal 1994. The Horseshoe Casino/Black
Hawk/Eagle Option (the "Option") originally recorded at $585,000 was
fully reserved due to uncertainties in obtaining the necessary state
regulatory approval to permit exercise of the Option. The state
regulatory approval was never obtained and the Option expired
unexercised in December 1994. The MDM General Partner
[NUOGAM\10K\95\95KSB.CLN]-4
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<PAGE>
interest originally recorded at $39,900 was liquidated for $39,900
cash upon dissolution of MDM.
(iii) CMA is seeking to recover a $400,000 stock subscription receivable
assigned to it by Nona. The funds due CMA were diverted by Nona's
former President to agents of Bachik Enterprises, Inc. ("Bachik") for
the purpose of applying the funds to the acquisition of an interest in
a non- operating 11,000 square foot casino in Cripple Creek, Colorado
known as the Star of Cripple Creek ("Star Casino"). Litigation on
behalf of CMA has been instituted to recover the $400,000 plus
interest and costs from the responsible parties. CMA has requested the
District Court of Teller County, Colorado to impose a receiver and
constructive trust against the casino property and the operating
profits if the receivable is not paid in full. The Bachik/Star Casino
investment originally recorded at $400,000 was fully reserved due to
uncertainties of collection from pending litigation to recover the
investment.
(iv) In April, 1993, former management of Nona advanced funds due Nona to
Mississippi Rose, Inc., a Colorado corporation ("Mississippi Rose")
formed by the principals of Chrysore, Inc., the operators of Bobby
Womack's, and others, to develop the Whiskey Island Casino, a proposed
dockside riverboat casino to be located alongside the Mississippi
River in Tunica County, Mississippi. At the time of the advances the
Whiskey Island Casino development costs were projected to exceed
$25,000,000 and the financing required to develop the Whiskey Island
Casino was contingent upon the approval of Mississippi Rose's
application for a gaming license in Mississippi. In fiscal year 1994,
Nona assigned its investment in Mississippi Rose to CMA. Nona's
expenses for research and development costs, architectural fees and
funds contributed to Mississippi Rose for working capital constitute
CMA's investment in Mississippi Rose. Neither Nona nor CMA controls
Mississippi Rose. The Mississippi Rose investment originally recorded
at $150,000 was fully reserved given the failure of the principals of
Mississippi Rose to acknowledge the equity interest, the assertion of
the principals that the equity interest had been forfeited, the need
for litigation to pursue the investment and the uncertain
recoverability of the investment. No litigation against Mississippi
Rose, a Colorado corporation, has been initiated because it is
believed its principals transferred all the corporate assets to a
limited partnership of unknown domicile.
(v) The prepaid media and advertising originally recorded at $2,500,000
was written down to $500,000 by expensing $2,000,000 given the
uncertainty of utilizing all of the media prior to expiration and the
uncertainty of the Placement Agent's ability to fulfill all of such
media obligations to CMA. The media obligations were to be provided
by NJM & Associates, Inc., the Placement Agent, which consisted of
various media formats, including Cash Coupon Savers, Head Office,
Inc., La Suerte,Inc. and NJM & Associates, Inc.
General and administrative expenses totaled $898,801 for the year ended
September 30, 1995, and decreased $300,268 from the prior corresponding period.
Interest expense decreased to $7,829 in fiscal 1995 due to a partial year's
interest incurred on the video bingo machine debt compared to $105,285 in fiscal
1994 for a complete year of incurred interest.
On April 20, 1995, the Chapter 7 Trustee took possession of Ba-Mak's assets
and liquidated such assets for the benefit of Ba-Mak's bankruptcy estate. The
video bingo machine debt was determined by the
[NUOGAM\10K\95\95KSB.CLN]-4
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<PAGE>
Bankruptcy Court to be secured debt based upon application of a Louisiana
vendor's lien statute at the time of delivery of the machines in 1993. As such,
all gaming operations at Ba-Mak ceased and accordingly, Ba- Mak has been
accounted for as a disposition of an investment which resulted in (a) the
write-off of $1,056,978 and $1,415,050 of total assets and liabilities,
respectively; and (b) a net loss on disposal of investment in the amount of
approximately $140,949.
As a result of Ba-Mak's bankruptcy proceedings, and having no write down of
investments in the current year, the Registrant's net loss from operations
decreased to $1,096,705 during fiscal 1995 compared to $4,657,456 during fiscal
1994.
At September 30, 1995 and 1994, the Registrant had net operating loss
carryforwards of approximately $6,900,000 and $6,800,000, respectively,
available for Federal income tax purposes that expire through 2009. If Nona
converts the Series B Preferred shares into shares of common stock, there would
be a greater than 50% change in the ownership of the Registrant's common stock
and Internal Revenue Code Section 382 would place certain restrictions on the
amount of the net operating loss ("NOL") that could be utilized in future years.
Internal Revenue Code Section 382 limits the use of NOL's to the extent of an
amount equal to the fair market value of the Company just prior to the 50% or
greater change in ownership multiplied by the Federal Long Term Discount Rate. A
valuation allowance was recorded in the financial statements to offset the tax
benefit resulting from utilization of the NOL carryforward due to the
uncertainty surrounding the realization of such tax asset.
ITEM 7. FINANCIAL STATEMENTS
Financial Statements are referred to in Item 14(a) and listed in the Index
to Financial Statements filed as part of this Annual Report on Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES.
A Current Report on Form 8-K dated December 23, 1994 was filed on December
27, 1994 and amended on December 19, 1995, reporting under Item 4 a change of
accountants on December 12, 1994 from J.H. Cohn & Company ("JHC") to C. Williams
& Associates, P.C.
A Current Report on Form 8-K dated November 8, 1995 was filed on November
16, 1995 reporting under Item 4 a change of accountants on November 8, 1995 from
C. Williams & Associates, P.C. to Raimondo, Pettit & Glassman.
During the fiscal years ended September 30, 1993 and 1992 and the interim
period preceding the dismissal, there were no disagreements with JHC on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure which, if not resolved to the satisfaction of JHC,
would have caused JHC to make reference to any such matter in their reports, nor
were there any other reportable events.
JHC's reports on the consolidated financial statements of the Company during
the fiscal years ended September 30, 1993 and 1992 did not contain an adverse
opinion or a disclaimer of opinion nor were they qualified or modified as to
uncertainty, audit scope or accounting principles except as described below.
[NUOGAM\10K\95\95KSB.CLN]-4
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<PAGE>
JHC's report dated December 13, 1993 (the "1993 Report") on the consolidated
financial statements of the Company as of September 30, 1993 and 1992 and for
the years ended September 30, 1993, 1992 and 1991 and its report dated January
29, 1993 on the consolidated financial statements of the Company as of September
30, 1992 and 1991 and for the years ended September 30, 1992, 1991 and 1990 were
modified with respect to uncertainties related to litigation. The 1993 Report
also included an explanatory paragraph with respect to the substantial doubt
existing about the ability of the Company to continue as a going concern.
The Report of C. Williams & Associates, P.C. with respect to the 1994 fiscal
year financial statements included an explanatory paragraph with respect to the
substantial doubt existing about the ability of the Company to continue as a
going concern due to its recurring net losses, negative cash flows from
operating activities since its inception, limited liquid resources, negative
working capital and its primary operating subsidiary filing for protection under
Chapter 11 of the U.S. Bankruptcy Code. On January 29, 1996, the Texas State
Board of Public Accountancy made a determination that the firm of C. Williams &
Associates, P.C. was not properly licensed to practice public accounting in
Texas, retroactive back to March 2, 1995.
The firm of C. Williams & Associates, P.C. performed an audit of the
Company's financial statements for the year ended September 30, 1994 and issued
its report on that audit on February 5, 1995, which is prior to the revocation
of Mr. Williams' license on March 2, 1995, and therefore is in accordance with
the applicable rules and regulations of the Securities and Exchange Commission.
Article 2 of Regulation S-X provides that, after March 2, 1995, the firm of
C. Williams & Associates, P.C. is not qualified to practice before the
Commission. Shareholders of the Company continue to retain legal rights to sue
and recover damages from C. Williams & Associates, P.C., for material
misstatements or omissions, if any, in the financial statements.
Should C. Williams & Associates, P.C. dissolve under the laws of Texas, its
state of incorporation, the rights of the Company's shareholders to sue and
recover damages from C. Williams & Associates, P.C. and its directors, officers
and shareholders would be determined by the laws of the State of Texas governing
the dissolution of Texas professional corporations.
The Report of Raimondo, Pettit & Glassman with respect to the 1995 fiscal
year financial statements included an explanatory paragraph with respect to the
substantial doubt existing about the ability of the Company to continue as a
going concern due to its recurring net losses, negative cash flows from
operating activities since its inception, limited liquid resources, negative
working capital and its primary operating subsidiary filing for protection under
Chapter 7 of the Bankruptcy Code.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Identification of Directors and Executive Officers.
The Registrant, pursuant to its bylaws, maintains a Board of Directors
composed of between one and twenty five directors and officers composed of
President, Secretary and Chief Financial Officer. Any two
[NUOGAM\10K\95\95KSB.CLN]-4
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<PAGE>
or more officer positions may be held by the same person. The directors and
officers for fiscal 1995 are as follows:
<TABLE>
<CAPTION>
Position Held
Name with the Registrant Age Dates of Service
- ------------------- ----------------------- --- ----------------------------------
<S> <C> <C> <C>
Fred G. Luke Director and President 49 March 30, 1994 to Present
Chief Financial Officer March 30, 1994 to October 24, 1994
Kenneth R. O'Neal Director and Chief
Financial Officer 50 October 24, 1994 to July 15, 1995
John D. Desbrow Secretary 40 March 30, 1994 to July 20, 1994 and
November 8, 1994 to Present
Director March 30, 1994 to July 20, 1994
Steven H. Dong Chief Financial Officer 29 July 16, 1995 to Present
</TABLE>
All directors of the Registrant hold office until the next annual meeting of
shareholders and until their successors have been elected and qualified. As of
the date of filing this Amended Report, there has been one Director since Mr.
O'Neal's resignation as a Director on July 1, 1995. Vacancies in the Board of
Directors are filled by the remaining members of the Board until the next annual
meeting of shareholders. The three nominees for election at the Company's next
annual meeting are Fred G. Luke, Jonathan Small and Royse Warren. The officers
of the Registrant are elected by the Board of Directors at its first meeting
after each annual meeting of the Registrant's shareholders and serve at the
discretion of the Board of Directors or until their earlier resignation or
death.
(b) Business Experience
The following is a brief account of the business experience during the past
five years of each director and executive officer of the Registrant, including
principal occupations and employment during that period and the name and
principal business of any corporation or other organization in which such
occupation and employment were carried on.
All of the directors are elected at the annual meeting of shareholders to
serve for one year or until their successors are elected and have qualified.
Officers serve at the discretion of the Board of Directors.
Fred G. Luke. Mr. Fred Luke has been a Director, Chairman and President of
the Registrant since March 30, 1994. Mr. Luke has over twenty-five (25) years of
experience in domestic and international financing and the management of private
and publicly held companies. Since 1982, Mr. Luke has provided consulting
services and has served, for brief periods lasting usually not more than six
months, as Chief Executive Officer and/or Chairman of the Board of various
publicly held and privately held companies in conjunction with such financial
and corporate restructuring services. In addition to his position with the
Registrant, Mr. Luke currently serves as Chairman and Chief Executive Officer of
the Registrant's Parent Company, Nona, as well as Chairman and President of
NuVen Advisors, Inc., ("NuVen Advisors") formerly New World Capital, Inc. ("New
World"), President and Director of The Toen Group, Inc. ("Toen"), President of
Hart Industries, Inc. ("Hart"), Chairman and President of Diversified Land &
Exploration Co. ("DL&E"). DL&E is a former publicly traded independent natural
resource development company engaged
[NUOGAM\10K\95\95KSB.CLN]-4
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<PAGE>
in domestic oil and gas exploration, development and production. Prior to 1995,
DL&E was a 90% owned subsidiary of Basic Natural Resources, Inc. ("BNR"). From
1991 through 1994 Mr. Luke served as the President and a Director of BNR. BNR is
presently inactive. Hart and DL&E were formerly in the environmental services
and natural gas processing business, respectively. Both Hart and Toen are public
companies which were formerly traded on Nasdaq or the OTC Bulletin Board.
Neither Hart nor Toen have ongoing operations. Nona is a publicly traded (OTC:
Bulletin Board) diversified holding company with overseas gaming and domestic
pasta production subsidiaries, in addition to NuOasis Gaming. NuVen Advisors
provides managerial, acquisition and administrative services to public and
private companies including Nona, NuOasis Gaming, Hart and Toen. NuVen Advisors,
which is controlled by Fred G. Luke, as Trustee of the Luke Family Trust, is an
affiliate of both Nona and NuOasis Gaming. NuVen Advisors is a stockholder of
Hart, DL&E and Nona, and provides management, general and administrative
services, and merger and acquisition services to Hart, DL&E and Nona pursuant to
independent Advisory and Management Agreements. Mr. Luke also served from 1973
through 1985 as President of American Energy Corporation, a privately held oil
and gas company involved in the operation of domestic oil and gas properties.
From 1970 through 1985 Mr. Luke served as an officer and Director of Eurasia,
Inc., a private equipment leasing company specializing in oil and gas industry
equipment. Mr. Luke received a Bachelor of Arts Degree in Mathematics from
California State University, San Jose in 1969.
John D. Desbrow. Mr. John D. Desbrow has been a Secretary of the Registrant
since March 30, 1994. Mr. Desbrow is also a Director and Secretary of the
Registrant's Parent company, Nona. Mr. Desbrow is a member in good standing of
the State Bar of California and has been since 1980. Prior to joining the
Registrant Mr. Desbrow was in the private practice of law. Mr. Desbrow received
his Bachelor of Science degree in Business Administration from the University of
Southern California in 1977, his Juris Doctorate from the University of Southern
California Law Center in 1980, and his Master of Business Taxation degree from
the University of Southern California Graduate School of Accounting. Mr. Desbrow
has also been serving as a Director and Secretary of Hart Industries, Inc. since
July 31, 1993. Mr. Desbrow has been a director of The Toen Group Inc. since
September 28, 1994.
Kenneth R. O'Neal. Mr. Kenneth R. O'Neal, a Certified Public Accountant, was
a Director and Chief Financial Officer of the Registrant from October 24, 1994
to July 15, 1995. Mr. O'Neal also served as a Director of the Registrant's
parent company, Nona. Mr. O'Neal has also been a Director of Basic Natural
Resources, Inc. since December 13, 1992 and Treasurer and Chief Financial
Officer since December 13, 1992. Mr. O'Neal has also been Managing Partner of
O'Neal & White, P.C., Certified Public Accountants, since July 1990. From
September 1983 to June 1990 he was Sole Proprietor of Kenneth R. O'Neal, CPA.
From September 1980 to September 1983 he was with Seidman & Seidman in Houston,
Texas. From September 1977 to September 1980 he was with Touche Ross in Houston,
Texas and from December 1971 to September 1977 he was with Touche Ross in
Atlanta, Georgia. Prior to his time with Touche Ross he served in the United
States Air Force.
Steven H. Dong. Mr. Dong is Chief Financial Officer of the Registrant. Mr.
Dong replaced Kenneth R. O'Neal who resigned as the Registrants' Chief Financial
Officer and as a Director effective July 16, 1995. Prior to joining the
Registrant, Mr. Dong worked as a Certified Public Accountant with the
international accounting firm of Coopers & Lybrand since 1988. Mr. Dong's
experience consisted of providing financial accounting and consulting services
to privately and publicly held companies. In addition to his position with the
Registrant, Mr. Dong currently serves as Chief Financial Officer of Nona and
NuVen Advisors. Mr. Dong received his Bachelor of Science degree in Accounting
from Babson College.
[NUOGAM\10K\95\95KSB.CLN]-4
19
<PAGE>
(c) Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Officers, directors and greater than
ten-percent shareholders are required by Securities and Exchange Commission
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on review of the copies of such forms furnished to the Company,
or representations that no Forms 5 were required or filed, the Company believes
that during the periods from October 1, 1992 through September 30, 1993 and from
October 1, 1993 through September 30, 1995, all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten-percent
beneficial owners were complied with by the former and current officers and
directors except Kenneth O'Neal did not furnish to the Company any Forms 4 which
he may have filed pertaining to his receipt of Company shares or pertaining to
his resignation. The only form submitted by Mr. O'Neal to the Company for review
was a Form 3 timely filed on November 9, 1994 reporting his acceptance of Chief
Financial Officer and Director positions on October 24, 1994. 37,500 shares of
common stock were issued to Mr. O'Neal for services on December 28, 1994 for
which a Form 4 filing was due on January 10, 1995. No Form 4 reporting the
receipt or any later disposition of such shares was received by the Company. Mr.
O'Neal resigned as Chief Financial Officer and Director on July 15, 1995. No
Form 4 reporting the termination of reporting requirements or his resignation
was received by the Company. According to the Transfer Agent's records Mr.
O'Neal was still the record owner of the 37,500 shares on July 26, 1995, which
date is eleven days after the date of Mr.
O'Neal's resignation.
[NUOGAM\10K\95\95KSB.CLN]-4
20
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
(a) Summary Compensation Table
The following summary compensation table sets forth in summary form the
compensation received during each of the Registrant's last three completed
fiscal years by the Registrant's President and four most highly compensated
executive officers other than the President.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------------- ------------------------- -----------
Restricted
Name and Principal Fiscal Other Annual Stock LTIP All Other
Position Year Salary Bonus($) Compensation($) Award(s)($) Options(#) Payouts($) Compensation($)
- ----------------------- ------ ------------ -------- -------------- --------------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fred G. Luke 1993 - 0.00 0.00 0.00 - 0.00 0.00
President and
Director 1994 $ 27,000(1) - - - - -
(3-30-94 to Present)
1995 $ 59,000(1) - - 3,000,000
- -------------------------------------------------------------------------------------------------------------------------------
Douglas J. Phillips 1993 $ 100,000 - - - - - -
President (to 11-92),
Secretary and Chief 1994 $ 50,000 - - - - - -
Financial Officer
(from 11-92 to 3-30- 94) 1995 - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------
John Desbrow 1993 - - - - - - -
Secretary (4-94 to 7-94
and 11-94 to present) and 1994 $ 18,000 - - - - - -
Director
(4-94 to 7-94) 1995 $ 43,000(2) - - - - - -
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------------- ------------------------- -----------
Restricted
Name and Principal Fiscal Other Annual Stock LTIP All Other
Position Year Salary Bonus($) Compensation($) Award(s)($) Options(#) Payouts($) Compensation($)
- ----------------------- ------ ------------ -------- -------------- --------------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kenneth O'Neal 1993 - - - - - - -
CFO and Director
(10/94-7/95) 1994 - - - - 100,000 - -
1995 $ 33,000 - - - - - -
- -------------------------------------------------------------------------------------------------------------------------------
Steven H. Dong 1993 - - - - - - -
CF0
(7/95-to
Present) 1994 - - - - - - -
1995 $ 5,000 - - - 275,000 - -
</TABLE>
(1) Total Compensation of $86,000 was accrued and expensed for Fred G. Luke;
however, no cash payments have been made. Approximately $27,000 of the
$86,000 compensation represents amount of compensation retroactive from
April 1, 1994 to September 30, 1994, which is included in the table for
fiscal year 1994.
(2) Based on amounts billed to the Company by Mr. Desbrow. Mr. Desbrow billed
$18,000 or $3,000 per month for the six months ended September 30, 1994 for
his services as Secretary and $4,000 or $1,000 per month for his services as
Director from April 1994 to July 1994. Mr. Desbrow received 337,500 shares
in January 1995, of which the proceeds from 225,000 shares were applied to
amounts due for the 1994 fiscal year. Mr. Desbrow billed $18,000 or $3,000
per month for the first six months of fiscal 1995 and $25,000 or $4,167 per
month for the second six months of fiscal 1995. The proceeds from 112,500 of
the shares issued in January 1995 and 112,500 shares issued in March 1995
were applied to amounts due for fiscal year 1995. In June 1995 Mr. Desbrow
received 600,000 shares of which the proceeds from 225,000 shares were
applied to the amounts due for fiscal year 1995. The remaining 375,000
shares have been applied towards services performed in fiscal year 1996.
[NUOGAM\10K\95\95KSB.CLN]-4
22
<PAGE>
(b) Option and Long-Term Compensation
The following summary option table sets forth in summary form the aggregate
options granted during the Registrant's last completed fiscal year by the
Registrant's President and four most highly compensated executive officers other
than the President.
<TABLE>
<CAPTION>
Percent of Total
Options/
Number of Shares SAR's Granted to Exercise or
Under employees Base Price Expiration
Name Options/SARs Granted in Fiscal Year ($/Sh) Date
- ------------------------ -------------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Fred G. Luke, President
and Director 3,000,000(1) 56% $.12 7/00
NuVen Advisors, Inc(2) 2,000,000 37% .10 3/97
Steven H. Dong, CFO 275,000 5% .12 (3)
Kenneth R. O'Neal,
former Director and CFO 100,000 2% .30 11/95
</TABLE>
The following summary option table sets forth in summary form the aggregate
options exercised during the Registrant's last completed fiscal year by the
Registrant's President and four most highly compensated executive officers other
than the President.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Option/SAR's at Fiscal Options/SAR's at Fiscal
Year-End (#) Year-End ($)
Shares
Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable (d) Unexercisable
- ----------------------------- ------------------ ------------------ ----------------------------- -----------------------
<S> <C> <C> <C> <C>
Fred G. Luke, President _ _ 950,000 Exercisable $ 19,000 Exercisable
and Director (1) 2,050,000 UnExercisable $ 41,000 UnExercisable
NuVen Advisors, Inc. (2) _ _ 2,000,000 Exercisable $ 80,000 Exercisable
Steven H. Dong, CFO _ _ 68,750 Exercisable $ 1,375 Exercisable
206,250 UnExercisable $ 4,125 UnExercisable
Kenneth R. O'Neal,
former CFO and Director - - 100,000 Cancelled N/A
</TABLE>
[NUOGAM\10K\95\95KSB.CLN]-4
23
<PAGE>
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Option/SAR's at Fiscal Options/SAR's at Fiscal
Year-End (#) Year-End ($)
Shares
Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable (d) Unexercisable
- ----------------------------- ------------------ ------------------ -------------------------------- ----------------------
<S> <C> <C> <C> <C>
Doug Phillips, former
President and Director
(Non-qualified Plan) _ _ 150,000 Exercisable N/A
Doug Phillips, former N/A
President and Director _ _ 50,000 Exercisable
(Incentive Plan)
Hal Phillips, former _ _ 150,000 Exercisable N/A
Secretary and Director
Gary Blum, former _ _ 50,000 Exercisable N/A
Director
</TABLE>
(1) Options vest pro rata over the five year term.
(2) The Luke Family Trust (the "Luke Trust") owns 93% of NuVen Advisors,
formerly New World. Fred G. Luke, as Co-Trustee of the Luke Trust determines
the voting of such shares and, as a result, may be deemed to control the
Luke Trust.
(3) Mr. Dong's options expire 3 months subsequent to the last day services
are provided.
There were no awards under long-term incentive plans, such as phantom stock
grants and restricted stock grants that vest upon satisfaction of performance
goals.
(c) Pension Plans and Other Benefit or Actuarial Plans
The Registrant has no annuity, pension or retirement plans or other plans
whose benefits are based on actuarial computations.
(d) Employment Contracts and Termination Agreements
The Registrant entered into a three year employment agreement, effective
January 1, 1993, with Douglas J. Phillips for his exclusive services as
President and Chief Financial Officer of the Registrant. Mr. Phillips'
compensation was $100,000 per year and includes benefits of an automobile and
related expenses, health and disability insurance, and an award of 25,000 shares
of restricted Common Stock for, among other things, serving as guarantor of
certain Registrant loans, obligations and payments. Effective March 30, 1994 Mr.
Phillips resigned as President and Chief Financial Officer.
[NUOGAM\10K\95\95KSB.CLN]-4
24
<PAGE>
Effective April 1, 1994, the Registrant entered into a Consulting Agreement
with John D. Desbrow for the engagement of Mr. Desbrow to perform legal services
and to hold the office of Secretary, on behalf of the Registrant, for the period
from April 1, 1994 to March 31, 1995. Between April 1, 1994 and September 30,
1994 Mr. Desbrow did not receive any funds or shares of common stock in the
Registrant but in fiscal 1995 he did bill and eventually received from the sale
of shares $3,000 per month for services rendered as Secretary for April, 1994 to
September 30, 1994 all of which was expensed in fiscal year 1994. Additionally,
in fiscal 1995 Mr. Desbrow billed and eventually received from the sale of
shares $4,000 for services rendered as a Director from April 1994 to July 1994.
Effective April 1, 1995, the Registrant and Mr. Desbrow renewed the
Consulting Agreement through March 31, 1996. Under the renewed Consulting
Agreement the Registrant contracted to pay Mr. Desbrow $50,000 for the renewal
term payable in the Registrant's common stock. 1,050,000 shares were registered
for issuance on Forms S-8 filed with the Securities and Exchange Commission
during the 1995 fiscal year for payment of sums earned during fiscal years 1994
and 1995. Under the terms of the Consulting Agreement, Mr. Desbrow invoices the
Registrant and applies the net proceeds received from the sale of stock to the
invoiced amounts. For purposes of any "profit" computation under Section 16(b)
Mr. Desbrow and the Registrant have agreed the price paid for the shares is
deemed to be $50,000. As of September 30, 1995, Mr. Desbrow held 600,000 shares
which were to be utilized for current and future services incurred. The
Registrant expensed $43,000, and $18,000 during fiscal 1995 and 1994,
respectively, and had $26,885 and $18,000 due to Mr. Desbrow as of September 30,
1995 and 1994, respectively.
In August 1995, the Registrant entered into an Employment Agreement with
Fred G. Luke, the Registrant's Chairman and President. Mr. Luke has been serving
as the Registrant's Chairman and President since approximately March 31, 1994.
The terms of the Employment Agreement call for Mr. Luke to receive approximately
$4,500 per month, retroactive to April 1, 1994, for five (5) years as a base
salary; granted him an option to purchase 3,000,000 shares of the Registrant's
common stock at an exercise price of $.12 per share; provides him with an annual
bonus based upon a number of factors related to the Registrant's growth and
performance which include (a) serving on the Company's Board of Directors and as
its President; (b) providing advice concerning mergers and acquisitions; (c)
corporate finance; (d) day to day management; (e) guidance with respect to
general business decisions; (f) other duties commonly performed by the President
of a publicly-held company; and requires the Registrant to purchase life
insurance coverage, reimbursement for vehicle expenses, and provide other fringe
benefits. Between March 31, 1994 and September 30, 1994, Mr. Luke received no
cash payments for his services. In August 1995, the Registrant agreed to
retroactively compensate Mr. Luke for past services in the amount of $27,000 or
$4,500 per month for the period April 1, 1994 to September 30, 1994 and $54,000
or $4,500 per month for the period October 1, 1994 to September 30, 1995. No
bonuses have been accrued, paid or are owed as of the date of this Report. The
Registrant expensed $86,000, and $0 during fiscal 1995 and 1994, respectively,
and had $86,000 and $0 due to Mr. Luke as of September 30, 1995 and 1994,
respectively.
In October 1994, the Registrant entered into a Consulting Agreement with Mr.
O'Neal, pursuant to which Mr. O'Neal was to perform accounting services, to hold
the office of Chief Financial Officer and to sit on the Registrant's Board of
Directors for fiscal year ended September 30, 1995. Pursuant to the Consulting
Agreement the Registrant agreed to pay Mr. O'Neal $36,000, payable in the
Registrant's common stock and issuable monthly in arrears. During fiscal 1995,
the Registrant issued 37,500 shares to Mr. O'Neal. Cash payments of $9,550 were
made to Mr. O'Neal by the Registrant, or its controlled subsidiaries during the
year ended September 30, 1995. No cash payments were made by the Registrant to
Mr. O'Neal for the fiscal year
[NUOGAM\10K\95\95KSB.CLN]-4
25
<PAGE>
ended September 30, 1994. The Registrant expensed $33,000, and $0 during
fiscal 1995 and 1994, respectively, and had no amounts outstanding as of
September 30, 1995 and 1994. Mr. O'Neal resigned as Chief Financial Officer and
as a Director on July 15, 1995.
In July 1995, the Registrant entered into a Consulting Agreement with Mr.
Dong, pursuant to which Mr. Dong is to perform accounting services and to hold
the office of Chief Financial Officer through June 30, 1996. Pursuant to the
agreement the Registrant agreed to pay Mr. Dong $20,000 in cash or in the
Registrant's common stock payable monthly in arrears and granted him an option
to purchase 275,000 shares of the Registrant's common stock at an exercise price
of $.12 per share. Cash payments of $5,000 were made to Mr. Dong by the
Registrant during fiscal 1995. The Registrant expensed $5,000 during fiscal 1995
and had no amounts due as of September 30, 1995.
Consultants in Management Capacity
The Luke Trust and Lawver Corp. owns 93% and 7%, respectively, of NuVen
Advisors. Fred G. Luke, as trustee of the Luke Trust, controls the Luke Trust
and Mr. Lawver is the majority shareholder of Lawver Corp. and thereby controls
Lawver Corp.
Effective April 1, 1994, the Registrant entered into an Advisory and
Management Agreement with NuVen Advisors for the engagement of NuVen Advisors to
perform administrative, human resource and merger/acquisition services
consisting of (a) management of the use, purchase and disposition of the
Registrant's assets including, by way of illustration, the evaluation of
economic, statistical, financial and other data, and formulation and/or
implementation of the Registrant's business plan; and (b) management of the
Registrant's operations including, by way of illustration, the furnishing of
routine supervisory, and administrative services and the supervision of
administrative personnel including, by way of illustration, consultant
recruiting and screening; and (c) preparation of the usual and customary reports
required of a publicly-held company subject to the reporting requirements of the
Securities Exchange Act of 1934; and (d) furnishing of office space, facilities
and equipment for the Registrant's non-exclusive use. The Registrant has
significantly reduced or eliminated completely its human resource and payroll
obligations and requirements, but the Registrant continues to require the
administrative, audit and consultant screenings, and merger/acquisition
services. The Registrant anticipates continued reliance on the services provided
under the Advisory and Management Agreements until such time it has, or its
subsidiaries, have the need and sufficient cash flow to justify to perform such
services in-house. Pursuant to such Agreement, the Registrant agreed to pay
NuVen Advisors $180,000 annually, payable monthly in $15,000 increments in
arrears, and granted NuVen Advisors an option to purchase 2,000,000 shares of
the Registrant's common stock exercisable at a price of $.10 per share. The
Registrant expensed $180,000, and $0, during fiscal 1995 and 1994, respectively,
and had $15,500 and $0 due to NuVen Advisors as of September 30, 1995 and 1994,
respectively.
Effective April 1, 1994, CMA entered into an Advisory and Management
Agreement with NuVen Advisors for the engagement of NuVen Advisors to perform
administrative, human resource and merger/acquisition services consisting of (a)
management of the use, purchase and disposition of CMA's assets including, by
way of illustration, the evaluation of economic, statistical, financial and
other data, and formulation and/or implementation of CMA's business plan; and
(b) management of CMA's operations including, by way of illustration, the
furnishing of routine supervisory and administrative services and the
supervision of administrative personnel including, by way of illustration,
consultant recruiting and screening; and (c) preparation of the usual and
customary reports required of a publicly-held company subject to the
[NUOGAM\10K\95\95KSB.CLN]-4
26
<PAGE>
reporting requirements of the Securities Exchange Act of 1934; and (d)
furnishing of office space, facilities and equipment for CMA's non-exclusive
use. CMA has significantly reduced or eliminated completely its human resource
and payroll obligations and requirements, but CMA continues to require the
administrative, audit and consultant screenings, and merger/acquisition
services. CMA anticipates continued reliance on the services provided under the
Advisory and Management Agreements until such time it has, or its subsidiaries,
have the need and sufficient cash flow to justify to perform such services
in-house. Pursuant to such Agreement CMA agreed to pay NuVen Advisors $120,000
annually, payable monthly in $10,000 increments in arrears, and granted NuVen
Advisors an option to purchase up to five percent (5%) of CMA's common stock
outstanding at the time of exercise, exercisable at a price per share equal to
one hundred ten percent (110%) of the book value of such shares. CMA expensed
$120,000 and $0, during fiscal 1995 and 1994, respectively, and had $120,000 and
$0 due to NuVen Advisors as of September 30, 1995 and 1994, respectively. The
option given to NuVen Advisors by CMA, if exercised, will (a) result in an
infusion of working capital into CMA; and, (b) reduce the Company's ownership of
CMA by five percent (5%), which management believes will not have any material
adverse effect on the Company's financial condition or investment in CMA.
In September 1994, the Registrant entered into a Settlement Agreement with
Douglas J. Phillips whereby shares held by Phillips were sold for the benefit of
the Registrant to pay creditor claims due to Phillips' prior misrepresentations
of the cash account of the Registrant at March 30, 1994. Under the Settlement
Agreement Phillips placed 1,325,193 shares of the Registrant's common stock in
the name of the Phillips Family Investment Limited Partnership into escrow with
a third party trustee for liquidation with payment of the net proceeds to the
Registrant for application towards certain debts including payables to trade
creditors. Under the agreement Phillips provided an opinion of counsel that the
Phillips Family Investment Limited Partnership was not an affiliate of the
Registrant and had not been an affiliate for 90 days prior to September 13,
1994, that the shares had been held for more than 3 years and that the shares
were eligible for legend removal under Rule 144(k). Phillips received a grant of
non-transferable Warrants to purchase 1,325,193 shares of the Registrant's
common stock at an exercise price of $.21875 per share expiring September 13,
1996. Phillips also agreed to restrict the sale of the remainder of his
holdings, or 1,325,193 shares, to 2,000 shares per business day.
(e) Director Compensation
The Registrant has no standard arrangement by which its directors are
compensated.
(f) Interlocking Relationships of Directors
The Directors of the Registrant are also Directors of Nona as of the date of
filing of this amended Report.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table set forth, as of September 30, 1995, the stock ownership
of each person known by the Registrant to be the beneficial owner of five
percent or more of the Registrant's voting securities. Unless otherwise
indicated, each person has beneficial voting and investment power with respect
to the shares owned.
[NUOGAM\10K\95\95KSB.CLN]-4
27
<PAGE>
<TABLE>
<CAPTION>
Amount
and
Nature of Percent
Title of Name and Address of Beneficial of
Class Beneficial Owners Interest Class
- ---------------- --------------------------- ------------ ------
<S> <C> <C> <C>
$.01 par value None > 5% None 0%
- ---------------- --------------------------- ------------ ------
Series B Nona Morelli's II, Inc. 250,000 100%
Preferred Stock 2 Park Plaza, Suite 470
Irvine, CA 92714
- --------------- --------------------------- ----------- ------
14% Preferred Raymond C. Kitely 30,000 17.6%
Stock 20079 Glen Arbor Court
Saratoga, CA 95070
Eli Moshe 10,000 5.9%
110 S. Sweetzer, No. 301
Los Angeles, CA 90048
Walter K. Theis, M.D. 20,000 11.8%
1200 Corsica Drive
Pacific Palisades, CA 90272
David A. Paletz 77,500 45.6%
c/o David Seror, Ch. 7 Trustee
Office of the U.S. Trustee
221 N. Figueroa St., Room 800
Los Angeles, CA 90012
Neil Miller 15,000 8.8%
2790 Forrester Drive
Los Angeles, CA 90064
David Sheetrit 10,000 5.9%
c/o Moshe Shram
929 East Fourteenth Street
Los Angeles, CA 90021
</TABLE>
The following table sets forth, as of September 30, 1995, the common stock
ownership of all officers and directors of the Registrant. No officers or
directors own any shares of either the Series B or the 14% Preferred Stock.
[NUOGAM\10K\95\95KSB.CLN]-4
28
<PAGE>
<TABLE>
<CAPTION>
Amount
and
Nature of Percent
Title of Name and Address of Beneficial of
Class Officer or Director Interest Class
- --------------- --------------------------- ------------ -----------
<S> <C> <C> <C>
$.01 par value Fred G. Luke(1) 491,847 1.9%
Common Stock 2 Park Plaza, Suite 470 250,000(2) 100%
Irvine, CA 92714
John D. Desbrow 601,250 2.3%
2 Park Plaza, Suite 470
Irvine, CA 92714
Officers and Directors as a Group (2 1,093,097 4.2%
Persons) 250,000(2) 100%
</TABLE>
(1) Fred G. Luke, as the Chief Executive Officer of Nona Morelli's II, Inc., is
deemed to control the 491,847 shares of common stock and 250,000 shares of
Series B Preferred Stock held by Nona Morelli's II, Inc.
(2) Shares of Preferred Stock
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Registrant entered into a three year employment agreement, effective
January 1, 1993, with Douglas J. Phillips for his exclusive services as
President and Chief Financial Officer of the Registrant. Mr. Phillips'
compensation was $100,000 per year and includes benefits of an automobile and
related expenses, health and disability insurance, and an award of 25,000 shares
of restricted Common Stock for, among other things, serving as guarantor of
certain Registrant loans, obligations and payments. Effective March 30, 1994 Mr.
Phillips resigned as President and Chief Financial Officer.
Effective April 1, 1994, the Registrant entered into a Consulting Agreement
with John D. Desbrow for the engagement of Mr. Desbrow to perform legal services
and to hold the office of Secretary, on behalf of the Registrant, for the period
from April 1, 1994 to March 31, 1995. Between April 1, 1994 and September 30,
1994 Mr. Desbrow did not receive any funds or shares in the Registrant but in
fiscal 1995 he did bill and eventually did receive from the sale of shares
$3,000 per month for services rendered as Secretary from April 1, 1994 to
September 30, 1994, all of which the Company expensed in fiscal year 1994. In
fiscal 1995, Mr. Desbrow billed and eventually received from the sale of shares
$4,000 for services rendered as Director from April 1994 to July 1994.
Effective April 1, 1995, the Registrant and Mr. Desbrow renewed the
Consulting Agreement through March 31, 1996. Under the renewed Consulting
Agreement the Registrant contracted to pay Mr. Desbrow $50,000 for the renewal
term payable in the Registrant's common stock. 1,050,000 shares were registered
for issuance on Forms S-8 filed with the Securities and Exchange Commission
during the 1995 fiscal year for payment of sums earned during fiscal years 1994
and 1995. Under the terms of the Consulting Agreement, Mr. Desbrow invoices the
Registrant and applies the net proceeds received from the sale of stock to the
invoiced amounts. For purposes of any "profit" computation under Section 16(b)
Mr. Desbrow and the Registrant have agreed the price paid for the shares is
deemed to be $50,000. As of September 30, 1995, Mr. Desbrow held 600,000 shares
which are to be utilized for current and future services incurred. The
[NUOGAM\10K\95\95KSB.CLN]-4
29
<PAGE>
Registrant expensed $43,000, and $18,000 during fiscal 1995 and 1994,
respectively, and had $26,885 and $18,000 due to Mr. Desbrow as of September 30,
1995 and 1994, respectively.
In August 1995, the Registrant entered into an Employment Agreement with
Fred G. Luke, the Registrant's Chairman and President. The terms of the
Employment Agreement call for Mr. Luke to receive approximately $4,500 per
month, retroactive to April 1, 1994, for five (5) years as a base salary;
granted him an option to purchase 3,000,000 shares of the Registrant's common
stock at an exercise price of $.12 per share; provides him with an annual bonus
based upon a number of factors related to the Registrant's growth and
performance which include (a) serving on the Company's Board of Directors and as
its President; (b) providing advice concerning mergers and acquisitions; (c)
corporate finance; (d) day to day management; (e) guidance with respect to
general business decisions; (f) other duties commonly performed by the President
of a publicly-held company; and requires the Registrant to purchase life
insurance coverage, reimbursement for vehicle expenses, and provide other fringe
benefits. Mr. Luke has been serving as the Registrant's Chairman and President
since approximately March 31, 1994. Between March 31, 1994 and September 30,
1994, Mr. Luke received no cash payments for his services. In August 1995, the
Registrant agreed to retroactively compensate Mr. Luke for past services in the
amount of $27,000 or $4,500 per month for the period April 1, 1994 to September
30, 1994 and $54,000 or $4,500 per month for the period October 1, 1994 to
September 30, 1995. No bonuses have been accrued, paid or are owed as of the
date of this Report. The Registrant expensed $86,000, and $0 during fiscal 1995
and 1994, respectively, and had $86,000 and $0 due to Mr. Luke as of September
30, 1995 and 1994, respectively.
In October 1994, the Registrant entered into a Consulting Agreement with
Mr. O'Neal, pursuant to which Mr. O'Neal was to perform accounting services, to
hold the office of Chief Financial Officer and to sit on the Registrant's Board
of Directors for fiscal year ended September 30, 1995. Pursuant to the
Consulting Agreement the Registrant agreed to pay Mr. O'Neal $36,000, payable in
the Registrant's common stock and issuable monthly in arrears. During fiscal
1995, the Registrant issued 37,500 shares to Mr. O'Neal. Cash payments of $9,550
were made to Mr. O'Neal by the Registrant, or its controlled subsidiaries during
the year ended September 30, 1995. No cash payments were made by the Registrant
to Mr. O'Neal for the fiscal year ended September 30, 1994. The Registrant
expensed $33,000, and $0 during fiscal 1995 and 1994, respectively, and had no
amounts outstanding as of September 30, 1995 and 1994. Mr. O'Neal resigned as
Chief Financial Officer and as a Director on July 15, 1995.
In July 1995, the Registrant entered into a Consulting Agreement with Mr.
Dong, pursuant to which Mr. Dong is to perform accounting services and to hold
the office of Chief Financial Officer through June 30, 1996. Pursuant to the
agreement the Registrant agreed to pay Mr. Dong $20,000 in cash or in the
Registrant's common stock payable monthly in arrears and granted him an option
to purchase 275,000 shares of the Registrant's common stock at an exercise price
of $.12 per share. Cash payments of $5,000 were made to Mr. Dong by the
Registrant during fiscal 1995. The Registrant expensed $5,000 during fiscal 1995
and had no amounts due as of September 30, 1995.
[NUOGAM\10K\95\95KSB.CLN]-4
30
<PAGE>
Consultants in Management Capacity
The Luke Trust and Lawver Corp. owns 93% and 7%, respectively, of NuVen
Advisors. Fred G. Luke, as trustee of the Luke Trust, controls the Luke Trust
and Mr. Lawver is the majority shareholder of Lawver Corp. and thereby controls
Lawver Corp.Effective April 1, 1994, the Registrant entered into an Advisory and
Management Agreement with NuVen Advisors for the engagement of NuVen Advisors to
perform administrative, human resource and merger/acquisition services
consisting of (a) management of the use, purchase and disposition of the
Registrant's assets including, by way of illustration, the evaluation of
economic, statistical, financial and other data, and formulation and/or
implementation of the Registrant's business plan; and (b) management of the
Registrant's operations including, by way of illustration, the furnishing of
routine supervisory, and administrative services and the supervision of
administrative personnel including, by way of illustration, consultant
recruiting and screening; and (c) preparation of the usual and customary reports
required of a publicly-held company subject to the reporting requirements of the
Securities Exchange Act of 1934; and (d) furnishing of office space, facilities
and equipment for the Registrant's non-exclusive use. The Registrant has
significantly reduced or eliminated completely its human resource and payroll
obligations and requirements, but the company continues to require the
administrative, audit and consultant screenings, and merger/acquisition
services. The Registrant anticipates continued reliance on the services provided
under the Advisory and Management Agreements until such time it has, or its
subsidiaries, have the need and sufficient cash flow to justify to perform such
services in-house. Pursuant to such Agreement, the Registrant agreed to pay
NuVen Advisors $180,000 annually, payable monthly in $15,000 increments in
arrears, and granted NuVen Advisors an option to purchase 2,000,000 shares of
the Registrant's common stock exercisable at a price of $.10 per share. The
Registrant expensed $180,000, and $0, during fiscal 1995 and 1994, respectively,
and had $15,500 and $0 due to NuVen Advisors as of September 30, 1995 and 1994,
respectively.
Effective April 1, 1994, CMA entered into an Advisory and Management Agreement
with NuVen Advisors for the engagement of NuVen Advisors to perform
administrative, human resource and merger/acquisition services consisting of (a)
management of the use, purchase and disposition of CMA's assets including, by
way of illustration, the evaluation of economic, statistical, financial and
other data, and formulation and/or implementation of CMA's business plan; and
(b) management of CMA's operations including, by way of illustration, the
furnishing of routine supervisory and administrative services and the
supervision of administrative personnel including, by way of illustration,
consultant recruiting and screening; and (c) preparation of the usual and
customary reports required of a publicly-held company subject to the reporting
requirements of the Securities Exchange Act of 1934; and (d) furnishing of
office space, facilities and equipment for CMA's non-exclusive use. CMA has
significantly reduced or eliminated completely its human resource and payroll
obligations and requirements, but CMA continues to require the administrative,
audit and consultant screenings, and merger/acquisition services. CMA
anticipates continued reliance on the services provided under the Advisory and
Management Agreements until such time it has, or its subsidiaries, have the need
and sufficient cash flow to justify to perform such services in-house. The
Company and its subsidiaries have significantly reduced or eliminated completely
their human resource and payroll obligations and requirements, but the companies
continue to require the administrative, audit and consultant screenings, and
merger/acquisition services. The Company anticipates continued reliance on the
services provided under the Advisory and Management Agreements until such time
as it, or its subsidiaries, have the need and sufficient cash flow to justify
perform such services in-house. Pursuant to such Agreement CMA agreed to pay
NuVen Advisors $120,000 annually, payable monthly in $10,000 increments in
arrears, and granted NuVen Advisors an option to purchase up to five percent
(5%) of CMA's common stock outstanding at the time of exercise, exercisable at a
price per share equal to one hundred ten percent (110%)
[NUOGAM\10K\95\95KSB.CLN]-4
31
<PAGE>
of the book value of such shares. CMA expensed $120,000 and $0, during fiscal
1995 and 1994, respectively, and had $120,000 and $0 due to NuVen Advisors as of
September 30, 1995 and 1994, respectively. The option given to NuVen Advisors by
CMA, if exercised, will (a) result in an infusion of working capital into CMA;
and, (b) reduce the Company's ownership of CMA by five percent (5%), which
management believes will not have any material adverse effect on the Company's
financial condition or investment in CMA.
In September 1994, the Registrant entered into a Settlement Agreement with
Douglas J. Phillips whereby shares held by Phillips were sold for the benefit of
the Registrant to pay creditor claims due to Phillips' prior misrepresentations
of the cash account of the Registrant at March 30, 1994. Under the Settlement
Agreement Phillips placed 1,325,193 shares of the Registrant's common stock in
the name of the Phillips Family Investment Limited Partnership into escrow with
a third party trustee for liquidation with payment of the net proceeds to the
Registrant for application towards certain debts including payables to trade
creditors. Under the agreement Phillips provided an opinion of counsel that the
Phillips Family Investment Limited Partnership was not an affiliate of the
Registrant and had not been an affiliate for 90 days prior to September 13,
1994, that the shares had been held for more than 3 years and that the shares
were eligible for legend removal under Rule 144(k). Phillips received a grant of
non-transferable Warrants to purchase 1,325,193 shares of the Registrant's
common stock at an exercise price of $.21875 per share expiring September 13,
1996. Phillips also agreed to restrict the sale of the remainder of his
holdings, or 1,325,193 shares, to 2,000 shares per business day.
PART IV.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
The financial statements listed in the accompanying index to financial
statements and financial statement schedules are filed as part of this report.
2. Financial Statement Schedules
There were no financial statement schedules required to be filed as part of
this Annual Report.
3. Exhibits
Exhibit
Number Description
3.1 Restated Certificate of Incorporation(1)
3.2 By-Laws (filed as Exhibit 3.2 of the Registrant's Registration
Statement on Form S-18, File No. 33-19883-NY, and incorporated herein
by reference thereto).
3.3 Certificate of Amendment of Certificate of Incorporation. (12)
[NUOGAM\10K\95\95KSB.CLN]-4
32
<PAGE>
Exhibit
Number Description
4.5 Certificate of Designations, Preferences and Rights of 14% Cumulative
Convertible $.01 par value Preferred Stock.(1)
4.6 Letter Extending Exercise Period of Class A Warrants and Class B
Warrants.(3)
4.7 Letters Reducing Exercise Price of Class A Warrants, Class B Warrants
and Class C Warrants.(4)
4.8 Warrant Agreement dated September 13, 1994 with Douglas J.
Phillips.(7)
4.9 Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock of E.N. Phillips Company (10)
4.10 New Class D Warrant Agreement to Purchase Common Stock(10)
4.11 Option Agreement(10)
9.1 Form of Irrevocable Proxy Coupled with Right of First Refusal.(4)
10.1 Amended 1989 Non-Qualified Stock Option Plan.(1)
10.2 1989 Incentive Stock Option Plan.(1)
10.3 1991 Non-Qualified Stock Option Plan (incorporated by reference herein
from Proxy Statement for February 14, 1992 Annual Meeting filed on
February 5, 1992).
10.4 Employment Agreement between Phillips Gaming International, Inc. and
James R. Martin (incorporated by reference herein from amendment on
Form 8 filed February 4, 1993 to Form 8-K dated November 23, 1992).
10.5 1993 Incentive Stock Option Plan and 1993 Non-Qualified Stock Option
Plan (incorporated by reference herein from Proxy Statement for March
4, 1993 Annual Meeting filed on February 5, 1993).
10.6 Employment Agreement of December 7, 1993 between E.N. Phillips Company
and Douglas J. Phillips (incorporated by reference from 10-KSB for
fiscal year ended September 30, 1993, filed on or about March 28,
1994.)
10.7 Stock Purchase and Business Combination Agreement of January 13,1994
between Nona Morelli's II, Inc.,Casino Management of America, and E.N.
Phillips Company(Incorporated by reference from 10-KSB for fiscal year
ended September 30, 1993, filed on or about March 28, 1994.)
[NUOGAM\10K\95\95KSB.CLN]-4
33
<PAGE>
Exhibit
Number Description
10.8 Rescission Agreement dated March 30, 1994 between E.N. Phillips
Company and Douglas J.Phillips.(6)
10.9 Settlement Agreement dated September 13, 1994 between E.N.
Phillips Company and Douglas J. Phillips.(7)
10.10 Settlement Agreement and Mutual Release between Douglas
J. Phillips, Hal B. Phillips and E.N. Phillips Company and
Stephen A. Weiner.(7)
10.11 Advisory and Management Agreement dated February 1, 1995
between NuOasis Gaming, Inc.E.N. Phillips Company and Stephen
A. Weiner.(7)
10.12 Advisory and Management Agreement dated July 1, 1994 between
Casino Management of America, Inc. and NuVen Advisors, Inc.(11)
10.13 Employment Agreement dated August 30, 1995 between NuOasis
Gaming, Inc. and Fred G.Luke.(11)
10.14 Consulting Agreement dated July 1995 between NuOasis Gaming,
Inc. and Steven Dong.(11)
10.15 Consulting Agreement dated October 15, 1994 between E.N.
Phillips Company and Kenneth R. O'Neal.(8)
10.16 Engagement Letter and Fee Agreement dated November 29, 1995
between NuOasis Gaming, Inc. and J.L. Lawver Corp.(8)
10.17 Engagement Letter and Fee Agreement dated October 4, 1994
between NuOasis Gaming, Inc.and John Ris.(8)
10.18 Engagement Letter and Fee Agreement dated November 15, 1994
between NuOasis Gaming,Inc. And Geoffrey G. Riggs.(8)
10.19 Engagement Letter and Fee Agreement dated September 13, 1994
between E.N. Phillips Company and Structure America, Inc.(8)
10.20 Engagement Letter and Fee Agreement dated October 18, 1994
between NuOasis Gaming, Inc.and OTC Communications.(8)
10.21 Engagement Letter and Fee Agreement dated November 1, 1994
between NuOasis Gaming, Inc. and Citigate, Inc.(8)
10.22 Consulting Agreement dated April 1, 1994, between NuOasis
Gaming, Inc. and John D.Desbrow.(8)
[NUOGAM\10K\95\95KSB.CLN]-4
34
<PAGE>
Exhibit
Number Description
10.23 Engagement Letter and Fee Agreement dated March 7, 1994 between
NuOasis Gaming, Inc. and John Ris.(9)
10.24 Consulting Agreement dated April 21, 1995 between NuOasis
Gaming, Inc. and Sandra V. Alsina.(9)
10.25 Fee Agreement dated April 12, 1995 between NuOasis Gaming, Inc.
and Richard O. Weed.(9)
10.26 April 17, 1995 Addendum to Consulting Agreement dated November
22, 1994 between NuOasis Gaming, Inc. and John D. Desbrow.(9)
10.27 Consulting Agreement dated January 1995 between NuOasis Gaming,
Inc. and Edward S.Luke.(9)
24.1 Schedule of Subsidiaries.(5)
(1) Previously filed by the Registrant in Post-Effective Amendment No. 2 to
the Registrant's Registration Statement on Form S-18 filed October 23, 1989
(File No. 33-19883-NY) and incorporated herein by reference.
(2) Previously filed by the Registrant in Post-Effective Amendment No. 3 to
the Registrant's Registration Statement on Form S-18 filed January 26, 1990
(File No. 33-19883-NY) and incorporated herein by reference.
(3) Previously filed by the Registrant in Post-Effective Amendment No. 5 to
the Registrnt's Registration Statement on Form S-18 filed March 28, 1990
(File No. 33-19883-NY) and incorporated herein by reference.
(4) Previously filed by the Registrant in Post-Effective Amendment No. 6 to
the Registrant's Registration Statement on Form S-18 filed June 25, 1990
(File No. 33-19883-NY) and incorporated herein by reference.
(5) Previously filed by the Registrant in Pre-Effective Amendment No. 1 to
the Registrant's Registration Statement on Form S-1 filed December 19, 1995
and incorporated herein by reference.
(6) Previously filed by the Registrant in the Form 10-K filed February 14,
1995 and incorporated herein by reference.
7) Previously filed by the Registrant in the Form 10-KSB filed June 29,
1995 and incorporated herein by reference.
(8) Previously filed by the Registrant in a Registration Statement on Form
S-8 filed December 7, 1994, File No. 33-87102.
[NUOGAM\10K\95\95KSB.CLN]-4
35
<PAGE>
Exhibit
Number Description
- ------- -----------
(9) Previously filed by the Registrant in a Registration Statement on Form
S-8 filed May 3, 1995, File No. 33-91862.
(10) Previously filed by the Registrant in a Current Report on Form 8-K
dated March 31, 1994, filed April 11, 1994.
(11) Previously filed by the Registrant on January 18, 1996 in its Annual
Report on Form 10KSB for the fiscal year ended September 30, 1995.
(12) Previously filed by the Registrant on April 2, 1996 in its amended
Annual Report on Form 10KSB/A for the fiscal year ended September 30, 1995.
(b) Reports on Form 8-K
(1) On July 27, 1994, the Registrant filed a Current Report on Form 8-K
dated July 21, 1994, reporting the resignation of Gary L. Blum and John D.
Desbrow as Directors of the Registrant.
(2) On December 27, 1994, the Registrant filed a Current Report on Form 8-K
dated December 12, 1994, reporting a change in auditors from J.H. Cohn &
Company to C. Williams & Associates, P.C.
(3) On May 12, 1995, the Registrant filed a Current Report on Form 8-K
dated March 31, 1994, reporting the purchase of 7,500,000 shares of common
stock of Casino Management of America, Inc. and the transfer of 2,000,000
shares of common stock, 250,000 shares of Series B Preferred Stock and
6,000,000 Class D Warrants to Nona Morelli's II, Inc. It also reported the
resignations of Douglas J. Phillips, Dennis Phillips and Richard Wessler as
officers and directors of the Registrant and the election of Fred G. Luke
and John D. Desbrow as officer of directors of the Registrant.
(4) On August 7, 1995 the Registrant filed a Current Report on Form 8-K
dated July 14, 1995, reporting the resignation of Kenneth R. O'Neal as a
director and Chief Financial Officer of the Registrant and the Registrant's
wholly-owned subsidiary Ba-Mak Gaming International, Inc.
(5) On November 10, 1995, the Registrant filed a Current Report on Form 8-K
dated November 8, 1995, reporting a change in auditors from C. Williams &
Associates to Raimondo, Pettit & Glassman.
(6) On December 19, 1995, the Registrant filed an Amended Current Report on
Form 8-K/A dated March 31, 1994, reporting revised proforma numbers on the
E.N. Phillips-Nona Morelli's Stock Purchase and Business Combination
Agreement.
(7) On December 19, 1995, the Registrant filed an Amended Current Report on
Form 8-K/A dated March 31, 1994, reporting a change in auditors from J.H.
Cohn & Company to C. Williams & Associates.
[NUOGAM\10K\95\95KSB.CLN]-4
36
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
NUOASIS GAMING, INC.
Date: August 19, 1996 By:/s/ Fred G. Luke
-----------------------------------------
Fred G. Luke, President and Director
Date: August 19, 1996 By:/s/Steven H. Dong
------------------------------------------
Steven H. Dong, Chief Financial Officer
In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: August 19, 1996` By:/s/ Fred G. Luke
------------------------------------------
Fred G. Luke, President and Director
[NUOGAM\10K\95\95KSB.CLN]-4
37
<PAGE>
NUOASIS GAMING, INC.
Index to Financial Statements and
Financial Statement Schedules
Page
----
(1) FINANCIAL STATEMENTS:
Reports of Independent Public Accountants ............................F-2/4
Consolidated Balance Sheets at September 30, 1995 and 1994 .............F-5
Consolidated Statements of Operations for the Years Ended
September 30, 1995 and 1994 ...........................................F-6
Consolidated Statements of Stockholders' Equity (Deficiency)
for the Years Ended September 30, 1995 and 1994 .......................F-7
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1995 and 1994 ...........................................F-8
Notes to Consolidated Financial Statements .............................F-9
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F1
<PAGE>
RAIMONDO, PETTIT & GLASSMAN
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
CERTIFIED PUBLIC ACCOUNTANTS
UNION BANK TOWER, SUITE 1250
21515 HAWTHORNE BOULEVARD
TORRANCE, CALIFORNIA 90503
TELEPHONE: (310) 540-5990 FAX: (310) 543-3066
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board or Directors and Stockholders
NuOasis Gaming, Inc.
We have audited the accompanying consolidated balance sheet of NuOasis Gaming,
Inc. and Subsidiaries (the "Company") as of September 30, 1995, and the related
consolidated statements of operations, stockholders' equity (deficiency) and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of the Company for 1994 were audited by other auditors whose opinion
was dated February 5, 1995, except for Note 16 as to which the date is April 21,
1995, and included an explanatory paragraph with respect to the Company's
ability to continue as a going concern.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards required that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1995 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of September 30, 1995, and its results of operations and cash flows for the
year then ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has incurred recurring net losses
and negative cash flows from operating activities, has limited liquid resources,
has negative working capital and its primary operating subsidiary was liquidated
under Chapter 7 of the U.S. Bankruptcy Code. Such matters raise substantial
doubt about its ability to continue as a going concern. Management's plans
regarding those matters are described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ RAIMONDO, PETTIT & GLASSMAN
-----------------------------------------------------
Torrance, California
December 15, 1995
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F2
<PAGE>
C. WILLIAMS & ASSOCIATES, P.C.
Certified Public Accountants
50 Briar Hollow Lane, Suite 580E
Houston, Texas 77027
tel: 713-993-9099 fax: 713-626-0797
- --------------------------------------------------------------------------------
Report of Independent Public Accountants
Board of Directors and Stockholders
NuOasis Gaming, Inc.
We have audited the accompanying consolidated balance sheet of NUOASIS GAMING,
INC. AND SUBSIDIARIES (the "Company") as of September 30, 1994, and the related
consolidated statements of operations, stockholders' equity (deficiency) and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards required that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NuOasis Gaming, Inc.
and Subsidiaries as of September 30, 1994, and their results of operations and
cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying 1994 consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has incurred recurring
net losses and negative cash flows from operating activities since its
inception, has limited liquid resources, has negative working capital and its
primary operating subsidiary filed for Chapter 11 of the U.S. Bankruptcy Code.
As discussed in Note 1, the bankruptcy proceeding was subsequently converted to
Chapter 7. Such matters raise substantial doubt about its ability to continue as
a going concern. Management's plans regarding those matters are described in
Note 1. The 1994 consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ C. WILLIAMS & ASSOCIATES, P.C.
-----------------------------------------------------
Houston, Texas
February 5, 1995
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F3
<PAGE>
NOTE:
On January 29, 1996, the Texas State Board of Public Accountancy made a
determination that the firm of C. Williams & Associates, P.C. was not properly
licensed to practice public accounting in Texas, retroactive back to March 2,
1995, due to the revocation of the license of one of the shareholders of C.
Williams & Associates, P.C.
The firm of C. Williams & Associates, P.C. performed an audit of the
Registrant's financial statements for the year ended September 30, 1994, and
issued its report on that audit on February 5, 1995, which is prior to the
revocation of Mr. Williams' license on March 2, 1995, and therefore is in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission.
Article 2 of Regulation S-X provides that, after March 2, 1995, the firm of C.
Williams & Associates, P.C. is not qualified to practice before the Commission.
Shareholders of the Company continue to retain legal rights to sue and recover
damages from C. Williams & Associates, P.C., for material misstatements or
omissions, if any, in the financial statements.
Should C. Williams & Associates, P.C. dissolve under the laws of Texas, its
state of incorporation, the rights of the Shareholders of the company to sue and
recover damages from C. Williams & Associates, P.C. and its directors, officers
and shareholders would be determined by the laws of the State of Texas governing
the dissolution of Texas professional corporations.
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F4
<PAGE>
NUOASIS GAMING, INC.
Consolidated Balance Sheets
September 30,
<TABLE>
<CAPTION>
1995 1994
------------------------- -------------------------
ASSETS
- -------------------------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 866 $ 162,329
Accounts receivable - 184,767
Other current assets 50,566 12,145
------------------------- ------------------------
Total Current Assets 51,432 359,241
Property and equipment, net - 1,032,804
Other assets 277,300 467,505
------------------------- ------------------------
TOTAL ASSETS $ 328,732 $ 1,859,550
========================= ========================
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current Liabilities:
Notes payable $ - $ 40,383
Accounts payable and accrued expenses 69,220 611,405
Due to affiliates 248,500 136,935
Other current liabilities and accrued expenses 313,835 118,000
------------------------- ------------------------
Total Current Liabilities 631,555 906,723
Commitments and Contingencies (Note 11)
Stockholders' Equity (Deficiency)
Preferred stock - par value $.01; authorized 1,000,000 shares; 14% cumulative
convertible; issued and outstanding 170,000 shares (aggregate liquidation of
$170,000) 1,700 1,700
Preferred Stock Series B - par value $2.00; authorized,
issued and outstanding 250,000 shares (aggregate
liquidation of $500,000) 500,000 500,000
Common stock - par value $.01; authorized 30,000,000
shares; 26,176,175 and 20,688,675 shares issued and
outstanding, respectively 261,761 206,886
Stockholder receivable (1,473,773) (1,000,000)
Additional paid-in capital 12,110,177 11,850,224
Accumulated deficit (11,702,688) (10,605,983)
------------------------ -------------------------
Total Stockholders' Equity (Deficiency) (302,823) 952,827
------------------------- -------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY) $ 328,732 $ 1,859,550
========================= =========================
</TABLE>
See accompanying notes to consolidated financial statements.
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F5
<PAGE>
NUOASIS GAMING, INC.
Consolidated Statements of Operations
For the Years Ended September 30,
<TABLE>
<CAPTION>
1995 1994
------------------------- ---------------------
<S> <C> <C>
Revenues:
Investment property rental income $ - $ 14,968
Gaming 884,077 2,228,407
Interest and other income - 9,324
------------------------- ---------------------
Totals 884,077 2,252,699
------------------------- ---------------------
Costs and Expenses:
Gaming, prizes and revenue sharing 776,827 1,920,556
Investment property write downs - 3,209,900
General and administrative 898,801 1,199,069
Depreciation and amortization 156,376 289,225
Loss (gain) on disposal of investments 140,949 (10,698)
Settlement of lawsuits - 45,005
Write-off of unearned compensation - 151,813
Interest Expense 7,829 105,285
------------------------- ---------------------
Totals 1,980,782 6,910,155
------------------------- ---------------------
Loss before income taxes (1,096,705) (4,657,456)
Provision for income taxes - -
------------------------- ----------------------
Net loss $ (1,096,705) $ (4,657,456)
========================= ======================
Net loss applicable to common stock $ (1,120,505) $ (4,681,256)
========================= ======================
Net loss per common share $ (.04) $ (.24)
------------------------- ----------------------
Weighted average common shares outstanding 23,785,550 19,755,113
------------------------- ---------------------
</TABLE>
See accompanying notes to consolidated financial statements.
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F6
<PAGE>
NUOASIS GAMING, INC.
Consolidated Statements of Stockholders' Equity (Deficiency)
For the Years Ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
Preferred Preferred Stock Common
Stock Series B Stock
--------------- ------------------- ---------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1993 222,500 $2,225 - $ - 18,711,175 $ 187,111
Preferred shares converted to
common shares (52,500) (525) 52,500 525
Issuance for payment for:
Consulting services 125,000 1,250
Amortization of unearned
compensation
Write-off of unearned
compensation
Cancellation of shares issued
to Century Casino
Management, Inc. (200,000) (2,000)
Issuance of stock to Nona
Morelli's II, Inc. to acquire
stock of Casino Management
of America, Inc. 250,000 500,000 2,000,000 20,000
Exchange of investments with
shareholder
Net Loss
------- ------ -------- -------- ---------- -------
Balances, September 30, 1994 170,000 1,700 250,000 500,000 20,688,675 206,886
------- ------ -------- -------- ---------- -------
Issuance of stock for cash 887,500 8,875
Issuance of stock for consulting
services(1) 4,600,000 46,000
Change in Stockholder Receivable
Net loss
- -------------------------------- ------ ------ ------- -------- ---------- ---------
Balances, September 30, 1995 170,000 $1,700 250,000 $500,000 26,176,175 $261,761
------- ------ ------- -------- ---------- ---------
</TABLE>
(1) Includes 1,237,500 shares issued to affiliates
NUOASIS GAMING, INC.
Consolidated Statements of Stockholders' Equity (Deficiency)
For the Years Ended September 30, 1995 and 1994, (continued)
<TABLE>
<CAPTION>
Retained
Additional Earnings Total
Stockholder Paid-In Unearned (Accumulated Stockholders'
Receivable Capital Compensation Deficit) Equity(Deficiency)
------------- ----------- ------------ ----------- ------------------
<S> <C> <C> <C> <C> <C>
Balances, September 30, 1993 $ - $ 7,344,356 $ (247,650) $(5,948,527) $ 1,337,515
Preferred shares converted to
common shares
Issuance for payment for:
Consulting services 47,968 49,218
Amortization of unearned
compensation 46,687 46,687
Write-off of unearned
compensation 151,813 151,813
Cancellation of shares issued
to Century Casino
Management, Inc. (48,000) 49,150 (850)
Issuance of stock to Nona
Morelli's II, Inc. to acquire
stock of Casino Management
of America, Inc. 4,505,900 5,025,900
Exchange of investments with
shareholder (1,000,000) (1,000,000)
Net Loss (4,657,456) (4,657,456)
----------- ---------- ----------- ------------ ----------
Balances, September 30, 1994 (1,000,000) 11,850,224 - (10,605,983) 952,827
----------- ---------- ----------- ------------ ----------
Issuance of stock for cash 26,625 35,500
Issuance of stock for consulting
services (1) 233,328 279,328
Change in Stockholder Receivable (473,773) (473,773)
Net loss (1,096,705) (1,096,705)
------------ ------------ ---------- ------------ -----------
Balances, September 30, 1995 $(1,473,773) $12,110,177 $ - (11,702,688) (302,823)
------------ ------------ ---------- ------------ -----------
</TABLE>
() Includes 1,237,500 shares issued to affiliates
See accompanying notes to consolidated financial statements
F7
<PAGE>
NUOASIS GAMING, INC.
Consolidated Statements of Cash Flows
For the Years Ended September 30,
<TABLE>
<CAPTION>
1995 1994
--------------------- ----------------------------
<S> <C> <C>
Operating activities:
Net loss $ (1,096,705) $ (4,657,456)
Adjustments to reconcile net loss to net
cash used in operating activities:
Effect of common shares issued for payment of services 263,125 49,218
Depreciation and amortization 156,376 289,225
Write-off of unearned compensation - 151,813
Write-down of investments - 3,209,900
Loss (gain) on disposal of investments and property 140,949 (10,698)
Increase (decrease) from changes in:
Account Receivable 184,767 (184,767)
Deposits - 50,000
Other current assets (38,421) 10,193
Shareholder receivable (473,773) -
Other assets 100,205 498,301
Accounts payable 141,113 58,170
Accrued expenses - (43,161)
Due to affiliate 111,565 -
Other current liabilities - (15,000)
Other liabilities 313,836 136,935
--------------------- --------------------------
Net cash used in operating activities (196,963) (457,327)
--------------------- --------------------------
Investing activities:
Purchases of gaming and other property and equipment - (243,424)
-------------------- --------------------------
Net cash used in investing activities - (243,424)
--------------------- --------------------------
Financing activities:
Payments of notes payable - (23,750)
Payments of long-term debt - (65,453)
Proceeds from issuances of equity securities 35,500 -
--------------------- -------------------------
Net cash provided (used) by financing activities 35,500 (89,203)
--------------------- --------------------------
Net decrease in cash and cash equivalents (161,463) (789,954)
Cash and cash equivalents, beginning of year 162,329 952,283
--------------------- -------------------------
Cash and cash equivalents, end of year $ 866 $ 162,329
--------------------- -------------------------
Supplemental disclosures of cash flow data: Cash paid during the period for:
Interest, net of capitalized interest $ - $ 772
--------------------- -------------------------
Income taxes $ - -
--------------------- -------------------------
</TABLE>
See accompanying notes to consolidated financial
statements.
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F8
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies and Business Activities
Description of Business
NuOasis Gaming Inc. and its subsidiaries (the "Company"), operates as a holding
company for leisure and entertainment related businesses. During fiscal year
1995 and 1994, the Company had two wholly-owned subsidiaries engaged in casino
gaming and investments.
The activities of the Company's subsidiaries have been primarily in the United
States.
Principles of Consolidation and Management Estimates
The accompanying consolidated financial statements include the accounts of
NuOasis Gaming, Inc. ("NuOasis") and its wholly-owned subsidiaries, Ba-Mak
Gaming International, Inc. ("Ba-Mak"), formerly Phillips Gaming International,
Inc., Casino Management of America, Inc. ("CMA"); the accounts of CMA include
its wholly-owned subsidiaries, NuOasis Las Vegas, Inc. ("NuOasis Las Vegas"),
and NuOasis Laughlin, Inc. ("NuOasis Laughlin"). As used herein, collectively
referred to as the "Company" unless the context indicates otherwise. All
material intercompany accounts and transactions have been eliminated in
consolidation.
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.
Change of Control
NuOasis entered into a Stock Purchase and Business Combination Agreement (the
"Stock Purchase Agreement") with Nona Morelli's II, Inc. ("Nona") and Nona's
wholly-owned subsidiary, CMA, whereby NuOasis agreed to purchase all of the
outstanding capital stock of CMA from Nona in exchange for NuOasis issuing to
Nona a) 2,000,000 shares of common stock; b) 250,000 shares of Series B
Convertible Preferred Stock; c) 6,000,000 New Class D common stock purchase
warrants; and d) an option to purchase up to an additional 6,160,000 shares of
common stock. The Closing occurred on March 30, 1994, the "Closing Date",
pursuant to which CMA became a wholly-owned subsidiary of NuOasis. Based upon an
opinion of the Company's former legal counsel the Company consummated the Stock
Purchase Agreement and legally issued convertible securities, options and
warrants when there were insufficient authorized shares to provide for
conversion of the convertible securities, and exercise of the options and
warrants, due to an undertaking by the former directors of the Company to enact
the necessary corporate action to provide the Company with sufficient authorized
shares to satisfy all outstanding rights for unissued shares. The acquisition
has been accounted for as a purchase where Nona is the acquiror of NuOasis and
NuOasis is the acquiror of CMA.
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F9
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued...)
As a result of the Stock Purchase Agreement, a change in voting control of
NuOasis occurred (each share of Series B Preferred votes 78 votes) and NuOasis
may become a majority-owned subsidiary of Nona if Nona exercises the options and
warrants granted to it in the Stock Purchase Agreement. Pursuant to the Stock
Purchase Agreement the directors of NuOasis effected the corporate name change
to "NuOasis Gaming, Inc." on September 23, 1994.
A dispute with the prior management of the Company, principally Douglas J.
Phillips, relating to certain misrepresentations in and omissions from the Stock
Purchase Agreement and the release of shares of the Company beneficially owned
by Douglas J. Phillips and others which were to be held in escrow for the
satisfaction of certain creditor claims against the Company pursuant to a
Standstill Agreement executed simultaneously with the Stock Purchase Agreement
has been resolved with a Settlement Agreement dated September 13, 1994. Under
the Settlement Agreement Phillips was granted warrants to purchase 1,325,193
shares at $.21875 per share for the period from September 13, 1994 to September
13, 1996. As of the date of these financial statements no warrants had been
exercised.
Bankruptcy Filing of Ba-Mak Gaming International, Inc.
In September 1992, prior management redirected the Company's focus to the
legalized gaming industry. Ba- Mak was incorporated in Louisiana on December 15,
1992 to conduct the Company's gaming operations including gaming machine route
operations and sales of gaming equipment, in Louisiana and other states in which
it may become licensed.
Subsequent to its incorporation and prior to the change in control, Ba-Mak had
concentrated its efforts toward developing route operations in the Louisiana
charitable gaming sector. On April 8, 1993, Ba-Mak received approval from the
Louisiana Gaming Regulatory Division to become a licensed distributor/route
operator for electronic video bingo machines. Ba-Mak initially obtained location
placement agreements with six charitable gaming establishments in Louisiana,
which was subsequently reduced to five locations, whereby it placed 135
electronic video bingo machines at such establishments. In accordance with
Louisiana law, Ba-Mak also entered into agreements with a majority of the
charitable organizations licensed to conduct gaming at such establishments.
Among other things, such agreements specified the percentage of the profits
generated by the gaming machines at each location that will be allocated to
Ba-Mak, the charitable organization and the gaming establishment.
In October 1994, Ba-Mak filed for protection under Chapter 11 of the U.S.
Bankruptcy Code in the Eastern District of Louisiana. While under the protection
of Chapter 11, Ba-Mak continued to operate as a charitable bingo route operator
in Louisiana as Debtor-in-Possession. It was management's objective to
reorganize Ba- Mak's debt under Chapter 11 and fully continue its gaming
operations. Accordingly, Ba-Mak was accounted for as a continuing operation
during this period.
On April 20, 1995, upon motion from the United States Trustee, an order
converting the case to Chapter 7 was issued and a Chapter 7 Trustee was
appointed . The trustee took possession of Ba-Mak's assets and liquidated such
assets for the benefit of Ba-Mak's bankruptcy estate. As such, all gaming
operations at Ba- Mak ceased and accordingly, has been accounted for as a
disposition of an investment which resulted in (a) the write off of $1,056,978
and $1,415,050 of total assets and liabilities, respectively; and (b) a net loss
on
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F10
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued...)
disposal of investment in the amount of approximately $140,949. Current year
gaming revenues include approximately $884,000 in Ba-Mak revenues which will not
be recurring in future years.
Going Concern
The Company has experienced recurring net losses, has limited liquid resources,
negative working capital and its primary operating subsidiary was liquidated
during the current year. Management's intent is to keep searching for additional
sources of capital and new operating opportunities. In the interim, the Company
will keep operating with minimal overhead and key administrative functions will
be provided by Nona. The Company has received financial support from Nona of
approximately $177,000 during fiscal 1995. It is estimated that Nona will have
to contribute approximately $275,000 for future financial support for the
Company to exist for the next fiscal year. Accordingly, the accompanying
consolidated financial statements have been presented under the assumption the
Company would continue as a going concern.
Cash Equivalents
Cash equivalents are highly liquid investments with a maturity of three months
or less when acquired.
Property and Equipment
Property and equipment is carried at cost, net of write-downs and write-offs
resulting from permanent impairments. Depreciation is provided over estimated
useful lives using the straight-line method for all property and equipment
placed in service. Estimated useful lives, limited as to leasehold improvements
by the term of the lease, range as follows:
Gaming and office equipment, furniture
and fixtures and leasehold improvements ..............5-7 years
Automotive equipment .....................................3 years
Repairs and maintenance are charged to expense as incurred and expenditures for
improvements are capitalized.
Depreciation expense, including amortization of assets under capital lease
arrangements, charged to operations was $156,376 and $289,225 for the years
ended September 30, 1995 and 1994, respectively.
Loss per Common Share
Loss per common share is computed based on the net loss for each period, as
adjusted for dividends required on preferred stock ($23,800 in 1995 and $23,800
in 1994) and the weighted average number of common shares outstanding. Common
stock equivalents were not considered in the loss per share calculations as the
effect would have been anti-dilutive.
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F11
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued...)
Income Taxes
The Company accounts for income taxes using the liability method. Income taxes
are provided on all revenue and expense items, regardless of the period in which
such items are recognized for tax purposes, except for those items representing
a permanent difference between pre-tax accounting income and taxable income. A
valuation allowance is recorded when it is more likely than not that benefits
resulting from deferred tax assets will not be realized.
Revenue Recognition
Gaming revenues were recognized based upon the gross funds deposited in the
gaming machines. Net revenues were referred to in the industry as "Net Win", the
difference between gross funds deposited into the gaming machines and payments
to customers. Operating expenses were paid from the "Net Win".
Issuance of Stock for Services
Shares of the Company's common stock issued for services are recorded in
accordance with APB16 at the fair market value of the stock issued or the fair
market of the services provided, whichever value is the more clearly evident.
The values of the services are typically stipulated by contract.
Reclassification of Prior Year Amounts
To enhance comparability, the fiscal 1994 consolidated financial statements have
been reclassified, where appropriate, to conform with the financial statement
presentation used in fiscal 1995.
Note 2. Investment in Subsidiaries
Casino Management of America, Inc.
In March 1994, the Company acquired all the shares of common stock of CMA. In
connection with the audit of the Company's financial statements for the fiscal
year ended September 30, 1994, in order to reflect the historical cost or net
realizable value with respect to impairment, the value of certain prepaid
expenses, deposits and investments of CMA were revalued to their "net
realizable" value at September 30, 1994 resulting in a total write-down of
investments of $3,209,900 during the period from March 30, 1994 (acquisition
date) to September 30, 1994. The Gold Creek Deposit of $215,000 was written down
from $215,000 to $180,000 due to uncertainties of collection in litigation;
subsequently, in October 1994, $187,000 was received pursuant to a settlement of
the litigation. The Horseshoe Casino/Black Hawk/Eagle Option (the "Option")
originally recorded at $585,000 was fully expensed due to uncertainties in
obtaining the necessary state regulatory approval to permit exercise of the
Option. The state regulatory approval was never obtained and the Option expired
unexercised in December, 1994. The MDM General Partner interest originally
recorded at $39,900 was liquidated for $39,900 cash upon dissolution of MDM. The
Bachik/Star Casino investment originally recorded at $400,000 was fully expensed
due to uncertainties of collection from pending litigation to recover the
investment. The Mississippi Rose investment originally recorded at $150,000 was
fully expensed given the failure of the principals of Mississippi Rose to
acknowledge the
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F12
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued...)
equity interest, the assertion of the principals that the equity interest had
been forfeited, the need for litigation to pursue the investment and the
uncertain recoverability of the investment. The prepaid media and advertising
originally recorded at $2,500,000 was written down to $500,000 by expensing
$2,000,000 given the uncertainty of utilizing all of the media prior to
expiration and the uncertainty of the Placement Agent's ability to fulfill all
of such media obligations to CMA. On March 30, 1994, CMA assigned the Impact
Debentures in the book value amount of $1,000,000 to Nona, and, accordingly CMA
recorded a receivable due from Nona in the amount of $1,000,000.
NuOasis Las Vegas, Inc.
On June 28, 1994, Nona transferred all the shares of NuOasis Las Vegas, Inc. to
CMA.
NuOasis Laughlin, Inc.
On June 28, 1994, Nona transferred all the shares of NuOasis Las Vegas, Inc. to
CMA.
Note 3. Accounts Receivable and Investments of Casino Management of
America, Inc.
At the date of its acquisition by the Company on March 30, 1994, CMA had
receivables due from, investment in, and/or the option to purchase an equity
interest in, several gaming ventures which were subsequently written down at
September 30, 1995 and 1994 as follows:
<TABLE>
<CAPTION>
Net Book
Value as of
Write-Downs September 30,
Original as of ---------------------------
Basis September 30, 1994 1995 1994
----------------- ---------------------- ------------- -------------
<S> <C> <C> <C> <C>
Gold Creek $ 215,000 $ (35,000) $ - $ 180,000
Black Hawk/Eagle Option 585,000 (585,000) - -
MDM Gaming General Partner Interest 39,900 (39,900) - -
Bachik/Star Casino 400,000 (400,000) - -
Mississippi Rose 150,000 (150,000) - -
------------------ ----------------------- ------------- -------------
$ 1,389,900 $ (1,209,900) $ - $ 180,000
================== ======================= ============= =============
</TABLE>
Gold Creek/Star Casino/Mississippi Rose Ventures
In October 1994, CMA received $150,000 of the principal plus $37,000 in accrued
interest on the amount due from Gold Creek Associates, Ltd. pursuant to
settlement in which Gold Creek Associates, Ltd. was released.
CMA will continue to exert collection efforts on the Star Casino fully reserved
balance due from the Star Casino Principals, however, there is no assurance that
any of the balance will ever be collected.
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F13
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued...)
Option in Eagle Gaming, L.P., Black Hawk, Colorado
In April 1993, CMA's predecessor, Nona, participated in the formation of and
invested, as a limited partner, in MDM Gaming Partners, L.P., a Colorado limited
partnership ("MDM Gaming") and subscribed for Units in MDM Gaming representing a
net investment of $1,143,500. Nona subsequently acquired additional Units
increasing its cash investment in MDM Gaming to $1,353,500. MDM Gaming lent
funds to the owner of the partially completed Horseshoe Casino in Black Hawk,
Colorado. The loan contained equity conversion features pursuant to which MDM
Gaming, subject to certain restrictions, could have converted its loan into
equity in a new partnership to be formed to own and operate the Horseshoe
Casino.
On December 20, 1993 an agreement between MDM Gaming, the owner of the Horseshoe
Casino and a limited partnership which owned the Glory Hole Casino, was
finalized whereby MDM Gaming's loan was repaid and a new limited partnership,
Eagle Gaming L.P. ("Eagle Gaming") was formed to own and operate both the
Horseshoe Casino and the Glory Hole Casino. Under the new agreement, MDM
Gaming's loan was repaid. To replace the equity conversion feature in the loan,
MDM Gaming and CMA jointly received options ("Eagle Options") to purchase equity
in Eagle Gaming. MDM Gaming dissolved in early 1994 and distributed the Eagle
Options held by MDM Gaming to CMA. Under the Partnership Agreement, CMA, as the
general partner of MDM Gaming, was entitled to receive 6.5 Units in the
Partnership for services rendered and research and development costs incurred.
The Eagle Option was recorded at $585,000 representing 6.5 Units valued at
$90,000 per Unit, the same price at which Units had been sold for cash.
Following the liquidation of MDM Gaming, the Eagle Options were held solely by
CMA as an asset of CMA.
The Eagle Option was an asset of CMA when CMA became a subsidiary of NuOasis
Gaming, Inc. CMA continued to hold the Eagle Option until the Option expired on
December 19, 1994.
The exercise price of the Eagle Options was approximately $1,050,000. The Eagle
Options expired unexercised on December 19, 1994 and the book value of the Eagle
Option in the amount of $585,000 was fully reserved during fiscal 1994.
Note 4. Concentration of Credit Risk
The Company maintains cash balances with banks that at times are in excess of
Federal insurance coverage limitations and is thereby exposed to credit risk. At
September 30, 1995 and 1994, such excess was approximately $0 and $36,933,
respectively.
Note 5. Other Assets
In September 1993, CMA issued 7,500,000 shares of its common stock to Nona to
acquire (1) Nona's interest in several gaming ventures, (2) certain investment
securities and (3) certain prepaid advertising consisting of print and broadcast
time. The print and broadcast advertising was acquired by Nona for anticipated
use in connection with two Nevada and Nevada American Indian gaming projects.
CMA reached an impasse in its negotiations with respect to the two gaming
projects and, at September 30, 1994, concluded that it would be unable to
utilize all of the prepaid advertising before such began to expire.
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F14
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued...)
During Fiscal 1995, rather than allow the prepaid advertising to begin to
expire, the Company elected to use such advertising to acquire other assets not
subject to expiration. The Company began liquidating its investment in the
prepaid print and broadcast advertising through corporate barter transactions.
The Company transferred $114,000 of the print and broadcast time to an unrelated
third party in exchange for three Hyster shrink wrap machines valued at $40,000
each. Two of the three machines were transferred to related parties in
satisfaction of debts to such parties. An additional $40,000 of the print and
broadcast time was transferred to New World Capital, Inc., an affiliated
company, for corporate barter exchange credits of $40,000, which are being used
to pay monthly general and administrative expenses, and to extinguish certain
obligations of the Company. The $2,000,000 of the prepaid advertising that was
previously written off was exchanged for fine art in January, 1995. The fine art
was recorded in the amount of $0, which was the Company's book value basis in
the portion of prepaid media exchanged for the fine art.
Note 6. Property And Equipment
<TABLE>
<CAPTION>
September 30,
1995 1994
---------------------- -----------------------
<S> <C> <C>
Gaming equipment $ - $ 1,007,466
Other equipment - 95,189
Furniture and fixtures - 167,788
Leasehold improvements - 12,796
Automotive equipment - 30,169
---------------------- -----------------------
- 1,313,408
Less accumulated depreciation - 280,604
---------------------- -----------------------
Totals $ - $ 1,032,804
====================== =======================
</TABLE>
All equipment was disposed of as a result of the liquidation of Ba-Mak
(see Note 1).
Note 7. Accounts Payable
At September 30, 1994 accounts payable included $550,419 owed to the supplier of
Ba-Mak's electronic video bingo gaming machines. Accrued expenses at September
30, 1994 includes $104,513 of interest accrued on this liability. The above
balances have been shown as a current liability in the accompanying 1994
consolidated balance sheet and were settled in 1995 as a result of Ba-Mak's
liquidation (see Note 1).
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F15
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued...)
Note 8. Stockholders' Equity
Common Shares Reserved for Issuance
At September 30, 1995 and 1994, shares of common stock were reserved for the
exercise and conversion of the following:
<TABLE>
<CAPTION>
Outstanding on
September 30,
1995 1994
------------------------- ------------------
<C> <C> <C>
14% Preferred Stock issued and outstanding 170,000 170,000
Series B Preferred Stock issued to Nona 19,500,000 19,500,000
Redeemable common stock purchase warrants:
New Class A (exercisable at $.50 per share) 1,530,000 1,530,000
New Class B (exercisable at $.75 per share) 3,080,000 3,080,000
New Class C (exercisable at $1.00 per share) 1,510,000 1,510,000
New Class D 12,000,000 12,000,000
1993 incentive and non-qualified stock
options - available for grant 1,200,000 1,200,000
Phillips Warrants 1,325,193 1,325,193
Other incentive stock options:
Outstanding 50,000 50,000
Available for grant 450,000 450,000
Other stock options:
Outstanding 6,275,000 400,000
Available for grant - 430,000
------------------------- ------------------
Total 47,090,193 41,645,193
========================= ==================
</TABLE>
The 47,090,193 shares reserved for issuance exceeds the available number of
unissued shares authorized for issuance in the Company's Certificate of
Incorporation. The Company's Board of Directors has approved a proposal to amend
the Company's Certificate of Incorporation to increase the number of common
shares the Company is authorized to issue to 100 million. A total of 30,000,000
shares of common stock are currently authorized for issuance by the Company. The
proceeds from the sale of the New Class A, New Class B and New Class C warrants
were reflected in the cash flow statement for the fiscal year ended September
30, 1993. However, since none of the warrants have been exercised, no shares
have been issued or reflected in the Stockholder's Equity section of the balance
sheet.
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F16
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued...)
Preferred Stock
During 1989, stockholders authorized the issuance of up to 1,000,000 shares of
the preferred stock with a par value of $.01 per share.
During 1989, the Company sold 750,000 shares of preferred stock designated as
14% cumulative convertible preferred stock (the "14% Preferred Stock"). The 14%
Preferred Stock is redeemable, in whole or in part, at the option of the Company
at a redemption price of $100 per share plus any unpaid dividends thereon to the
redemption date. The 14% Preferred Stock has a liquidation value of $1.00 per
share, ranks, as to dividends and liquidation, prior to the common stock and is
convertible at the option of the holder upon 30 days notice into one share of
common stock subject to adjustments in certain events. Each share is entitled to
one vote and an annual dividend of $.14 per share. Dividends are cumulative and
payable quarterly. Dividends on common stock may not be paid unless provision
has been made for payment of preferred dividends.
During 1994, the Company issued 52,500 of common stock upon conversion of shares
of preferred stock. None were converted during fiscal 1995.
No dividends were paid in 1995 and 1994. Dividends in arrears aggregated
$116,575, and $92,775 at September 30, 1995 and 1994, respectively.
Pursuant to the Stock Purchase Agreement with Nona and CMA, the Company issued
250,000 shares of Series B Preferred Stock to Nona. The Series B Preferred Stock
has no redemption rights and is not entitled to any dividends. It has a
liquidation value of $2 per share in preference to any payment on common stock,
subject only to rights of the holders of the 14% Preferred Stock. Each share is
entitled to seventy-eight (78) votes and shall be convertible into seventy-eight
(78) fully paid and nonassessable shares of common stock.
The 14% Cumulative Convertible $.01 par value Preferred Stock ("14% Preferred
Stock") issued by the Company shall pay an annual dividend of $.14 or fourteen
percent (14%) paid quarterly in arrears on March 31, June 30, September 30 and
December 31, to the extent permitted by the General Corporation Law of the State
of Delaware.
Dividends are cumulative; i.e., unpaid dividends, whether or not earned, accrue
beyond the designated payment date. Dividends may be declared and paid upon
Common Stock in any fiscal year of the Company only if all accrued dividends
upon all shares of 14% Preferred Stock have been paid. The 14% Preferred Stock
shall have a liquidation preference of the original purchase price ($1.00 per
share) plus unpaid dividends on each share of Preferred Stock. The balance of
proceeds of a liquidation, if any, are to be paid to the Common Stock holders of
the Company. A merger or reorganization or other transaction in which control is
transferred will be treated similar to a liquidation.
The 14% Preferred Stock is redeemable by the Company upon thirty days notice by
the Company's Board of Directors at a redemption price of $1.00 per share plus
an amount equal to all unpaid dividends thereon to the redemption date.
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F17
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued...)
Subject to anti-dilution adjustments, each share of 14% Preferred Stock is
convertible at any time into one share of the Company's Common Stock. Each share
of the 14% Preferred Stock votes on a 1:1 converted-to- Common Stock basis, and
the holders of 14% Preferred Stock and the holders of Common Stock shall vote
together as one class on all matters submitted to a vote of the Company's
stockholders. The conversion ratio of the 14% Preferred Stock to Common Stock
will be proportionally adjusted in the event of dilution, i.e. proportional
adjustments for stock splits and stock dividends will be made.
Initially Issued Warrants and Underwriter's Options
As a result of the sale of units of common stock and warrants through an initial
public offering in 1988, the Company had initially issued warrants as follows:
600,150 Class A redeemable common stock purchase warrants (the "Class A
Warrants"), each of which was initially exercisable for the purchase of one
share at $2.00 per share through April 6, 1990; 600,150 Class B redeemable
common stock purchase warrants (The "Class B Warrants"), each of which was
initially exercisable for the purchase of one share at $3.00 per share through
April 6, 1990; and 300,075 Class C redeemable common stock purchase warrants
(the "Class C Warrants"), each of which was initially exercisable for the
purchase of one share at $4.00 per share through April 6, 1991. All of the
warrants were subject to redemption at the option of the Company at $.001 per
warrant subject to proper notice.
On March 23, 1990, the Company extended the exercise date of the Class A
Warrants and the Class B Warrants to December 31, 1990. On July 23, 1990, the
Company reduced the per share exercise price of the Class A Warrants, the Class
B Warrants and the Class C Warrants to $1.25, $1.75 and $2.50, respectively. On
August 1, 1990, the Company notified holders that it would redeem all
unexercised Class A Warrants on August 31, 1990. During 1990, all of the Class A
Warrants were exercised or expired. On October 1, 1990, the Company notified
holders that it would redeem all unexercised Class B Warrants on November 15,
1990. During 1991, the Company received $108,885 upon the exercise of 62,220
Class B Warrants at $1.75 per share and paid $487 to redeem 486,976 Class B
Warrants. The remaining 50,954 Class B Warrants expired. During 1991, the
Company also received $424,447 upon the exercise of 169,779 Class C Warrants at
$2.50 per share. The remaining 130,296 Class C Warrants expired.
In connection with the initial public offering, the Company also sold the
underwriter options to purchase 30,008 units at whereby the underwriter could
acquire upon exercise at $1.20 per unit, 30,008 shares of the Company's common
stock, 60,015 Class A Warrants, 60,015 Class B Warrants and 30,008 Class C
Warrants. The units subject to the underwriter's options, and any warrants
obtained upon exercise of units subject to such options, were exercisable at any
time through April 6, 1993. During 1991, the Company received $73,500 and issued
60,000 shares of common stock upon the exercise of underwriter's options to
purchase 30,000 units at $1.20 per unit and 30,000 Class A Warrants at $1.25 per
share that were issued upon exercise of underwriter's options The remaining
underwriter options expired in 1993.
Private Sale of Common Stock and New Warrants
During June 1993, the Company undertook a private placement of 25 units for an
aggregate sales price of $250,000 ("Private Placement I"), with each unit
consisting of 40,000 shares of common stock, 40,000 New Class A redeemable
common stock purchase warrants ("New Class A Warrants") and 40,000 New Class B
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F18
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued...)
redeemable common stock purchase warrants ("New Class B Warrants"). Each New
Class A Warrant entitles the holder to purchase one share of common stock at the
price of $.50 per share for the period from August 1, 1993 to the effective date
of a registration statement registering the common stock and the common stock
underlying the warrants offered and issuable under the related private placement
memorandum. Each New Class B Warrant entitles the holder to purchase one share
of common stock at the price of $.75 per share for the period from August 1,
1993 to the effective date of a registration statement registering the common
stock and the common stock underlying the warrants offered and issuable under
the related private placement memorandum.
During July 1993, the Company undertook a private placement of an additional 25
units for an aggregate sales price of $250,000 ("Private Placement II"), with
each unit consisting of 40,000 shares of common stock, 40,000 New Class A
Warrants and 40,000 New Class B Warrants. During August 1993, the Company
undertook a private place of an additional 20 units for an aggregate sales price
of $200,000 ("Private Placement III"), with each unit consisting of 40,000
shares of common stock, 40,000 New Class A Warrants and 40,000 New Class B
Warrants.
In connection with Private Placements I, II and III, the Company received
proceeds of $559,000 (net of sales agent and other direct costs which aggregated
$141,000) from the sale of 70 units and issued 2,800,000 shares of common stock,
2,800,000 New Class A Warrants and 2,800,000 New Class B Warrants during fiscal
1993.
In September 1993, in an effort to encourage early exercise, the Company offered
one New Class C redeemable common stock purchase warrant ("New Class C Warrant")
for each New Class A Warrant exercised on or before September 30, 1993. In
connection with that offer 1,550,000 New Class A Warrants were exercised
resulting in the issuance of an additional 1,550,000 shares of common stock for
$775,000 and 1,550,000 New Class C Warrants. Each New Class C Warrant entitles
the holder to purchase one share of common stock at the price of $1.00 per
share.
The Company received $50,000, $300,000 and $1,090,000 from other private sales
of 300,000, 1,371,500 and 1,090,000 shares of restricted common stock during
1993, 1992 and 1991, respectively. The 1993 private sales included 100,000 New
Class A Warrants and 100,000 New Class B Warrants. No amounts were recorded on
the balance sheet for the issuance or valuation of the warrants as all proceeds
were recorded in common stock and additional paid-in-capital accounts. All New
Class A, B and C Warrants are exercisable up to one year after the effective
date of the registration of the underlying stock.
1993 Incentive and Non-qualified Stock Option Plans
Under stock option plans adopted on January 22, 1993, the Company's Board of
Directors may grant "incentive stock options" and "non-qualified stock options"
whereby option holders may purchase up to 1,200,000 shares of common stock prior
to the termination of the plan on January 22, 2003. Incentive stock options may
only be granted to officers and other employees; non-qualified stock options may
be granted to employees, advisors, consultants and members of the Board of
Directors of the Company. Incentive stock options may not be granted at a price
less than 100% of fair market value as of the date of grant to officers and
employees who own less than 10% of the Company's common stock and 110% of fair
market value to
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F19
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued...)
those officers and employees who own more than 10%. Non-qualified stock options
may be granted at a price to be determined by the compensation committee of the
Board of Directors on the date such non-qualified stock options are granted.
Options are exercisable from the date of grant and expire no later than ten
years from the date of grant or such earlier date as determined by the
compensation committee at the date of grant. However, the term of an incentive
stock option granted to an officer or other employee who at the time of grant
owns at least 10% of the Company's common stock, shall not exceed five years. No
options have been granted under the 1993 incentive and non-qualified stock
options plans.
Other Incentive Stock Options
Under a stock option plan adopted on July 30, 1989, the Company's prior Board of
Directors authorized the granting of "incentive stock options" whereby employees
may purchase up to 500,000 shares of common stock prior to the termination of
the plan on July 30, 1999. Options may not be granted at a price less than 100%
of fair market value as of the date of grant to officers and employees who own
less than 10% of the Company's common stock and 110% of fair market value to
those officers and employees who won more than 10%. Options are exercisable from
the date of grant, and expire no later than five years from the date of grant.
No options were issued, cancelled or exercised during the fiscal year 1995.
Prior to fiscal year 1995, 50,000 options were issued of which 50,000 are
outstanding.
In September 1994, the Company entered into a Settlement Agreement with Douglas
J. Phillips whereby shares held by Phillips were sold for the benefit of the
Company to pay creditor claims due to Phillips' prior misrepresentations of the
cash account of the Company at March 30, 1994. Under the Settlement Agreement
Phillips placed 1,325,193 shares of the Company's common stock in the name of
the Phillips Family Investment Limited Partnership into escrow with a third
party trustee for liquidation with payment of the net proceeds to the Company
for application towards certain debts including payables to trade creditors.
Under the agreement Phillips provided an opinion of counsel that the Phillips
Family Investment Limited Partnership was not an affiliate of the Company and
had not been an affiliate for 90 days prior to September 13, 1994, that the
shares had been held for more than 3 years and that the shares were eligible for
legend removal under Rule 144(k). Phillips received a grant of non-transferable
Warrants to purchase 1,325,193 shares of the Company's common stock at an
exercise price of $.21875 per share expiring September 13, 1996. Phillips also
agreed to restrict the sale of the remainder of his holdings, or 1,325,193
shares, to 2,000 shares per business day. No options were exercised, issued or
canceled during fiscal 1995.
Other Non-qualified Stock Options
Under a stock option plan adopted on July 30, 1989 (the "1989 Plan"), the
Company's prior Board of Directors could grant "non-qualified stock options"
whereby employees may purchase up to 500,000 shares of common stock prior to the
termination of the plan on July 30 1999. Options had to be granted at no less
than 85% of fair market value as of the date of grant. Options are exercisable
from the date of grant and expire no later than five years from the date of
grant. No options were issued, cancelled or exercised during the fiscal year
1995. Prior to fiscal year 1995 200,000 options were issued of which 200,000 are
outstanding.
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F20
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued...)
Under a stock option plan adopted on February 1, 1991 (the "1991 Plan"), the
Company's Board of Directors may grant "non-qualified stock options" whereby
employees may purchase up to 600,000 shares of common stock prior to the
termination of the plan on February 1, 2001. Options must be granted at no less
than 85% of fair market value as of the date of grant. Options are exercisable
from the date of grant and expire no later than five years from the date of
grant. No options were issued, cancelled or exercised during the fiscal year
1995. Prior to fiscal year 1995, 150,000 options were issued of which 150,000
are outstanding.
Other Stock Options
On May 15, 1992, the Company granted stock options for the purchase of 100,000
shares of common stock to Gary L. Blum, a former director, that were exercisable
at any time through May 15, 1995 at a price of $.125 per share (100% of the fair
market value per share at the date of grant). These options were exercised on
February 16, 1994. As full consideration for the exercise price, Mr. Blum
forgave $12,500 owed to him by the Company.
A summary of all option transactions for the years ended September 30, 1994 and
1995 is as follows:
<TABLE>
<CAPTION>
1995 1994
------------------- -------------------
<S> <C> <C>
Outstanding at beginning of year 400,000 500,000
Granted (Note 9) 5,975,000 -
Exercised - -
Cancelled (100,000) -
Issued - (100,000)
------------------- ------------------
Outstanding at end of year 6,275,000 400,000
=================== ==================
Range of option exercise prices granted $.10 - $.80 $.29 - $.34
</TABLE>
Securities Issued to Nona
The 250,000 shares of Series B Preferred issued to Nona are convertible at the
rate of seventy-eight (78) shares of common stock for each share of Series B
Preferred, or a total of 19,500,000 shares of common stock if all of the shares
of Series B are converted. Each New Class D Warrant is exercisable at $1.00 per
share and will entitle the holder to receive upon exercise two (2) shares of
common stock, or a total of 12,000,000 shares if all of the New Class D Warrants
are exercised. The option for the purchase of up to 6,160,000 shares of common
stock is nontransferable and exercisable at $.01 per share. The total number of
shares that can be purchased upon exercise of the option is equal to the number
of shares of common stock subject to New Class A, New Class B and New Class C
warrants outstanding at the Closing Date that eventually expire unexercised.
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F21
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued...)
Stockholders Receivable
This balance relates to balances receivable from Nona in connection with the
acquisition of CMA and have been re-classed to equity because the amounts were
not recovered shortly after year end. The Company is dependent upon Nona for
continued financial support (Note 1) and has assessed the repayment of the
$1,473,773 receivable due from Nona is at the discretion of Nona and the
Company. Nona has historically and currently provides financial support to the
Company and the Company believes that Nona has the financial ability and intent
to repay the receivable or offset the receivable against any amounts due to
Nona.
Common Stock Issued After Year End
Subsequent to year end, 3,000,000 shares were issued in consideration for
$200,000 received before year end and included in other current liabilities and
accrued expenses as of September 30, 1995.
Note 9. Other Related Party Transactions
Effective April 1, 1994, the Company entered into a Consulting Agreement with
John D. Desbrow for the engagement of Mr. Desbrow to perform legal services and
to hold the office of Secretary, on behalf of the Company, for period from April
1, 1994 to March 31, 1995. Between April 1, 1994 and March 31, 1995, no sums
were paid by the Company to Mr. Desbrow but he did bill and eventually received
from the sale of shares issued in fiscal 1995 $18,000 or $3,000 per month for
services rendered as Secretary and $4,000 or 1,000 per month for services
rendered as a Director. Effective April 1, 1995, the Company and Mr. Desbrow
renewed the Consulting Agreement through March 31, 1996. Under the renewed
Consulting Agreement the Company contracted to pay Mr. Desbrow $50,000 for the
renewal term payable in the company's common stock, issuable in monthly
increments in arrears. 1,050,000 shares were registered for issuance on Forms
S-8 filed with the Securities and Exchange Commission during the 1995 fiscal
year for sums earned during fiscal years 1994 and 1995. Under the terms of the
Consulting Agreement, Mr. Desbrow invoices the Company and applies the net
proceeds received from the sale of stock to the invoiced amounts. For purposes
of any "profit" computation under Section 16(b) Mr. Desbrow and the Company have
agreed the price paid for the shares is deemed to be $50,000. As of September
30, 1995, Mr. Desbrow held 600,000 shares which is to be utilized for current
and future services incurred. The Company expensed $43,000, and $18,000 during
fiscal 1995 and 1994, respectively, and had $26,885 and $18,000 due to Mr.
Desbrow as of September 30, 1995 and 1994, respectively.
In August 1995, the Company entered into an Employment Agreement with Fred G.
Luke, the Company's Chairman and President. The terms of the Employment
Agreement call for Mr. Luke to receive approximately $4,500 per month,
retroactive to April 1, 1994, for five (5) years as a base salary; granted him
an option to purchase 3,000,000 shares of the Company's common stock at an
exercise price of $.12 per share; provides him with an annual bonus based upon a
number of factors related to the Company's growth and performance; and requires
the Company to purchase life insurance coverage, reimbursement for vehicle
expenses, and provide other fringe benefits. Mr. Luke has been serving as the
Company's Chairman and President since approximately March 31, 1994. Between
March 31, 1994 and September 30, 1994, Mr. Luke received no cash payments for
his services. In August 1995, the Company agreed to retroactively compensate Mr.
Luke for past services in the amount of $27,000 or $4,500 per month for the
period April
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F22
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued...)
1, 1994 to September 30, 1994 and $54,000 or $4,500 per month for the period
October 1, 1994 to September 30, 1995. No bonuses have been accrued, paid or are
owed as of the date of this Report. The Registrant expensed $86,000, and $0
during fiscal 1995 and 1994, respectively, and had $86,000 and $0 due to Mr.
Luke as of September 30, 1995 and 1994, respectively.
In October 1994, the Company entered into a Consulting Agreement with Mr.
O'Neal, pursuant to which Mr. O'Neal was to perform accounting services, to hold
the office of Chief Financial Officer and to sit on the Company's Board of
Directors for fiscal year ended September 30, 1995. Pursuant to the Consulting
Agreement the Company agreed to pay Mr. O'Neal $36,000, payable in the Company's
common stock and issuable monthly in arrears. The Company also granted Mr.
O'Neal an option to purchase 100,000 shares of the Company's common stock at an
exercise price of $.30 per share. During fiscal 1995, the Company issued 37,500
shares to Mr. O'Neal. Cash payments of $9,550 were made to Mr. O'Neal by the
Company, or its controlled subsidiaries during the year ended September 30,
1995. No cash payments were made by the Company to Mr. O'Neal for the fiscal
year ended September 30, 1994. The Company expensed $33,000, and $0 during
fiscal 1995 and 1994, respectively, and had no amounts outstanding as of
September 30, 1995 and 1994. Mr. O'Neal resigned as Chief Financial Officer and
as a Director on July 15, 1995.
In July 1995, the Company entered into a consulting agreement with Mr. Dong,
pursuant to which Mr. Dong is to perform accounting services and to hold the
office of Chief Financial Officer through June 30, 1996. Pursuant to the
agreement the Company agreed to pay Mr. Dong $1,666 per month in cash or in the
Company's common stock payable monthly in arrears and granted him an option to
purchase 275,000 shares of the Company's common stock at an exercise price of
$.12 per share. Cash payments of $5,000 were made to Mr. Dong by the Company
during fiscal 1995. The Company expensed $5,000 during fiscal 1995 and had no
amounts due as of September 30, 1995.
Consultants in Management Capacity
The Luke Family Trust and Lawver Corp. owns 93% and 7%, respectively, of NuVen
Advisors. Fred G. Luke, as trustee of the Luke Trust, controls the Luke Trust
and Mr. Lawver is the majority shareholder of Lawver Corp. and thereby controls
Lawver Corp.
Effective April 1, 1994, the Company entered into an Advisory and Management
Agreement with NuVen Advisors for the engagement of NuVen Advisors to perform
professional services for calendar year 1995. Pursuant to such Agreement, the
Company agreed to pay NuVen Advisors $180,000 annually, payable monthly in
$15,000 increments in arrears, and granted NuVen Advisors an option to purchase
2,000,000 shares of the Company's common stock exercisable at a price of $.10
per share. The Company expensed $180,000, and $0, during fiscal 1995 and 1994,
respectively, and had $15,500 and $0 due to NuVen Advisors as of September 30,
1995 and 1994, respectively.
Effective April 1, 1994, CMA entered into an Advisory and Management Agreement
with NuVen Advisors for the engagement of NuVen Advisors to perform professional
services for calendar year 1995. Pursuant to such Agreement CMA agreed to pay
NuVen Advisors $120,000 annually, payable monthly in $10,000 increments in
arrears, and granted NuVen Advisors an option to purchase up to five percent
(5%) of CMA's common stock outstanding at the time of exercise, exercisable at a
price per share equal to one hundred ten
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F23
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued...)
percent (110%) of the book value of such shares. CMA expensed $120,000 and $0,
during fiscal 1995 and 1994, respectively, and had $120,000 and $0 due to NuVen
Advisors as of September 30, 1995 and 1994, respectively.
In September 1994 NuOasis entered into a Settlement Agreement with Douglas J.
Phillips whereby shares held by Phillips were sold for the benefit of NuOasis to
pay creditor claims due to Phillips' prior misrepresentations of the cash
account of NuOasis at March 30, 1994.
Note 10. Federal Income Taxes
The Company and its subsidiaries, CMA, NuOasis Laughlin and NuOasis Las Vegas
file consolidated federal and state tax returns. Because of its losses the
Company incurred no tax liability for the years ending September 30, 1995 and
1994.
The Company has recorded deferred tax assets and liabilities arising from
temporary differences as follows:
<TABLE>
<CAPTION>
September 30
1995 1994
---------------------- ----------------------
<S> <C> <C>
Deferred Tax Assets:
Net Operating Loss Carryforward $ 2,668,520 $ 2,311,000
Other - 25,000
Valuation Allowance (2,668,520) (2,334,000)
---------------------- ----------------------
0 2,000
---------------------- ---------------------
Deferred Tax Liability:
Other (2,000)
---------------------- ----------------------
Net Deferred Tax Asset (Liability) $ 0 $ 0
---------------------- ---------------------
</TABLE>
The deferred taxes result from temporary differences relating to the difference
in the basis of assets and liabilities for financial and tax reporting purposes.
The temporary difference relates mainly to the difference in basis of and
recognition of net operating loss carryforward benefit.
A deferred tax valuation allowance is used to offset most of the deferred tax
asset since it is more likely than not that the Company will not realize the tax
benefits of its net operating loss carryforward of approximately $6,900,000 and
$6,800,000 as of September 30, 1995 and 1994. This net operating loss expires in
various years through 2009. If Nona converts the Series B Preferred shares into
shares of common stock, there would be a greater than 50% change in the
ownership of the Company's common stock and IRS Section 382 would place certain
restrictions on the amount of the net operating loss that could be utilized in
future years.
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F24
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued...)
Note 11. Commitments and Contingencies
Operating Leases
In April 1993, Ba-Mak entered into a noncancellable lease agreement for its
office and warehouse in Louisiana. The lease expires on May 31, 1996 and
provides for monthly rent payments starting at $1,750 with annual increases of
$125. Rent expense associated with the lease amounted to approximately $11,000
for fiscal 1995 and $18,000 for fiscal 1994. The lease has been included in the
Chapter 7 bankruptcy proceedings.
Legal Proceedings
The following legal proceedings against the Company and/or its subsidiaries,
CMA or Ba-Mak, are pending as of the date of this report.
(a) Casino Management of America, Inc. vs. Mark Bachik and Bachik Enterprises,
Inc.
In April 1993, FTF Management Company, Inc., a Colorado corporation ("FTF")
entered into an agreement with Bachik Enterprises, Inc., a Texas corporation
("Bachik"), to purchase a 50% interest in the Star Casino. At the time of the
Agreement, FTF was controlled by then current and former officers and former
directors of Nona. Under the agreement, FTF and Bachik orally agreed to form a
joint venture to own and operate the Star Casino with each party acquiring a 50%
interest in the venture. Subsequent to the agreement, a $400,000 receivable due
Nona was allegedly diverted by Nona's former President to agents of Bachik for
the purpose of applying the funds to the acquisition of the Star Casino.
Concurrently with the diversion of Nona's funds, Nona's former President was
identified by local newspaper articles as the owner of Nona's interest in the
Casino. Subsequently, based on documentation received by the Company, the
interest in the Star Casino attributable to Nona's funds was held in the name of
FTF. Nona subsequently assigned its rights to the $400,000 receivable to CMA. As
of the date of this report, Texas counsel for CMA has instituted suit in Texas
against Bachik to recover CMA's funds improperly diverted to Bachik. The suit
was filed on May 9, 1994 in the District Court of Dallas County, Texas, Case
#CV-94-4479. The Texas action which was set for jury trial in March 1996 was
continued to October 1996 to allow for completion of discovery.
(b) Casino Management of America, Inc. vs. Star Casinos International, Inc., and
Cripple Creek Properties, Inc.; Teller County, Colorado District Court;
Case No. 94-CV-144
In a further effort to recover the $400,000 receivable related to the Star
Casino, CMA, in November 1994 filed a suit in the District Court of Teller
County, Colorado against Star Casinos International, Inc. ("Star International")
and Cripple Creek Properties, Inc. ("Cripple Creek") seeking imposition of a
resulting trust, constructive seal, constructive trust, and an accounting of all
money received and expended in connection with a gaming facility known as the
Star Casino. The Defendants answered and counterclaimed for slander of title
given that CMA filed a lis pendens against the real property on which the Star
Casino is located in Cripple Creek, Colorado. CMA has asserted that the
counterclaim for slander of title is substantial frivolous and groundless due to
existing Colorado case law.
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F25
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued...)
Star International and Cripple Creek have filed a counterclaim naming Richard
M. Greene ("Greene") as a third party defendant alleging breach of contract,
promissory estoppel and fraud causes of action asserting that Greene received
$100,000 from them under an agreement between Greene, FTF and Star
International, that the funds would be paid to CMA. The funds were never paid to
CMA resulting in CMA filing suit. Star Casinos International, Inc. filed a
petition under Chapter 11 of the Bankruptcy Code on May 3, 1996 and CMA's
counsel is in the process of determining whether CMA should move for relief from
stay to pursue its equitable lien rights against the casino real property.
(c) Nona Morelli's II, Inc. vs. Michael M. Kaier, d/b/a Investor Development
Group, Denver District Court; Case No. 94CV1258
Nona initiated this lawsuit against Michael M. Kaier ("Kaier") on February
28, 1994. In its complaint, Nona claims that Kaier did not pay the option
exercise price due Nona for 833,136 shares of Nona's common stock issued to
Kaier on or about April 27, 1993. Nona claimed damages from Kaier in the amount
of $562,417. A related case, known as Michael Kaier vs. MDM Gaming L.P. and CMA
was recently consolidated with this case for trial. Kaier has claimed that MDM
Gaming and CMA improperly withheld $45,000 from the redemption of Kaier's
one-half unit of limited partnership interest in MDM Gaming. CMA, as the
successor in interest of MDM Gaming, has asserted numerous defenses against
Kaier's claims. These defenses include an allegation that Kaier used funds from
the sale of Nona's common stock, for which he had not previously paid the option
exercise price to purchase his one-half unit of limited partnership interest in
MDM Gaming. Kaier has alleged that Nona's former President orally agreed to
reduce the option exercise price after the stock was issued. However, no
amendment was ever signed by Nona's former President and Nona's current
management discovered an attempt by Kaier to have Nona's former President sign a
back dated amendment to the Consulting Agreement. CMA has also alleged that
Kaier was improperly paid commissions and referral fees in the amount of
approximately $20,940 for referring certain partners to MDM Gaming. On August
12, 1996, both consolidated cases were dismissed with prejudice pursuant to
stipulation.
(d) Ba-Mak Gaming International Inc., Chapter 11 Bankruptcy, Eastern District
of Louisiana, Case No. 94-1366
On October 28, 1994, Ba-Mak filed a Chapter 11 Petition with the United
States District Court (Bankruptcy Division) for the Eastern District of
Louisiana, Bankruptcy Case #94-13661. On April 20, 1995, the Bankruptcy Court
granted the motion of the United States Trustee to convert the case to a
proceeding under Chapter 7. A Trustee was appointed to liquidate the bankruptcy
estate of Ba-Mak, and the liquidation of its assets occurred in July 1995. The
Company's remaining obligation in connection with Ba-Mak is a claim, in the
approximate amount of $47,000, against NuOasis Gaming for legal fees incurred
during the bankruptcy if the bankruptcy estate does not pay such legal fees in
full. The Trustee in the bankruptcy estate has been ordered to pay such fees.
(e) Charles Arnold vs. Nona Morelli's II, Inc., Casino Management of America and
MDM Gaming Partners, L.P.; Case No. 95-CV-104
In January 1995, Charles Arnold ("Arnold"), a consultant to Nona Morelli's
prior management, initiated a lawsuit in Denver, Colorado District Court against
Nona, CMA and MDM Gaming,
[NUOGAM\10K\95:95KSBFIN.CLN]-4
F26
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued...)
L.P.("MDM") alleging that the defendants have denied him a 1% equitable interest
in MDM, which was allegedly verbally promised to Arnold by Frank J. Morello, III
and Frank J. Morello, II for alleged professional services rendered to MDM.
Arnold is alleging damages in an amount of $90,000 in connection with this
claim. Nona and the other defendants have filed a third-party complaint against
FTF, Theodore E. DeTello, Frank J. Morello, II and Frank J. Morello, III,
seeking full indemnification from them for any damages to which Arnold may be
entitled in accordance with a certain Termination Agreement dated December 17,
1993 between the parties. The case has been set for trial in November, 1996.
(f) Ruben Kitay et al. vs. Nona Morelli's II, Inc. et al.; United States
District Court for the Central District of California;
Case No. 95-4375 RMT (SHx)
On October 10, 1995, a Second Amended Complaint was filed in the U.S.
District Court for the Central District of California which named the Company,
Fred G. Luke, John D. Desbrow, Kenneth R. O'Neal, O'Neal & White, P.C., a Texas
professional corporation, New World Capital, Inc., Rocci Howe, Euro-Belge (NA)
N.V., Structure America, Inc., International Banking Corporation Caribbean
(IBCC), and the Luke Family Trust as defendants in an alleged shareholder
derivative action (the "Derivative Action") filed on behalf of certain
shareholders of the Company. The Derivative Action arose from the Stock Purchase
and Business Combination Agreement, pursuant to which Nona Morelli's II, Inc.
acquired voting control of ENP (now NuOasis Gaming) and the events surrounding
the bankruptcy of Ba-Mak Gaming International, Inc. The Plaintiffs sought
damages according to proof, interest, rescission, attorneys' fees and exemplary
damages. Outside counsel for the Company in the Derivative Action, and the
management of both the Company and Nona Morelli's II, Inc. believe, among other
things, that the plaintiffs do not have standing to file such litigation, have
failed to state a proper claim, and do not qualify as representatives in a
shareholder action. In response to the Company's filing a Motion to Dismiss the
Derivative Action, the Action was dismissed without prejudice pursuant to
stipulation.
(g) Michael Savage vs. NuOasis Gaming, Inc., Los Angeles County Municipal
Court, Case No. 94C01383
In October 1994, Michael Savage, a former consultant to former management filed
an action in the Los Angeles County Municipal Court seeking alleged sums unpaid
under a Professional Services Agreement dated September 1, 1992. In November
1995, an arbitrator awarded Savage $7,500 plus interest of $825 and costs of $80
in the Municipal Court Action. The Company tendered the amount of the award to
Savage and Savage filed a Satisfaction of Judgment with the Court. On March 20,
1996, the Court denied Savage's post-judgment motion for attorneys' fees.
[NUOGAM\10K\95:95KSBFIN.CLN]-4
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NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued...)
(h) Investigation
Since November 1991, the U.S. Securities and Exchange Commission (the
"SEC") has been conducting an investigation into trading in the Company's common
stock. The investigation appeared to focus on trading in the Company's common
stock during 1990 and 1991 by individuals who are no longer associated with the
Company in any managerial or employment capacity as the SEC has alleged that a
broker hired by Douglas J. Phillips and Hal B. Phillips (collectively, the
"Phillips") manipulated the trading volume of the stock in order to enable the
Phillips' to sell more of the stock which they held personally. The Company has
fully cooperated with the SEC in this investigation. Counsel for the Company
submitted a brief to the SEC arguing that proceedings should not be instituted
against the Company, since the Company itself (i) did not benefit in any way,
and (ii) has now completely disassociated itself from the persons who were
allegedly involved in the scheme and benefitted from it (except for their status
as minority shareholders). The SEC has indicated that it is not seeking
financial compensation or damages from the Company, but it has not indicated
whether it will bring any charges in connection with this investigation.
However, after consultation with counsel, management believes that, ultimately,
any action brought by the SEC will not have any material adverse effect on the
Company's future operations or consolidated financial statements. Additionally,
there was no activity under this investigation during fiscal 1995. In July 1996,
Douglas Phillips, the former President and Chairman of the Board and Hal
Phillips, a former officer, were indicted on stock manipulation charges. No
charges were filed against the Company or its present management.
Counsels for the Company do not believe that any existing litigation will result
in an adverse judgment which would have a negative material impact on the
Company's financial condition. Accordingly, no provision has been made in the
accompanying financial statements for such contingencies and no additional
liabilities have been estimated or accrued.
(i) Subsequent Litigation: Gustavio Farias et al. Vs. Nona Morelli's II, Inc.
Et al.; United States District Court for the Western District of
California; Case No. CV-96-2617-RMT (Shx)
On April 12, 1996, the Plaintiffs in the Kitay action referenced above
filed a complaint entitled Gustavo Farias, et al v. Nona Morelli's, II Inc., et
al, in the United States District Court for the Central District of California.
This new complaint was subsequently transferred to the Western District of
California and assigned Case No. CV-96-2617-RMT (SHx). The new complaint named
Nona, its officers, and other third parties as defendants in an alleged
shareholder derivative action (the "Refiled Action") re-filed on behalf of
certain shareholders of the Registrant. The Refiled Action arises from the Stock
Purchase and Business Combination Agreement pursuant to which Nona acquired
voting control of ENP (now NuOasis Gaming), and the events surrounding the
bankruptcy of Ba-Mak. The plaintiffs seek damages according to proof, interest,
rescission, attorneys' fees and exemplary damages. Outside counsel for the
Registrant in the Refiled Action, and the management of both the Registrant and
Nona believe, among other things, that the action was initiated by Mike Savage
and persons affiliated with him, as a part of an attempt to take control of the
Registrant; that the plaintiffs do not have standing to file such litigation;
that the plaintiffs have no competent and credible evidence to support their
allegations and that they have failed to state a proper claim; and that they do
not qualify as proper representatives in a shareholder action. The Registrant
intends to file a Motion to Dismiss the Refiled Action.
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