SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (Fee Required)
For the Fiscal Year Ended June 30, 1996 Commission file number 0-18224
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NUOASIS GAMING, INC.
Delaware
(State of other jurisdiction of incorporation
or organization)
95-4176781
(I.R.S. Employer Identification No.)
2 Park Plaza, Suite 470, Irvine, California 92614
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (714) 833-5382
------------
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 September 30, 1996, 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 September 30,
1996) held by non-affiliates was approximately $5,781,380.
Class
-----------------------------
Common Stock , $.01 par value
Outstanding at September 30, 1996
---------------------------------
30,000,000 shares
Documents Incorporated by Reference:
None
Total Number of Pages Including Cover: 64
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TABLE OF CONTENTS
Page
PART I
Item 1. Business ..........................................................1
Item 2. Properties ........................................................6
Item 3. Legal Proceedings .................................................6
Item 4. Submission of Matters to a Vote of Security-Holders ...............9
PART II
Item 5. Market for the Registrant's Securities and
Related Stockholder Matters .....................................10
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................11
Item 7. Financial Statements 13
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures .......................13
PART III
Item 9. Directors and Executive Officers of the Registrant ................15
Item 10. Executive Compensation ...........................................18
Item 11. Security Ownership of Certain Beneficial Owners and
Management ......................................................23
Item 12. Certain Relationships and Related Transactions ...................26
PART IV
Item 13. Exhibits and Reports on Form 8-K .................................29
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PART I
ITEM 1. BUSINESS.
(a) BUSINESS DEVELOPMENT
GENERAL
NuOasis Gaming, Inc. (the "Company", or the "Registrant") was incorporated
in the State of Delaware in 1987. As of the date of filing this Report, the
Registrant has had no current ongoing business. The Registrant is presently
evaluating business opportunities for possible acquisition within the gaming
industry.
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. Ba-Mak filed for
protection under Chapter 11 of the U.S. Bankruptcy Code in October 1995.
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 (the Ba-Mak Bankruptcy). As a result, 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. Gaming revenues from Ba-Mak will not recur in future years
due to the bankruptcy and liquidation of Ba-Mak.
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.
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 former Board of Directors, with the exception of Gary L. Blum, resigned and
elected replacement Directors nominated by Nona.
At the Closing, the Registrant issued to Nona, 2,000,000 shares of the
Registrants common stock, 250,000 shares of a new class of the Registrants
convertible preferred stock (the "Series B Preferred"), 6,000,000 New Class D
warrants common stock (the "New Class D Warrants"), and an option to purchase up
to an additional 6,160,000 shares of the Registrants common stock, 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
Registrant prior to the Closing Date and were filed as Exhibits to a Current
Report on Form 8-K dated March 31, 1994 and filed on April 11, 1994.
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As a result of the Stock Purchase Agreement with Nona, a change in voting
control of the Registrant occurred in March 1994. The new Board of Directors of
the Registrant effected the corporate name change to "NuOasis Gaming, Inc." on
September 23, 1994. Based on 30,000,000 shares of common stock outstanding as of
June 30, 1996, Nona can vote 40.2% of the Registrant's voting securities by
virtue of its ownership of 491,847 shares of common stock 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. Nona is
considered an affiliate of Registrant given Nona's voting control of the
Registrant.
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. The
restructuring entailed a change in Board of Directors, upper and local
management and a segregation of the Registrant's then operational segment from
its developmental stage segments in separate subsidiaries.
Following the Ba-Mak bankruptcy, the Registrant began evaluating business
opportunities for possible acquisition. In particular, the Registrant is
evaluating the possible acquisition of a developmental stage California company
formed in 1992 to facilitate 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. 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.
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. ("NuOasis Laughlin") and NuOasis Las Vegas,
Inc. ("NuOasis Las Vegas"). The Registrant currently maintains its executive
offices at 2 Park Plaza, Suite 470, Irvine, California 92614. The telephone
number is (714) 833-5382.
SUBSIDIARIES
BA-MAK GAMING INTERNATIONAL, INC.
On 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.
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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
Report, the Trustee's administration of the bankruptcy estate is ongoing. Due to
the amount of other 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. (As discussed in Item 3(c).)
CASINO MANAGEMENT OF AMERICA, INC.
CMA did not have any operations during fiscal 1996 and 1995. However, CMA
intends to pursue gaming investments and, as of the date of this Report, CMA has
no potential acquisition candidates.
NUOASIS LAS VEGAS, INC. AND NUOASIS LAUGHLIN, INC.
Neither NuOasis Las Vegas, Inc. nor NuOasis Laughlin, Inc. had any
operations during fiscal year 1996 and 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.
CHANGE IN FISCAL YEAR
During the nine months ended June 30, 1996 ("fiscal year 1996"), the
Registrant elected to change its fiscal year end from September 30 to June 30 to
facilitate and coincide with Nona's fiscal year end of June 30. The election of
change in fiscal year was reported on a Current Report on Form 8-K filed on
November 10, 1995.
OPTION AGREEMENT
On June 13, 1996, Nona entered into an Option Agreement with Joseph
Monterosso, President of National Pools Corporation ("NPC"), an individual
previously unrelated to the Registrant or Nona, and granted such individual an
option to purchase the 250,000 Series B Preferred Shares of the Registrant owned
by Nona at a purchase price of $13.00 per share, or a total of $3,250,000, with
a minimum purchase of 110,000 shares.
The exercise of the option is conditioned upon shareholder approval of a
proposal to increase the authorized number of shares of common stock of the
Registrant by at least twenty million (20,000,000) shares. The option is
assignable and shall expire 90 days after the next Annual Meeting of
Shareholders of the Registrant.
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SUBSEQUENT EVENT - ACQUISITION
On November 21, 1996, the Registrant's board of directors approved the
acquisition of NPC. The acquisition is expected to be financed by the issuance
of securities, however, a definitive agreement has not been signed. Moreover,
the acquisition is contingent upon the occurrence of certain events including
but not limited to: (a) NPC shareholder approval; (b) exercise of that certain
option agreement between Monterosso and Nona; (c) Monterosso securing financing
that would allow the exercise of the option by Monterosso and/or one or more
qualified private investors; (d) reaching an agreement to sell CMA; and (e)
shareholder approval of a proposal to increase the number of authorized shares
of common stock of the Registrant by at least 20,000,000 shares.
(b) PATENTS, TRADEMARKS AND LICENSES
The Registrant's domestic gaming activities, which consisted of the
activities of Ba-Mak, 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.
(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 Registrant expects many competitors to
enter new jurisdictions that authorize gaming, some of whom 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.
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(2) LOUISIANA
To the extent applicable to Ba-Mak's operations during the year ended
September 30, 1995 ("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 which 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.
(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 year 1995, Ba-Mak employed 4 full-time employees and 10
part-time employees. All employees were located in Louisiana. Since Ba-Mak's
bankruptcy case was converted to a Chapter 7 proceeding, the Registrant ceased
employing personnel at Ba-Mak. Neither CMA, NuOasis Laughlin nor NuOasis Las
Vegas have any employees. The officers of the Registrant rendered services
pursuant to either Consulting Agreements or Employment Agreements with the
Registrant during fiscal year 1996 as follows:
Office Name
---------------------- ---------------------------------
President Fred G. Luke (Employee)
Chief Financial Officer Steven H. Dong (Consultant)
Corporate Secretary John D. Desbrow (Consultant)
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ITEM 2. PROPERTIES.
In April 1993, Ba-Mak entered into a non-cancelable lease agreement for its
office and warehouse in Louisiana. The lease expired May 31, 1996 and provided
for monthly rental 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.
On 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 supervised the related gaming activities and where it
maintained the gaming devices. As of June 30, 1996, 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.; TEXAS DISTRICT COURT, DALLAS COUNTY; CASE #CV-94-4479
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 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. On
May 9, 1994, Texas counsel for CMA filed suit against Bachik to recover CMA's
funds improperly diverted to Bachik. Counsel for Mark Bachik, Bachik
Enterprises, Inc., and East Bennett Limited Liability Company has withdrawn from
their representation. Texas Counsel for CMA has negotiated a settlement with
Bachik. Counsel for CMA and Counsel for Defendant Bruce West have entered into a
letter agreement for settlement with Bruce West calling for the deposit of
$25,000 into an attorney's escrow until certain conditions are satisfied. A jury
trial which was set to commence in October 1996 has been taken off calendar
pending receipt of documentation to effect a dismissal of the action.
(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 substantially frivolous and groundless due
to existing Colorado case law. Star International and Cripple Creek 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. After taking the
depositions of all of the principal players, everyone has acknowledged that the
original $400,000 used to purchase the Star Casino in 1993 came from Nona. On
May 3, 1996 Star Casinos International, Inc., (the "debtor") filed a bankruptcy
petition under Chapter 11 of the Bankruptcy Code. The schedules filed with the
bankruptcy court do not list the Casino real property as an asset of the
bankruptcy estate. Prior to October 9, 1996 the Casino real property was held by
Cripple Creek Properties, Inc., one of the defendants and a subsidiary of the
debtor, the stock of which is listed as one of the debtor's assets. In July 1996
the first trust deed holder on the casino real property instituted a quasi -
judicial foreclosure proceeding in Teller County, Colorado District Court. A
foreclosure sale occurred on October 9, 1996. The bid price by the foreclosing
party was $782,320.72. Since the first trust deed holder foreclosed the ability
of the defendants to establish any damages as a result on the filing of the lis
pendens has been substantially impaired. Additionally, under Colorado law
subject to redemption rights the foreclosure sale effectively eliminates all
junior liens including CMA's lis pendens. A trial date set for the week of
November 4, 1996 has been vacated and indefinitely stayed, pending resolution of
the bankruptcy case. Another creditor of the debtor unrelated to the Registrant
has filed a motion to dismiss the Chapter 11 bankruptcy and that motion is
currently pending. The Registrant has filed a Proof of Claim in the bankruptcy
proceeding for the $400,000 plus accrued interest.
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(c) 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 has been occurring since
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. As of the date of this Report, the Trustee has not yet closed the
bankruptcy estate; however, due to the claims of other creditors, the Registrant
does not expect to recover any amount on the Proof of Claim it has filed for
funds lent or advanced to Ba-Mak.
(d) CHARLES ARNOLD VS. NONA MORELLI'S II, INC., CASINO MANAGEMENT OF AMERICA
AND MDM GAMING PARTNERS, L.P.; DENVER, COLORADO DISTRICT COURT; CASE NO.
95-CV-104
In January 1995, Charles Arnold ("Arnold"), a consultant to Nona's prior
management, initiated a lawsuit against Nona, CMA and MDM alleging that the
defendants have denied him a 1% equitable interest in MDM, which was allegedly
verbally promised to Arnold by Frank J. Morelli, III and Frank J. Morelli, 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. Morelli, II and Frank J. Morelli, 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.
Counsel for the Morelli's has recently indicated that the Morelli's would be
taking the Fifth Amendment against testifying in connection with this lawsuit.
Since Arnold may not have witnesses to prove the alleged existence of an oral
promise, the likelihood of any recovery against CMA, the Registrant's
subsidiary, appears to be remote. Counsel for the parties have stipulated to
binding arbitration to be held in 1997.
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(e) 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 E.N. Phillips Company, Inc. (now
NuOasis Gaming, Inc.) 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 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.
(f) GUSTAVO FARIAS ET AL. VS. NONA MORELLI'S II, INC. ET AL.; UNITED STATES
DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA; CASE NO.
CV-96-2617-RMT (SHX)
A Second Amended Complaint entitled 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), filed on October 10, 1995, in the U.S.
District Court for the Central District of California and subsequently dismissed
pursuant to stipulation, was refiled by the Plaintiffs on April 12, 1996, by a
complaint entitled Gustavo Farias, et al v. Nona Morelli's II Inc., et al, filed
in the United States District Court for the Central District of California, Case
No. CV-96-2617-RMT (SHx). The new complaint named the Registrant, its officers,
the Registrant's accounting firm and other third parties as defendants in an
alleged shareholder derivative action (the "Refiled Action") refiled on behalf
of certain shareholders of NuOasis Gaming. The Refiled Action alleges securities
fraud and RICO violations in connection with the Stock Purchase and Business
Combination Agreement pursuant to which the Registrant acquired voting control
of ENP (now NuOasis Gaming), and the events surrounding the bankruptcy of
Ba-Mak. The plaintiffs seek damages in an amount not yet ascertained according
to proof, interest, rescission, imposition of constructive trust, diminution of
share value for the individual defendants, attorneys' fees and exemplary
damages. Outside counsel for the Registrant in the Refiled Action, and the
management of both NuOasis Gaming and the Registrant believe among other things,
that the action was initiated by Mike Savage, a former consultant and current
shareholder, and persons affiliated with him, as part of an attempt to take
control of NuOasis Gaming; that the Plaintiffs do not have standing to file such
litigation; that the Plaintiffs have no competent and credible evidence to
support their allegations; that they have failed to state a proper claim; and
that they do not qualify as proper representatives in a shareholder action.
After the filing of the Registrant's Motion to Dismiss in the original action,
the original action was voluntarily dismissed by the Plaintiffs. The Registrant
has filed a Motion to Dismiss the Refiled Action. As of the date of this Report,
all but three of the Plaintiffs have dropped out of the Litigation. In response
to the Registrant's Motion to Dismiss, the remaining Plaintiffs have voluntarily
dismissed most of the other Defendants and have dismissed the RICO claims. The
Registrant's accounting firm and chief financial officer have been dismissed as
Defendants. The Motion to Dismiss the remaining claims is currently pending.
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(g) 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 benefited from it (except
for their prior 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 year 1996. In July 1996, the Phillips, along with certain brokers, were
charged with stock manipulation in an indictment. No charges were filed against
the Registrant or its present management.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
[NUOGAM\10K\96\96KSB.CLN]-22
9
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED
STOCKHOLDER MATTERS.
Following the 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 were 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, 1994:
Bid Price of Common Stock
-----------------------------
Fiscal 1996 Low High
---------------------- ---- ----
Quarter ended 12/31/95 $.01 $.24
Quarter ended 03/31/96 $.01 $.22
Quarter ended 06/30/96 $.01 $.62
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
Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commissions and may not necessarily represent actual transactions.
As of August 30, 1996, 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 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.
[NUOGAM\10K\96\96KSB.CLN]-22
10
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Registrant has incurred net losses and negative cash flows from
operating activities since its inception in 1988. The Registrant had cash and
cash equivalents of approximately $84 and $866 as of June 30, 1996 and September
30, 1995, respectively, and negative working capital of $769,012 and $580,123 as
of June 30, 1996 and September 30, 1995, respectively. The increase in working
capital deficiency is a direct result of the Registrant having no operating
revenues during the nine months ended June 30, 1996 to cover fees for
professional services and other overhead that the Registrant has incurred. As of
the date of this Report, the Registrant has no material commitments for capital
expenditures.
As a result of the Registrant having no revenue producing activities, the
Registrant had limited cash and cash equivalents remaining as of June 30, 1996
to finance future operations. The Registrant has received financial support from
Nona of approximately $155,000 during fiscal 1996, and is dependent upon Nona
for future working capital. The Registrant's plan is to continue searching for
additional sources of equity and working capital and new operating
opportunities. In the interim, the Registrant's existence is dependent upon
continuing financial support from Nona which is estimated to be approximately
$1.1 million for the next fiscal year based upon agreements and obligations the
Registrant has at June 30, 1996. Such conditions raise substantial doubt about
the Registrant's ability to continue as a going concern. As such, the
Registrant's independent accountants have modified their report to include an
explanatory paragraph with respect to such 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 is in the process of
liquidating such assets for the benefit of Ba-Mak's bankruptcy estate. As such,
all gaming operations at Ba-Mak ceased and accordingly, Ba-Mak was accounted for
as a disposition of an investment during fiscal year 1995. 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 1997.
SUBSEQUENT EVENT - ACQUISITION
On June 13, 1996, Nona entered into an Option Agreement with Joseph
Monterosso, President of National Pools Corporation ("NPC"), an individual
previously unrelated to the Registrant or Nona, and granted such individual an
option to purchase the 250,000 Series B Preferred Shares of the Registrant owned
by Nona at a purchase price of $13.00 per share, or a total of $3,250,000, with
a minimum purchase of 110,000 shares.
The exercise of the option is conditioned upon shareholder approval of a
proposal to increase the authorized number of shares of common stock of the
Registrant by at least twenty million (20,000,000) shares. The option is
assignable and shall expire 90 days after the next Annual Meeting of
Shareholders of the Registrant.
On November 21, 1996, the Registrant's board of directors approved the
acquisition of NPC. The acquisition is expected to be financed by the issuance
of securities, however, a definitive agreement has not been signed. Moreover,
the acquisition is contingent upon the occurrence of certain events including
but not limited to: (a) NPC shareholder approval; (b) exercise of that certain
option agreement between Monterosso and Nona; (c) Monterosso securing financing
that would allow the exercise of the option by Monterosso and/or one or more
qualified private investors; (d) reaching an agreement to sell CMA; and (e)
shareholder approval of a proposal to increase the number of authorized shares
of common stock of the Registrant by at least 20,000,000 shares. There are no
assurances that such transaction will occur, and because of on-going
negotiations and uncertainties surrounding the realization of such transaction,
the Registrant cannot determine the ultimate effect on the Registrant's
financial position at this time.
[NUOGAM\10K\96\96KSB.CLN]-22
11
<PAGE>
CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Year Ended
Ended June 30, September 30,
1996 1995
--------------------- ---------------------
<S> <C> <C>
Cash used in operating activities $ (26,282) $ (196,963)
Cash provided by financing activities $ 25,500 $ 35,500
Net decrease in cash $ (782) $ (161,463)
</TABLE>
Cash used in operating activities decreased to $26,282 for the nine months
ended June 30, 1996 from $196,963 for the year ended September 30, 1995, which
was primarily attributable to the Chapter 7 bankruptcy proceedings of the
Registrant's operating subsidiary which commenced April 20, 1995.
Cash provided by financing activities of $25,500 for the nine months ended
June 30, 1996 and $35,500 for the year ended September 30, 1995, was
attributable to proceeds received from the President of the Registrant for
options exercised.
During fiscal 1996, 868,824 common shares were issued upon exercise of
options by the President of the Registrant in the amount of $104,258, or $.12
per share. The Registrant received a note receivable in the amount of $78,758
and a cash payment of $25,500 as consideration for the exercise of options. The
note receivable has been classified as Stockholder Receivable at June 30, 1996.
RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE YEAR ENDED SEPTEMBER 30,
1995
Gaming revenues totaled $884,077 during the twelve months ended September
30, 1995, and were derived from gaming operations. There were no gaming revenues
during the nine months ended June 30, 1996 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, the major components of which were location and charitable organization
split costs, license and permit fees, legal fees, salaries, payroll and
applicable taxes and depreciation. There were no gaming operation expenses
during fiscal year 1996 due to the cessation of operations by Ba-Mak.
General and administrative expenses totaled $164,414 for the nine months
ended June 30, 1996, representing a decrease of $127,219 from the year ended
September 30, 1995. Professional services totaled $401,236 for the nine months
ended June 30, 1996, representing a decrease of $205,932 from the year ended
September 30, 1995. Decreases in both general and administrative expenses and
professional services were primarily attributable to comparing a shorter year of
nine months ended June 30, 1996 to a longer year of twelve months ended
September 30, 1995.
[NUOGAM\10K\96\96KSB.CLN]-22
12
<PAGE>
Gain on disposal of investments in the amount of $38,510 during the nine
months ended June 30, 1996 resulted from the sale of marketable securities that
the Registrant had previously fully reserved in prior fiscal years.
Loss on disposal of investments during the year ended September 30, 1995,
resulted trom the cessation of all gaming operations at Ba-Mak and accordingly,
Ba-Mak was accounted for as a disposition of an investment during fiscal 1995
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 of
approximately $140,949.
As a result of Ba-Mak's bankruptcy proceedings, and due to a shorter current
fiscal year, the Registrant's net loss from operations decreased to $797,140
during the nine months ended June 30, 1996 as compared to $1,096,705 during
fiscal year 1995.
On June 30, 1996 and September 30, 1995, the Registrant had net operating
loss carryforwards of approximately $7,300,000 and $6,900,000, respectively,
available for federal income tax purposes that expire through 2009. If the
holder of the Series B Preferred shares 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 Registrant 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.
There were no changes in or disagreements with accountants during fiscal
year 1996.
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 and a change
in fiscal year end from September 30 to June 30.
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.
[NUOGAM\10K\96\96KSB.CLN]-22
13
<PAGE>
The report of Raimondo, Pettit & Glassman with respect to the 1995 and 1996
fiscal year financial statements included an explanatory paragraph with respect
to the substantial doubt existing about the ability of the Registrant 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.
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 Registrant 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 the 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.
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 Registrant 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 Registrant'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 or possibly federal
securities laws or the laws of the state in which the Registrant's shareholders
reside.
[NUOGAM\10K\96\96KSB.CLN]-22
14
<PAGE>
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 of
between one and twenty five directors and officers, composed of President,
Secretary and Chief Financial Officer. Any two or more officer positions may be
held by the same person. The directors and officers during fiscal year 1996 are
as follows:
<TABLE>
<CAPTION>
Position Held
Name with the Registrant Age Dates of Service
- ----------------- -------------------- --- -----------------------------------
<S> <C> <C> <C>
Fred G. Luke Chairman of the 49
Board and President; March 30, 1994 to Present
Chief Financial March 30, 1994 to October 24, 1994
Officer
John D. Desbrow Secretary 41 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 30 July 16, 1995 to Present
Officer
</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 Report, there has been one Director since Mr. O'Neal's
resignation as a Director on July 15, 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, as of August 25, 1996 for election at the
Registrant's next annual meeting are Fred G. Luke, Jonathan Small and Royce
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 for at least the
past five years of each director, director nominee 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.
[NUOGAM\10K\96\96KSB.CLN]-22
15
<PAGE>
FRED G. LUKE. Mr. Luke has been Chairman of the Board and President of the
Registrant since March 30, 1994. Mr. Luke has over twenty-six (26) years of
experience in domestic and international financing and the management of
privately 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"), and Chairman and
President of Diversified Land & Exploration Co. ("DL&E"). DL&E is a former
publicly traded independent natural resource development company engaged 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 the Registrant. NuVen Advisors
provides managerial, acquisition and administrative services to public and
private companies including the Registrant, Nona, 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 the Registrant. 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. Desbrow has been Secretary of the Registrant since
November 8, 1994 and was the Secretary from March 30, 1994 to July 20, 1994. Mr.
Desbrow is also the 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 in 1982. 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.
JONATHAN L. SMALL. Mr. Jonathan L. Small, as an independent consultant, has
been a Director of Nona since March 17, 1994. Mr. Small is currently a member in
good standing of the State Bar of California and has been since 1980. Mr. Small
is in the private practice of law. Mr. Small's law practice consists of the
regulation, due diligence, planning tax opinions for private placement offerings
in oil and gas, real estate, banking, alternative energy, investment and venture
capital programs; financial business and individual planning; civil litigation
and general business matters. Prior to forming his private law practice, Mr.
Small was a tax accountant with Arthur Young & Company in 1981 and 1982. Mr.
Small served as Director, General Counsel and Assistant Secretary of Basic
Natural Resources, Inc. from June 1992 to September 1994. Mr. Small has served
as Secretary and General Counsel for Diversified Land and Exploration since
March 1988. Mr. Small resigned as a Director of Nona in January 1996.
[NUOGAM\10K\96\96KSB.CLN]-22
16
<PAGE>
ROYCE WARREN. Mr. Royce Warren is Director of Operations of the Indian
Springs Casino in Indian Springs, Nevada. Mr. Warren has more than 25 years
experience in gaming personnel recruitment.
STEVEN H. DONG. Mr. Dong, a Certified Public Accountant, and as an
independent Consultant serves as 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 with the international accounting firm of Coopers &
Lybrand since 1988. As an Assurance Manager with Coopers & Lybrand, 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, Hart
and Toen. Mr. Dong received his Bachelor of Science degree in Accounting from
Babson College in 1988 and is a member in good standing with the California
Society of Certified Public Accountants and American Institute of Certified
Public Accountants.
(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 Registrant's officers and directors, and persons
who own more than ten percent of a registered class of the Registrant'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 Registrant with copies of all Section 16(a) forms
they file.
Based solely on review of the copies of such forms furnished to the
Registrant, or representations that no Forms 5 were required or filed, the
Registrant believes that during the periods from October 1, 1995 through June
30, 1996, all Section 16(a) filing requirements applicable to its officers,
directors, and greater than ten-percent beneficial owners were complied with
except Fred G. Luke in March 1996 filed a late Form 4 for the month of August
1995 reporting the acquisition in August 1995 of option rights to purchase up to
3,000,000 shares of the Registrant's common stock. In November 1996 Steven Dong
filed Form 5 for the fiscal year ending June 30, 1996 reporting his acceptance
of the office of Chief Financial Officer in July 1995 and his acquisition in
July 1995 of an option to purchase 275,000 shares of the Registrant's common
stock. In November 1996, John D. Desbrow filed an amended Form 4 for the month
of April 1996 reporting the acquisition in April 1996 of an option to purchase
275,000 shares of the Registrant's common stock.
[NUOGAM\10K\96\96KSB.CLN]-22
17
<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
----------------------------------------------- ---------------------- -------
Other Annual Restricted LTIP All Other
Name and Principal Fiscal Bonus Compensation Stock Options Payouts Compensation
Position Year Salary ($) ($) ($) Award(s) (#) ($) ($)
- -------------------------- ------ ---------- ----- ------------ ---------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fred G. Luke 1994 $27,000(1) - - - - - -
President and
Director 1995 $59,000(1) - - - 3,000,000 - -
(3-30-94 to Present)
1996 - $25,000(4) - - - -
$40,500(3)
- -----------------------------------------------------------------------------------------------------------------------------------
John Desbrow 1994 $18,000(2) - - - - - -
Secretary (4-94 to 7-94
and 11-94 to present) and 1995 $43,000(2) - - - - - -
Director (4-94 to 7-94) 1996 $43,750(3) - - - 275,000 - -
- -----------------------------------------------------------------------------------------------------------------------------------
Steven H. Dong 1994 - - - - - - -
CFO (7/95 to Present) 1995 $5,000 - - - 275,000 - -
1996 $15,000(3) - - - - - -
</TABLE>
[NUOGAM\10K\96\96KSB.CLN]-22
18
<PAGE>
(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. Mr. Luke's salary for fiscal year 1996 has been accrued
and the Registrant owes Mr. Luke $126,500 as of June 30, 1996.
(2) Based on amounts billed to the Registrant 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. No shares were issued during fiscal 1996.
(3) Amounts for fiscal year 1996 represent the nine months ended June 30, 1996,
whereas amounts for fiscal years 1995 and 1994 represent the years ended
September 30, 1995 and 1994.
(4) Other Annual Compensation of $25,000 represents payments in excess of
reimbursable expenses pursuant to Mr. Lukes Employment Agreement.
[NUOGAM\10K\96\96KSB.CLN]-22
19
<PAGE>
(b) OPTION AND LONG-TERM COMPENSATION
The following table sets forth in summary form the aggregate options
granted during the fiscal year 1995 and fiscal year 1996 by the Registrant's
President and four most highly compensated executive officers other than the
President.
<TABLE>
<CAPTION>
Number of Percent of Total
Shares Options/
Fiscal Under SAR's Granted Exercise or
Year Options/SAR's to employees Base Price Expiration
Name Granted Granted in Fiscal Years ($/Sh) Date
- ----------------------- ------- ------------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Fred G. Luke, President
and Director 1995 3,000,000(1) 53% $.12 7/00
NuVen Advisors, Inc.(2) 1995 2,000,000 35.4% $.10 3/97
Steven H. Dong, CFO 1995 275,000 4.8% $.12 7/00
John D. Desbrow 1996 275,000 100% $.12 7/00
</TABLE>
The following table sets forth in summary form the aggregate options
exercised during fiscal year 1996, and the June 30, 1996 value of unexercised
options for the Registrant's President and four most highly compensated
executive officers other than the President.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Option/SAR's at Fiscal Options/SAR's at Fiscal
Year-End (#) Year-End ($)
Shares -------------------------------- -----------------------
Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value realized ($) Unexercisable (d) Unexercisable
- ----------------------- --------------- ------------------ -------------------------------- -----------------------
<S> <C> <C> <C> <C>
Fred G. Luke, President 481,176 Exercisable $173,205 Exercisable
and Director (1) 868,824 $104,258 1,650,000 Unexercisable $594,000 Unexercisable
NuVen Advisors, Inc.(2) _ _ 2,000,000 Exercisable $760,000 Exercisable
Steven H. Dong, CFO _ _ 275,000 Exercisable $ 99,000 Exercisable
John D. Desbrow, _ _ 275,000 Exercisable $ 99,000 Exercisable
Secretary
</TABLE>
(1) Options vest at a rate of 50,000 per month over a five year term ending
March 31, 1999.
(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.
[NUOGAM\10K\96\96KSB.CLN]-22
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<PAGE>
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
for which benefits are based on actuarial computations.
(d) EMPLOYMENT AND CONSULTING CONTRACTS
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 Registrant'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, reimburse 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 for
the period April 1, 1994 to September 30, 1994 and $59,000 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 $40,500 and $86,000
during fiscal 1996 and 1995, respectively, and had $126,500 due to Mr. Luke as
of June 30, 1996.
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 from April 1, 1994
to September 30, 1994 all of which was expensed in fiscal year 1994.
Additionally, the Registrant expensed $4,000 for services rendered by Mr.
Desbrow 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. Effective
April 1, 1996, the Consulting Agreement was renewed through March 31, 1997 at an
annual rate of $75,000 and granted him an option to purchase 275,000 shares of
the Registrant's Common Stock at an exercise price of .12 per share. The
Registrant expensed $43,750 and $43,000, during fiscal 1996 and 1995,
respectively, and had $8,252 due from Mr. Desbrow as of June 30, 1996.
[NUOGAM\10K\96\96KSB.CLN]-22
21
<PAGE>
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 per annum 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. No shares were issued to Mr. Dong during
fiscal 1995 or 1996. During fiscal 1996, the Consulting Agreement was renewed
for fiscal 1997 for an amount of $39,000 per annum. The Registrant expensed
$15,000 and $5,000 during fiscal 1996 and 1995, respectively, and had $15,000
due to Mr. Dong as of June 30, 1996.
ADVISORY AGREEMENTS WITH AFFILIATE
The Luke Trust and Lawver Corporation own 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. Mr. Lawver is President of Fantastic Foods International,
Inc., a wholly owned subsidiary of Nona.
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 Agreement until such time it has, or its
subsidiaries have, the need and sufficient cash flow to justify performing 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. During
fiscal year 1996, the Advisory and Management Agreement was renewed effective
October 1, 1995, for $120,000 annually. The Registrant expensed $90,000 and
$180,000, during fiscal years 1996 and 1995, respectively, and had $118,000 due
to NuVen Advisors as of June 30, 1996.
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) 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
Agreement until such time it has, or its subsidiaries have, the need and
sufficient cash flow to justify performing 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. During fiscal year 1996, the
Advisory and Management Agreement was renewed for fiscal year 1997. CMA expensed
$120,000 and $90,000 during fiscal years 1996 and 1995, respectively, and had
$159,000 due to NuVen Advisors as of June 30, 1996. 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 Registrant's ownership of CMA by five percent
(5%), which management believes will not have any material adverse effect on the
Registrant's financial condition or investment in CMA.
[NUOGAM\10K\96\96KSB.CLN]-22
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<PAGE>
(e) DIRECTOR COMPENSATION
The Registrant has no standard arrangements by which its directors are
compensated.
(f) INTERLOCKING RELATIONSHIPS OF DIRECTORS
The Directors of the Registrant are also Directors of Nona as of the filing
date of this Report.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table set forth, as of October 31, 1996, 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 and each officer,
director, director nominees, and all officer's and directors as a group. Unless
otherwise indicated, each person has beneficial voting and investment power with
respect to the shares owned.
Shares of
Common Stock Number And Percent of
Name and Address of Beneficially Class if Additional Common
Beneficial Owners(1) Owned(2) Shares are Authorized(3)
- ---------------------- --------------------- --------------------------
Number Percentage Number Percentage
------ ---------- ------------- -----------
Nona Morellis II, Inc. 0 - 31,500,000(4) 51.22%
Fred G. Luke 0 - 681,176 2.22%
Steven H. Dong 0 - 275,000 .91%
John D. Desbrow 96,250 .32% 371,250 1.22%
------ ----------
All directors and 96,250 .32% 32,827,426 53.72%
executive officers as ====== ==========
a group
Joseph Monterosso 0 - 19,500,000(5) 39.39%
550 15th Street
San Francisco, CA 94103
Structure America, Inc. 0 - 2,000,000(6) 6.25%
550 N. Jefferson
Loveland, CO 80537
Nuven Advisors, Inc. 0 - 2,000,000(7) 6.25%
2 Park Plaza
Irvine, CA 92614
[NUOGAM\10K\96\96KSB.CLN]-22
23
<PAGE>
The following table sets forth, as of October 31, 1996, the Series B
Preferred Stock and 14% Preferred Stock ownership of all holders of more than
five percent of the Series B Preferred Stock and 14% Preferred Stock of the
Registrant. No officers or directors own any shares of either the Series B or
the 14% Preferred Stock.
<TABLE>
<CAPTION>
Shares of Series Number and Percent of Class if
Name and Address of B Preferred Stock Proposal No.
Beneficial Owner(1) Beneficially Owned 1 or 2 is approved(3)
- -------------------- --------------------- ------------------------------
<S> <C> <C> <C> <C>
Number Percentage Number Percentage
------- ---------- ------- -------------------
Nona Morelli's II, Inc. 250,000 100% 250,000 100%
Joseph Monterosso(5) 250,000 100% 250,000 100%
550 15th Street
San Francisco, CA 94103
Raymond C. Kitely 30,000 17.6% 30,000 17.6%
20079 Glen Arbor
Court
Saratoga, CA 95070
Eli Moshe 10,000 5.9% 10,000 5.9%
110 S. Sweetzer,
No. 301
Los Angeles, CA
90048
Walter K. Theis, 20,000 11.8% 20,000 11.8%
M.D.
1200 Corsica Drive
Pacific Palisades,
CA 90272
David Seror,
Chapter 7 Trustee
for the Estate of
David A. Paletz 77,500 45.6% 77,500 45.6%
221 N. Figueroa
St., Room 800
Los Angeles, CA
90012
Neil Miller 15,000 8.8% 15,000 8.8%
2790 Forrester
Drive
Los Angeles, CA
90064
David Sheetrit 10,000 5.9% 10,000 5.9%
c/o Moshe Shram
929 East Fourteenth
Street
Los Angeles, CA
90021
</TABLE>
<PAGE>
(1) The address of Nona Morelli's II, Inc. and each executive officer and
Director is c/o NuOasis Gaming, Inc. 2 Park Plaza, Suite 470 Irvine, Ca
92614. With the exception of Joseph Monterosso, each stockholder listed in
these tables possesses sole voting and investment power with respect to the
shares listed opposite the holder's name.
(2) Excludes common shares underlying convertible securities, options or
warrants that are presently held but not currently exercisable because the
Company's authorized capital is insufficient.
(3) Percentage ownership amounts under the If Additional Common Shares are
Authorized column are computed for each holder assuming that convertible
securities, options and warrants held by such holder that are exercisable
within 60 days are exercised. The effect of options and warrants of other
holders are excluded from each holder's percentage computation.
[NUOGAM\10K\96\96KSB.CLN]-22
24
<PAGE>
(4) Assumes conversion of Series B Preferred shares into 19,500,000 shares of
Common Stock and 12,000,000 shares of Common stock which may be issued to
Nona on exercise of New Class D Warrants.
(5) Nona has granted Joseph Monterosso an option to acquire the 250,000 shares
of Series B Preferred Stock. The table presents the effect of the exercise
of such options by Mr. Monterosso. The table presents both Nona and Mr.
Monterosso as beneficial owners of the same 250,000 shares of Series B
Preferred stock.
(6) On February 29, 1996, Structure America, Inc. received contingent
contractual rights for 1,000,000 shares for services to be rendered and an
option to purchase 1,000,000 shares at $.12 per share. Under Rule 13d-3 (d)
(1)(c) Structure America, Inc. is deemed the beneficial owner of 2,000,000
shares even though the shares are not outstanding.
(7) 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.
[NUOGAM\10K\96\96KSB.CLN]-22
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<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There were no related transactions during the last two fiscal years for
which the amount of the transaction or series of similar transactions exceeded
$60,000 other than the following:
a) ISSUANCE OF STOCK OPTIONS AND WARRANTS ON BUSINESS COMBINATION
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 former Board of Directors with the exception of Gary L. Blum, resigned and
elected replacement Directors nominated by Nona.
[NUOGAM\10K\96\96KSB.CLN]-22
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<PAGE>
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
This Option was granted to Nona to enable Nona to purchase any of the
shares underlying the New Class A, B and C Warrants that are not exercised by
the Warrant holders. 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. Nona does not presently hold any of the New Class A, B or C
Warrants, nor is it currently entitled to exercise its option.
NEW CLASS D WARRANTS
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. 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
Warrants and warrant shares purchasable upon exercise of the Warrants shall not
be subject to dilution or reduction by any reverse split.
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 June 30, 1996.
b) ADVISORY AGREEMENTS WITH AFFILIATES
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 performing 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. During
fiscal year 1996, the Consulting Agreement was renewed effective October 1, 1995
for $120,000 annually. The Registrant expensed $90,000, and $180,000, during
fiscal year 1996 and 1995, respectively, and had $118,000 due to NuVen Advisors
as of June 30, 1996.
[NUOGAM\10K\96\96KSB.CLN]-22
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<PAGE>
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) 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
Agreement until such time it has, or its subsidiaries have, the need and
sufficient cash flow to justify performing 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. During fiscal 1996, the
Consulting Agreement was renewedeffective October 1, 1995. CMA expensed $90,000
and $120,000 during fiscal years 1996 and 1995, respectively, and had $159,000
due to NuVen Advisors as of June 30, 1996. 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 Registrant's ownership of CMA by five percent (5%), which
management believes will not have any material adverse effect on the
Registrant's financial condition or investment in CMA.
During fiscal year 1994, the Registrant entered into an agreement with
Structure America, Inc. ("SAI") to issue 1,000,000 shares for consulting
services. Such services were rendered during fiscal 1995. During fiscal year
1996, the Registrant entered into another agreement with SAI to perform
consulting services. Pursuant to such agreement, the Registrant agreed to issue
1,000,000 common shares of the Registrant to SAI and granted SAI an option to
purchase 1,000,000 common shares of the Registrant, exercisable at $.12 per
share. The agreement is fully contingent upon the final execution and closing of
the purchase of National Pools Corporation. The Registrant expensed $75,000 and
$54,000 during fiscal years 1996 and 1995, respectively and had approximately
$40,000 due to SAI as of June 30, 1996.
c) ADVANCES FROM AFFILIATE
The Registrant has received financial support from Nona of approximately
$155,000 during fiscal 1996, and is dependent upon Nona for future working
capital. As of June 30, 1996, the Registrant had $238,118 due to Nona and
classified as Due to Affiliates.
[NUOGAM\10K\96\96KSB.CLN]-22
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<PAGE>
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
Unless otherwise noted, Exhibits are filed herewith.
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)
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)
[NUOGAM\10K\96\96KSB.CLN]-22
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<PAGE>
Exhibit
Number Description
---------------------------------------------------------------------------
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 Morellis's II, Inc., Casino Management of
America, Inc. 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.)
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. and NuVen Advisors, Inc.(11)
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)
[NUOGAM\10K\96\96KSB.CLN]-22
30
<PAGE>
Exhibit
Number Description
---------------------------------------------------------------------------
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)
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 First 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)
10.28 Engagement Letter and Fee Agreement for Services with Structure
America, Inc.
10.29 Second Addendum to Consulting Agreement between NuOasis Gaming,
Inc. and John D. Desbrow.
10.30 Second Addendum to Consulting Agreement between NuOasis Gaming,
Inc. and Steven H. Dong.
[NUOGAM\10K\96\96KSB.CLN]-22
31
<PAGE>
Exhibit
Number Description
---------------------------------------------------------------------------
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
Registrant'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.
(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.
[NUOGAM\10K\96\96KSB.CLN]-22
32
<PAGE>
(b) REPORTS ON FORM 8-K
(1) 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 and reporting a
change in fiscal year end from September 30 to June 30.
(2) 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.
(3) 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.
No reports on Form 8-K were filed during the last quarter of the fiscal
year ended June 30, 1996.
[NUOGAM\10K\96\96KSB.CLN]-22
33
<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: November 22, 1996 By:/s/ Fred G. Luke
------------------------------------------------
Fred G. Luke,
President and Chairman of the Board
and sole Director
Date: November 22, 1996 By:/s/ Steven H. Dong
-------------------------------------------------
Steven H. Dong, Chief Financial Officer
Date: November 22, 1996 By:/s/ John D. Desbrow
-------------------------------------------------
John D. Desbrow, Secretaru
[NUOGAM\10K\96\96KSB.CLN]-22
35
<PAGE>
NUOASIS GAMING, INC.
Index to Financial Statements
Page
(1) FINANCIAL STATEMENTS:
Independent Auditors' Report .........................................F-2
Consolidated Balance Sheet at June 30, 1996 ..........................F-3
Consolidated Statements of Operations for the Nine Months Ended
June 30, 1996 and Year Ended September 30, 1995 ......................F-4
Consolidated Statements of Stockholders' Equity (Deficiency)
for the Nine Months Ended June 30, 1996 and Year Ended September
30, 1995 ............................................................F-5
Consolidated Statements of Cash Flows for the Nine Months Ended
June 30, 1996 and Year Ended September 30, 1995 ......................F-6
Notes to Consolidated Financial Statements ...........................F-7
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F36
<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
INDEPENDENT AUDITORS' REPORT
Board or Directors
NuOasis Gaming, Inc.
We have audited the accompanying consolidated balance sheet of NuOasis Gaming,
Inc. and subsidiaries (the "Company") as of June 30, 1996, and the related
consolidated statements of operations, stockholders' equity (deficiency) and
cash flows for the nine months ended June 30, 1996 and for the year ended
September 30, 1995. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits 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 the Company as of
June 30, 1996, and its results of operations and cash flows for the nine months
then ended and for the year ended September 30, 1995, 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 is in the
process of being liquidated under Chapter 7 of the U.S. Bankruptcy Code. Such
matters raise substantial doubt about the Company's 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
------------------------------------------------
Raimondo, Pettit & Glassman
Torrance, California
October 31, 1996
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F37
<PAGE>
<TABLE>
<CAPTION>
NUOASIS GAMING, INC.
Consolidated Balance Sheet
As of June 30, 1996
As of
June 30, 1996
---------------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 84
---------------------
Total Current Assets 84
---------------------
TOTAL ASSETS $ 84
=====================
LIABILITIES AND STOCKHOLDERS'
DEFICIENCY
Current Liabilities:
Accounts payable and accrued expenses $ 103,725
Due to affiliates 665,371
---------------------
Total Current Liabilities 769,096
Commitments and Contingencies (Note 7)
Stockholders' Deficiency:
Preferred stock - par value $.01; authorized 1,000,000 shares; 14% cumulative
convertible; issued and outstanding
170,000 shares (aggregate liquidation of $304,425) 1,700
Preferred Stock Series B - par value $2.00; authorized,
issued and outstanding 250,000 shares (aggregate liquidation
of $500,000) 500,000
Common stock - par value $.01; authorized 30,000,000 shares;
30,000,000 shares issued and outstanding 300,000
Stockholder receivable (1,447,080)
Additional paid-in capital 12,376,196
Accumulated deficit (12,499,828)
---------------------
Total Stockholders' Deficiency (769,012)
----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' $ 84
DEFICIENCY =====================
</TABLE>
See accompanying notes to consolidated financial statements.
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F38
<PAGE>
<TABLE>
<CAPTION>
NUOASIS GAMING, INC.
Consolidated Statements of Operations
For the Nine Months Ended June 30, 1996 and Year Ended September 30, 1995
For the Nine Months For the Year Ended
Ended June 30, 1996 September 30, 1995
--------------------------- -------------------------
<S> <C> <C>
Revenues:
Gaming $ - $ 884,077
--------------------------- -------------------------
Totals - 884,077
---------------------------- -------------------------
Costs and Expenses:
Gaming, prizes and revenue sharing - 776,827
General and administrative 164,414 291,633
Depreciation and amortization 270,000 156,376
Loss (gain) on disposal of investments (38,510) 140,949
Professional Services 401,236 607,168
Interest Expense - 7,829
---------------------------- -------------------------
Totals 797,140 1,980,782
---------------------------- -------------------------
Loss before income taxes (797,140) (1,096,705)
Provision for income taxes - -
---------------------------- -------------------------
Net loss $ (797,140) $ (1,096,705)
============================ ==========================
Net loss applicable to common stock $ (814,990) $ (1,120,505)
============================ ==========================
Net loss per common share $ (.$3) (.05)
---------------------------- --------------------------
Weighted average common shares outstanding 29,057,660 23,785,550
---------------------------- -------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F39
<PAGE>
<TABLE>
<CAPTION>
NUOASIS GAMING, INC.
Consolidated Statements of Stockholders' Equity (Deficiency)
For Nine Months Ended June 30, 1996 and
the Year Ended September 30, 1995
Preferred Preferred Stock Common
Stock Series B Stock
------------------------------------------------------------------------------ Stockholder
Shares Amount Shares Amount Shares Amount Receivable
------------------------------------------------------------------------------ -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1994 170,000 $1,700 250,000 $500,000 20,643,676 $ 206,437 $ (1,000,000)
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 (473,773)
Net loss
-------------------------------------------------------------------------------------------------
Balances, September 30, 1995 170,000 $1,700 250,000 $500,000 26,131,176 $ 261,312 $ (1,473,773)
Conversion of loan for stock 3,000,000 30,000
Exercise of stock options 868,824 8,688
Change in Stockholder
Receivable 26,693
Net loss
-------------------------------------------------------------------------------------------------
Balances, June 30, 1996 170,000 $1,700 250,000 $500,000 30,000,000 $ 300,000 $ (1,447,080)
------------------------------------------------------------------------------=------------------
</TABLE>
<TABLE>
<CAPTION>
Additional Retained Earnings Total
Paid-In (Accumulated Stockholders'
Capital (Deficit) Equity (Deficiency)
--------------------------------------------------------------
<S> <C> <C> <C>
Balances, September 30, 1994 $ 11,850,673 $ (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)
Net loss (1,096,705) (1,096,705)
-----------------------------------------------------------
Balances, September 30, 1995 $ 12,110,626 $ (11,702,688) $ (302,823)
Conversion of loan for stock 170,000 200,000
Exercise of stock options 95,570 104,258
Change in Stockholder
Receivable 26,693
Net loss (797,140) (797,140)
-----------------------------------------------------------
Balances, June 30, 1996 $ 12,376,196 $ (12,499,828) $ (769,012)
===========================================================
</TABLE>
(1) Includes 1,237,500 shares issued to affiliates
See accompanying notes to consolidated financial statements
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F40
<PAGE>
NUOASIS GAMING, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Nine For the Year
Months Ended Ended
June 30, 1996 September 30, 1995
--------------------- --------------------------
<S> <C> <C>
Operating activities:
Net loss $ (797,140) $ (1,096,705)
Adjustments to reconcile net loss to net
cash used in operating activities:
Effect of common shares issued for payment of services - 263,125
Depreciation and amortization 270,000 156,376
Loss (gain) on disposal of investments and property (38,510) 140,949
Increase (decrease) from changes in:
Accounts Receivable - 184,767
Other current assets 50,566 (38,421)
Stockholder receivable 143,962 (473,773)
Other assets 7,300 100,205
Accounts payable and accrued expenses 34,505 141,113
Due to affiliates 416,871 111,565
Other current liabilities and accrued expenses (113,836) 313,836
---------------------- --------------------------
Net cash used in operating activities (26,282) (196,963)
---------------------- --------------------------
Financing activities:
Proceeds from issuances of equity securities 25,500 35,500
Net cash provided by financing activities 25,500 35,500
Net decrease in cash and cash equivalents (782) (161,463)
Cash and cash equivalents, beginning of year 866 162,329
Cash and cash equivalents, end of year $ 84 $ 866
Supplemental disclosures of cash flow data: Cash paid during the period for:
Interest $ - $ -
Income taxes $ 1,600 $ -
Non-cash financing activities:
Common stock issued for stockholder note receivable $ 78,758 $ -
Loan converted to common stock $ 200,000 $ -
</TABLE>
See accompanying notes to consolidated financial statements.
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F41
<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. NuOasis
Gaming, Inc. was incorporated in the State of Delaware in 1987. During the nine
months ended June 30, 1996 and fiscal year ended September 30, 1995, the Company
had two wholly-owned subsidiaries engaged in casino gaming and investment
development activities.
The activities of the Company's subsidiaries have been primarily in the
United States.
PRINCIPLES OF CONSOLIDATION
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., and 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"), and as used herein,
are collectively referred to as the "Company" unless the context indicates
otherwise. All material intercompany accounts and transactions have been
eliminated in consolidation.
MANAGEMENT ESTIMATES
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 IN FISCAL YEAR
During the nine months ended June 30, 1996 ("fiscal year 1996"), the
Company elected to change its fiscal year end from September 30 to June 30 to
facilitate and coincide with Nona Morelli's II, Inc., the Company's controlling
parent ("Nona") fiscal year end of June 30. The election of change in fiscal
year was reported on Form 8-K filed on November 10, 1995.
BANKRUPTCY FILING OF BA-MAK GAMING INTERNATIONAL, INC.
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. 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.
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 fiscal 1995.
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 is in the process
of liquidating such assets for the benefit of Ba-Mak's bankruptcy estate. As
such, all gaming operations at Ba-Mak ceased and, accordingly, were accounted
for as a disposition of an investment during fiscal 1995 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. Gaming revenues with respect to Ba-Mak were $0 and
$884,077 during fiscal years 1996 and 1995, respectively, and will not recur 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 fiscal year 1995. Management's intent is to continue
searching for additional sources of capital and new operating opportunities. In
the interim, the Company will continue operating with minimal overhead and key
administrative functions will be provided by an affiliate, NuVen Advisors (Note
5). The Company has received financial support from Nona of approximately
$155,000 during the nine months ended June 30, 1996, and management estimates
that Nona will need to contribute approximately $1.1 million in future financial
support for the Company to fund its operations through fiscal year 1997.
Accordingly, the accompanying consolidated financial statements have been
presented under the assumption the Company will continue as a going concern.
CASH EQUIVALENTS
Cash equivalents are highly liquid investments with a maturity of three
months or less when acquired.
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 value of the services provided, whichever value is the more clearly
evident. The value of the services are typically stipulated by contractual
agreements.
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 ($17,850 for the nine months
ended June 30, 1996, and $23,800 for the year ended September 30, 1995) 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.
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.
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F42
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REVENUE RECOGNITION
Gaming revenues were recognized based upon the gross funds deposited in the
gaming machines. Net revenues are 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". There were no
gaming revenues during the nine months ended June 30, 1996.
RECLASSIFICATION OF PRIOR YEAR AMOUNTS
To enhance comparability, the fiscal year 1995 consolidated financial
statements have been reclassified, where appropriate, to conform with the
financial statement presentation used in fiscal year 1996.
RECENT ACCOUNTING DEVELOPMENT
In October 1995, the FASB adopted Statement No. 123, "Accounting for
Stock-Based Compensation." This Statement encourages entities to adopt a fair
value method of accounting for stock-based compensation plans including stock
options and warrants issued to employees. For entities which do not adopt this
method, the Statement requires disclosure of the effect that the fair-value
method would have on net income and earnings per share. The Statement is
effective for transactions entered into in fiscal years that begin after
December 15, 1995. The Company has not determined the effect of this Statement
nor has it decided when it will adopt the provisions of this Statement.
Note 2. STOCKHOLDER RECEIVABLE
Components of Stockholder Receivable are as follows:
June 30,
1996
-----------
Receivable from Nona $ 1,368,322
Receivable from Officer 78,758
-----------
$ 1,447,080
Receivable from Nona relates primarily to the acquisition of CMA and has
been reclassified to equity because the repayment of the receivable is at the
discretion of Nona and the Company. The Company is dependent upon Nona for
continued financial support (Note 1), and Nona historically and currently
provides financial support to the Company. The Company believes that Nona has
the ability and intent to repay the receivable or will offset the receivable
against any amounts due to Nona by the Company.
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F43
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Receivable from Officer relates to options exercised by Mr. Fred G. Luke
during fiscal year 1996 (Note 4).
Note 3. OTHER ASSETS
The following is a summary of other assets:
June 30, 1996
-------------
Prepaid Media $ 360,000
Fine Art -
-------------
360,000
Valuation Allowance:
Prepaid Media (360,000)
Net Book Value $ -
==============
Prepaid Media represents prepaid print and broadcast advertising. A
valuation allowance was set up given the uncertainty of utilizing such media.
The Company recognized $270,000 and $90,000 in expense during fiscal 1996 and
1995, respectively.
The Fine Art represents paintings originally appraised at $2,000,000, which
was recorded in fiscal 1995 at the $0 basis of the assets for which it was
exchanged.
Note 4. STOCKHOLDERS' EQUITY
SECURITIES ISSUED TO NONA
NuOasis entered into a Stock Purchase and Business Combination Agreement
(the "Stock Purchase Agreement") with Nona and Nona's then 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 ("Series B Preferred"); c) 6,000,000 New Class D common stock
purchase warrants ("New Class D Warrants"); and d) an option to purchase up to
an additional 6,160,000 shares of common stock, (the "Nona Option"). 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. A total of 30,000,000 shares of common stock are
currently authorized for issuance by the Company, all of which are outstanding
at June 30, 1996. 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 100,000,000.
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F44
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMON SHARES RESERVED FOR ISSUANCE
At June 30, 1996, shares of common stock were reserved for the exercise and
conversion of the following:
Preferred stock:
14% Preferred Stock issued and outstanding 170,000
Series B Preferred Stock issued to Nona 19,500,000
Redeemable common stock purchase warrants:
New Class A (exercisable at $.50 per share) 1,530,000
New Class B (exercisable at $.75 per share) 3,080,000
New Class C (exercisable at $1.00 per share) 1,510,000
New Class D 12,000,000
Phillips' Warrants 1,325,193
1993 incentive and non-qualified stock
options - available for grant 1,200,000
1989 Incentive Stock Options:
Grants outstanding 50,000
Available for grant 450,000
1989 Non-qualified Stock Options:
Grants outstanding 200,000
Available for grant 300,000
1991 Non-qualified Stock Options:
Grants outstanding 150,000
Available for grant 450,000
Other Stock Options:
Grants outstanding 5,006,176
Total 46,921,369
As of the date of this report, the 46,921,369 shares reserved for issuance
exceed the available number of shares authorized for issuance in the Company's
Certificate of Incorporation. The proceeds from the sale of the New Class A, New
Class B and New Class C warrants were reflected in the consolidated statement of
cash flows 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
stockholders' equity section of the balance sheet.
PREFERRED STOCK
During 1989, stockholders authorized the issuance of up to 1,000,000 shares
of 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.
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F45
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
No 14% Preferred Stock was converted during fiscal years 1996 and 1995.
No dividends were paid on the 14% Preferred Stock during fiscal years 1996
and 1995. Dividends in arrears aggregated $134,425 at June 30, 1996.
The 14% Preferred Stock shall have a liquidation preference of the original
purchase price ($1.00 per share) plus unpaid dividends on each share thereof.
The balance of proceeds of a liquidation, if any, are to be paid to the common
stockholders of the Company. A merger or reorganization or other transaction in
which control is transferred will be treated similar to a liquidation.
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.
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, or a
total of 19,500,000 shares of common stock if all of the shares of Series B
Preferred Stock are converted.
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
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 New Class A 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 New Class B
Warrants offered and issuable under the related private placement memorandum.
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F46
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
Warrants") 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. As of the date
of this report, the registration of the underlying stock has not been finalized
and therefore is not yet effective.
Pursuant to the Stock Purchase Agreement with Nona and CMA, the Company
issued 6,000,000 New Class D Warrants to Nona. 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, and to date, none of the new class D Warrants have been
exercised.
PHILLIPS' WARRANTS
In September 1994, the Company entered into a Settlement Agreement with
Douglas J. Phillips, the Company's former President, whereby shares held by Mr.
Phillips were sold for the benefit of the Company to pay creditor claims due to
Mr. Phillips' prior misrepresentations of the cash account of the Company at
March 30, 1994. Under the Settlement Agreement, Mr. 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. Mr. 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. No Warrants have been exercised and have all expired as of
the date of this Report.
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F47
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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.
1989 INCENTIVE STOCK OPTIONS
Under a stock option plan adopted on July 30, 1989, the Company's Board of
Directors may grant "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, canceled or exercised during fiscal years 1996 or 1995. Prior to fiscal
year 1995, 50,000 options were granted of which 450,000 options remain available
for grant. The 50,000 granted options expire November 15, 1996.
1989 NON-QUALIFIED STOCK OPTIONS
Under a stock option plan adopted on July 30, 1989, the Company's Board of
Directors may 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 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 fiscal years 1996 or 1995. Prior to fiscal year
1995, 200,000 options were granted of which 300,000 options remain available for
grant. The 200,000 granted options expire November 15, 1996.
1991 NON-QUALIFIED STOCK OPTIONS
Under a stock option plan adopted on February 1, 1991, 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 fiscal years 1996 or 1995. Prior to
fiscal year 1996, 150,000 options were granted of which 450,000 remain available
for grant. The 150,000 granted options expire November 15, 1996.
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F48
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE NONA OPTION
Pursuant to the Stock Purchase Agreement with Nona and CMA, 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. The Warrant Agreements extend
the expiration dates of the respective Warrants to one year after the effective
date of a registration statement, at which time 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.
OTHER STOCK OPTIONS
A summary of all other stock option transactions for the nine months ended
June 30, 1996 and the year ended September 30, 1995 is as follows:
Nine Months Year
Ended Ended
June 30, 1996 September 30, 1995
------------- ------------------
Outstanding at beginning of year 5,875,000 -
- --------------------------------
Granted (Note 5) 1,275,000 5,975,000
- --------------------
Exercised (868,824) -
- -------------
Cancelled - (100,000)
- -------------
Issued
Outstanding at end of year 6,281,176 5,875,000
- -------------------------- ============= ==================
Range of option exercise prices
granted $ .12 $.10 - $.80
- ------------------------------- ---------------- ------------------
Stock Options Granted
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F49
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended September 30, 1995, the Company granted and
subsequently cancelled an option to purchase 100,000 shares of the Company's
common shares to the former Chief Financial officer of the Company.
Additionally, during year ended September 30, 1995, the Company granted an
option to purchase 600,000 shares of the Company's common shares to an unrelated
third party consultant. The remaining options granted in fiscal years 1995 and
1996 were granted to related parties as described in Note 5.
STOCK OPTIONS EXERCISED
During fiscal 1996, 868,824 common shares were issued upon exercise of
options by the President of the Company in the amount of $104,258, or $.12 per
share. The Company received a note receivable in the amount of $78,758 and a
cash payment of $25,500 as consideration for the exercise of these options. The
note receivable has been classified as Stockholder Receivable at June 30, 1996
and was collected after year end.
SHARES ISSUED TO ADVISORS
During the year ended September 30, 1995, the Company issued 4,600,000
shares to certain advisors and consultants for services. There were no shares
issued to advisors and consultants for services during the nine months ended
June 30, 1996.
Note 5. OTHER RELATED PARTY TRANSACTIONS
In August 1995, the Company entered into an Employment Agreement with Fred
G. Luke, the Company's Chairman and President. Mr. Luke has been serving as the
Company'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 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 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 Company to purchase life insurance
coverage, reimburse 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 Company agreed to retroactively compensate Mr.
Luke for past services in the amount of $27,000 for the period April 1, 1994 to
September 30, 1994 and $59,000 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 Company expensed $40,500 and $86,000 during fiscal 1996 and 1995,
respectively, and had $126,500 due to Mr. Luke as of June 30, 1996.
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F50
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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
Company but in fiscal 1995, he did bill and eventually received 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 was expensed in fiscal year 1994. Additionally,
the Company expensed $4,000 for services rendered by Mr. Desbrow as a Director
from April 1994 to July 1994.
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. 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 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 were
to be utilized for current and future services incurred. Effective April 1,
1996, the Consulting Agreement was renewed through March 31, 1997 at an annual
rate of $75,000 and granted him an option to purchase 275,000 shares of the
Company's Common Stock at an exercise price of .12 per share. The Company
expensed $43,750 and $43,000, during fiscal 1996 and 1995, respectively, and had
$8,252 due from Mr. Desbrow as of June 30, 1996.
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 $20,000 per annum 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. No shares were issued to Mr. Dong during fiscal 1995 or
1996. During fiscal 1996, the Consulting Agreement was renewed effective for
fiscal 1997 for an amount of $39,000 per annum. The Company expensed $15,000 and
$5,000 during fiscal 1996 and 1995, respectively, and had $15,000 due to Mr.
Dong as of June 30, 1996.
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. During fiscal 1996, the Advisory and Management
Agreement was renewed effective October 1, 1995 for $120,000 annually. The
Company expensed $135,000 and $180,000, during fiscal 1996 and 1995,
respectively, and had $118,000 due to NuVen Advisors as of June 30, 1996.
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F51
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 percent (110%) of the
book value of such shares. During fiscal 1996, the Advisory and Management
Agreement was renewed for fiscal 1997. CMA expensed $90,000 and $120,000 during
fiscal 1996 and 1995 respectively, and had $159,000 due to NuVen Advisors as of
June 30, 1996.
During fiscal year 1994, the Company entered into an agreement with
Structure America, Inc. ("SAI") to issue 1,000,000 shares for consulting
services. Such services were rendered during fiscal 1995. During fiscal year
1996, the Company entered into another agreement with SAI to perform consulting
services. Pursuant to such agreement, the Company agreed to issue 1,000,000
common shares of the Company to SAI and granted SAI an option to purchase
1,000,000 common shares of the Company, exercisable at $.12 per share. The
agreement is fully contingent upon the final execution and closing of the
purchase of National Pools Corporation (Note 8). The Registrant expensed $75,000
and $54,000 during fiscal years 1996 and 1995, respectively and had
approximately $40,000 due to SAI as of June 30, 1996.
The Company has received financial support from Nona of approximately
$155,000 during fiscal 1996, and is dependent upon Nona for future working
capital. As of June 30, 1996, the Company had $238,118 due to Nona and
classified as Due to Affiliates.
Note 6. 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 fiscal year ended June 30, 1996.
The Company has recorded deferred tax assets and liabilities arising from
temporary differences as follows:
June 30, 1996
Deferred Tax Assets:
Net Operating Loss Carry forward $ 2,795,940
- ---------------------------------- -----------------------
Other 154,224
- ------- -----------------------
Valuation Allowance (2,950,164)
- --------------------- -----------------------
$ 0
----------------------
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 carry forward benefit.
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F52
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As a result of a change in ownership that occurred in 1994, the Company's
use of its NOL carry forwards may be limited by section 382 of the Internal
Revenue Code until such NOL's expire. Deferred tax assets have been computed
using the maximum expiration terms of 13 to 5 years for federal and state tax
purposes, respectively.
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 carry forwards of approximately
$7,278,086 and $3,936,465 as of June 30, 1996 for federal and state,
respectively. This net operating loss expires in various years through 2009.
Note 7. 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 $0 and
$11,000 for fiscal 1996 and 1995, respectively. The lease has been included in
the Chapter 7 bankruptcy proceedings.
OPTION AGREEMENT
On June 13, 1996, Nona entered into an Option Agreement with Joseph
Monterosso, President of National Pools Corporation ("NPC"), an individual
previously unrelated to the Company or Nona, and granted such individual an
option to purchase the 250,000 Series B Preferred Shares of the Company owned by
Nona at a purchase price of $13.00 per share, or a total of $3,250,000, with a
minimum purchase of 110,000 shares.
The exercise of the option is conditioned upon shareholder approval of a
proposal to increase the authorized number of shares of common stock of the
Company by at least twenty million (20,000,000) shares. The option is assignable
and shall expire 90 days after the next Annual Meeting of Shareholders of the
Company.
If the option is fully exercised by the holder of the option on the date of
exercise, a change of control of the Company will occur by virtue of the voting
rights of the Series B Preferred Shares, and the Company would cease to be a
controlled subsidiary of Nona.
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:
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F53
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a) Casino Management of America, Inc. vs. Mark Bachik and Bachik Enterprises,
Inc.; Texas District Court, Dallas County; Case #CV-94-4479
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. On
May 9, 1994, Texas counsel for CMA filed suit against Bachik to recover CMA's
funds improperly diverted to Bachik. Counsel for Mark Bachik, Bachik
Enterprises, Inc., and East Bennett Limited Liability Company has withdrawn from
their representation. Texas Counsel for CMA has negotiated a settlement with
Bachik. Counsel for CMA and Counsel for Defendant Bruce West have entered into a
letter agreement for settlement with Bruce West calling for the deposit of
$25,000 into an attorney's escrow until certain conditions are satisfied. A jury
trial which was set to commence in October 1996 has been taken off calendar
pending receipt of documentation to effect a dismissal of the action.
(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 substantially frivolous and groundless due
to existing Colorado case law. Star International and Cripple Creek 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. After taking the
depositions of all of the principal players, everyone has acknowledged that the
original $400,000 used to purchase the Star Casino in 1993 came from Nona. On
May 3, 1996 Star Casinos International, Inc., (the "debtor") filed a bankruptcy
petition under Chapter 11 of the Bankruptcy Code. The schedules filed with the
bankruptcy court do not list the Casino real property as an asset of the
bankruptcy estate. Prior to October 9, 1996 the Casino real property was held by
Cripple Creek Properties, Inc., one of the defendants and a subsidiary of the
debtor, the stock of which is listed as one of the debtor's assets. In July 1996
the first trust deed holder on the casino real property instituted a quasi -
judicial foreclosure proceeding in Teller County, Colorado District Court. A
foreclosure sale occurred on October 9, 1996. The bid price by the foreclosing
party was $782,320.72. Since the first trust deed holder foreclosed the ability
of the defendants to establish any damages as a result on the filing of the lis
pendens has been substantially impaired. Additionally, under Colorado law
subject to redemption rights the foreclosure sale effectively eliminates all
junior liens including CMA's lis pendens. A trial date set for the week of
November 4, 1996 has been vacated and indefinitely stayed, pending resolution of
the bankruptcy case. Another creditor of the debtor unrelated to the Company has
filed a motion to dismiss the Chapter 11 bankruptcy and that motion is currently
pending. The Company has filed a Proof of Claim in the bankruptcy proceeding for
the $400,000 plus accrued interest.
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F54
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) 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 has been occurring since
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. As of the date of this Report, the Trustee has not yet closed the
bankruptcy estate; however, due to the claims of other creditors, the Company
does not expect to recover any amount on the Proof of Claim it has filed for
funds lent or advanced to Ba-Mak.
(d) Charles Arnold vs. Nona Morelli's II, Inc., Casino Management of America
and MDM Gaming Partners, L.P.; Denver, Colorado District Court; Case No.
95-CV-104
In January 1995, Charles Arnold ("Arnold"), a consultant to Nona's prior
management, initiated a lawsuit against Nona, CMA and MDM alleging that the
defendants have denied him a 1% equitable interest in MDM, which was allegedly
verbally promised to Arnold by Frank J. Morelli, III and Frank J. Morelli, 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. Morelli, II and Frank J. Morelli, 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.
Counsel for the Morelli's has recently indicated that the Morelli's would be
taking the Fifth Amendment against testifying in connection with this lawsuit.
Since Arnold may not have witnesses to prove the alleged existence of an oral
promise, the likelihood of any recovery against CMA, the Company's subsidiary,
appears to be remote. Counsel for the parties have stipulated to binding
arbitration to be held in 1997.
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F55
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(e) 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 E.N. Phillips Company, Inc. (now NuOasis Gaming,
Inc.) 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 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.
(f) Gustavo Farias et al. vs. Nona Morelli's II, Inc. et al.; United States
District Court for the Central District of California; Case No.
CV-96-2617-RMT (SHx)
A Second Amended Complaint entitled 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), filed on October 10, 1995, in the U.S.
District Court for the Central District of California and subsequently dismissed
pursuant to stipulation, was refiled by the Plaintiffs on April 12, 1996, by a
complaint entitled Gustavo Farias, et al v. Nona Morelli's II Inc., et al, filed
in the United States District Court for the Central District of California, Case
No. CV-96-2617-RMT (SHx). The new complaint named the Company, its officers, the
Company's accounting firm and other third parties as defendants in an alleged
shareholder derivative action (the "Refiled Action") refiled on behalf of
certain shareholders of NuOasis Gaming. The Refiled Action alleges securities
fraud and RICO violations in connection with the Stock Purchase and Business
Combination Agreement pursuant to which the Company acquired voting control of
ENP (now NuOasis Gaming), and the events surrounding the bankruptcy of Ba-Mak.
The plaintiffs seek damages in an amount not yet ascertained according to proof,
interest, rescission, imposition of constructive trust, diminution of share
value for the individual defendants, attorneys' fees and exemplary damages.
Outside counsel for the Company in the Refiled Action, and the management of
both NuOasis Gaming and the Company believe among other things, that the action
was initiated by Mike Savage, a former consultant and current shareholder and
persons affiliated with him, as part of an attempt to take control of NuOasis
Gaming; that the Plaintiffs do not have standing to file such litigation; that
the Plaintiffs have no competent and credible evidence to support their
allegations; that they have failed to state a proper claim; and that they do not
qualify as proper representatives in a shareholder action. After the filing of
the Company's Motion to Dismiss in the original action, the original action was
voluntarily dismissed by the Plaintiffs. The Company has filed a Motion to
Dismiss the Refiled Action. As of the date of this Report, all but three of the
Plaintiffs have dropped out of the Litigation. In response to the Company's
Motion to Dismiss, the remaining Plaintiffs have voluntarily dismissed most of
the other Defendants and have dismissed the RICO claims. The Company's
accounting firm and chief financial officer have been dismissed as Defendants.
The Motion to Dismiss the remaining claims is currently pending.
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F56
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(g) 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 benefited from it (except for their prior
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 year 1996. In July
1996, the Phillips, along with certain brokers, were charged with stock
manipulation in an indictment. No charges were filed against the Company or its
present management.
Counsel 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.
Note 8. SUBSEQUENT EVENTS
PROXY FILING AND COMMENT LETTER
In February 1995, the Company filed its Schedule 14A - Preliminary Proxy
Material to hold a shareholders meeting. Since February 1995, the Company has
received five comment letters from the Division of Corporate Finance of the
Securities and Exchange Commission ("SEC") regarding reports filed with the SEC
for fiscal years 1994 and 1995 and has responded to all but the last comment
letter. On October 2, 1996, the Company received its latest comment letter, with
respect to the Company's Form 10-KSB/A for fiscal year ended September 30, 1995
and its Amended Schedule 14A - Preliminary Proxy Material.
The Company is in the process of answering the SEC comments and does not
believe the changes that will be made in response to the comments will have a
material effect on the accompanying financial statements. However, the SEC may
have further comments upon receipt of the Company's response and there is no
assurance as to when all comments will be cleared.
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F57
<PAGE>
NUOASIS GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACQUISITION (UNAUDITED)
On November 21, 1996, the Company's board of directors approved the
acquisition of National Pools Corporation ("NPC"), a California Development
Stage Company, formed in 1992 to facilitate participation in group play in the
California State Lottery. The acquisition is expected to be financed by the
issuance of securities, however, a definitive agreement has not been signed.
Moreover, the acquisition is contingent upon the occurrence of certain events
including but not limited to: (a) NPC shareholder approval; (b) exercise of that
certain option agreement between Monterosso and Nona (see Note 7); (c)
Monterosso securing financing that would allow the exercise of the option by
Monterosso and/or one or more qualified private investors; (d) reaching an
agreement to sell CMA; and (e) shareholder approval of a proposal to increase
the number of authorized shares of common stock of the Company by at least
20,000,000 shares. There are no assurances that such transaction will occur, and
because of on-going negotiations and uncertainties surrounding the realization
of such transaction, the Company cannot determine the ultimate effect on the
Company's financial position at this time.
[NUOGAM\10K\96:96KSBFIN.CLN]-22
F58
<PAGE>
February 29, 1996
NuOASIS GAMING INC.
2 Park Plaza, Suite 470
Irvine, California 92714
RE: Engagement Letter and Fee Agreement for Investment Banking Services
Gentlemen:
This letter sets forth the agreement between NuOasis Gaming Inc. (the
"Company") and Structure America, Inc. ("SAI"), concerning investment banking
services rendered to the Company in conjunction with the evaluation of potential
business opportunities which can be acquired by the Company (the 'Services').
Regarding SAI's services to the Company, SAI has been responsible for
introducing, searching for, identifying, qualifying and conducting preliminary
negotiations with possible business opportunity acquisitions since April 1,
1994. Such potential business acquisitions have included National Pools
Corporation ('NPC') and performing other advisory services for the Company at
the request of its Board of Directors.
In return for the Services rendered through the date hereof, which shall
also be inclusive of any fees due to SAI related to the acquisition of NPC, the
Company agrees to pay to SAI the following consideration:
1. Two Hundred Fifty Thousand (250,000) shares of the Company's common
stock (the "Fee Shares"). Such shares shall be exempt from any
recapitalization of the Company by way of a reverse stock split, or
dilution under any offering or merger effected by the Company for a
period of twelve (12) months from the date hereof; and,
2. Reimbursement of all costs incurred and $5,000 per month of SAI's
payroll/fee obligation on the Company's behalf from April 1,1994
through the date hereof; and,
3. Options to purchase One Million (1,000,000) shares at $.20 per share,
of the Company's common stock (the "Option Shares") pursuant to the
Option Agreement attached hereto as Exhibit "A" and incorporated
herein by reference.
Within thirty (30) days of execution of the Agreement, the Company will
include the Fee Shares and the Option Shares in a Form S-8 Registration
Statement filed with the Securities and Exchange Commission. In SAI's sole
discretion, the Fee Shares may be issued in reliance upon exemptions from
registration provided by Section 4(2) of the Securities Act of 1933 (the "Act"),
Regulation D of the Act, and applicable state securities laws.
<PAGE>
NuOasis Gaming Inc.
February 29, 1996
Page 2
The Company agrees that it will indemnify, defend and hold harmless SAI
from and against any loss or losses asserted against, resulting to, imposed upon
or incurred or suffered by SAI, directly or indirectly, resulting from any
dispute, claim, or cause of action arising from the transactions contemplated
under the Agreement or in any way connected to the providing of services to the
Company under this letter agreement.
If the foregoing is agreeable, please indicate your approval by dating and
signing below and returning an original copy to me.
Very truly yours,
STRUCTURE AMERICA, INC.
By: /s/ Rocci Howe
- -----------------------------
Name: Rocci Howe
APPROVAL AND ACCEPTANCE:
READ AND ACCEPTED this 29th day of February, 1996, with an effective date
retroactive to the date services were first performed for the Company.
NuOASIS GAMING INC.
By: /s/ Fred G. Luke
- -----------------------------
Name: Fred G. Luke
JOHN D. DESBROW
ATTORNEY AT LAW
2 PARK PLAZA, SUITE 470
IRVINE, CALIFORNIA 92714
TEL: (714) 833-2094 FAX: (714) 833-7854
April 16, 1996
NuOasis Gaming, Inc.
2 Park Plaza, Suite 470
Irvine, California 92714
RE: Second Addendum to and Renewal of Consulting Agreement
Gentlemen:
This letter will serve as the Second Addendum to the undersigned's
Consulting Agreement dated November 22, 1994 (the "Consulting Agreement") with
NuOasis Gaming, Inc., formerly E.N. Phillips Company (the "Company"). Pursuant
to Paragraph 3 of the Consulting Agreement, the Company agrees that the
Consulting Agreement will be renewed for an additional twelve months commencing
April 1, 1996 (the "Renewal Term") with an increase in the Base Fee to $75,000
for the Renewal Term.
Nona Morelli's II, Inc. ("Nona"), the Company's parent, agrees to include
in a Form S-8 Registration Statement at its expense 30,000 shares of Nona's
common stock, the net proceeds of which are to be credited in the undersigned's
invoices to the Company against the Base Fee for the Renewal Term.
STOCK OPTION. As an additional inducement to render services during the
Renewal Term from April 1, 1996 to March 31, 1997, the Company hereby grants the
undersigned an option to purchase Two Hundred Seventy Five Thousand (275,000)
shares of common stock of the Company (the "Option Shares") with such option
exercisable at $.12 per share as soon as the Company has sufficient authorized
shares to permit exercise. The Company agrees to execute a separate Stock Option
Agreement as soon as practicable. In the event of any change in the common stock
of the Company by reason of stock dividends, forward stock splits, reverse stock
splits, spin-offs, mergers, recapitalizations, combinations, conversions,
exchanges of shares or the like or the issuance of shares of common stock or any
class of securities directly or indirectly convertible into or exchangeable for
common stock after the date hereof, the number and kind of shares subject to the
option shall be appropriately adjusted so that the undersigned will have the
right to acquire the same equity percentage in the Company as he had immediately
before the event.
The Company will register the Option Shares with the Securities and
Exchange Commission on a Form S-8 or other applicable registration statement as
soon as the Company has sufficient authorized shares to permit exercise. Option
Shares issued prior to registration will be done so only in reliance on
exemptions from registration provided by Section 4(2) of the Securities Act of
1933 (the "Act"), Regulation D of the Act, and applicable state securities laws.
Such issuance shall be in reliance on representations and warranties of the
undersigned set forth in the Consulting Agreement, to be updated upon exercise.
<PAGE>
April 16, 1996
NuOasis Gaming, Inc.
Page 2
If the foregoing is agreeable, please indicate your approval by dating and
signing below and returning an original copy to me.
Very truly yours,
/s/ John D. Desbrow
---------------------------------------
John D. Desbrow
APPROVAL AND ACCEPTANCE
READ AND ACCEPTED THIS 16th day of April, 1996, with an effective date
retroactive to April 1, 1996.
NUOASIS GAMING, INC. NONA MORELLI'S II, INC.
By: /s/ Fred G. Luke By: /s/ Fred G. Luke
-------------------------- -----------------------------------
Name: Fred G. Luke Name: Fred G. Luke
Title: President Title: Chief Executive Officer
STEVEN H. DONG
CERTIFIED PUBLIC ACCOUNTANT
1048 IRVINE AVE., SUITE 306
NEWPORT BEACH, CA 92660
TEL: (714) 287-0194 FAX: (714) 645-7610
July 1, 1996
NuOasis Gaming, Inc.
2 Park Plaza, Suite 470
Irvine, California 92714
RE: Addendum to and Renewal of Consulting Agreement
This letter will serve as an Addendum to the undersigned's Consulting Agreement
dated July 1,1995 (the "Consulting Agreement") with NuOasis Gaming, Inc.,
formerly E.N. Phillips Company (the "Company"). Pursuant to the Consulting
Agreement, the Company agrees that the Consulting Agreement will be renewed for
fiscal year 1997 (the "Renewal Term") with an increase in the Base Fee to
$39,000 per annum.
As soon as practicable following execution of this Addendum, the Company agrees
to include in a Form S-8 Registration Statement at its expense a sufficient
number of common shares of the Company in order to pay for professional services
rendered.
The Company agrees that it will indemnify, defend and hold the Consultant
harmless from and against all demands, claims, actions, prosecutions, losses,
damages, liabilities, costs and expenses, including without limitation interest,
penalties, and attorney's fees and expenses, asserted against, resulting to,
imposed upon or incurred by Consultant, directly or indirectly, resulting from
any dispute, claim, suit, proceeding, or cause of action arising from or in any
way connected to the providing of services to the Company under the Consulting
Agreement and this Addendum to and Renewal of Consulting Agreement.
If the foregoing is agreeable, please indicate your approval by dating and
signing below and returning an original copy to me.
Very truly yours,
/s/ Steven H. Dong, CPA
---------------------------------------
Steven H. Dong, CPA
("Consultant")
APPROVAL AND ACCEPTANCE
READ AND ACCEPTED THIS 1st day of July, 1996.
NUOASIS GAMING, INC. NONA MORELLI'S II, INC.
By: /s/ Fred G. Luke By: /s/ Fred G. Luke
- ----------------------------- ---------------------------------------
Name: Fred G. Luke Name: Fred G. Luke
Title: President Title: Chief Executive Officer
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