U. S. 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, 1998 Commission file number: 0-18224
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GROUP V CORPORATION
(formerly NUOASIS GAMING, INC.)
Delaware 95-4176781
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1550 15th Street,
San Francisco CA 94103
(Address of Principal Executive Offices)
(415) 575-0222
(Registrant's Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 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.
The Registrant had operating revenues of $552,472 for the year ended June
30, 1998.
As of December 31, 1998, the aggregate market value of the voting stock
(based upon the average closing bid and asked prices in the over-the-counter
market as quoted on NASD-OTC Bulletin Board as of December 31, 1998) held by
non-affiliates was approximately $1,556,564.
Class Outstanding at December 31, 1998
Common Stock, $.01 par value 49,889,880 shares
Documents Incorporated by Reference:
None
<PAGE>
TABLE OF CONTENTS
Page
PART I
Item 1 Description of Business .............................................1
Item 2 Description of Properties ...........................................7
Item 3 Legal Proceedings....................................................7
Item 4 Submission of Matters to a Vote of Security Holders................8
PART II
Item 5 Market for Common Equity and Related Stockholder Matters ............8
Item 6 Management's Discussion and Analysis or Plan of Operation............9
Item 7 Financial Statements ...............................................10
Item 8 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .............................10
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act ..................10
Item 10 Executive Compensation .............................................15
Item 11 Security Ownership of Certain Beneficial Owners and Management .....17
Item 12 Certain Relationships and Related Transactions .....................18
Item 13 Exhibits and Reports on Form 8-K .................................. 22
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS.
General
Group V Corporation (formerly, NuOasis Gaming, Inc.) ("Group V", the
"Company", or the "Registrant") was originally incorporated in the State of
Delaware in 1987. The Registrant has ongoing business enterprises within the
one-plus and pre-paid telecommunications industry, lottery publications,
pre-paid phone card supported lottery club play and network marketing
operations. Group V has created a network of complementary companies who offer
products and services of their own or who provide the marketing services to
support the Company's interests. During the fiscal year ended June 30, 1997, the
Registrant acquired National Pools Corporation, a developer of an electronic
lottery group play system in state lotteries in the United States.
The Business and History of National Pools Corporation
National Pools Corporation ("NPC") is a California corporation doing
business at 550 15th Street, San Francisco, California 94103. The Company
believes that NPC is the first company to have developed and marketed a pre-paid
long distance phone card with an innovative free method of group lottery play as
a value-added incentive to phone card purchase. The program developed by NPC is
named "HitLoTTo(R)" and facilitates lottery club participation in a number of
State Lotteries throughout the United States. The HitLoTTo(R) program uses a
unique pre-paid phone card promotion, telecommunications, and proprietary
computer software to organize and market electronic lottery clubs for lottery
players to participate in various State Lotteries. The concept is simple. Buy a
HitLoTTo card and get pre-paid long distance time-as you would with any phone
card-plus free membership in lottery clubs for several State Lotteries,
including the much sought-after Powerball drawings. This program provides
players the opportunity to increase their chances of winning by 100 times by
randomly joining each club participant with 99 other club members. NPC offers
its proprietary HitLoTTo(R) service to the public through the sale of a pre-paid
phone card, the "HitLoTTo(R) Club Card." The HitLoTTo(R) Club Card is sold at
approved retail outlets in two denominations: $10 and $20. The HitLoTTo(R) Club
Card is also distributed through the Company's wholly owned network marketing
company, Premier Plus, Inc. and is supported through editorial coverage and
advertising provided by the Company's lottery publication Lottery Insider
Magazine. The Company's virtual HitLoTTo Club Card will soon debut on a number
of established e-commerce websites. Each denomination of the HitLoTTo(R) Club
Card features both competitively priced long distance calling and corresponding
free lottery club plays, which act as a purchase incentive. The $10 HitLoTTo(R)
Club Card offers the purchaser one free lottery club play and the $20
HitLoTTo(R) Club Card offers three lotteries club plays. Special marketing
opportunities have increased the available lottery club plays to encourage
participation in special market offers. To join a HitLoTTo(R) Club, callers dial
1-888-HitLoTTo(R), enter their Personal Identification Number ("PIN") found on
the back of the card, and after selecting the appropriate menu function are
automatically entered into the next available open lottery club of their choice;
including Powerball, The Big Game, Florida and California State Lotteries.
NPC administers the Clubs and purchases 100 state lottery tickets on behalf
of the club members. Voice response computers automatically form clubs of
players after callers enter their HitLoTTo(R) Club Card PIN and select the Club
of their choice. HitLoTTo(R) Club membership is allowed only after the PIN, and
appropriate account balance have been validated. Each club consists of one
hundred $1.00 corresponding State Lottery tickets, and each HitLoTTo(R) Club is
completed after receipt of 100 successful HitLoTTo(R) telephone calls. Each call
equates to one HitLoTTo(R) lottery club plays, and is formed for the next
available caller designated Super Lotto jackpot. Depending on the denomination
of pre-paid phone card purchased, callers may make the corresponding value of
long distance calls by selecting the appropriate menu option.
NPC acts as an agent of the club member(callers) by coordinating the
formation of groups of purchasers of lottery tickets. Once any of the available
HitLoTTo(R) Clubs has 100 members the club is closed, the computer starts a new
HitLoTTo(R) Club, and NPC purchases the 100 state lottery tickets on behalf of
the just closed club. Tickets are official State Lottery machine generated
"Quick Picks" and are always purchased in sequence (to avoid any manipulation of
tickets). The HitLoTTo(R) Club is then associated with the corresponding 100
tickets. The first and last sequence numbers are entered into NPC's database to
ensure the integrity of the club. Further, all tickets are endorsed and stamped
with the company name, the club number, date and time. The physical tickets are
placed in tamper proof storage until the validation process occurs the next
business day after the official drawing when the winning numbers are confirmed.
Winnings less than $599 are automatically credited to the player's HitLoTTo(R)
Club Card and added to the available account balance. Winning clubs are also
published on the Company's website- www. HitLoTTo(R).com. When a player has
depleted the value of the HitLoTTo(R) Club Card to an insufficient level to
participate in another HitLoTTo(R) Lottery Club, the remaining card balance can
be transferred to a new HitLoTTo(R) Club Card. HitLoTTo(R) players are able to
cash out their winnings at any time by calling the toll-free number and speaking
with a customer service representative.
Club winnings between $.01 and $599 are automatically credited to the
player's HitLoTTo(R) Club Card one business day after the lottery draw. NPC will
process winning tickets and claim prize winnings with the appropriate State
Lottery on behalf of club members up to $599. When club winnings are over $600,
NPC will provide the names of the individual winning club members to the state
lottery by filling out the State Lottery Multiple Ownership Claim form. In
general, a State Lottery will pay winnings in amounts between $600 and $1
million in a one-time payment directly to club members in accordance with the
State Lottery's established policies and procedures. Prize amounts of $1 million
or more are generally paid by the State Lottery directly to winners either over
a 20 to 26 year period or in a single lump-sum payment. NPC does not participate
in any winnings or prizes.
NPC's objective is to attract 1.5% of the more than 100 million active
lottery players in the U.S., spending $2.5 billion in average monthly lottery
tickets purchases and have them become members of an NPC administered
HitLoTTo(R) Club. During fiscal year 1998, U.S. lottery sales totaled 35.9
billion and more than half of all adult Americans bought at least one lottery
ticket during that same period. The Company believes this to be a reasonable
market share which can be attained by promoting convenient lottery play via the
telephone, offering the ability to participate in State Lotteries otherwise
unavailable and increasing a players chances of winning by a hundred fold.
Furthering this effort, the Company recently entered into a joint venture
agreement with CPNM/Internet Marketing Consortium to jointly promote and market
the Company's new virtual HitLoTTo product through a network of 10 Internet
retail affiliates. These established e-commerce websites anticipate driving more
than 170 million hits in potential retail activity to the HitLoTTo product in
the immediate future. Through a series of cross-promotional multi-media
marketing efforts with CPNM/Internet Marketing, the Company's own e-commerce
website will similarly expand the existing market channels for HitLoTTo and open
access to the growing millions of Internet users who sign on daily.
Although the electronic commerce /Internet portion of HitLoTTo sales is
expected to grow exponentially, the company continues to work the traditional
retail channel, aggressively recruiting distributors and sales agents through
strategic placement of advertisements. The company also successfully
participated in a leading pre-paid industry tradeshow and exposition, which
generated considerable editorial exposure for both the product and the company.
NPC has introduced the HitLoTTo(R) Club Card in selected areas in several states
within the United States using local distributors, retail sales networks and
through direct sales efforts of Premier Plus Independent Marketing
Representatives. Marketed as "The Phone Card That Can Make You Rich", NPC has
created awareness for the HitLoTTo(R) Club Card through a number of "free play"
direct mail campaigns targeted to purchased lists of lottery enthusiasts, as
well as other potential customers The Company's President has been a regularly
featured guest on the Carl Cardasian syndicated radio talk show "Wall Street
Direct", as well as providing media coverage for the Company with interviews in
the "Wall Street Corporate Reporter", "MSNBC Business Video", "Smart Money
Magazine", "Stockbroker Magazine", "Intele-Card News" and other significant news
and media outlets. The Company has produced a variety of retail Point of Sale
(POS) materials to assist with the promotion and marketing of the HitLoTTo(R)
Club Card. Additionally, the Company has provided its retail network with a
number of education/training materials designed to educate the retailer and
consumer on the benefits and features of this unique pre-paid phone card. To
date, there have been 472 HitLoTTo(R) Clubs formed.
In May 1998, the Company obtained a legal opinion from James D. Cullen,
Esq., special counsel to Group V. After consideration and review of existing
pre-paid calling card and rules for promotion, the legal and factual matters
were found to be appropriate to distribute to all potential markets. The price
of the HitLoTTo(R) Club Card does not include any consideration for the purchase
and/or administration associated with the purchase of lottery tickets by NPC for
any HitLoTTo(R) Club. Mr. Cullen cites various recent findings, most notably The
Mississippi Gaming Commission v. Treasured Arts, Inc. 699 So. 2d 936, and the
offering of a similar service by the Illinois Lottery.
The precise legal and regulatory issues that have been raised by states in
which NPC has on-going operations have been addressed accordingly by Mr. Cullen
and others associated with Group V's advisory board. This board consists of the
law firm of Bagatelos & Fadem and the former chairman of the lottery consulting
division of KPMG Peat Marwick, as well as the firm of Cavalier and Associates,
who have also been heavily involved in initiative campaigns for various State
Lotteries, and a former State Lottery Director. Among other responsibilities,
the Advisory board performs legal research and advises NPC concerning the law
and regulatory climate in states with lotteries. Correspondence and
consultations with lottery officials is being undertaken to define the program
and to outline the marketing plans for the pre-paid phone card in each
particular state.
Based on its original configuration, operational in California as an 800
and 900 based electronic lottery group play system, NPC originally obtained
three opinions on the legality of its HitLoTTo(R) program under the California
Lottery Law from the law firm of Adkins, Rothman & Morris, the most recent in
1994. The 1994 opinion of Adkins, Rothman & Morris concluded that the intended
business operations of NPC would not violate any criminal or statutory
prohibition of the State of California, including the California State Lottery
Act of 1984, as amended, or any regulation of any agency, municipality or
subdivision of the State of California.
The development of the HitLoTTo(R) program warrants reference to the fall
of 1994, when after securing second round private debt financing, NPC tested the
HitLoTTo(R) program in San Diego, California. In addition to establishing
telephone lines in which players could call to enter lottery groups, a limited
publicity and advertising campaign was launched in San Diego, as an attempt to
secure retail outlets for the HitLoTTo(R) cards. NPC was able to successfully
obtain publicity and place advertisements for its program in local media.
Mailing to 1,200 convenience store operators, taverns and other possible retail
outlets yielded a 3% positive response, i.e., the merchant agreed to become a
HitLoTTo(R) retail outlet. Follow-up calls to those merchants (approximately 30
to 50 per day) resulted in a 50% favorable response from those called. One
hundred lottery groups were formed on the 1-900-Hit-LoTToTM number, which was in
operation for only a few days. The 1-800-HitLoTTo(R) number, which was not
advertised or even able to form lottery groups, received 1,000 calls per hour
during the few days the line was open. NPC assumes interested parties called
this number rather than the 1-900-Hit-Lotto number to save money. While calls
were answered automatically, callers could not enter lottery groups. Due to
limited funding, the market test was restricted to several weeks of publicity
and advertising and one week of operation. NPC's management deemed the results
successful in that the HitLoTTo(R) program attracted media interest, retail
vendors of HitLoTTo(R) cards proved receptive and, in the relatively limited
time phone lines were open, customers appeared willing to play lottery games
under the HitLoTTo(R) program in numbers sufficient to generate the minimum
projected revenues in the NPC business plan.
After the end of the market test of the HitLoTTo(R) program, NPC ceased
publicity efforts and efforts to operate the program on a retail basis. Limited
development of necessary software and other technical systems continued for
several months. Lack of funds required further cut backs and reductions in
operations. By early 1995, NPC had one full time employee, Joseph Monterosso
("Monterosso") as the President and Chief Executive Officer of NPC, who
concentrated his efforts on raising capital and maintaining contacts with
vendors and other providers of goods and services to NPC. Nominal amounts of
capital were raised from NPC shareholders, both by short term loans, which have
since been converted into equity, and additional stock purchases by NPC
shareholders to allow NPC to operate.
The Company's management is confident about the viability of the
HitLoTTo(R) pre-paid phone card strategy for marketing the program and believes
the acquisition of NPC represents an excellent opportunity for the Company.
Further the HitLoTTo Club Card now represents the convergence of three dynamic
industries; pre-paid telecommunications, lottery play and the Internet. However,
the ultimate market acceptance of the HitLoTTo(R) program cannot be guaranteed.
Although the HitLoTTo(R) program is registered and the system is proprietary,
the Registrant expects competition from those who may have more personnel and
greater financial resources than the Registrant.
National Pools Corporation
On June 13, 1996, NuOasis Resorts, Inc. (formerly, Nona Morelli's II,
Inc.), ("Nona"), ("NuOasis Resorts"), granted an option (the "Option") to Joseph
Monterosso, the current President of the Company, to acquire 250,000 Series B
Preferred Shares of Group V (the "Series B Shares") owned by NouOasis Resorts.
The Option is exercisable at a price of $13.00 per share.
On December 19, 1996, Group V entered into Stock Purchase Agreements with
each of the shareholders of National Pools Corporation ("NPC ") pursuant to
which Group V agreed to issue a series of Secured Promissory Notes (the "Notes")
in the aggregate principal amount of $1,200,000 and 1,000,000 shares of Group
V's restricted common stock to the NPC shareholders in exchange for all of the
issued and outstanding shares of capital stock of NPC. The Notes are convertible
into a maximum of 241,900,000 shares of Group V common stock. The conversion of
the Notes is contingent upon NPC's operations achieving certain financial goals
over the next several fiscal years. The terms of the conversion are, for every
$250,000 of net annual operating income achieved by NPC, $7,500 in principal
amount of the Notes may be converted into 1,511,875 shares of restricted Group V
common stock. The Notes are non-recourse to Group V, secured by the assets of
NPC, bear interest at 8% per annum, and are due and payable on May 31, 1999. As
part of this acquisition, NuOasis Resorts and Group V agreed to a debt
assumption agreement whereby all Group V debt in excess of $20,000 on December
24, 1996, except for amounts owed to certain affiliates, which have been
converted into shares of Group V common stock, was assumed by NuOasis Resorts.
The NPC Stock Purchase Agreements closed on December 24, 1996.
On June 13, 1997, Mr. Monterosso exercised the Option to purchase 128,041
Series B Shares, at $13.00 per share, by payment to NuOasis Resorts of
approximately $1,665,000. The 128,041 Series B Shares acquired may be
immediately converted into 9,987,198 shares of restricted Group V common stock.
Additionally, on June 13, 1997, Group V sold its wholly owned subsidiary, CMA,
Inc., to NuOasis Resorts for cash of $1,140,000, notes receivable from NPC
aggregating $245,836 and a credit against the NuOasis Resorts intercompany
account of $95,000.
On August 22, 1997 and effective June 13, 1996, the Option was amended (the
"Amended Option") to increase the exercise price for 21,959 of the Series B
Preferred shares from $13.00 per share to $72.20 per share, or approximately
$1,585,000 for the 21,959 shares of Series B Preferred Stock. The option to
purchase the remaining 100,000 Series B Preferred shares was terminated.
Concurrently, NuOasis Resorts granted Mr. Monterosso a new option to purchase
the remaining 100,000 Series B shares at an exercise price of $11.70 per share.
Additionally, as consideration for granting the new option, NuOasis Resorts
acquired the right to require Mr. Monterosso to purchase all or any remaining
unexercised shares of the 100,000 Series B shares in its entirety by September
1, 1998.
Closing on September 2, 1997, but effective June 30, 1997, Mr. Monterosso
exercised the Amended Option to purchase 21,959 Series B Shares, at $72.20 per
share, by payment to NuOasis Resorts of approximately $1,585,000. The 21,959
Series B Shares acquired may be immediately converted into 1,712,802 shares of
restricted Group V common stock. Concurrent with the exercise of the Amended
Option, Group V released NuOasis Resorts from liability, if any, arising from
any events while NuOasis Resorts controlled Group V, in exchange for
approximately $1,585,000 of marketable securities.
On September 2, 1997, NuOasis Resorts sold to Mr. Monterosso 6,000,000 New
Class D Warrants in consideration for a $1,800,000 promissory note secured by
the New Class D Warrants, due in September 1998 (the "Warrant Note"). Each New
Class D Warrant is exercisable at $1.00 per share and entitles Mr. Monterosso to
receive, upon exercise, two shares of common stock, or a total of 12,000,000
common shares if all New Class D Warrants have been exercised. The New Class D
Warrants expire on March 30, 2004, and to date, none of the New Class D Warrants
have been exercised.
On September 2, 1997, NuOasis Resorts granted to Mr. Monterosso an option
to purchase 7,800,000 common shares of the Company exercisable at $0.15 per
share after NuOasis Resorts' converted its remaining 100,000 shares of Series B
Preferred Stock into 7,800,000 common shares.
As a result of the acquisition of NPC and the sales and purchases of the
Series B Preferred Stock, as discussed above, a change in control of the
Registrant has occurred and the Registrant is now no longer a controlled
subsidiary of NuOasis Resorts.
Universal Network Services, Inc.
In September 1997, the Company agreed in principle to acquire a 50%
convertible net profits interest ("Net Profits Interest") in Universal Network
Services, Inc. ("UNSI"). NPC's Chief Operating Officer, Mr. Dennis Houston, is a
shareholder and officer of UNSI. The Net Profits Interest would have provided
the Company with up to 50% of UNSI's net operating profit and granted the
Company the option to convert its Net Profits Interest into an equity interest
of up to 100% of UNSI's issued and outstanding common stock. During the quarter
ended March 31, 1998, the Company abandoned its acquisition of the Net Profits
Interest in UNSI and recorded $22,500 in related professional service expense
and in June 1998 terminated its employment agreement with Mr. Houston. UNSI is
an interexchange carrier that provided telecommunications services to both
residential and business customers throughout the United States and certain
foreign countries. In August 1998, UNSI filed for protection under Chapter 11 of
the U.S. Bankruptcy code and has subsequently been liquidated under Chapter 7 of
the U.S. Bankruptcy Code.
Magnet Telecom, Inc.
In October 1997, the Company agreed in principle to purchase a 50% net
profits interest in Magnet Telecom, Inc. ("MTI"), a privately held
telecommunications network marketing company and an affiliate of UNSI. During
the quarter ended March 31, 1998, the Company abandoned its acquisition of an
interest in MTI and recorded $19,066 in related general and administrative
expense. MTI discontinued operations in December 1997.
Lottery Publication Corporation
In October 1997, the Company and Lottoworld, Inc. agreed in principle to
form a new joint venture company whereby Lottoworld would have assigned all of
its publishing assets, including the Lottoworld Magazine, to the new joint
venture. However, during the quarter ended March 31, 1998, the Company abandoned
this plan and formed a wholly owned subsidiary, Lottery Publication Company
(LPC) which publishes Lottery Insider Magazine. Lottery Insider magazine is a
monthly digest of player strategies, human-interest stories and tips and
statistics of interest to all lottery players. A syndicated and award winning
editorial team head the groundbreaking publication.
LPC generated revenues of $2,650 for the year ended June 30, 1998.
Ark-Tel, Inc.
On May 15, 1998, and effective March 1, 1998, the Company, through its
newly formed wholly owned subsidiary, Academy Network Services, Inc. ("ANS"),
acquired certain capital leases related to telephone switching and platform
assets and office equipment (the "Ark-Tel Assets") of Ark-Tel, Inc., a wholly
owned subsidiary of UNSI. Pursuant to the related Asset Purchase Agreement, the
Company acquired assets with an estimated fair market value that approximated
related lease obligations in exchange for the forgiveness of amounts owed to the
Company of approximately $300,000. The excess of the total consideration paid
over the estimated fair value of net assets acquired approximated $300,000 and
was charged to expense during the year ended June 30, 1998. As a long distance
carrier, ANS provides the full telecommunications, customer service and
fulfillment support of the HitLoTTo(R) program as well as servicing the
telecommunications and support service needs of the Company's other
subsidiaries.
ANS generated revenues of $237,983 for the year ended June 30, 1998.
Premier Plus, Inc.
On April 7, 1998 the Company incorporated a new wholly-owned subsidiary,
Premier Plus, Inc. (PPI), as a network marketing company which sells and
distributes the Company's various telecommunication products and services,
including custom pre-paid calling cards, pre-paid calling cards, One-Plus
residential and business long distance services, Lottery Insider Magazine and
NPC's HitLoTTo(R) program. Premier Plus has exclusive marketing and distribution
rights with a number of leading sports and travel services providers. Premier
Plus, Inc. operates through approximately 200 independent sales representatives
nationwide who are centrally managed by the Company's operations in San
Francisco, California
PPI generated revenues of $341,571 for the year ended June 30, 1998.
Other Business History
On January 13, 1994, the Registrant entered into a Stock Purchase and
Business Combination Agreement (the "1994 Stock Purchase Agreement") with 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 NuOasis Resorts in exchange for the Registrant issuing to NuOasis
Resorts 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. The 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 NuOasis Resorts.
At the Closing, the Registrant issued to NuOasis Resorts, 2,000,000 shares
of the Registrant's common stock, 250,000 shares of Series B Preferred Stock,
6,000,000 New Class D Warrants, and an option to purchase up to an additional
6,160,000 shares of the Registrant's common stock, exercisable under certain
conditions (the "NuOasis Resorts 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 Stock, the New Class D
Warrants and the NuOasis Resorts 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.
In June 1997, the Company sold CMA back to NuOasis Resorts.
As a result of the 1994 Stock Purchase Agreement with NuOasis Resorts, a
change in voting control of the Registrant occurred in March 1994 and 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 at
September 30, 1994, NuOasis Resorts could 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 became, at that
time, a controlled subsidiary of NuOasis Resorts, a publicly-held company whose
shares are traded on NASD-OTC Bulletin Board.
Historical Operating Subsidiaries
(1)Casino Management of America, Inc.
CMA was formed for the purpose of acquiring gaming investments and
businesses and did not have any significant operations during the last three
fiscal years. CMA was sold to NuOasis Resorts in June 1997 (See NPC above).
(2) NuOasis Las Vegas, Inc. and NuOasis Laughlin, Inc.
NuOasis Las Vegas, Inc. and NuOasis Laughlin, Inc., both wholly owned
subsidiaries of CMA did not have any operations during the last three fiscal
years. NuOasis Las Vegas, Inc. and NuOasis Laughlin, Inc. were formed for the
purpose of acquiring gaming assets in the metropolitan Las Vegas, Nevada and
Laughlin, Nevada areas. NuOasis Las Vegas, Inc. and NuOasis Laughlin, Inc. were
sold, as part of CMA, to NuOasis Resorts in June 1997.
Change In Fiscal Year
During Fiscal 1996, the Registrant elected to change its fiscal year end
from September 30 to June 30 to coincide with NuOasis Resorts' 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.
ITEM 2. DESCRIPTION OF PROPERTIES.
(1) National Pools Corporation
NPC leases office space in San Francisco, California. The San Francisco
lease expires June 2002.
(2) Lottery Publication Corporation
LPC leases office space in Naples, Florida. The Naples lease expires
April 1999
(3) Academy Network Services, Inc.
ANC leases office space in Springdale, Arkansas, and Little Rock,
Arkansas. Both leases expire in March 2001.
ITEM 3. LEGAL PROCEEDINGS
On December 12, 1997, the Company received a lawsuit filed by John D.
Desbrow, former Officer and Director, against the Company for past services
allegedly due in the amount of approximately $13,000. This lawsuit has been
settled with Mr. Desbrow for $7,500. Group V is seeking reimbursement from Nona
in the amount of $7,500.
On August 28, 1998, the Company received a lawsuit filed by Worldcom
Network Services, Inc. to recover the sum of $2,208,362 allegedly due and owing
as a result of a debt that the Company allegedly guaranteed on behalf of UNSI.
The Company denies liability on the guarantee. A settlement conference has been
set for May 21, 1999.
On October 2, 1998 NPC received a Complaint (Pickett Communications Inc. v.
National Pools Corporation) in San Francisco Superior Court, Case No. 998281,
seeking unspecified monetary damages and challenging NPC's right to use the
HitLoTTo(R) logo. The Company was not served with this complaint until November
25, 1998. The Company filed an Answer to the Complaint on April 1, 1999.
On November 10, 1998, the Company filed legal action (Group V v. NuOasis
Resorts, Inc; Nona Morelli's II, Inc.; NuOasis International, Inc.; Fred Luke,
Jr.; Rocci Howe; Steven H. Dong; John D. Desbrow; Archer & Weed; Richard Weed)
in San Francisco Superior Court, Case No. 999131. The suit alleges fraud and
misrepresentation in the sale of securities, which were not qualified for sale
and professional malpractice against legal counsel representing the Defendants
in this transaction. All counsel have stipulated to a change in venue from San
Francisco to Orange County Superior Court. As of this date, the San Francisco
Court has transferred the file to the Orange County Court. However, the Orange
County Court has not assigned a case number to the file as of yet.
On January 6, 1999, the Company filed a lawsuit (Group V Corporation v.
Dennis Houston) in San Francisco Superior Court, Case No. 300348. This Complaint
alleges Breach of Fiduciary Duty by Mr. Houston for failing to disclose material
facts in the Ark-Tel Asset Purchase Agreement which have resulted in the
Company's being sued by Worldcom Network Services (see above).
On February 19, 1999 the Company received a lawsuit filed (Accountemps and
RHI Management Resources, Divisions of Robert Half International, Inc. v. Group
V Corporation) in San Francisco Superior Court, Case No. 301366. This Complaint
was filed for Breach of Contract to recover approximately $26,000 allegedly due
and owing for temporary employment services. The Company denies liability for
the amount claimed.
On July 26, 1999, the Company filed a lawsuit (Group V Corporation v.
Network Long Distance, Inc.)in the District Court, City and County of Denver,
Case No. 97 CV 4131, Division 7. The complaint was filed against Network Long
Distance, Inc. and their transfer agent to compel them to release the Network
Long Distance shares received in the NuOasis Exchange Agreement. A five-day
trial has been set to commence on September 13, 1999 in Denver, Colorado.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Registrant's common stock is listed on the NASD-OTC Bulletin Board
where they currently trade under the symbol "GRPV". 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 July 1996:
Bid Price of Common Stock
Fiscal 1997 Low High
Quarter ended 09/30/96 $.19 $.49
Quarter ended 12/31/96 $.11 $.28
Quarter ended 03/31/97 $.15 $.23
Quarter ended 06/30/97 $.16 $.40
Bid Price of Common Stock
Fiscal 1998 Low High
Quarter ended 09/30/97 $.20 $.22
Quarter ended 12/31/97 $.14 $.16
Quarter ended 03/31/98 $.13 $.16
Quarter ended 06/30/98 $.09 $.11
Such quotations reflect inter-dealer prices, without retail mark-up,
markdown or commissions and may not necessarily represent actual transactions.
As of June 30, 1998, the Registrant had 3,297 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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 $62,408 and $677,525 as of June 30, 1998 and
1997, respectively, and working capital of $(2,523,352) and $1,926,180 as of
June 30, 1998 and 1997, respectively.
Prior to the acquisition of NPC and sale of CMA, the Registrant received
financial support from NuOasis Resorts, and was dependent upon NuOasis Resorts
for future working capital. NuOasis Resorts is no longer a controlling parent
and will no longer fund the Registrant. The Registrant's plan of operation is to
actively search for additional sources of equity financing and new operating
opportunities. Subsequent to June 30, 1998, the Company raised gross proceeds of
$575,900 in a private placement of 14,120,019 shares of its common stock. In
addition, the Company expects that cash provided from operating activities will
increase as the products sold by the Company's newly formed wholly owned
subsidiaries gain market acceptance. The Company intends to operate with minimal
fixed overhead expenses and to use its common stock to satisfy it financial
obligations when possible. Ultimately, the Company's continued existence is
dependent upon the Company's successful development of NPC's HitLoTTo(R) product
and the ability of ANS to increase revenues and cash flow through Pre-paid
calling card sales and One Plus long distance services to achieve profitable
operations. Management expects the limited resources of the Company to cause
significant strain on the Company's financial, technical and other resources.
The Registrant is also pursuing other joint venture, merger or acquisition
opportunities that may provide additional capital resources during fiscal 1999.
Year 2000 Compliance
The Company does not believe that the impact of the year 2000 computer
issue will have a significant impact on its consolidated operations or
consolidated financial position. Also, the Company does not believe that it will
be required to significantly modify its internal computer systems, equipment or
products. However, if internal systems do not correctly recognize date
information when the year changes to 2000, there could be adverse impact on the
Company's consolidated operations. There can be no assurance that another
entity's failure to ensure year 2000 capability would not have an adverse effect
on the Company.
The vendor of the respective systems will upgrade and test all
telecommunications systems operated by the Company by the end of the second
quarter CY1999. At which time, compliance certificates from the vendors will be
on file at the Company's corporate offices. However, the Company is contracting
with other telecommunications carriers to run the Company's traffic using their
compliant telecommunications platforms in order the guarantee year 2000
compliance by the end of the third quarter CY1999.
All of the Company's hardware and software will be year 2000 compliant by
the end of the third quarter 1999. These systems include all finance and general
business computers, network file servers and database servers. The Company's
information technology department will perform all necessary hardware and
software upgrades and year 2000 tests.
ITEM 7. FINANCIAL STATEMENTS
Financial Statements are referred to in Item 13(a) and listed in the Index
to Consolidated 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 DISCLOSURE.
A Current Report on Form 8-K dated July 3, 1997 was filed on July 9, 1997,
reporting a change of accountants on July 3, 1997 from Raimondo Pettit &
Glassman to Haskell & White LLP.
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.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
(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, comprised of President,
Secretary and Chief Financial Officer. The same person may hold any two or more
officer positions. The directors and officers during fiscal year 1998 and fiscal
year 1997 are as follows:
- ------------------------------------------------------------------------------
Position Held
Name with the RegistraAge Dates of Service
- ------------------------------------------------------------------------------
Fred G. Luke Chairman of 52 March 30, 1994 to August 8, 1997
the Board and
President; March 30, 1994 to November 25, 1996
Chief Financial March 30, 1994 to October 24, 1994
Officer
- ------------------------------------------------------------------------------
John D. Desbrow Secretary 43 March 30, 1994 to July 20, 1994 and
November 8, 1994 to May 9, 1997
Director March 30, 1994 to July 20, 1994
- ------------------------------------------------------------------------------
Steven H. Dong Chief Financial 32 July 16, 1995 to Jan 8, 1998
Officer
- ------------------------------------------------------------------------------
Joseph Director and 50 November 25, 1996 to Present
Monterosso President
Chairman of August 8, 1997 to Present
the Board
- ------------------------------------------------------------------------------
Royce Warren Director 57 May 5, 1997 to August 8, 1997
- ------------------------------------------------------------------------------
Dennis Houston Director 54 August 8, 1997 to Present
Chief Operating July 1, 1997 to June 29, 1998
Officer
- ------------------------------------------------------------------------------
Paula Amanda Director 47 May 5, 1997 to June 30, 1997
- ------------------------------------------------------------------------------
Leland Rees Director 48 May 5, 1997 to December 10, 1998
- ------------------------------------------------------------------------------
Russell F. Director 43 September 23, 1998 to Present
McCann, Jr.
- ------------------------------------------------------------------------------
All directors of the Registrant hold office until the next annual meeting
of shareholders and until their successors have been elected and qualified.
Vacancies in the Board of Directors are filled by the remaining members of the
Board until the next annual meeting of shareholders. The same current Directors
stand for election at the Registrant's next annual meeting. 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.
Directors are elected by a favorable vote of a plurality of the shares of
voting stock present, entitled to vote, and actually voting, in person or by
proxy, at the Annual Meeting. Accordingly, abstentions or broker non-voters as
to the election of Directors do not affect the election of the candidates
receiving the plurality of votes. Properly executed, unrevoked proxies will be
voted FOR election of the above-named nominees unless the stockholders indicate
that the proxy shall not be voted for any one or all of the nominees.
(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.
Current Directors and Officers
Joseph Monterosso: Mr. Monterosso has used his entrepreneurial skills to launch
a variety of companies over the past 25 years, culminating with National Pools
Corporation in 1992. Prior to NPC, Monterosso embarked upon fulfilling his
lifelong dream of producing his own automobile after attending the Geneva Auto
Show in 1986. After raising over $45 million for funding, Monterosso founded
LAFORZA AUTOMOBILES, INC., which produced a four-wheel drive sport utility
vehicle for the luxury market and established a new mark in four-wheel drive
sport vehicles. Monterosso conceived the concept of a new kind of Sports Utility
Four Wheel Drive Vehicle when he discovered a unique Italian Sports Utility
Vehicle at the Geneva Auto Show in 1986. Monterosso negotiated the design,
licensing and purchase of the body stamps and dies from the manufacturer and
contracted Pininfarina in Turin to produce the automobile. Monterosso raised the
capital through U.S. investors and European partners. Monterosso negotiated all
vendor contracts in the U.S. and Italy, including the lengthy and delicate
negotiations with Ford to supply the power train and warranty. Monterosso headed
AutoItalia SpA, of Turin, the company that produced the automobile. Monterosso
supervised the redesign of the automobile to meet U.S. Department of
Transportation specifications and market expectations. Designing the interior
and the wheels himself, Monterosso resided in Turin at this time, commuting
monthly to his home in California, overseeing the production and delivery of the
automobile to the U.S.
Upon production of the finished body, interior and chassis in Turin, the LaForza
was flown to an after market assembler located in Detroit to receive the Ford
engine, drive train and electronics. A final fit and finish was done and the
LaForza was then delivered directly to the U.S. distributor, LaForza Automobiles
Inc., of Hayward, CA. LaForza Automobiles was independent of the Italian
production company, and was operated by a President and CPA. In late 1989,
LaForza Automobiles Inc., caught in the market downturn and resulting capital
crunch, could not finance their marketing operation and filed for bankruptcy
protection and ceased doing business, eventually being liquidated. Monterosso
tried to salvage the situation by seeking capital for the U.S. company, but was
unsuccessful as he was given only weeks notice of the impending financial
shortfall. Without a distribution network, Monterosso closed down the production
of the automobile, paid AutoItalia's creditors and shelved the designs for the
next generation of the automobile that were in process and returned to
California in Mid-1990.
AutoItalia produced 650 LaForza vehicles for the U.S. market, almost all are
still on the road today and are a highly sought after collector's item,
ironically selling for more today than their original price. In hindsight,
Monterosso believes that the market timing could have been better and
capitalization stronger, while the basic concept was sound. He believes that
this is shown by the fact that the rounded, aerodynamic LaForza body style, four
wheel-on-the-fly technology, elegant, luxurious yet Spartan design, has
subsequently been copied by every sports utility manufacturer currently
producing vehicles worldwide; and that the Sports Utility / Light Truck 4 x 4
market is now the strongest share of the U.S. auto market.
In June 1979, Monterosso was named Sales and Operating Vice President for Tony
Ward, Inc., an importer of forklifts from Japan. Monterosso left Tony Ward, Inc.
to found North American Forklift, Inc. in July 1980. While living in Australia
from 1970 - 1979, Monterosso founded three successful firms including a company
that manufactured custom wheels and imported accessories for off-road sport
vehicles, which was subsequently sold to Ford Motor Corporation in 1979.
Dennis D. Houston: Mr. Houston has served as Chief Operating Officer since July
1, 1997 and as a Director since August 8, 1997. In 1996, Mr. Houston joined the
Chesapeake and Potomac Telephone Co. (a former Bell Operating Company) as a
telecommunications consultant. He progressed through various executive
management positions in several of the (former) Bell Operating Companies before
moving to AT&T headquarters in New York City. His tenure with the Bell System
provided him with responsibilities and experience in commercial operations,
business office operations, network design, pricing, profitability, public
relations, personnel, Capitol Hill liaison, finance, sales and marketing. With
the advent of divestiture, Mr. Houston formed his own company initially
specializing in acquisitions and importing and exporting of telecommunication
equipment. Subsequently he formed several companies, including an organization
to franchise long distance companies, as well as the acquisition of financially
distressed telecommunications companies. In 1989, he led a group to acquire the
controlling interests in Uni-Net, Inc., a telecommunications holding company,
and subsequently merged its long distance telephone interests with Discount
Communications Services to help form the Universal Network Services
organization. In August 1998, Universal Network Services filed for protection
under Chapter 11 of the U.S. Bankruptcy Code.
Russell F. McCann, Jr.: Mr. McCann is President and CEO of Actio Software
Corporation. Co-founded in 1996 by Mr. McCann, Actio is a pioneer in providing
MSDS subscription services and chemical management services via the Internet.
The company maintains a sophisticated MSDS database supporting a variety of MSDS
standards. The database is the backbone of a chemical management and reporting
system, which is used to automatically comply with a wide range of local, state
and federal regulations.
Previous to Actio, Mr. McCann was Co-founder, President and CEO of Ares Software
Corporation. Ares invented and patented a parametric font technology that used a
single font outline that could be manipulated into a wide range of typeface
designs. This compact means of representing typefaces enabled printer
manufacturers to increase the number of typefaces offered in their printers
while simultaneously reducing memory requirements. Ares also had a wide range of
award winning Microsoft Windows and Apple Macintosh shrink-wrap software
products that were widely distributed through mail order resellers and computer
retailers. Ares Software Corporation was acquired by Adobe Systems Incorporated
in 1995.
Prior to Ares, Mr. McCann was Vice President of Marketing and Sales for Emerald
City Software. Emerald City Software produced software development tools for
Apple Macintosh and NeXT computer platforms and developed shrink-wrap software
products designed to produce special typographic and 3 dimensional effects using
an Adobe PostScript printer. Under Mr. McCann's marketing and sales leadership,
sales of Emerald City products increased 600% over a 1-year period. Emerald City
was acquired by Adobe Systems in March 1990.
Before joining Emerald City Software, Mr. McCann was Marketing Manager,
International Marketing Manager and Manager of Product Marketing for Letraset
Graphic Design Software. Letraset was a subsidiary of Esselte Business Systems
and produced a wide range of products for the graphics arts industry. Mr. McCann
was responsible for setting up all national and international distribution and
was instrumental in developing the product strategy designed to move Letraset
from a traditional graphic arts products company to a producer of graphic design
software.
Preceding Letraset he was President and Co-founder of Boston Software
Publishers. Boston Software Publishers developed the first commercially shipping
software product for the Apple Macintosh. The software product, MacPublisher,
helped define the desktop publishing software category. Letraset acquired Boston
Software Publishers in 1986.
Mr. McCann's first position after completing graduate school in 1982 was at Omni
Communications. Omni was a radio common carrier and cellular telephone licensee
in Massachusetts. While at Omni, Mr. McCann founded the Voice Exchange, an Omni
subsidiary, which was the first voice store and forward service bureau in the
northeast. The Voice Exchange used VMX voice messaging technology, enabling
hundreds of sales and customer service professionals a means of communicating
with their customers throughout the country. The Voice Exchange was profitable
within 8 months of establishment.
He has a Bachelor of Science with high honors in political science and economics
and an MBA in finance and marketing from Northeastern University and specialized
marketing studies from the Sloan School of Management at MIT.
Former Directors and Officers
Leland E. Rees: In his role as Chairman of National Pools Corporation's Advisory
Board, Leland E. Rees brought strong experience in government, public affairs
and finance. He was most recently with Rees and Associates, Inc., a legislative
advocacy and governmental affairs firm in Sacramento representing corporations,
non-profit organizations and several associations. Rees remains an officer and
director of Rees and Associates, Inc, which is wholly owned by he and his wife.
Rees has a strong background in finance and banking, as well as both public and
private accounting. He worked for five years in corporate banking helping to
finance large mergers and was the lead lending officer as well as training
officer for both credit analysis and corporate finance. He was invited by the
government of the Philippine Islands to instruct a two-week seminar on
"Financing Cooperatives" where he spoke to an audience of 100 bankers, attorneys
and accountants. Rees then spent 12 years with a Fortune 200 company negotiating
large, complex, domestic and international, government and commercial contracts
for missile systems and specialty chemicals. Rees joined that firm to start a
specialty chemical company which grew to a $20 million/year firm and was merged
into its parent. Rees is a founder and a major stockholder of Ventura County
National Bank in Oxnard, California. He holds a bachelor's degree in Accounting
from the University of Washington in Seattle, Washington and a master's degree
in Finance from Governor's State University in Park Forest South, Illinois.
Fred G. Luke: Mr. Luke was Chairman of the Board and President of the Registrant
since March 30, 1994 through August 8, 1997, and November 25, 1996,
respectively. 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 former position with the Registrant, Mr. Luke
currently serves as Chairman and Chief Executive Officer of the Registrant's
former parent company, Nona, as well as Chairman and President of NuVen
Advisors, Inc., ("NuVen Advisors"), 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"). Both Hart, DL&E and
Toen are public companies, which were formerly traded on NASDAQ or the OTC
Bulletin Board. None have ongoing operations. NuVen Advisors provides
managerial, acquisition and administrative services to public and private
companies including Nona, Hart, Toen and formerly the Registrant. Mr. Luke
received a Bachelor of Arts Degree in Mathematics from California State
University, San Jose in 1969.
John D. Desbrow: Mr. Desbrow served as Secretary of the Registrant from
March 30, 1994 to July 20, 1994 and from November 8, 1994 to May 9, 1997. He was
also a director of the Registrant from March 30, 1994 to July 20, 1994.
Additionally, Mr. Desbrow was Secretary of Nona from December 20, 1993 to May 9,
1997. 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 also served as a
Director and Secretary of Hart Industries, Inc. and as a director of The Toen
Group Inc. through May 9, 1997.
Steven H. Dong: Mr. Dong served as Chief Financial Officer of the
Registrant, since July 16, 1995 through January 1998. Mr. Dong, a Certified
Public Accountant, previously worked with the international accounting firm of
Coopers & Lybrand LLP since 1988. As a Business Assurance Manager with Coopers &
Lybrand LLP, Mr. Dong's experience consisted of providing financial accounting
and consulting services to privately and publicly held companies. Additionally,
Mr. Dong served as Chief Financial Officer of Nona Morelli's II, Inc. from July
16, 1995 through June 30, 1997 and of Hart Industries, Inc. and The Toen Group,
Inc. from April 24, 1996 through June 30, 1997. 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.
Royce Warren: Mr. Royce Warren is a consultant to the Cheyenne Casino &
Hotel in Las Vegas, Nevada. Mr. Warren has been a consultant to the Cheyenne
Casino & Hotel since November 1995. Since August 1, 1985, Mr. Warren has served
as President of The Cattle Baron Inc. whose projects include a restaurant and
casino hotel project in Henderson, Nevada. Mr. Warren has more than 25 years
experience in gaming
personnel recruitment.
Paula Amanda: Ms. Amanda used her legal and managerial skills to manage and
launch her own successful real estate development company 12 years ago. Most
recently, for the last five years, Ms. Amanda has served as in-house counsel for
Southern Pacific Transportation Company, specializing in environmental matters.
Amanda has extensive experience in all business and environmental matters which
has included critical management skills including: the ability to bring together
diverse interests in a cooperative and effective manner to accomplish often
difficult and complex tasks; experience in managing an $8 million per year
environmental budget for the Southern Pacific law department and developing and
implementing compliance with a myriad of state and federal laws and regulations.
Her strengths lie in the conflict resolutions and communication arenas. Ms.
Amanda graduated from UCLA in 1975 with a degree in South East Asian politics
and is a member of Phi Beta Kappa. She received her law degree from the
University of Santa Clara in 1979.
(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 June 30, 1997 through June 30,
1998, all Section 16(a) filing requirements applicable to its officers,
directors, and greater than ten-percent beneficial owners were complied with.
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. No other executive earned in excess
of $100,000.
------------------------------------------
LONG TERM COMPENSATION
------------------------------------------------------------
ANNUAL COMPENSATION Awards Payouts
- --------------------------------------------------------------------------------
Other Restricted All
Name and Fiscal Annual Stock LTIP Other
Principal Year Salary Bonus Comp Awards Options Payout Compensation
Position ($) ($) ($) ($) (#) ($) ($)
- --------------------------------------------------------------------------------
Joseph 1998 $175,000 - - - - - -
Monterosso 1997 $ 77,083(1)- - - - - -
President & 1996 - - - - - - -
Director
(11-25-96
through
present)
- --------------------------------------------------------------------------------
(1)Amounts incurred for fiscal year 1997 represent salary from December 24,1996,
through June 30, 1997; NPC was acquired on December 24, 1996.
(b) Option and Long Term Compensation
During fiscal year 1998 there were no options exercised.
(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, Consulting and Advisory Management Contracts
Current Officers and Directors
On April 1, 1994, NPC entered into an employment agreement with Joseph
Monterosso to serve as the Company's Chief Executive Officer. In conjunction
with the acquisition of NPC, Mr. Monterosso became the Company's President and
Director on November 25, 1996, and Chairman on August 8, 1997. Subsequent to
June 30, 1997, the Board ratified the agreement with Mr. Monterosso. The
agreement initially compensates Mr. Monterosso $125,000 per annum and $250,000
per annum upon the first sale of the Company's HitLoTTo(R) Club Card, payable in
cash or in common stock of the Company. The first sale of the Company's
HitLoTTo(R) Club Card occurred in February 1998.
Effective July 1, 1997, the Company entered into an employment agreement with
Dennis Houston to serve as the Company's Chief Operating Officer and a Director.
The agreement compensated Mr. Houston at the rate of $100,000 per annum through
December 31, 1997, and at the rate of $200,000 per annum through June 30, 2000,
payable in cash or in common stock. The agreement also granted Mr. Houston an
option to purchase 5,250,000 common shares of the Company at an exercise price
of $0.50 per share and participation in the Company's management bonus program.
The employment agreement and the option to purchase the 5,250,000 common shares
were both terminated and revoked in June 1998 with Mr. Houston's departure.
Former Officers and Directors
In August 1995, the Company entered into an employment agreement with Fred G.
Luke, the Company's former Chairman and President. Mr. Luke served as the
Company's Chairman and President since approximately March 31, 1994 through
August 8, 1997, and November 25, 1997, respectively. The terms of the employment
agreement call for Mr. Luke to receive $4,500 per month, retroactive to April 1,
1994, for five (5) years as a base salary; and grant him an option to purchase
3,000,000 shares of the Company's common stock at an exercise price of $.12 per
share. In May 1997, 198,715 common shares were issued in settlement of all
amounts owed to Mr. Luke as of May 5, 1997. The Company expensed $54,000 and
$40,500 during Fiscal 1997 and 1996, respectively, and had no amounts due to Mr.
Luke as of June 30, 1997. Mr. Luke's employment agreement was terminated
effective May 5, 1997.
Effective April 1, 1996, the Company renewed a consulting agreement with John D.
Desbrow, through March 31, 1997, to perform legal services and to hold the
office of Secretary. Under the renewed consulting agreement the Company
contracted to pay Mr. Desbrow $75,000 per annum for the renewal term payable in
the Company's common stock. In May 1997, 102,030 common shares were issued in
settlement of all amounts owed to Mr. Desbrow as of May 5, 1997. Under the terms
of the consulting agreement, Mr. Desbrow invoiced the Company and applied 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 $75,000. The
Company expensed $62,500 and $43,750, during Fiscal 1997, and had no amounts due
to Mr. Desbrow as of June 30, 1997. Mr. Desbrow's renewed consulting agreement
was terminated on May 5, 1997.
In July 1996, the Company renewed a consulting agreement with Steven H. Dong,
pursuant to which Mr. Dong is to perform accounting services and to hold the
office of Chief Financial Officer through June 30, 1997. Pursuant to the renewed
consulting agreement the Company agreed to pay Mr. Dong $39,000 per annum in
cash or in the Company's common stock, payable monthly in arrears. In May 1997,
237,500 common shares were issued in settlement of all amounts owed to Mr. Dong
as of May 5, 1997. Under the terms of the renewed consulting agreement, Mr. Dong
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. Dong and the Company have agreed the price paid for the
shares is deemed to be $39,000. The Company expensed $39,000 during Fiscal 1997
and had no amounts due to Mr. Dong as of June 30, 1998. Mr. Dong's renewed
consulting agreement was terminated effective May 5, 1997. Effective July 1,
1997, the Company entered into an employment agreement with Steven Dong to serve
as the Company's Chief Financial Officer. The agreement compensates Mr. Dong
$105,000 per annum through June 30, 1998, and $125,000 per annum through June
30,1999, payable in cash or in common stock of the Company. The agreement also
granted Mr. Dong an option to purchase 800,000 common shares of the Company at
an exercise price of $0.50 per share and participation in the Company's
management bonus program. This agreement was terminated and the option to
purchase 800,000 shares was revoked with the departure of Mr. Dong on January 8,
1999.
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. Jon Lawver is the majority shareholder of Lawver Corp. and thereby
controls Lawver Corp. Effective October 1, 1995, Group V and CMA renewed an
Advisory and Management Agreements with NuVen Advisors for the engagement of
NuVen Advisors to perform professional services for Fiscal 1997 and 1996.
Pursuant to such renewal, Group V and CMA agreed to pay NuVen Advisors $120,000
annually, payable monthly in arrears. In May 1997, 787,180 common shares were
issued in settlement of all amounts owed to NuVen Advisors as of May 5, 1997.
The Company expensed $240,000 during Fiscal 1997, and had no amounts due to
NuVen Advisors as of June 30, 1997. NuVen Advisors' agreement terminated, as it
relates to Group V, was effective May 5, 1997.
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. In May 1997, 1,000,000 common shares
were issued in settlement of all amounts owed to SAI as of May 5, 1997. The
Registrant expensed $200,000 during fiscal year 1997, and had no amounts due to
SAI as of June 30, 1997. SAI's agreement was terminated effective May 5,1997.
(e) Director Compensation
The Registrant has no standard arrangements by which its directors are
compensated.
(f) Interlocking Relationships of Directors
As of the date of this Report, there are no interlocking relationships of
Directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of December 31, 1998, 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 officers 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
Beneficially
Owned
Name and Addresses of Number Percentage
Beneficial Owners
Joseph Monterosso 1,434,654 2%
550 15th Street
San Francisco, CA 94103
Russell F. McCann, Jr. 7,089,347 7%
550 15th Street
San Francisco, CA
94103
All directors and 8,524,001 9%
executive officers as
a group
The following table sets forth, as of December 31, 1998, 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 the 14% Preferred Stock.
Shares of Series
B Preferred Stock
Beneficially Owned
Name and Address of Number Percentage
Beneficial Owner
Burt Boeckmann 9,750 6.5%
Dano Construction 9,508 9.0%
Marcy McCann 13,492 8.9%
Kenneth Steiner 9,904 6.6%
UNSI 21,959 14.6%
Joseph Monterosso 18,393 12.3%
Shares of
Preferred Stock
Beneficially Owned
Raymond C. Kitely 30,000 17.6%
20079 Glen Arbor Court
Saratoga, CA 95070
Eli Moshe 10,000 5.9%
110 S. Sweetzer, No. 301
Los Angeles, CA 90048
Walter K. Theis, M.D. 20,000 11.8%
1200 Corsica Drive
Pacific Palisades, CA
90272
David Seror, 77,500 45.6%
Chapter 7 Trustee for the
Estate of David A.
Paletz
221 N. Figueroa St.,
Room 800
Los Angeles, CA 90012
Neil Miller 15,000 8.8%
2790 Forrester Drive
Los Angeles, CA 90064
David Sheetrit 10,000 5.9%
c/o Moshe Shram
929 East Fourteenth Street
Los Angeles, CA 90021
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
a) Acquisition of Ark-Tel, Inc. Capital Leases
On May 15, 1998, and effective March 1, 1998, the Company, through its
newly formed wholly owned subsidiary, Academy Network Services, Inc. ("ANS"),
acquired certain capital leases related to telephone switching and platform
assets and office equipment (the "Ark-Tel Assets") of Ark-Tel, Inc., a wholly
owned subsidiary of UNSI. Pursuant to the related Asset Purchase Agreement, the
Company acquired assets with an estimated fair market value that approximated
related lease obligations in exchange for the forgiveness of amounts owed to the
Company of approximately $300,000. The excess of the total consideration paid
over the estimated fair value of net assets acquired approximated $300,000 and
was charged to expense during the year ended June 30, 1998. As a long distance
carrier, ANS provides the full telecommunications, customer service and
fulfillment support of the HitLoTTo(R) program as well as servicing the
telecommunications and support service needs of the Company's other
subsidiaries.
ANS generated revenues of $237,983 for the year ended June 30, 1998.
b) NuOasis Exchange Agreement
In October 1997, the Company entered into an Exchange Agreement with NuOasis
Resorts, Inc. in which the Company exchanged marketable securities with a net
book value of $1,585,000 for $700,000 in cash, a $500,000 6% secured promissory
note receivable and 3,600,000 shares of common stock of NuOasis. Upon the
closing of this Exchange Agreement, the Company received cash from NuOasis of
$441,801 and the remaining cash balance that was provided for in the Exchange
Agreement of $258,199 was applied against amounts Mr. Monterosso owed to NuOasis
pursuant to the Amended Option and the Warrant Note. Furthermore, the $500,000
6% secured promissory note receivable was also applied against amounts Mr.
Monterosso owed to NuOasis pursuant to the Amended Option and the Warrant Note.
Subsequently Mr. Monterosso has assigned all his rights to the Series D Warrant
and Option.
(c) Due to Stockholders
The Company's consolidated financial statements as of June 30, 1997 and for
the year then ended have been restated to reflect a liability that existed to
certain stockholders who contributed funds that permitted the Company to settle
certain NPC debts at significant discounts. In December 1998, the Company's
Board of Directors approved the issuance of 23,642,606 shares of the Company's
common stock to these stockholders. The Company recorded a related liability
based on the estimated fair value of the shares issued in the amount of $354,639
as of June 30, 1997.
d) Issuance of Options and Warrant Purchase Agreement
On June 13, 1996, NuOasis Resorts, Inc. ("NuOasis Resorts"), the then
controlling parent of Group V, granted an option (the "Option") to Joseph
Monterosso, the current President of the Company, to acquire 250,000 Series B
Preferred Shares of Group V (the "Series B Shares") owned by NuOasis Resorts.
The Option is exercisable at a price of $13.00 per share.
On December 19, 1996, Group V entered into Stock Purchase Agreements with
each of the shareholders of NPC pursuant to which Group V agreed to issue a
series of Secured Promissory Notes (the "Notes") in the aggregate principal
amount of $1,200,000 and 1,000,000 shares of Group V's restricted common stock
to the NPC shareholders in exchange for all of the issued and outstanding shares
of capital stock of NPC. The Notes are convertible into a maximum of 241,900,000
shares of Group V common stock. The conversion of the notes is contingent upon
NPC's operations achieving certain financial goals over the next several fiscal
years. The terms of the conversion are, for every $250,000 of net annual
operating income achieved by NPC, $7,500 in principal amount of the Notes may be
converted into 1,511,875 shares of restricted Group V common stock. The Notes
are non-recourse to Group V, secured by the assets of NPC, bear interest at 8%
per annum, and are due and payable on May 31, 1999. As part of this acquisition,
NuOasis Resorts and Group V agreed to a debt assumption agreement whereby all
Group V debt in excess of $20,000 on December 24, 1996, except for amounts owed
to certain affiliates, which have been converted into shares of Group V common
stock, was assumed by NuOasis Resorts. The NPC Stock Purchase Agreements closed
on December 24, 1996.
On June 13, 1997, Mr. Monterosso exercised the Option to purchase 128,041
Series B Shares, at $13.00 per share, by payment to NuOasis Resorts of
approximately $1,665,000. The 128,041 Series B Shares acquired may be
immediately converted into 9,987,198 shares of restricted Group V common stock.
Additionally, on June 13, 1997, Group V sold its wholly owned subsidiary, CMA,
Inc., to NuOasis Resorts for cash of $1,140,000, notes receivable for NPC
aggregating $245,836 and a credit against the NuOasis Resorts intercompany
account of $95,000.
On August 22, 1997 and effective June 13, 1996, the Option was amended (the
"Amended Option") to increase the exercise price for 21,959 of the Series B
Preferred shares from $13.00 per share to $72.20 per share, or approximately
$1,585,000 for the 21,959 shares of Series B Preferred Stock. The option to
purchase the remaining 100,000 Series B Preferred shares was terminated.
Concurrently, NuOasis Resorts granted Mr. Monterosso a new option to purchase
the remaining 100,000 Series B shares at an exercise price of $11.70 per share.
Additionally, as consideration for granting the new option, NuOasis Resorts
acquired the right to require Mr. Monterosso to purchase all or any remaining
unexercised shares of the 100,000 Series B shares in its entirety by September
1, 1998.
Closing on September 2, 1997, but effective June 30, 1997, Mr. Monterosso
exercised the Amended Option to purchase 21,959 Series B Shares, at $72.20 per
share, by payment to NuOasis Resorts of approximately $1,585,000. The 21,959
Series B Shares acquired may be immediately converted into 1,712,802 shares of
restricted Group V common stock. Concurrent with the exercise of the Amended
Option, Group V released NuOasis Resorts from liability, if any, arising from
any events while NuOasis Resorts controlled Group V, in exchange for
approximately $1,585,000 of marketable securities.
On September 2, 1997, NuOasis Resorts sold to Mr. Monterosso 6,000,000 New
Class D Warrants in consideration for a $1,800,000 promissory note secured by
the New Class D Warrants, due in September 1998. Each New Class D Warrant is
exercisable at $1.00 per share and entitles Mr. Monterosso to receive, upon
exercise, two shares of common stock, or a total of 12,000,000 common shares if
all New Class D Warrants have been exercised. The New Class D Warrants expire on
March 30, 2004, and to date, none of the New Class D Warrants have been
exercised.
On September 2, 1997, NuOasis Resorts granted to Mr. Monterosso an option
to purchase 7,800,000 common shares of the Company exercisable at $0.15 per
share after NuOasis Resorts' converted its remaining 100,000 shares of Series B
Preferred Stock into 7,800,000 common shares.
e) Advisory Agreements with Affiliates
The Luke Family Trust and Lawyer 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 October 1, 1995, Group V and CMA renewed
Advisory and Management Agreements with NuVen Advisors for the engagement of
NuVen Advisors to perform professional services for Fiscal 1997. Pursuant to
such renewal, Group V and CMA agreed to pay NuVen Advisors $120,000 annually,
payable monthly in arrears. In May 1997, 787,180 common shares were issued in
settlement of all amounts owed to NuVen Advisors as of May 5, 1997. The Company
expensed $240,000 and $135,000, during Fiscal 1997 and 1996, respectively, and
had no amounts due to NuVen Advisors as of June 30, 1997. NuVen Advisors'
agreement, as it relates to Group V, was terminated effective May 5, 1997.
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. In May
1997, 1,000,000 common shares were issued in settlement of all amounts owed to
SAI as of May 5, 1997. The Registrant expensed $200,000 during fiscal year 1997
and had no amounts due to SAI as of June 30, 1997.
SAI's agreement was terminated effective May 5,1997.
The Company also has certain arrangements with current and former officers
and directors that are described in Item 10 (d).
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
The financial statements listed in the accompanying index to consolidated
financial statements 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
[Ensure headings on consecutive pages after financial information is
entered]
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)
10.2 1989 Incentive Stock Option Plan.(1)
10.3 1991 Non-Qualified Stock Option Plan (incorporated by reference
herein from Proxy Statement for February 14, 1992 Annual Meeting
filed on February 5, 1992).
10.4 Employment Agreement between Phillips Gaming International, Inc. and
James R. Martin (incorporated by reference herein from amendment on
Form 8 filed February 4, 1993 to Form 8-K dated November 23, 1992).
10.5 1993 Incentive Stock Option Plan and 1993 Non-Qualified Stock Option
Plan (incorporated by reference herein from Proxy Statement for
March 4, 1993 Annual Meeting filed on February 5, 1993).
10.6 Employment Agreement of December 7, 1993 between E.N. Phillips
Company and Douglas J. Phillips (incorporated by reference from
10-KSB for fiscal year ended September 30, 1993, filed on or about
March 28, 1994.)
10.7 Stock Purchase and Business Combination Agreement of January 13,
1994 between Nona Morelli's II, Inc., Casino Management of America,
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)
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.(13)
10.29 Second Addendum to Consulting Agreement between NuOasis Gaming,
Inc. and John D. Desbrow.(13)
10.30 Second Addendum to Consulting Agreement between NuOasis Gaming,
Inc. and Steven H. Dong.(13)
10.31 Stock Purchase Agreement dated 12/19/96 with Exhibits A through F)
between Nu Oasis and NPC
10.32 Stock Purchase Agreement dated 5/4/97 between NuOasis and Nona
10.33 NPC letter to Fred G. Luke dated 6/4/97
10.34 Letter to/from Richard Skjerven dated 6/2/97 re: escrow
instructions SPA, between Nona and NPC
10.35 Assignment between NuOasis and Nona dated 5/5/97
10.36 Indemnification Agreement dated 5/30/97 between NuOasis and Nona
10.37 Indemnification Agreement dated 5/30/97 between NuOasis and Fred
Gordon Luke
10.38 Employment Agreement with Dennis Houston
10.39 Employment Agreement with Joseph Monterosso
10.40 Employment Agreement with Steven H. Dong
10.41 Ark-Tel Asset Purchase Agreement
10.42 NuOasis Exchange Agreement
24.1 Schedule of Subsidiaries.
27. Financial Data Schedule
(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.
(13) Previously filed by the Registrant on November 22, 1996, in its Annual
Report on Form 10KSB for the fiscal year ended June 30, 1996.
(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.
(4) On March 28, 1997, the Registrant filed an Amended Form 8-K/A dated
December 24, 1996, reporting the acquisition of National Pools
Corporation.
(5) On June 30, 1997, the Registrant filed on Form 8-K dated June 13, 1997,
reporting the partial exercise of the Monterosso Option.
(6) On July 9, 1997, the Registrant filed on Form 8K, dated July 3, 1997,
reporting the change of independent auditors from Raimondo, Pettit and
Glassman to Haskell & White LLP.
<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.
GROUP V CORPORATION
(formerly NuOasis Gaming, Inc.)
Date: April 16, 1999 By:
Joseph Monterosso, President and Director
Date: April 16, 1999 By:
Joseph Monterosso, President and Director
Date: April 16, 1999 By:
Russell F. McCann, Jr., Director
In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: April 16, 1999 By:
Joseph Monterosso, President and Director
Date: April 16, 1999 By:
Joseph Monterosso, President and Director
Date: April 16, 1999 By:
Russell F. McCann, Jr., Director
<PAGE>
GROUP V CORPORATION
(Formerly NuOasis Gaming, Inc.)
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.
GROUP V CORPORATION
(formerly NuOasis Gaming, Inc.)
Date: April 16, 1999 By: /s/Joseph Monterosso
------------------------------------------
Joseph Monterosso, President and Director
Date: April 16, 1999 By: /s/Joseph Monterosso
------------------------------------------
Joseph Monterosso, President and Director
Date: April 16, 1999 By: /s/Russell F. McCann, Jr.
------------------------------------------
Russell F. McCann, Director
In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: April 16, 1999 By: /s/Joseph Monterosso
------------------------------------------
Joseph Monterosso, President and Director
Date: April 16, 1999 By: /s/Joseph Monterosso
------------------------------------------
Joseph Monterosso, President and Director
Date: April 16, 1999 By: /s/Russell F. McCann, Jr.
------------------------------------------
Russell F. McCann, Director
<PAGE>
Table of Contents
Page
Independent Auditors' Report F-2
Financial Statements
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' (Deficit) Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-9
<PAGE>
F-2
INDEPENDENT AUDITORS' REPORT
Board of Directors
Group V Corporation
(formerly NuOasis Gaming, Inc.)
We have audited the accompanying consolidated balance sheet of Group V
Corporation (formerly NuOasis Gaming, Inc.) and subsidiaries (the "Company") as
of June 30, 1998, and the related consolidated statements of operations,
stockholders' (deficit) equity and cash flows for the years ended June 30, 1998
and 1997 (restated). 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 consolidated 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 provide a reasonable basis
for our opinion.
As discussed in Note 10, the Company has restated its previously issued 1997
consolidated financial statements.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of June 30, 1998, and the consolidated results of its operations and
its cash flows for the years ended June 30, 1998 and 1997 (restated), 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 and
Note 9 to the consolidated financial statements, the Company has suffered
recurring losses from operations, has net working capital and stockholders'
equity deficiencies and is involved in significant litigation. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
HASKELL & WHITE LLP
March 11, 1999
Newport Beach, California
<PAGE>
GROUP V CORPORATION
(Formerly NuOasis Gaming, Inc.)
Consolidated Balance Sheet
June 30, 1998
Assets
Current assets
Cash $62,408
Marketable securities (Notes 1 and 2) 189,741
Accounts receivable 10,086
Inventories 41,368
Prepaid expenses and other assets 15,918
---------
Total current assets 319,521
Equipment and furniture, net (Note 4) 740,776
Other assets 7,200
Total assets $1,067,497
<PAGE>
Consolidated Balance Sheet (continued)
June 30, 1998
Liabilities and Stockholders' (Deficit) Equity
Current liabilities
Accounts payable..................................$ 780,533
Accrued expenses and accrued interest............. 386,446
Convertible notes payable (Note 5)................ 1,200,000
Due to stockholders (Note 10)..................... 354,639
Capital lease obligations, current (Notes 3 and 9) 114,188
Deferred revenue.................................. 7,068
Total current liabilities 2,842,874
Noncurrent liabilities
Capital lease obligations,
noncurrent (Notes 3 and 9) 597,208
------------
Total liabilities 3,440,082
Commitments and contingencies (Notes 6 and 9)
Stockholders' (deficit) equity (Notes 6, 10 and 11)
Preferred stock - par value $.01; authorized
1,000,000 shares;14% cumulative convertible;
issued and outstanding 170,000 shares (aggregate
liquidation of $170,000) 1,700
Preferred Stock Series B - par value $2.00;
authorized, issued and outstanding
150,000 shares (aggregate liquidation
of $300,000) 300,000
Common stock - par value $.01; authorized
333,000,000 shares; 49,834,880 shares
issued and outstanding 498,348
Additional paid-in capital 16,635,791
Stockholders' receivables (515,967)
Unrealized loss on marketable securities (214,869)
Accumulated deficit (19,077,588)
Total stockholders'(deficit)equity (2,372,585)
Total liabilities and stockholders'
(deficit) equity $1,067,497
==========
<PAGE>
Consolidated Statements of Operations
For the Years Ended June 30, 1998 and 1997
For the Year Ended June 30,
1997
(Restated)
1998 Note 10)
Revenues $552,472 $ -
-------- ------
Cost and expenses
Sales, general and administrative 1,796,295 490,451
Professional services 569,860 287,284
Depreciation and amortization 71,891 34,226
Interest expense, net 125,119 137,089
Write off of excess purchase price over
basis of net assets acquired (Note 3) 316,497 3,318,107
Provision for affiliate receivables 770,839 -
(Note 2) ------- -----
Total costs and expenses 3,650,501 4,267,157
------------- -------------
Net loss from continuing operations (3,098,029) (4,267,157)
-------------- ---------------
Net loss from discontinued operations - (219,497)
(Notes 1 and 2) -------------- ---------------
Extraordinary item:
Debt forgiveness (Note 10) - 1,013,815
-------------- ---------------
Provision for income taxes 6,891 -
------- ---------
Net loss $ (3,104,920) $ (3,472,839)
============== ==============
Net loss applicable to common stock $ (3,128,720) $ (3,496,639)
============== ===============
Basic and diluted net(loss)per common share $ (.06) $ (.09)
======== ========
Weighted average common shares outstanding 49,889,880 40,059,880
========== ===============
<PAGE>
<TABLE>
Consolidated Statements of Stockholders' (Deficit) Equity
For the Years Ended June 30, 1998 and 1997
Unrealized Stock-
Preferred Stock Loss on Addi'l holders
Preferred Stock Series B Common Stock Stockholder Marketable Paid-In Accum (Deficit)
Shares Amount Shares Amount Shares Amount Receivable Securities Capital Deficit Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bal,7/1/96 170,000 $1,700 250,000 $500,000 30,000,000 $300,0000 $(1,447,080) $ - $12,376,190 $(12,299,829) $(769,019)
Exercise of stock
options 5,433,676 54,336 (584,167) 597,704 67,873
Issuance stock 3,626,204 36,262 612,947 649,209
Sale of CMA to
stockholder 1,447,080 799,478 2,246,558
Issuance of stock
in connection
with the
acquisition of NPC 1,000,000 10,000 115,000 125,000
Issuance of
release to
stockholder 1,585,468 1,585,468
Net loss (3,472,839) (3,472,839)
- -----------------------------------------------------------------------------------------------------------------------------------
Bal,6/30/97
(Restated-
Note 10) 170,000 1,700 250,000 500,000 40,059,880 400,598 (584,167) 16,086,787 (15,972,668) 432.250
-----------------------------------------------------------------------------------------------------------------------------------
Conversion of
Preferred Stock
Series B (100,000) (200,000) 7,800,000 78,000 122,000
Common stock
issuance 1,975,000 19,750 434,500 434,250
Reclassification
adjustment 8,000 (7,496) 504
Payments on
stockholder
receivables 60,200 60,200
Unrealized loss
on marketable
securities (214,869) (214,869)
Net loss (3,104,920) (3,104,920)
-----------------------------------------------------------------------------------------------------------------------------------
Bal,6/30/98 170,000 $1,700 150,000 $300,000 49,834,880 $498,348 $(515,967) $(214,869) 16,635,791 $(19,077,588)$(2,372,585)
======= ===== ======= ======= ========== ======= ======== ======= ========== =========== ==========
</TABLE>
<PAGE>
Consolidated Statements of Cash Flows
For the Years Ended June 30, 1998 and 1997
Increase (Decrease) in Cash and Cash Equivalents
For the Year Ended June 30,
1997
(Restated)
1998 (Note 10)
Cash flows from operating activities:
Net loss $(3,104,920) $ (3,472,839)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 71,891 32,350
Provision for affiliate receivables 770,839 -
Stock issued in payment of services 30,000 170,113
Write off of excess purchase price over
basis of net assets acquired 316,497 3,318,107
Realized gain on marketable securities (61,989) -
Unrealized loss on marketable securities 214,869 -
Debt forgiveness - (1,013,815)
Loss from discontinued operations - 219,497
Increase (decrease) from changes in:
Marketable securities (404,610) -
Accounts receivable and advances 45,407 (371,992)
Inventories (41,368) -
Prepaid expenses and other assets 69,082 (85,000)
Other assets 15,047 (4,133)
Accounts payable 368,287 (105,878)
Accrued expenses and accrued interest 22,352 26,032
Due to stockholders - 354,639
Deferred revenue and other liabilities (10,935) -
Net liabilities of discontinued operations - (219,497)
Due to/from affiliate - 607,869
------- -------
Net cash used in operating activities (1,699,551) (544,547)
---------- --------
Cash flows from investing activities:
Proceeds from sale of equity securities 662,289 -
Acquisition of equipment and furniture (62,803) -
Proceeds from sale of CMA - 1,140,000
------- -----------
Net cash provided by investing activities 599,486 1,140,000
------------ ------------
<PAGE>
Consolidated Statements of Cash Flows (continued)
For the Years Ended June 30, 1998 and 1997
Increase (Decrease) in Cash and Cash Equivalents
For the Year Ended June 30,
1997
Restated)
1998 (Note 10)
Cash flows from financing activities:
Proceeds from loans - 34,881
Payments on stockholders'receivables 38,200 121,259
Proceeds from issuance of equity securities 446,748 67,873
Repayment of loans - (142,025)
Net cash provided by financing activities 484,948 81,988
------------- -----------
Net (decrease) increase in cash (615,117) 677,441
Cash and cash equivalents, beginning of period 677,525 84
--------- ------
Cash and cash equivalents, end of period $ 62,408 $ 677,525
========== ============
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Income taxes $ 6,891 $ 800
========== =========
Interest $ - $ -
======= ======
Non-cash investing and financing activities:
Acquisition of equipment and furniture and
assumption of capital leases $ 711,395 $ -
Preferred Stock Series B converted to
common stock $ 200,000 $ 125,000
Purchase of NPC for accrued liability $ - $ 1,585,468
Purchase of NPC for notes payable $ - $ 799,478
Common Stock issued for stockholder receivables $ - $ 652,041
<PAGE>
1. Summary of Significant Accounting Policies and Business Activities
Description of Business
Group V Corporation (formerly, NuOasis Gaming, Inc.) (the "Company") was
originally incorporated in the State of Delaware in 1987. The Company has
historically operated as a holding company for leisure and entertainment
related businesses. During the year ended June 30, 1998 ("Fiscal 1998"),
the Company, through its wholly-owned subsidiaries, entered the one-plus
and pre-paid telecommunications industry, the network marketing industry
and the lottery publications and lottery club play industries.
Principles of Consolidation
The accompanying consolidated financial statements for the year ended June
30, 1997 ("Fiscal 1997"), include the accounts of Group V Corporation
("Group V"), Casino Management of America, Inc. ("CMA") through its
disposal date of June 13, 1997 (Note 2), and National Pools Corporation
("NPC") from its date of acquisition December 24, 1996 (Note 2).
The accompanying consolidated financial statements for the year ended June
30, 1998, include the accounts of Group V, NPC, Lottoworld Publication
Corporation, from its inception on October 15, 1997, Academy Network
Services, Inc., from its inception on May 15, 1998 (Note 3), and Premier
Plus, Inc., from its inception on April 7, 1998.
As used herein, the above is collectively referred to as the "Registrant"
or the "Company" unless the context indicates otherwise. All intercompany
accounts and transactions have been eliminated in consolidation.
As discussed in Note 10, the Company has restated its previously issued
1997 consolidated financial statements.
<PAGE>
1. Summary of Significant Accounting Policies and Business Activities
(continued)
Going Concern
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. However, the
Company has experienced recurring net losses, has net working capital and
stockholders' equity deficiencies and is involved in significant
litigation. These matters raise substantial doubt about the Company's
ability to continue as a going concern. Management's plan is to actively
search for additional sources of equity financing and new operating
opportunities. In addition, management expects that cash provided from
operating activities will increase as products sold by the Company's wholly
owned subsidiaries gain market acceptance. Management expects to continue
to operate with minimal fixed overhead expenses and to use its stock to
satisfy its financial obligations. The ultimate outcome of these plans is
uncertain and the consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty
Discontinued Operation
The sale of CMA in June 1997 was accounted for as a discontinued operation
and, accordingly, its operating results were segregated and reported as
discontinued operations in the consolidated statements of operations and
cash flows for the year ended June 30, 1997 (Note 2). The following table
summarizes amounts recorded as the net loss of discontinued operation in
the accompanying consolidated statements of operations for the year ended
June 30, 1997:
General and administrative expenses $ 100
Professional services 219,397
- ----------------------------------------------------------------------
Net loss of discontinued operation $ 219,497
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.
<PAGE>
1. Summary of Significant Accounting Policies and Business Activities
(continued)
Cash Equivalents
Cash equivalents are highly liquid investments with maturity of three
months or less when acquired.
Marketable Securities
As of June 30, 1998, marketable securities consist of 2,022,292 shares of
common stock of NuOasis Resorts, Inc., a stockholder (Note 2). The Company
has classified these equity securities as available-for-sale and,
accordingly, they are presented in the accompanying consolidated balance
sheet at their estimated fair market value based on quoted market prices as
of June 30, 1998.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards ("SFAS") No. 107 requires
disclosure about fair value for all financial instruments whether or not
recognized, for financial statement purposes. Disclosure about fair value
of financial instruments is based on pertinent information available to
management as of June 30, 1998 and considerable judgment is necessary to
interpret market data and develop estimated fair value. The Company has
determined that the fair value of all financial instruments, which include
accounts receivable, notes payable, and capital lease obligations,
approximated their carrying value as of June 30, 1998.
Inventories
Inventories are valued at the lower of cost or market, with cost being
determined on the average cost method.
<PAGE>
1. Summary of Significant Accounting Policies and Business Activities
(continued)
Equipment and Furniture
Equipment and furniture are recorded at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the
related assets which is five to seven years. Maintenance and repairs are
charged to operations as incurred.
During the year ended June 30, 1998, the Company acquired certain capital
leases relating to telephone switching and platform assets and office
equipment (Note 3). Such assets have been recorded at their estimated fair
market value on the date of acquisition and are depreciated using the
straight-line method over their estimated useful lives which range from
three to ten years.
Income Taxes
The Company uses the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Current income taxes are based on the
year's income taxable for federal and state income tax reporting purposes.
Accounting for Employee Stock Options
In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Stock-Based Compensation." In conformity with
the provisions of SFAS No. 123, the Company has determined that it will not
change to the fair value method prescribed by SFAS No. 123 and will
continue to follow Accounting Principles Board Opinion No. 25 for
measurement and recognition of employee stock-based transactions. There
were no stock options granted to employees during Fiscal 1998 and 1997.
Issuance of Stock for Services
Shares of the Company's common stock issued for services are recorded in
accordance with SFAS No. 123 at the fair market value of the stock issued
or the fair market value of the services provided, whichever value is more
reliably measurable. The value of the services are typically stipulated by
contractual agreements.
<PAGE>
1. Summary of Significant Accounting Policies and Business Activities
(continued)
Loss per Common Share
Loss per common share is computed based on the net loss for each period, as
adjusted for dividends required on preferred stock ($23,800 for each of
Fiscal 1998 and Fiscal 1997) 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. A
schedule of common shares reserved for issuance upon conversion, redemption
or exercise of various equity securities is included in Note 6.
Recent Accounting Developments
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in an entity's financial statements. This statement requires an
entity to classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in-capital in the equity section of a statement of financial position.
This standard is effective for fiscal years beginning after December 15,
1997 and the Company expects to adopt the provision of this statement in
the fiscal year that begins July 1, 1998. Had the Company adopted this
statement during Fiscal 1998, the unrealized loss on marketable securities
in the amount of $214,869 would have been included as a component of the
Company's comprehensive loss for the year ended June 30, 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement requires public
enterprises to report financial and descriptive information about its
reportable operating segments and establishes standards for related
disclosures about product and services, geographic areas, and major
customers. This standard is effective for fiscal years beginning after
December 15, 1997 and the Company expects to adopt the provisions of this
statement in the fiscal year that begins July 1, 1998. Management does not
expect this statement to significantly impact the Company's consolidated
financial statements.
<PAGE>
2. Acquisition of National Pools Corporation and Change in Control of the
Company
On June 13, 1996, NuOasis Resorts, Inc (formerly, Nona Morelli's II, Inc.)
("NuOasis") or ("Nona"), the then controlling parent of Group V, granted an
option (the "Option") to Joseph Monterosso, the current President of the
Company, to acquire 250,000 Series B
Preferred Shares of Group V (the "Series B Shares") owned by NuOasis. The
Option is exercisable at a price of $13.00 per share.
On December 19, 1996, Group V entered into Stock Purchase Agreements with
each of the shareholders of NPC pursuant to which Group V agreed to issue a
series of Secured Promissory Notes (the "Notes") in the aggregate principal
amount of $1,200,000 and 1,000,000 shares of Group V's restricted common
stock to the NPC shareholders in exchange for all of the issued and
outstanding shares of capital stock of NPC. The Notes are convertible into
a maximum of 241,900,000 shares of Group V common stock. The conversion of
the Notes are contingent upon NPC's operations achieving certain financial
goals over the next several fiscal years. The terms of the conversion are,
for every $250,000 of net annual operating income achieved by NPC, $7,500
in principal amount of the Notes may be converted into 1,511,875 shares of
restricted Group V common stock. The Notes are non-recourse to Group V,
secured by the assets of NPC, bear interest at 8% per annum, and are due
and payable on May 31, 1999 (Note 5). As part of this acquisition, NuOasis
and Group V agreed to a debt assumption agreement whereby all Group V debt
in excess of $20,000 on December 24, 1996, except for amounts owed to
certain affiliates, which have been converted into shares of Group V common
stock, was assumed by NuOasis (Note 10). The NPC Stock Purchase Agreements
closed on December 24, 1996.
On June 13, 1997, Mr. Monterosso exercised the Option to purchase 128,041
Series B Shares, at $13.00 per share, by payment to NuOasis of
approximately $1,665,000. The 128,041 Series B Shares acquired may be
immediately converted into 9,987,198 shares of restricted Group V common
stock. Additionally on June 13, 1997, Group V sold its wholly owned
subsidiary, CMA, to NuOasis for cash of $1,140,000, notes receivable from
NPC aggregating $245,836, and a credit against the NuOasis intercompany
account of $95,000. The Fiscal 1997 operations of CMA through the sale date
of June 13, 1997 has been presented as a discontinued operation in the
accompanying consolidated statements of operations and cash flows for the
year ended June 30, 1997 (Note 1). The gain on sale of CMA of $799,478 has
been accounted for as a capital contribution in the accompanying
consolidated statements of stockholders' equity for the year ended June 30,
1997.
<PAGE>
2. Acquisition of National Pools Corporation and Change in Control of the
Company (continued)
On August 22, 1997 and effective June 13, 1996, the Option was amended (the
"Amended Option") to increase the exercise price for 21,959 of the Series B
Shares from $13.00 per share to $72.20 per share, or approximately
$1,585,000 for the 21,959 shares of Series B Preferred Stock. The option to
purchase the remaining 100,000 shares of Series B Shares was terminated.
Concurrently, NuOasis granted Mr. Monterosso a new option to purchase the
remaining 100,000 Series B Shares at an exercise price of $11.70 per share.
Additionally, as consideration for granting the new option, NuOasis
acquired the right to require Mr. Monterosso to purchase all or any
remaining unexercised shares of the 100,000 Series B Shares in its entirety
by September 1, 1998.
Closing on September 2, 1997, but effective June 30, 1997, Mr. Monterosso
exercised the Amended Option to purchase 21,959 Series B Shares, at $72.20
per share, by payment to NuOasis of approximately $1,585,000. The 21,959
Series B Shares acquired may be immediately converted into 1,712,802 shares
of restricted Group V common stock. Concurrent with the exercise of the
Amended Option, Group V released NuOasis from liability, if any, arising
from any events while NuOasis controlled Group V, in exchange for
approximately $1,585,000 of marketable securities. Such consideration has
been accounted for as a capital contribution in the accompanying statements
of stockholders' equity for the year ended June 30, 1997.
On September 2, 1997, NuOasis granted to Mr. Monterosso an option to
purchase 7,800,000 common shares of the Company exercisable at $0.15 per
share after NuOasis's election to convert its remaining 100,000 shares of
Series B Preferred Stock into 7,800,000 common shares.
On September 2, 1997, NuOasis sold to Mr. Monterosso 6,000,000 New Class D
Warrants in consideration for a $1,800,000 promissory note secured by the
New Class D Warrants, due in September 1998 (the "Warrant Note"). Each New
Class D Warrant is exercisable at $1.00 per share and entitles Mr.
Monterosso to receive, upon exercise, two shares of common stock, or a
total of 12,000,000 common shares if all the 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.
<PAGE>
2. Acquisition of National Pools Corporation and Change in Control of the
Company (continued)
In October 1997, the Company entered into an Exchange Agreement with
NuOasis in which the Company exchanged marketable securities with a net
book value of $1,585,000 for $700,000 in cash, a $500,000 6% secured
promissory note receivable and 3,600,000 shares of common stock of NuOasis.
Upon the closing of the Exchange Agreement, the Company recovered cash from
NuOasis of $441,801 and the remaining cash balance that was provided for in
the Exchange Agreement of $258,199 was applied against amounts Mr.
Monterosso owed to NuOasis pursuant to the Amended Option and Warrant Note.
In addition, the $500,000 6% secured promissory note receivable was not
ultimately received by the Company as such amount was also applied against
amounts Mr. Monterosso owed to NuOasis pursuant to the amended options and
the Warrant Note.
As a result of these transactions, the Company has recorded a provision for
affiliate receivable in the amount of $758,199 during the year ended June
30, 1998.
In November 1998, the Company filed suit against NuOasis and others
alleging fraud and misrepresentation in connection with the above
transactions (Note 9).
As a result of the Company's acquisition of NPC and the sales and purchases
of the Series B Preferred Stock, as discussed above, a change in control of
the Registrant has occurred and the Registrant is no longer a controlled
subsidiary of NuOasis.
Basis of Presentation of Acquisition
The acquisition of NPC presents Group V as the accounting acquirer. Since
conversion of the Notes (see Note 5) is based upon future earnings of NPC,
which is ultimately based upon the success of the Hit-LoTTo program, the
probability of the conversion is currently undeterminable and uncertain.
Although control of Group V may be transferred to the NPC shareholders upon
conversion of the Notes due to this uncertainty, the acquisition of NPC has
been accounted for under the purchase method of accounting in accordance
with APB No. 16 with Group V deemed the accounting acquirer.
<PAGE>
2. Acquisition of National Pools Corporation and Change in Control of the
Company (continued)
The following table summarizes the assets acquired and liabilities assumed
by the Company in connection with its acquisition of NPC, which closed on
December 24, 1996.
Employee advances $ 30,939
Fixed assets, net 45,232
Software, net 38,245
Other assets 5,455
Goodwill 3,318,107 (a)
Liabilities assumed (2,112,978)
Total consideration $1,325,000 (b)
(a) The excess of the purchase price over the fair market value of the net
assets acquired was approximately $3,318,107 and was allocated to
goodwill. Due to the Registrant's and NPC's historical negative cash
flows from operations and working capital deficit, the goodwill of
$3,318,107 was immediately written off.
(b) Total consideration consists of convertible notes payable of $1,200,000
(Note 5) and common stock aggregating $125,000 based on the fair value of
the Company's common stock on the close date.
3. Acquisition of Ark-Tel, Inc. Leases
In September 1997, the Company agreed in principle to acquire a 50%
convertible net profits interest ("Net Profits Interest") in Universal
Network Services, Inc. ("UNSI"). NPC's Chief Operating Officer is a
shareholder and officer of UNSI. The Net Profits Interest will provide the
Company with up to 50% of UNSI's net operating profit and grant the Company
the option to convert its Net Profits Interest into an equity interest of
up to 100% of UNSI's issued and outstanding common stock. During the
quarter ended March 31, 1998, the Company abandoned its acquisition of the
Net Profits Interest in UNSI and recorded $22,500 in related professional
services expense. UNSI is an interexchange carrier that provided
telecommunications services to both residential and business customers
throughout the United States and certain foreign countries. In August 1998,
UNSI filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
<PAGE>
3. Acquisition of Ark-Tel, Inc. Leases (continued)
On May 15, 1998, and effective March 1, 1998, the Company acquired the
telephone switching and platform assets and office equipment of Ark-Tel,
Inc., a wholly owned subsidiary of UNSI. Pursuant to the related Asset
Purchase Agreement, the Company acquired certain capital and operating
leases whose remaining outstanding principle balances approximated the
estimated fair value of the related equipment. In exchange, the Company
forgave approximately $300,000 that was owed to the Company. The excess of
the total consideration paid over the estimated fair value of net assets
acquired of approximately $300,000 was charged to expense during the year
ended June 30, 1998.
4. Equipment and Furniture
Equipment and furniture, net is comprised of the following at June 30,
1998:
Telecommunications equipment $ 711,396
Office equipment, furniture and fixtures 94,080
805,476
Less accumulated depreciation (64,700)
$ 740,776
=================
As of June 30, 1998, the Company has telecommunications equipment under
capital leases that a ggregated $711,396 and related accumulated depreciation of
$32,416 (Note 3).
5. Convertible Notes Payable
In connection with the Stock Purchase Agreements with each of the
shareholders of NPC (Note 2), the Company issued Secured Promissory Notes
(the "Notes") in the aggregate principal amount of $1,200,000. The Notes
are convertible into a maximum of 241,900,000 shares of Group V common
stock. The conversion of the Notes is contingent upon NPC's operations
achieving certain financial goals over the next several fiscal years. The
terms of the conversion are, for every $250,000 of net annual operating
income achieved by NPC, $7,500 in principal amount of the Notes may be
converted into 1,511,875 shares of restricted Group V common stock. The
Notes are non-recourse to Group V, secured by the assets of NPC, bear
interest at 8% per annum, and are due and payable, with related interest,
on May 31, 1999.
<PAGE>
6. Stockholders' (Deficit) Equity
Common Shares Reserved for Issuance
At June 30, 1998, 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 and outstanding 11,700,000
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 (exercisable at $.50 per share) 12,000,000
1993 Incentive and Non-qualified Stock
Options - available for grant 1,200,000
1991 Non-qualified Stock Options - available for grant 600,000
1989 Incentive Stock Options - available for grant 500,000
1989 Non-qualified Stock Options - available for grant 500,000
Other stock options:
Grants outstanding 847,500
NPC Convertible Notes Payable (Note 5) 214,900,000
Total 248,537,500
None of the common stock purchase warrants have been exercised as of the
date of this report, accordingly, no shares have been issued or reflected
in the stockholders' (deficit) equity section of the accompanying
consolidated balance sheet.
<PAGE>
6. Stockholders' (Deficit) Equity (continued)
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 when declared.
Dividends on common stock may not be paid unless provision has been made
for payment of preferred dividends.
No 14% Preferred Stock was converted and no dividends were declared or paid
on the 14% Preferred Stock during Fiscal 1998 and 1997. Dividends in
arrears aggregated $182,025 at June 30, 1998.
The 14% Preferred Stock has a liquidation preference of the original
purchase price ($1.00 per share) plus unpaid dividends on each share
thereof. The balance of proceeds of liquidation, if any, is 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
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.
<PAGE>
6. Stockholders' (Deficit) Equity (continued)
In March 1994, pursuant to a 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. As discussed
in Note 2, Nona sold 150,000 shares of Series B Preferred Stock to Mr.
Monterosso and converted the remaining 100,000 shares of Series B Preferred
Stock into 7,800,000 shares of the Company's common stock (Note 2).
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.
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 placement 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.
<PAGE>
6. Stockholders' (Deficit) Equity (continued)
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 year 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.
In March 1994, pursuant to a 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. In September 1997, Nona sold the New
Class D Warrants to Mr. Monterosso for a $1,800,000 promissory note secured
by the New Class D Warrants (Note 2).
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
<PAGE>
6. Stockholders' (Deficit) Equity (continued)
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.
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 or exercised during fiscal years 1998 or
1997. During Fiscal 1997, 150,000 options expired and were canceled.
600,000 options remain available for grant as of June 30, 1998.
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 own 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 or exercised during fiscal
years 1998 or 1997. During Fiscal 1997, 50,000 options expired and were
canceled. 500,000 options remain available for grant as of June 30, 1998.
<PAGE>
6. Stockholders' (Deficit) Equity (continued)
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 or exercised during fiscal years 1998 or 1997.
During Fiscal 1997, 200,000 options expired and were canceled. 500,000
options remain available for grant as of June 30, 1998.
The Nona Option
In March 1994, pursuant to a stock purchase agreement with Nona and CMA,
the Company granted to Nona a nontransferable option for the purchase of up
to 6,160,000 shares of the Company's common stock. The exercise price and
total number of shares that can be purchased upon exercise of the option is
equal to the exercise price and 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 expired 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. In conjunction with
the sale of the New Class D Warrants (Note 2), Nona also sold its rights to
exercise any remaining unexercised New Class A, New Class B and New Class C
Warrants.
<PAGE>
6. Stockholders' (Deficit) Equity (continued)
Other Stock Options
A summary of other stock option transactions for Fiscal 1998 and 1997 is as
follows:
Year Ended Year Ended
June 30, 1998 une 30, 1997
Outstanding at beginning of year 847,500 6,281,176
Granted - -
Exercised - (5,433,676)
Cancelled - -
Issued - -
--------- ---------
Outstanding at end of year 847,500 847,500
Stock Options Exercised
During Fiscal 1997, 5,433,676 common shares were issued upon exercise of
options by affiliates of the Company in the aggregate amount of $652,041 or
$.12 per share. The Company received notes in the aggregate amount of
$584,167 and aggregate cash payments of $67,874 as consideration for the
exercise of these options. The notes were originally due in May 1998 and
earn interest at 10% per annum.
Shares Issued to Advisors
During Fiscal 1997, 3,626,040 common shares were issued primarily to
advisors and consultants for services rendered during Fiscal 1997 and 1996.
In accordance with SFAS No. 123, the Company recorded related expenses
based on the fair value of the services received which was more reliably
measurable.
<PAGE>
7. Related Party Employment and Consulting Agreements
Officers and Directors
On April 1, 1994, NPC entered into an employment agreement with Joseph
Monterosso to serve as NPC's Chief Executive Officer. In conjunction with
the acquisition of NPC, Mr. Monterosso became the Company's President and
Director on November 25, 1996, and Chairman on August 8, 1997. The
agreement compensates Mr. Monterosso $125,000 per annum and $250,000 per
annum upon the first sale of the Company's HitLoTTo(R) Club Card, payable
in cash or in common stock of the Company. The Company sold its first
HitLoTTo(R) Club Card in February 1998.
Effective July 1, 1997, the Company entered into an employment agreement
with Dennis Houston to serve as the Company's Chief Operating Officer and a
Director. The agreement compensates Mr. Houston $100,000 per annum through
December 31, 1997, and $200,000 per annum through June 30, 2000, payable in
cash or in common stock. The agreement also granted Mr. Houston an option
to purchase 5,250,000 common shares of the Company at an exercise price of
$0.50 per share and participation in the Company's management bonus
program. This agreement, and related stock options, was terminated in June
1998.
In July 1996, the Company renewed a consulting agreement with Steven H.
Dong, pursuant to which Mr. Dong is to perform accounting services and to
hold the office of Chief Financial Officer through June 30, 1997. Pursuant
to the renewed consulting agreement the Company agreed to pay Mr. Dong
$39,000 per annum in cash or in the Company's common stock, payable monthly
in arrears. In May 1997, 237,500 common shares were issued in settlement of
all amounts owed to Mr. Dong as of May 5, 1997. Under the terms of the
renewed consulting agreement, Mr. Dong 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. Dong and the
Company have agreed the price paid for the shares is deemed to be $39,000.
The Company expensed $39,000 during Fiscal 1997, and had no amounts due to
Mr. Dong as of June 30, 1998. Mr. Dong's renewed consulting agreement was
terminated effective May 5, 1997. Effective July 1, 1997, NPC entered into
a new employment agreement with Mr. Dong to perform accounting services and
to hold the office of Chief Financial Officer. The agreement compensates
Mr. Dong $105,000 per annum through June 30, 1998, and $125,000 per annum
through June 30, 1999, payable in cash or in common stock of the Company.
The agreement also granted Mr. Dong an option to purchase 800,000 common
shares of the Company at an exercise price of $0.50 per share and
participation in the Company's management bonus program. This agreement,
and related stock options, was terminated in January 1998.
<PAGE>
7. Related Party Employment and Consulting Agreements (continued)
In August 1995, the Company entered into an Employment Agreement with Fred
G. Luke, the Company's former Chairman and President. Mr. Luke served as
the Company's Chairman and President since approximately March 30, 1994
through August 8, 1997, and November 25, 1996, respectively. The terms of
the Employment Agreement call for Mr. Luke to receive $4,500 per month,
retroactive to April 1, 1994, for five (5) years as a base salary; and,
grant him an option to purchase 3,000,000 shares of the Company's common
stock at an exercise price of $.12 per share. In May 1997, 198,715 common
shares were issued in settlement of all amounts owed to Mr. Luke as of May
5, 1997. The Company expensed $54,000 during Fiscal 1997, and had no
amounts due to Mr. Luke as of June 30, 1998. Mr. Luke's Employment
Agreement was terminated effective May 5, 1997.
Effective April 1, 1996, the Company renewed a consulting agreement with
John D. Desbrow through March 31, 1997 to perform legal services and to
hold the office of Secretary. Under the renewed consulting agreement the
Company contracted to pay Mr. Desbrow $75,000 per annum for the renewal
term payable in the Company's common stock. In May 1997, 102,030 common
shares were issued in settlement of all amounts owed to Mr. Desbrow as of
May 5, 1997. 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 $75,000. The Company expensed $62,500
during Fiscal 1997, and had no amounts due to Mr. Desbrow as of June 30,
1998. Mr. Desbrow's renewed consulting agreement was terminated on May 5,
1997.
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. Jon Lawver is the majority shareholder of Lawver Corp.
and thereby controls Lawver Corp. Effective October 1, 1995, Group V and
CMA renewed Advisory and Management Agreements with NuVen Advisors for the
engagement of NuVen Advisors to perform professional services in fiscal
1997. Pursuant to such renewal, Group V and CMA agreed to pay NuVen
Advisors $120,000 annually, payable monthly in arrears. In May 1997,
787,180 common shares were issued in settlement of all amounts owed to
NuVen Advisors as of May 5, 1997. The Company expensed $240,000 during
fiscal 1997, and had no amounts due to NuVen Advisors as of June 30, 1998.
NuVen Advisors' agreements were terminated effective May 5, 1997.
<PAGE>
7. Related Party Employment and Consulting Agreements (continued)
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 year 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. In May 1997, 1,000,000 common shares were issued in
settlement of all amounts owed to SAI as of May 5, 1997. The Registrant
expensed $200,000 during fiscal years 1997, and had no amounts due to SAI
as of June 30, 1998. SAI's agreement was terminated effective May 5, 1997.
8. Income Taxes
The income tax effects of significant items comprising the Company's net
deferred income tax assets and liabilities as of June 30, 1998 and 1997 are as
follows:
1998 1997
Accrued expenses $ - $ 185,000
Valuation allowance - (185,000)
--------- ---------
Current portion of deferred tax
liabilities $ - $ -
========= =========
<PAGE>
8. Income Taxes (continued)
1998 1997
Depreciation and amortization $ - (3,000)
Net operating loss carryforwards 4,632,000 3,470,000
Valuation allowance (4,632,000) (3,467,500)
---------- ----------
Long-term portion of deferred
tax liabilities $ - $ -
========= =========
The reconciliation of income taxes computed at the federal statutory tax rate to
income tax expense at the effective income rate is as follows:
1998 1997
Federal statutory income tax (benefit)rate (34.0)% (34.0)%
Increases(decreases) resulting from:
Write off of excess purchase price over
basis of net assets acquired 9.2 36.1
Net change in valuation allowance 24.8 (2.1)
Effective income benefit rate -% -%
The Company has federal and state net operating losses ("NOL's")
approximating $12,747,600 and $7,384,400, respectively, as of June 30,
1998. A significant portion of the NOL's resulted from the acquisition of
NPC and may be subject to ownership change limitations. The federal NOL's
carryforwards begin to expire in fiscal year 2005. The state NOL's
carryforwards begin to expire in fiscal year 1999. In addition, utilization
of the NOL's may be limited on Section 382 of the Internal Revenue Code due
to additional ownership changes.
At June 30, 1998 and 1997, a 100% valuation allowance has been provided to
reduce the Company's net deferred tax assets for the amount by which the
deferred tax asset exceeded the net deferred tax liability resulting from
all temporary differences. The Company has provided the allowance since
management could not determine that is was "more likely than not" that the
benefits of the deferred tax assets would be realized.
<PAGE>
9. Commitments and Contingencies
Legal Proceedings
On August 28, 1998, the Company received a lawsuit filed by Worldcom
Network Services, Inc. to recover the sum of $2,208,362 allegedly due as a
result of debt that the Company allegedly guaranteed on behalf of UNSI
(Note 3). The Company denies liability on the guarantee. A settlement
conference has been set for May 21, 1999 and discovery has not yet
commenced.
On November 25, 1998, NPC received a complaint seeking unspecified monetary
damages and challenging NPC's right to use the HitLoTTo(R) logo. The
Company filed an answer to this complaint on April 1, 1999 and discovery
has not yet commenced.
On February 19, 1999, the Company received a complaint for Breach of
Contract to recover approximately $26,000 allegedly due for temporary
employment services. The Company denies liability for the amount claimed
and intends to defend itself vigorously. Discovery has not yet commenced on
this matter.
On November 10, 1998, the Company filed a legal action against NuOasis,
certain of its officers and others (the "Defendants") alleging fraud and
misrepresentation in the sale of securities which were not qualified for
sale and professional malpractice against legal counsel representing the
Defendants in this transaction. The venue for this litigation is currently
in the process of being transferred from San Francisco to Los Angeles
Superior Court.
On January 6, 1999, the Company filed a lawsuit against a former officer
and director of the Company and officer and stockholder of UNSI. The
lawsuit alleges Breach of Fiduciary Duty for failing to disclose material
facts in connection with the Artk-Tel, Inc. Asset Purchase Agreement (Note
3) which management believes to have resulted in the Company being sued by
Worldcom Network Services (see above).
<PAGE>
9. Commitments and Contingencies (continued)
Although there can be no assurance as to the ultimate disposition of the
proceedings disclosed above, based on the facts currently available,
management believes that the ultimate disposition of the above matters will
not have a materially adverse effect on the consolidation financial
position or operations of the Company. Accordingly, no accrual or provision
have been provided for in the accompanying consolidated financial
statements.
Capital and Operating Leases
The Company sublets office space in San Francisco, California from a
stockholder. The related lease expires June 2002. The Company also leases
office space in Naples, Florida through April 1999 and in Springdale and
Little Rock, Arkansas through March 2001. In addition, the Company acquired
certain operating and capital leases from Ark-Tel, Inc. (Note 3). Minimum
annual payments related to all noncancelable operating and capital leases
are as follows for the years ending June 30:
Operating Capital
1999 $ 254,134 $ 201,511
2000 304,644 201,511
2001 210,609 201,511
2002 187,512 201,511
2003 146,144 184,718
--------- ---------
Total $1,103,043 990,762
==========
Less amounts representing interest (279,366)
Capital lease obligations, current (114,188)
Capital lease obligations, noncurrent $ 597,208
===========
Rent expense aggregated $61,877 and $22,811 in fiscal years 1998 and 1997,
respectively.
<PAGE>
9. Commitments and Contingencies (continued)
Year 2000
The Company does not believe that the impact of the year 2000 computer
issue will have a significant impact on its consolidated operations or
consolidated financial position. Also, the Company does not believe that it
will be required to significantly modify its internal computer systems,
equipment or products. However, if internal systems do not correctly
recognize date information when the year changes to 2000, there could be
adverse impact on the Company's consolidated operations. There can be no
assurance that another entity's failure to ensure year 2000 capability
would not have an adverse effect on the Company.
Vendors of significant systems are expected to upgrade and test all
telecommunications systems operated by the Company by the end of the second
quarter of calendar year 1999. Upon completion, compliance certificates
from respective vendors will be on file at the Company's corporate offices.
In addition, the Company is contracting with other telecommunications
carriers to run the Company's traffic using their compliant
telecommunications platforms in order to guarantee year 2000 compliance by
the end of the third quarter of calendar year 1999.
Management expects all of the Company's hardware and software to be year
2000 compliant by the end of the third quarter of calendar year 1999. These
systems include all finance and general business computers, network file
servers, and database servers. The Company's information technology
department will perform all necessary hardware and software upgrades and
year 2000 tests.
10. Extraordinary Item and Prior Period Adjustment
During fiscal 1997, NPC extinguished a note payable, related accrued
interest and certain trade obligations aggregating $1,475,503 by making
aggregate cash payments of $153,033. In addition, as discussed in Note 2,
Nona assumed liabilities of the Company aggregating $45,984. Related debt
forgiveness income of $1,368,454 was originally recorded as an
extraordinary gain in the accompanying consolidated statement of operations
for the year ended June 30, 1997. The extraordinary item is not presented
net of tax due to the Company's net losses and existing net operating loss
carryforwards.
<PAGE>
11. Extraordinary Item and Prior Period Adjustment (continued)
The Company's consolidated financial statements as of June 30, 1997 and for
the year then ended have been restated to reflect a liability that existed
to certain stockholders who contributed funds that permitted the Company to
settle the NPC debts described in the proceeding paragraph. The related
liability to these stockholders amounted to $354,639 at June 30, 1997 and
is based on the estimated fair value of 23,642,000 shares of the Company's
common stock that the Board of Directors approved for issuance to these
stockholders on December 28, 1998.
The effect of this restatement is as follows as of June 30, 1997 and for
the year then ended:
As Previously
Reported As Restated
Balance sheet:
Due to stockholders $ - $ 354,639
Accumulated deficit (15,618,028) (15,972,667)
Statement of Operations:
Extraordinary item-debtforgiveness $ 1,368,454 $ 1,013,815
Additionally, the Statement of Stockholders' (Deficit) Equity reflects an
increase in the Company's accumulated deficit of $354,639 as of June 30,
1997.
10. Subsequent Events:
In March 1999, the Company raised gross proceeds of $575,900 in a private
placement of 14,120,019 shares of its common stock.
In July 1998, the Company's Board of Directors approved the granting of
350,000 common stock options to various consultants to the Company. The
stock options have exercise prices of $.22 per share.
<PAGE>
GROUP V CORPORATION
Exhibit 24.1
SCHEDULE OF SUBSIDIARIES
This schedule contains a list of all subsidiaries, the state or other
jurisdiction of incorporation or organization of each, and the names under which
each subsidiaries do business.
Subsidiary: National Pools Corporation
State of Incorporation: Delaware
Subsidiary: Academy Network Services
State of Incorporation: Delaware
Subsidiary: Premier Plus, Inc.
State of Incorporation: Delaware
Subsidiary: Lottery Publications Corporation
State of Incorporation: Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Jun-30-1998
<PERIOD-START> Jul-01-1997
<PERIOD-END> Jun-30-1998
<CASH> 62,408
<SECURITIES> 189,741
<RECEIVABLES> 10,086
<ALLOWANCES> 0
<INVENTORY> 41,368
<CURRENT-ASSETS> 319,521
<PP&E> 805,476
<DEPRECIATION> (64,700)
<TOTAL-ASSETS> 1,067,497
<CURRENT-LIABILITIES> 2,842,874
<BONDS> 0
0
301,700
<COMMON> 498,348
<OTHER-SE> (2,674,285)
<TOTAL-LIABILITY-AND-EQUITY> 1,067,497
<SALES> 552,472
<TOTAL-REVENUES> 552,472
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,438,046
<LOSS-PROVISION> 1,087,336
<INTEREST-EXPENSE> 125,119
<INCOME-PRETAX> (3,098,029)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,098,029)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,104,920)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
