SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1996 Commission File No. 0-18377
--------
NONA MORELLI'S II, INC.
(Exact name of registrant as specified in its charter)
Colorado
(State or other jurisdiction of incorporation or organization)
84-1126818
(I.R.S. Employer Identification Number)
2 Park Plaza, Suite 470, Irvine, California 92614
(Address of principal executive offices) (Zip Code)
(714) 833-5381
(Registrant's telephone number, including area code)
N/A
(Former Address, if changed since last report)
N/A
(Former Zip Code, if changed since last report)
N/A
(Former telephone number, if changed since last report)
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 shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of capital stock, as of the latest practicable date.
Common Stock $.01 par; 45,105,500 shares as of November 30, 1996.
Total No. of Pages: 17
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NONA MORELLI'S II, INC.
INDEX
Page
PART I
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1996
(unaudited) and June 30, 1996 (audited) ...................1
Consolidated Statements of Operations for the Three
Months Ended September 30, 1996 and 1995 (unaudited) ......3
Consolidated Statements of Cash Flows for the Three
Months Ended September 30, 1996 and 1995 (unaudited) ......4
Notes to Consolidated Financial Statements .................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................10
PART II
Item 1. Legal Proceedings ..........................................13
Item 2. Changes In Securities ......................................13
Item 3. Defaults Upon Senior Securities ............................13
Item 4. Submission Of Matters To A Vote Of Security Holders ........13
Item 5. Other Information ..........................................13
Item 6. Exhibits And Reports On Form 8-K ...........................13
Signatures .................................................14
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<TABLE>
<CAPTION>
NONA MORELLI'S II, INC.
Consolidated Balance Sheets
As of September 30, 1996 (Unaudited) and June 30, 1996 (Audited)
ASSETS September 30, June 30,
1996 1996
------------------ -------------------
(Unaudited) (Audited)
------------------ -------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 378,118 $ 50,436
Accounts receivable, net 102,491 136,061
Due from affiliate - 3,887,435
Inventory 90,406 93,599
Other current assets 31,238 15,000
------------------ -------------------
Total current assets 602,253 4,182,531
------------------ -------------------
Property and equipment
Food manufacturing equipment 1,065,249 1,065,249
Other 84,911 84,911
Accumulated depreciation and amortization (832,868) (804,556)
------------------ -------------------
Total property and equipment 317,292 345,604
------------------ -------------------
Other assets:
Beneficial ownership interest 7,004,598 7,004,598
Property held for sale 539,213 539,213
Deferred tax assets, net 860,902 860,902
Deposits and other assets 7,850 7,850
------------------ -------------------
Total other assets 8,412,563 8,412,563
------------------ -------------------
TOTAL ASSETS $ 9,332,108 $ 12,940,698
================== ===================
</TABLE>
See accompanying notes to these consolidated financial statements
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<TABLE>
<CAPTION>
NONA MORELLI'S II, INC.
Consolidated Balance Sheets
As of September 30, 1996 (Unaudited) and June 30, 1996 (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, June 30,
1996 1996
(Unaudited) (Audited)
-------------------- ----------------
Current liabilities:
<S> <C> <C>
Accounts payable, trade $ 283,148 $ 327,215
Accrued expenses 851,125 617,640
Due to affiliates 594,258 813,028
Income taxes payable 1,243,396 1,243,396
Current maturities of long-term debt to affiliate
and others 103,464 3,105,216
-------------------- ----------------
Total current liabilities 3,075,391 6,106,495
-------------------- ----------------
Long term liabilities:
Long-term debt 403,457 425,327
-------------------- ----------------
Total long term liabilities 403,457 425,327
-------------------- ----------------
Total liabilities 3,478,848 6,531,822
-------------------- ----------------
Commitments and contingencies
Stockholders' equity
Preferred stock, Series D, $.01 par value; 24,000,000 shares authorized, issued
and outstanding at June 30, 1996
(aggregate liquidation of up to $10,000,000). 240,000 240,000
Common stock, $.01 par value; 50,000,000 shares
authorized; 45,022,300 shares issued
and outstanding at September 30, 1996 and June 30, 1996. 450,223 450,223
Additional paid-in-capital 48,140,524 47,648,677
Accumulated deficit (31,445,206) (30,220,100)
Cost of 20,000,115 treasury shares (10,002,425) (10,002,425)
Common stock subscription and stockholders' receivables (1,529,856) (1,707,499)
-------------------- -----------------
Total stockholders' equity 5,853,260 6,408,876
-------------------- ----------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 9,332,108 $ 12,940,698
==================== ================
</TABLE>
See accompanying notes to these consolidated financial statements
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<TABLE>
<CAPTION>
NONA MORELLI'S II, INC.
Consolidated Statements of Operations
for Three Months Ended
September 30, 1996 and 1995 (Unaudited)
Three Months Ended September 30,
---------------------------------------------
1996 1995
(Unaudited) (Unaudited)
------------------ --------------------
<S> <C> <C>
Gaming interest revenue $ - $ 3,974,526
Food sales revenue 351,371 290,162
------------------ --------------------
Total revenue 351,371 4,264,688
------------------ --------------------
Cost of food sales revenue 269,576 198,761
------------------ --------------------
Total cost of revenue 269,576 198,761
------------------ --------------------
Gross profit 81,795 4,065,927
------------------ --------------------
Depreciation and amortization 28,312 1,143,016
Legal and professional fees 580,142 570,408
Loss on sale of investment 367,730 -
Selling, general and administrative expenses 310,546 235,454
------------------ --------------------
Operating income (loss) (1,204,935) 2,117,049
------------------ --------------------
Other income (expense) (20,171) (95,972)
------------------ --------------------
Net income (loss) before income tax provision (1,225,106) 2,021,077
------------------ --------------------
Income tax benefit (provision) - (1,020,743)
------------------ --------------------
Net income (loss) $ (1,225,106) $ 1,000,334
================== ====================
Net income (loss) per common share $ (.03) $ .02
================== ====================
Weighted average number of common shares
outstanding used to compute net loss per
common share 45,048,500 42,850,743
================== ===================
</TABLE>
See accompanying notes to these consolidated financial statements
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<TABLE>
<CAPTION>
NONA MORELLI'S II, INC.
Consolidated Statements of Cash Flows
for the Three Months Ended
September 30, 1996 and 1995 (Unaudited)
Three Months Ended September 30,
--------------------------------------------
1996 1995
-------------------- ----------------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (1,225,106) $ 1,000,334
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 28,312 1,143,016
Services exchanged for stock 278,673 560,273
Loss on sale of investment 367,730 --
Deferred taxes, net -- 1,020,743
Minority interest -- (136,452)
Increases (decreases) in changes in assets and liabilities:
Restricted Cash -- (2,111,228)
Accounts receivable 33,570 (1,750,004)
Due from affiliate 3,887,435 --
Inventory 3,193 (715)
Other assets (16,238) (99,955)
Accounts payable (44,068) 154,161
Accrued expenses (45,188) 247,162
Due to affiliates (218,770) --
-------------------- ----------------------
Net cash provided by operating activities 3,049,543 27,335
-------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment 124,117 --
-------------------- ----------------------
Net cash provided by investing activities 124,117 --
-------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds received from repayment of shareholder notes receivable 177,643 --
Principal payments on notes payables (3,023,621) (28,148)
-------------------- ----------------------
Net cash used by financing activities (2,845,978) (28,148)
-------------------- ----------------------
Net increase (decrease) in cash 327,682 (813)
-------------------- ----------------------
Cash and cash equivalents, beginning of period 50,436 628,870
-------------------- ----------------------
Cash and cash equivalents, end of period $ 378,118 $ 628,057
==================== ======================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for:
Interest $ 20,171 $ --
Income taxes -- --
Non-cash investing and financing activities:
Common stock issued for services $ 278,673 $ 560,273
</TABLE>
See accompanying notes to these consolidated financial statements
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NONA MORELLI'S II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 (Unaudited)
Note 1. General
Description of Business
Nona Morelli's II Inc. and its subsidiaries (the "Registrant", or the
"Company"), operates as a holding company for leisure and entertainment-related
businesses. At September 30, 1996, the company had three wholly-owned and one
controlled subsidiary engaged in food manufacturing and distribution, casino
gaming and real estate investments.
The activities of the Company's subsidiaries are international, with existing
food and gaming activities in the United States, and proposed activities in
North Africa, the Caribbean and Europe.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
consolidated financial statements. In the opinion of management, all normal
adjustments, consisting of normal recurring accruals, considered necessary for a
fair presentation have been included. The unaudited condensed consolidated
financial statements include the condensed consolidated balance sheet as of
September 30, 1996, and the related condensed consolidated statements of
operations and cash flows of the Registrant and its subsidiaries for the three
months then ended. These unaudited condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
included in the Registrant's fiscal 1996 Form 10-KSB. The results of operations
for the three months ended September 30, 1996 and 1995 are not necessarily
indicative of the operating results for the full year.
Principles of Consolidation and Management Estimates
The Company was incorporated in the State of Colorado on February 6, 1989 as a
successor to Nona Morelli Limited Partnership. The unaudited condensed
consolidated financial statements, and references therein to the Company,
include the accounts of the Company and its wholly-owned subsidiaries; NuOasis
International, Inc. ("NuOasis International"), Fantastic Foods International,
Inc. ("Fantastic Foods") and NuOasis Properties, Inc. ("NuOasis Properties"). In
addition, the consolidated financial statements include the accounts of the
Company's controlled subsidiary -- NuOasis Gaming, Inc. ("NuOasis Gaming") and
its wholly-owned subsidiaries, Ba-Mak Gaming International, Inc. ("BGI") and
Casino Management of America, Inc. ("CMA"). All material inter-company accounts
and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassification of Prior Year Amounts
To enhance comparability, the 1996 financial statements have been reclassified,
where appropriate, to conform with the financial statement presentation used in
1997.
Going Concern
The Company has experienced recurring net losses, has limited liquid resources,
negative working capital and one of its operating subsidiaries was liquidated
during fiscal year 1995. Management's intent is to continue searching for
additional sources of capital and new operating opportunities. In the interim,
the Company will continue operating with minimal overhead and key administrative
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NONA MORELLI'S II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 (Unaudited)
functions will be provided by consultants who are compensated primarily in the
form of the Company's common stock. Management estimates that the Company will
need to utilize its common stock to fund its operations through fiscal year
1997. Accordingly, the accompanying consolidated financial statements have been
presented under the assumption the Company will continue as a going concern.
Note 2. Acquisitions and Sale of Investments
Gaming Interest
On May 25, 1995 the Company purchased from Dragon Sight International Amusement
(Macau) Company ("Dragon"), a sole proprietorship consisting of Mr. Ng Man Sun
("Mr. Ng"), a 40% net profits interest in the gaming operations conducted by
Dragon at the Holiday Inn and Hyatt Hotels in Macau (the "Gaming Interest").
On August 5, 1996, NuOasis International, holder of the Gaming Interest, entered
into an agreement with Mr. Ng to sell the Gaming Interest for $20 million of the
Company's common stock. On or about September 30, 1996, 20,000,000 shares of the
Company's common stock were tendered by Mr. Ng to a third party escrow agent
pending the closing of the purchase of replacement properties which NuOasis
International is currently negotiating to purchase ("the Replacement Property").
The Company recognized a $6.6 million write down of the book value of the Gaming
Interest, during fiscal year 1996, to bring the value of the shares held in
escrow for the purchase of the Replacement Property to the basis of the stock
originally issued to Mr. Ng, which was $.50 a share or $10 million in aggregate.
Since the intended purchase of the Replacement Property will be effective at
some time in fiscal 1997, the book value of the escrowed shares is presented in
a position similar to treasury stock as of September 30, 1996.
Gaming revenues in the amount of $3.9 million that were due as of June 30, 1996,
were collected in August 1996.
NuOasis Gaming
In July 1996, the Company sold 497,157 common shares of NuOasis Gaming for an
approximate amount of $124,000, resulting in a loss on sale of investment of
approximately $368,000, since the Company's book value basis of the 497,157
common shares was approximately $492,000. As of September 30, 1996, the
Registrant no longer holds common shares of NuOasis Gaming, however, the
Registrant still maintains approximately 39% voting control through holding
250,000 Series B Preferred Shares of NuOasis Gaming. On June 13, 1996, Nona
entered into an Option Agreement to sell the 250,000 Series B Preferred Shares
(see Note 7 included herein).
Cleopatra
During the quarter ended September 30, 1996, NuOasis International executed
letters of intent and was negotiating definitive agreements to acquire
Replacement Properties related to its international gaming and hospitality
activities.
In July 1996, Cleopatra signed two letters of intent with a company owning a
hotel and casino project in Monastir, Tunisia, pursuant to which Cleopatra (or
its designee, Cleopatra World), would lease the casino and through NuOasis
International manage the hotel (to be re-named "Cleopatra Palace Resort -
Monastir"), and provide Las Vegas casino gaming management for the casino (the
"Monastir Casino").
In September 1996, the Company entered into an agreement in principle with a
European hotel management Company pursuant to which the parties plan to form a
joint venture. In exchange for a 50% interest in the new joint venture, the
European hotel operator will provide the new joint venture with up to $13.5
million in working capital and the Company, through NuOasis International, will
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NONA MORELLI'S II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 (Unaudited)
contribute or cause to be transferred its interest in the entities which hold
the rights to manage the Le Palace Hotel, the Cap Gammarth Casino, the Hammamet
Casino and the Monastir Casino.
Note 3. Beneficial Ownership Interest
Effective December 31, 1995, the Company acquired from Silver Faith Development
Limited ("SFDL"), an affiliate of the Company and Mr. Ng., an interest in three
buildings currently under construction located in a large master planned
commercial and residential real estate development located in Beijing, Peoples
Republic of China ("PRC") known as The Peony Garden project ("Peony Garden").
The purchase price of the Company's interest in Peony Garden was $21 million for
which the Company issued an 8% Promissory Note in the principal amount of $21
million (the "Peony Garden Note"). The Peony Garden Note was non recourse and
fully collateralized by the interest acquired, with the outstanding principal
balance convertible into the shares of the Company's common stock. In January
1996, the Company made a prepayment of principal on the Peony Garden Note in the
amount of $9.6 million.
In April 1996, the Company requested a title opinion on Peony Garden in
conjunction with NuOasis International's efforts to receive financing on the
property. Upon receipt of the title opinion in October 1996, the Company learned
that under PRC law, real property cannot be transferred until completion of the
project. Since the project was not completed, and the Peony Garden Note was non
recourse other than against the Company's interest in Peony Garden, the Company
had presented at June 30, 1996, its investment in Peony Garden as a beneficial
ownership interest in the real estate development.
On August 8, 1996, the Company entered into an agreement with The Hartcourt
Companies, Inc. ("Hartcourt") to sell the Company's entire interest in Peony
Garden for $22 million, consisting of $10 million of Hartcourt common stock and
a $12 million Convertible Promissory Note secured by the Peony Garden interest
being sold (the "Hartcourt Note"). The sale closed on October 8, 1996 and,
according to unaudited information received from Hartcourt, the Company's
investment in the Hartcourt stock represents an equity interest of approximately
43%. Concurrent with the closing of the sale of the Company's interest in Peony
Garden, the Hartcourt Note was assigned to SFDL in exchange for the Peony Garden
Note (the "Note Swap"). No profit was recognized on the Note Swap or the
transaction since the difference between the sales price and the Company's basis
in Peony Garden represents approximately the amount of interest on the Peony
Garden Note that would otherwise have been capitalized during the construction
of the Peony Garden project. The beneficial ownership interest in Peony Garden
of $9.6 million was reduced to the value of the Company's equity in Hartcourt on
or about the closing date of approximately $7 million resulting in a $2.6
million write down during fiscal year ended June 30, 1996. The Company's
ultimate realization of value from the investment in Hartcourt is dependent upon
many factors, such as changes in the equity value in Hartcourt, which itself is
dependent upon uncertainties surrounding Peony Garden, and upon the Company's
ability to dispose of its investment at its current basis. Following the
exchange of Hartcourt shares for the Cleopatra Notes (see Note 7 included
herein) and the interest in Cleopatra's World, NuOasis International owned
approximately 700,000 Hartcourt shares, which it intends to exchange for other
gaming and hospitality- related interests.
Note 4. Long-Term Debt
In August 1996, the Company paid $3.2 million as full payment of the principal
and accrued interest on the original note issued as part of the purchase of the
Gaming Interest on May 25, 1995.
Note 5. Stockholders' Equity
Common Stock Subscriptions and Stockholders' Receivable
During fiscal year 1996, 400,000 common shares were issued upon exercise of
options by the Chief Executive Officer of the Company in the amount of $440,000,
or $1.10 per share. The Company received a note receivable in the amount of
$440,000 and cash payments in the aggregate amount of $40,000 were made prior to
year ended June 30, 1996 and approximately $120,000 during July 1996. The note
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NONA MORELLI'S II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 (Unaudited)
bears interest of 10% and is due in May 1997. The note receivable has been
classified as Stockholder Receivable in the amount of $280,000 at September 30,
1996.
During fiscal year ended June 30, 1996, 868,824 common shares of NuOasis Gaming
were issued upon exercise of options by the former President of NuOasis Gaming
in the amount of $104,258, or $.12 per share. NuOasis Gaming received a note
receivable in the amount of $78,758, bearing interest of 10%, and a cash payment
of $25,500 as consideration for the exercise of these options. The note
receivable was fully paid during the quarter ended September 30, 1996.
Note 6. Commitments and Contingencies
Capital Requirements of Cleopatra
At September 30, 1996, Cleopatra has approximately $3,500,000 deposited with the
builders of the Cap Gammarth Casino and the Hammamet Casino. Cleopatra has
approximately $2,000,000 remaining to be paid, as security deposits and advance
rent, before it can take possession of the two casinos. Construction on the Cap
Gammarth Casino and Hammamet Casino is near completion. In addition, Cleopatra
estimates remaining expenditures and working capital requirements, including
security deposits and advance rental payments, related to equipping and opening
the two casinos to be approximately $15 million in aggregate.
To finance the expected $15 million in remaining expenditures on the Cap
Gammarth Casino and the Hammamet Casino, the Company is negotiating a joint
venture between NuOasis International and a European hotel management Company
whereby the European hotel management Company will contribute up to $13.5
million in exchange for a 50% interest in the joint venture (see Note 2 included
herein). Alternatively, subject to providing satisfactory collateral, the
Company has arranged for a credit facility with Banque Francaise de L'Orient
(the "Bank") which Cleopatra may utilize to borrow up to $25 million.
Through September 30, 1996 the Company and its subsidiaries have, with few
exceptions, financed all operations with internally generated funds and the
Company's common stock. Third party debt and equity financing has been pursued,
both domestically and internationally, without success. And, while the Company
and its subsidiaries have been able to meet their financial commitments through
September 30, 1996, if for any reason, the proposed joint venture is not formed,
or if Cleopatra is unable to borrow from the Bank, or if Cleopatra or NuOasis
International are unable to otherwise meet their commitments under the various
agreements to provide the furniture, fixtures, equipment and working capital for
the proposed casinos once construction is completed, the Company may be required
to intercede and provide the requisite financing and working capital, or be
forced to sell all or a portion of its respective interest, or lose its
respective rights to the projects and properties entirely.
Commitments of Cleopatra
The Company is actively pursuing financing which may involve the pledge of or
hypothecation of some or all of the Company's assets. The Company has no
commitment for material capital expenditures, however, it is a guarantor of the
obligation of Cleopatra under the Cap Gammarth agreement.
Note 7. Subsequent Events
National Pools Corporation
On June 13, 1996, Nona entered into an Option Agreement with Joseph Monterosso,
President of National Pools Corporation ("NPC"), an individual previously
unrelated to NuOasis Gaming or Nona, and granted such individual an option to
purchase the 250,000 Series B Preferred Shares of NuOasis Gaming owned by Nona
at a purchase price of $13.00 per share, or a total of $3,250,000, with a
minimum purchase of 110,000 shares. The exercise of the option is conditioned
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NONA MORELLI'S II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 (Unaudited)
upon shareholder approval of a proposal to increase the authorized number of
shares of common stock of NuOasis Gaming by at least twenty million (20,000,000)
shares. The option is assignable and shall expire 90 days after the next Annual
Meeting of Shareholders of NuOasis Gaming.
On November 21, 1996, NuOasis Gaming's Board of Directors approved the
acquisition of NPC. The acquisition is expected to be financed by the issuance
of securities of NuOasis Gaming, however, a definitive agreement has not been
signed. Moreover, the acquisition is contingent upon the occurrence of certain
events including but not limited to: (a) NPC shareholder approval; (b) exercise
of that certain option agreement between Monterosso and Nona; (c) Monterosso
securing financing that would allow the exercise of the option by Monterosso
and/or one or more qualified private investors; (d) reaching an agreement to
sell CMA; and (e) shareholder approval of a proposal to increase the number of
authorized shares of common stock of NuOasis Gaming by at least 20,000,000
shares. There are no assurances that such transaction will occur, and because of
on-going negotiations and uncertainties surrounding the realization of such
transaction, NuOasis Gaming cannot determine the ultimate effect on NuOasis
Gaming's financial position at this time.
On November 25, 1996, NuOasis Gaming's Board of Directors elected Joseph
Monterosso to fill one of the vacancies on NuOasis Gaming's Board of Directors.
Additionally, on November 25, 1996, Fred G. Luke resigned as President of
NuOasis Gaming and the Board of Directors of NuOasis Gaming elected Joseph
Monterosso to the office of President.
Cleopatra Palace and Cleopatra World
In October 1996, the Company and Cleopatra entered into a reorganization
agreement with Cleopatra which will result in NuOasis International issuing
$13.5 million in secured promissory notes (the "Cleopatra Notes") in
consideration for 70% of the outstanding stock of three Cleopatra subsidiaries,
including Cleopatra Cap Gammarth Casino, Cleopatra Hammamet Casino and Cleopatra
Monastir. Additionally, the Company and Cleopatra agreed to increase NuOasis
International's equity interest in Cleopatra from 28% to 33%. In December 1996,
NuOasis International transferred 2.7 million shares of Hartcourt received in
the sale of the Peony Garden property (see Note 3 included herein) to satisfy
the Cleopatra Notes.
Additionally, following the restructuring agreement with Cleopatra, NuOasis
International executed an agreement to purchase a 50% interest in Cleopatra
World, Inc., a British Virgin island corporation ("Cleopatra World"), the lessor
of the Le Palace Hotel and the commercial center, residential complex, real
estate and improvements surrounding the Cap Gammarth Casino (the "Cap Gammarth
Resort").
Exercised Options
On October 8, 1996, 50,000 common shares were issued upon exercise of an option
by John D. Desbrow, Secretary of the Company in the amount of $29,200, or
approximately $.58 per share. In lieu of cash being received for payment of the
exercise price, the Company received a credit of $29,200 against amounts owed to
Mr. Desbrow for professional services performed pursuant to a consulting
agreement with Mr. Desbrow.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(a) Significant Developments During the Quarter ended September 30, 1996
Gaming Interest
On August 5, 1996, NuOasis International, holder of the Gaming
Interest, entered into an agreement with Mr. Ng to sell the Gaming Interest (see
Note 2 of the footnotes to the accompanying unaudited financial statements
included herein at Item 1).
Peony Garden
On August 8, 1996, the sale of the Peony Garden interest occurred,
which later closed on October 8, 1996 (see Note 3 of the footnotes to the
accompanying unaudited financial statements included herein at Item 1).
Cleopatra
During the current quarter, NuOasis International and Cleopatra entered
into negotiations and several agreements (see Note 2 of the footnotes to the
accompanying unaudited financial statements included herein at Item 1).
National Pools Corporation
On November 21, 1996, NuOasis Gaming's Board of Directors approved the
acquisition of NPC. The acquisition is expected to be financed by the issuance
of securities of NuOasis Gaming, however, a definitive agreement has not been
signed. Moreover, the acquisition is contingent upon the occurrence of certain
events (see Note 7 of the footnotes to the accompanying unaudited financial
statements included herein at Item 1).
(b) Going Concern
The Registrant has experienced recurring net losses, has limited liquid
resources, negative working capital and one of its operating subsidiaries was
liquidated during fiscal year 1995. Management's intent is to continue searching
for additional sources of capital and, in the case of NuOasis Gaming, new
operating opportunities. In the interim, the Registrant intends to continue
operating with minimal overhead and key administrative functions provided by
consultants who are compensated in the form of the Registrant's common stock. It
is estimated, based upon its historical operating expenses and current
obligations, that the Registrant may need to utilize its common stock for future
financial support to finance its needs during fiscal year 1997. Accordingly, the
accompanying consolidated financial statements have been presented under the
assumption the Registrant will continue as a going concern.
(c) Liquidity and Capital Resources
A comparison of working capital, cash and cash equivalents and current
ratios are reflected in the following table:
September 30, June 30,
1996 1996
------------- ------------
(unaudited) (audited)
Working Capital (Deficit) $(2,473,138) $(1,923,964)
Cash and Cash Equivalents $ 378,118 $ 50,436
Current Ratio .20 .68
The most significant effects on working capital and its components
during the three months ended September 30, 1996 were the payment of $3.2
million in principal and interest on the Registrant's note issued to acquire the
Gaming Interest and an increase in cash of approximately $327,682.
[NM\10Q\093096.QSB]-5
10
<PAGE>
The Registrant's current plan for growth is to increase its working
capital by converting the shares of Hartcourt received from the sale of Peony
Garden into additional equity investments and, in turn, use these additional
equity investments along with external debt and equity financing, if any can be
arranged, to finance the activities of its subsidiaries, and for future
acquisitions in its three business segments. Additionally, the Registrant
anticipates receiving a distribution of net operating revenues from the
Cleopatra casinos, which at the present time, subject to obtaining financing,
are scheduled to be completed during the next calendar year. However, there are
no assurances that the subject casinos will open during the next calendar year
since the financing required by Cleopatra to complete and open its properties
has not yet been committed. As of the date of this Report, the Registrant's sole
operations are derived from its food manufacturing subsidiary and, therefore,
there is considerable risk that the Registrant will not have adequate working
capital to sustain its current status, and that the Registrant or its
subsidiaries may not be able to secure the required debt or equity financing to
complete their proposed projects during the next calendar year, in which case
the Registrant or its subsidiaries may be forced to sell the projects or
contribute them to a third party on terms which would preclude the Registrant
from realizing significant future benefit, or any benefit at all from the
projects. The Registrant does not currently have any significant capital
commitments, however, the Registrant may need to issue additional shares of its
common stock to pay for services incurred, to finance the operations of its
subsidiaries, and to continue to sustain itself.
(d) Cash Flows
Cash provided by operating activities was $3,049,543 for the three
months ended September 30,1996 as compared to $27,335 for the comparable period
last year. The increase is primarily attributable to the receipt of $3.9 million
generated from the Gaming Interest offset by payments made for accrued interest
and other current liabilities. Although revenues were accrued, there was no
receipt of cash flow from the Gaming Interest during the same period last year.
Cash provided by investing activities was $124,117 for the three months
ended September 30, 1996 as compared to $0 for the comparable period last year.
The increase is primarily attributable to the sale of 497,157 common shares of
NuOasis Gaming. As of September 30, 1996, the Registrant no longer holds common
shares of NuOasis Gaming, however, the Registrant still maintains approximately
39% voting control through holding 250,000 Series B Preferred Shares of NuOasis
Gaming. On June 13, 1996, Nona entered into an Option Agreement with Joseph
Monterosso, President of National Pools Corporation ("NPC"), an individual
previously unrelated to NuOasis Gaming or Nona, and granted such individual an
option to purchase the 250,000 Series B Preferred Shares of NuOasis Gaming owned
by Nona at a purchase price of $13.00 per share, or a total of $3,250,000, with
a minimum purchase of 110,000 shares (see Note 7 of the footnotes to the
accompanying unaudited financial statements included herein at Item 1).
Cash used by financing activities was $2,845,978 for the three months
ended September 30, 1996 as compared to $28,148 for the comparable period last
year. The increase is primarily attributable to the payment of $3 million in
principal on the Registrant's note issued to acquire the Gaming Interest (see
Note 4 of the footnotes to the accompanying unaudited financial statements
included herein at Item 1) and payments received on the collection of
Stockholders Receivables in the approximate amount of $180,000 (see Note 5 of
the footnotes to the accompanying unaudited financial statements included herein
at Item 1).
(e) Results of Operations
Three Months Ended September 30, 1996 Compared to Three Months Ended
September 30, 1995
The Registrant's total food sales for the three months ended September
30, 1996 were $351,371 as compared to $290,162, for the comparable period last
year, resulting in an increase of $61,209 or 21%. The increase is primarily
attributable to an increase in additional customers purchasing filled pasta over
the comparable period last year.
[NM\10Q\093096.QSB]-5
11
<PAGE>
The Registrant's total cost of food sales for the three months ended
September 30, 1996 were $269,576 as compared to $198,761 for the comparable
period last year, resulting in an increase of $70,815 or 36%. The increase in
total cost of food sales is primarily attributable to the higher direct labor
costs associated with manufacturing more "filled" pasta than "flat" pasta. The
change in sales mix also caused a slight increase of 8% in relative total cost
of sales.
The Registrant's total gaming revenues for the three months ended
September 30, 1995 were $3,974,526 as compared to $0 for the comparable period
this year. The increase is attributable to the sale of the Gaming Interest.
Since the Gaming Interest sale was effective June 30, 1996, there was no revenue
earned during the current period as compared to the same period last year.
Gaming Interest revenues will not exist in the future.
The Gaming Interest acquired in May 1995 was an acquisition of a forty
percent (40%) net operating profits interest in the operations of two Macau
casinos and, accordingly, had no effect on the total cost of gaming revenue,
however, amortization expense of $1,067,136 was incurred during the quarter
ended September 30, 1995. Since the sale of the Gaming Interest was effective
June 30, 1996, there was no amortization expense of the Gaming Interest during
the current quarter as there was during the same quarter last year resulting in
a decrease in total depreciation and amortization expense of approximately $1.1
million.
The loss on sale of investment in the amount of $367,730 is
attributable to the sale of 497,157 common shares of NuOasis Gaming, as
discussed above. There was no such sale of investment during the comparable
period last year.
The Registrant's total legal and professional fees and general and
administrative expenses were $890,688 for the three months ended September 30,
1996, as compared to $805,862 for the comparable period last year. The small
increase is primarily attributable to the accrual of continued professional
services provided by consultants under professional advisory and management
agreements.
The Registrant's total operating loss for the three months ended
September 30, 1996 was $1,204,935 as compared to an operating income of
$2,117,049 for the comparable period last year. The decrease of approximately
$3.3 million is primarily attributable to the sale of the Gaming Interest
discussed above.
[NM\10Q\093096.QSB]-5
12
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
The Registrant knows of no significant changes in the status of the
pending litigation or claims against the Registrant as described in Form 10-KSB
for the Registrant's fiscal year ended June 30, 1996.
Item 2. Changes In Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission Of Matters To A Vote Of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits And Reports On Form 8-K
(a) Exhibits:
Exhibit Number Description of Exhibit
------------------------------- -----------------------------
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
[NM\10Q\093096.QSB]-5
13
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
NONA MORELLI'S II, INC.
Dated: December 15 , 1996 By: /s/ Fred G. Luke
---- ---------------------------------------
Fred G. Luke,
Chief Executive Officer
and Director
Dated: December 15 , 1996 By: /s/ Steven H. Dong
---- ---------------------------------------
Steven H. Dong,
Chief Financial Officer
[NM\10Q\093096.QSB]-5
14
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 378,118
<SECURITIES> 0
<RECEIVABLES> 102,491
<ALLOWANCES> 0
<INVENTORY> 90,406
<CURRENT-ASSETS> 31,238
<PP&E> 1,065,249
<DEPRECIATION> (832,868)
<TOTAL-ASSETS> 9,332,108
<CURRENT-LIABILITIES> 3,075,391
<BONDS> 0
0
240,000
<COMMON> 450,223
<OTHER-SE> 5,163,037
<TOTAL-LIABILITY-AND-EQUITY> 9,332,108
<SALES> 351,371
<TOTAL-REVENUES> 351,371
<CGS> 269,576
<TOTAL-COSTS> 269,576
<OTHER-EXPENSES> 1,286,730
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,171
<INCOME-PRETAX> (1,225,106)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,225,106)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,225,106)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
</TABLE>
