SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB/A
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended December 31, 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
(Address of principal executive offices)
92614
(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; 48,857,500 shares as of January 31, 1997.
Total Pages: 24
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NONA MORELLI'S II, INC.
INDEX
Page
PART I
Item 1. Financial Statements
Consolidated Balance Sheet as of December 31, 1996
(unaudited) ...............................................1
Consolidated Statements of Operations for the Three and
Six Months Ended December 31, 1996 and 1995 (unaudited) ...3
Consolidated Statements of Cash Flows for the Six Months
Ended December 31, 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 .......................13
PART II
Item 1. Legal Proceedings............................................16
Item 2. Changes In Securities........................................16
Item 3. Defaults Upon Senior Securities..............................16
Item 4. Submission Of Matters To A Vote Of Security Holders..........16
Item 5. Other Information............................................16
Item 6. Exhibits And Reports On Form 8-K.............................17
Signatures...................................................18
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<TABLE>
<CAPTION>
NONA MORELLI'S II, INC.
Consolidated Balance Sheets
As of December 31, 1996 (Unaudited)
ASSETS December 31,
1996
(Unaudited)
---------------------
<S> <C>
Current assets:
Cash and cash equivalents $ 86,689
Accounts receivable, net 193,327
Due from affiliate 50,000
Inventory 67,191
Other current assets 18,000
---------------------
Total current assets 415,207
Property and equipment
Food manufacturing equipment 1,065,249
Other 175,001
Accumulated depreciation and amortization (909,081)
----------------------
Total property and equipment 331,169
Intangible assets:
Software 200,036
Accumulated amortization (161,792)
Total intangible assets 38,244
Other assets:
Equity investments 8,059,916
Beneficial ownership -
Property held for sale 539,213
Deferred tax assets, net 860,902
Other assets 16,301
---------------------
Total other assets 9,476,332
---------------------
TOTAL ASSETS $ 10,260,952
=====================
</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 December 31, 1996 (Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
1996
(Unaudited)
--------------------
<S> <C>
Current liabilities:
Accounts payable, trade $ 964,044
Accrued expenses 756,917
Due to affiliates 1,825,876
Income taxes payable 1,243,396
Current maturities of long-term debt 1,126,601
--------------------
Total current liabilities 5,916,834 Long term liabilities:
Long-term debt 1,566,386
Total long term liabilities 1,566,386
Total liabilities 7,483,220
Commitments and contingencies
Stockholders' equity
Preferred stock, Series D, $.01 par value; 24,000,000
shares authorized, issued and outstanding at
December 31, 1996 (aggregate liquidation of up to $10,000,000). 240,000
Common stock, $.01 par value; 50,000,000 shares
authorized; 45,072,300 shares issued and outstanding
at December 31, 1996. 450,723
Additional paid-in-capital 48,174,524
Accumulated deficit (35,734,754)
Cost of 20,000,115 treasury shares (10,002,425)
Common stock subscription and stockholders'
receivables (350,336)
Total stockholders' equity 2,777,732
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 10,260,952
====================
</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 and Six Months Ended
December 31, 1996 and 1995 (Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------------------- ------------------------------------------
1996 1995 1996 1995
------------------- ------------------ ------------------ -----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Gaming interest revenue $ - $ 3,545,356 $ - $ 7,519,882
Food sales revenue 360,775 270,114 712,146 560,276
------------------- ------------------ ------------------ -----------------
Total revenue 360,775 3,815,470 712,146 8,080,158
------------------- ------------------ ------------------ -----------------
Cost of food sales revenue 211,290 183,890 480,866 382,651
------------------- ------------------ ------------------ -----------------
Total cost of revenue 211,290 183,890 480,866 382,651
------------------- ------------------ ------------------ -----------------
Gross profit 149,485 3,631,580 231,280 7,697,507
------------------- ------------------ ------------------ -----------------
Depreciation and amortization 32,356 1,534,087 60,668 2,677,103
Legal and professional fees 587,305 221,754 1,167,447 792,162
Loss on sale of investment - - 367,730 -
Write down of goodwill 3,318,107 - 3,318,107 -
Selling, general and administrative
expenses 187,501 161,183 498,047 396,637
------------------- ------------------ ------------------ -----------------
Operating income (loss) (3,975,784) 1,714,556 (5,180,719) 3,831,605
------------------- ------------------ ------------------ -----------------
Other income (expense):
Equity in earnings (loss) in
affiliates (286,066) - (286,066) -
Interest expense (27,735) (100,125) (47,906) (196,097)
------------------- ------------------ ------------------ ------------------
Total other income (expense) (313,801) (100,125) (333,972) (196,097)
------------------- ------------------ ------------------ ------------------
Net income (loss) before income tax
provision (4,289,585) 1,614,431 (5,514,691) 3,635,508
------------------- ------------------ ------------------ -----------------
Income tax benefit (provision) - (609,330) - (1,630,073)
------------------- ------------------ ------------------ ------------------
Net income (loss) $ (4,289,585) $ 1,005,101 $ (5,514,691) $ 2,005,435
=================== ================== ================== =================
Net income (loss) per common share:
Basic $ (.10) $ .02 $ (.12) $ .05
=================== ================== ================== =================
Primary $ (.10) $ .01 $ (.12) $ .03
=================== ================== ================== =================
Fully Diluted $ (.10) $ .01 $ (.12) $ .03
=================== ================== ================== =================
Weighted average number of common shares outstanding used to compute net income
(loss) per common share:
Basic 45,048,500 43,251,405 45,098,500 42,885,889
=================== ================== ================== =================
Primary 45,048,500 72,213,744 45,098,500 71,866,228
=================== ================== ================== =================
Fully Diluted 45,048,500 71,866,228 45,098,500 71,880,492
=================== ================== ================== =================
</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 Six Months Ended
December 31, 1996 and 1995 (Unaudited)
Six Months Ended
December 31,
1996 1995
------------------------- -------------------------
(Unaudited) (Unaudited)
------------------------- -------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (5,514,691) $ 2,005,435
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 59,667 2,677,103
Services exchanged for stock - 1,020,938
Effect of exercise of options 5,300 -
Loss on sale of investment 367,730 -
Deferred taxes, net - 1,454,112
Write off of goodwill 3,318,107 -
Minority interest - (233,877)
Equity in losses in equity investments 286,066 -
Increases (decreases) in changes in assets and liabilities:
Restricted cash - (2,111,228)
Accounts receivable (107,266) (5,985,153)
Due from affiliate 3,887,435 -
Inventory 26,408 9,637
Other assets (5,995) 21,930
Accounts payable (3,368) 45,130
Accrued expenses (46,160) 150,920
Due to affiliates 478,949 318,904
------------------------- -------------------------
Net cash provided (used) by operating activities 2,752,182 (626,149)
------------------------- -------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of leasehold improvements and equipment - (18,163)
Proceeds from sale of investment 124,117 -
------------------------- ------------------------
Net cash provided (used) by investing activities 124,117 (18,163)
------------------------- -------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds received from issuance of note payable - 350,000
Proceeds received from repayment of shareholder notes receivable 198,758 -
Principal payments on notes and leases payable (3,038,804) (142,676)
------------------------- -------------------------
Net cash (used) provided by financing activities (2,840,046) 207,324
------------------------- ------------------------
Net increase (decrease) in cash 36,253 (436,988)
------------------------- -------------------------
Cash and cash equivalents, beginning of period 50,436 628,870
------------------------- ------------------------
Cash and cash equivalents, end of period $ 86,689 $ 191,882
========================= ========================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 34,336 $ 10,924
Income taxes $ - $ -
Non-cash investing and financing activities:
Purchase of Peony Garden (Note 3) for note payable $ - $ 21,000,000
Common stock issued for services $ - $ 1,020,938
Exercise of options for reduction of debt $ 29,200 $ -
Purchase of NPC (Note 2) for notes payable $ 1,200,000 $ -
Purchase of NPC (Note 2) for accrued liability $ 125,000 $ -
Options exercised for reduction of debt $ 29,200 $ -
</TABLE>
See accompanying notes to these consolidated financial statements
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NONA MORELLI'S II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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 December 31, 1996, the company had three wholly-owned and one
controlled subsidiary engaged in food manufacturing and distribution, casino
gaming and hotel management, 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
December 31, 1996, and the related condensed consolidated statements of
operations and cash flows of the Registrant and its subsidiaries for the three
and six months ended December 31, 1996 and 1995. 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 and six months ended December
31, 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, National Pools Corporation ("NPC")(Note 2),
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. Investments in 20% to 50% owned companies are
accounted for using the equity method. The Company reflects its share of net
income or loss of these nonconsolidated affiliates in Equity In Earnings (Loss)
in affiliates (Note 3).
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.
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NONA MORELLI'S II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 (Unaudited)
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
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 December 31, 1996.
Gaming revenues in the amount of $3.9 million that were due as of June 30, 1996,
were collected in August 1996. Since the Gaming Interest was sold, gaming
revenues will not recur.
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 December 31, 1996, the
Registrant no longer holds common shares of NuOasis Gaming. On June 13, 1996,
Nona entered into an Option Agreement to sell the 250,000 Series B Preferred
Shares (see National Pools Corporation below) and at such time the entire Option
Agreement is fully exercised, the 39% voting control will change and
accordingly, NuOasis Gaming will no longer be consolidated with Nona. As of the
date of this Report, the Option has not been exercised.
National Pools Corporation
On June 13, 1996, the Company entered into an Option Agreement ("Option") with
Joseph Monterosso ("Monterosso"), President of National Pools Corporation
("NPC"), an individual previously unrelated to NuOasis Gaming or the Company,
and granted such individual an option to purchase the 250,000 Series B Preferred
Shares of NuOasis Gaming owned by the Company at a purchase price of $13.00 per
share, or a total of $3,250,000, with a minimum purchase of 95,000 shares.
[NM\10QA\0123196A.QSB]-2
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<PAGE>
NONA MORELLI'S II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 (Unaudited)
The exercise of the option is conditioned upon shareholder approval of a
proposal to increase the authorized number of shares of common stock of NuOasis
Gaming. The option shall expire 90 days after the next Annual Meeting of
Shareholders of NuOasis Gaming. Monterosso has subsequently conditionally
assigned his rights under the option as to 95,000 Series B Shares to certain
shareholders of NPC and other investors, leaving him with rights under the
option to purchase 155,000 Series B Shares.
On November 21, 1996, NuOasis Gaming's Board of Directors approved the
acquisition of NPC. On December 24, 1996 NuOasis Gaming executed and closed the
Stock Purchase Agreements with each of the shareholders of NPC pursuant to which
it agreed to issue a series of Secured Promissory Notes (the "Notes") in the
aggregate amount of $1,200,000 and 1,000,000 shares of its 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 total of 241,900,000
shares of NuOasis Gaming's common stock contingent upon NPC's operations
achieving certain financial goals over the next several fiscal years. The Notes
are non-recourse to NuOasis Gaming and secured by the assets of NPC, bear
interest at 8% per annum, and are due and payable on May 31, 1999. Under the
terms of the Notes, 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 NuOasis Gaming common stock. As part of this acquisition,
the Company and NuOasis Gaming agreed to a debt assumption agreement whereby all
NuOasis Gaming debt in excess of $20,000 on December 24, 1996 is to be assumed
by Nona except for amounts owed to NuVen Advisors, Inc, an affiliate and Fred G.
Luke, Chairman and former President of NuOasis Gaming, which are to be converted
into shares of NuOasis Gaming common stock: the conversion rate is based upon
the prevailing market price on the date of the next NuOasis Gaming Shareholders'
Meeting.
NPC was formed in 1993 for the purpose of developing and operating a system to
facilitate participation in group play in state lotteries in the United States
and the lotteries of foreign countries. The program developed by NPC was named
"Hit-LottoTM". The Hit-LottoTM program uses debit cards, telecommunications,
Internet Websites, and proprietary computer software to organize and market
lottery pools for lottery players who participate in various state lotteries.
Since inception NPC's operations have been devoted primarily to the formulation
and design of the telecommunication and computer technology to support the
Hit-LottoTM program. In August, 1994, Hit-LottoTM was tested in the San Diego
market: development is ongoing.
The unaudited financial statements of NPC as of September 30, 1996 and the nine
months then ended and the audited financial statements of NPC as of December 31,
1995 and 1994, and the years then ended are incorporated by reference with
NuOasis Gaming's Form 8-K/A, dated December 24, 1996, (SEC File No. 000-18224)
filed on or about March 28, 1997. Such audit reports explain that NPC's
financial statements have been prepared assuming that NPC will continue as a
going concern and that such statements do not include any adjustments that may
result in the event it is unable to do so. The audited financial statements of
NPC also reflect that it has incurred operating losses of $2,401,992 from its
inception and had negative working capital of $1,581,827, as of December 31,
1995. The unaudited financial statements of NPC for the quarter ended December
31, 1996 and 1995 are incorporated by reference with NuOasis Gaming's Form
10-QSB/A for the quarter ended December 31, 1996 filed on or about March 28,
1997 (SEC File No. 000-18224).
Subject to the exercise of the Option and the sale by the Company of the Series
B Shares, NuOasis Gaming has agreed to fund NPC's future operations. Exercise of
the Option is contingent upon the approval of an amendment to the NuOasis Gaming
Certificate of Incorporation allowing for its authorized capital stock to be
increased to have sufficient shares of its common stock available for conversion
of the Notes. Upon such Amendment to the NuOasis Gaming Certificate of
Incorporation, and the acquisition of the Series B Shares, there will be a
change of control of NuOasis Gaming. If the NuOasis Gaming shareholders do not
approve such Amendment to the Certificate of Incorporation it is unlikely that
the Series B Shares will be acquired pursuant to the Option and, in this event,
NPC may not have sufficient working capital to "roll out" the Hit-LottoTM
program on a commercial basis, and there will not be a change of control of
NuOasis Gaming.
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<PAGE>
NONA MORELLI'S II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 (Unaudited)
The Transaction is divided into three phases and summarized as follows:
Phase I : Acquisition of NPC, which closed on December 24, 1996
On December 24, 1996 NuOasis Gaming executed and closed the Stock
Purchase Agreements with each of the shareholders of NPC pursuant to
which it issued the Notes in the aggregate amount of $1,200,000 and a
promise to issue 1,000,000 shares of common stock of NuOasis Gaming to
the NPC shareholders in exchange for all of the issued and outstanding
shares of capital stock of NPC.
Phase II: Exercise of 95,000 Series B Shares
Holders of the Option exercise the option to purchase 95,000 Series B
Shares, at $13.00 per share, by payment to Nona of $1,235,000. The
95,000 Series B Shares so acquired may then immediately be converted
into 7,410,000 shares of restricted NuOasis Gaming common stock at the
election of the holders.
Subject to the exercise of the Option as to the 95,000 Series B Shares,
NuOasis Gaming has agreed to sell its wholly-owned subsidiary, CMA, to
Nona for $1,235,000. Upon the sale of CMA, NuOasis Gaming intends to
contribute most if not all of the proceeds of the sale of CMA to NPC,
its wholly owned subsidiary, for working capital. Phase II is expected
to occur following the next NuOasis Gaming Shareholders' Meeting. As of
the date of this Report there has been no NuOasis Gaming Shareholders'
Meeting held.
Phase III: Exercise of 155,000 Series B Shares
Following the initial exercise of 95,000 Series B Shares, if such
exercise occurs, there will be remaining 155,000 Series B Shares
available under the Option. If exercised, the 155,000 Series B Shares
could immediately be converted into 12,090,000 common shares. The
exercise and sale of such remaining Series B Shares will result in an
additional $2,015,000 in proceeds to Nona which Nona intends to utilize
to satisfy any intercompany payables owed to NuOasis Gaming of up to
$1,765,000 as of the date Phase III occurs. No amounts are expected to
be owed by Nona to NuOasis Gaming assuming Phase II occurs, therefore,
the entire $1,765,000 is expected to be a short term loan from Nona to
NuOasis Gaming. Phase III is expected to occur following Phase II and
the next NuOasis Gaming Shareholders' Meeting. As of the date of this
Report there has been no NuOasis Gaming Shareholders' Meeting held.
Basis of Presentation
As of December 31, 1996, Phase I has occurred and accordingly Phase I
has been reflected in the accompanying unaudited condensed financial
statements. The Phase II and III portions of the acquisition will be
reflected and recorded at such time when the events included in Phase
II and III have occurred; these events are expected to occur only
subsequent to the next NuOasis Gaming Shareholders' Meeting. As of the
date of this Report there has been no NuOasis Gaming Shareholders'
Meeting held. The acquisition of NPC has been recorded as a purchase
with NuOasis Gaming as the accounting acquiror. Since conversion of the
Notes is based upon future earnings of NPC, which is in itself based
upon the success of the Hit-Lottotm program, a developmental business,
the probability of the conversion is undeterminable and uncertain.
Although control of NuOasis Gaming may be transferred to the NPC
shareholders upon conversion of the Notes, due to this uncertainty, the
acquisition of NPC has been accounted for as a purchase with NuOasis
Gaming deemed the accounting acquiror.
Supplemental Pro Forma Information
Unaudited pro forma financial information showing the effect of the NPC
acquisition by NuOasis Gaming is incorporated by reference with NuOasis
Gaming's Form 8K/A, dated December 24, 1996 filed on or about March 28,
1997 and NuOasis Gaming's Form 10-QSB/A for the quarter ended December
31, 1996 filed on or about March 28, 1997 (SEC File No. 000-18224).
[NM\10QA\0123196A.QSB]-2
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NONA MORELLI'S II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 (Unaudited)
Cleopatra Palace and Cleopatra World
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 Palace, Ltd. ("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 (the "European Partner") pursuant to which the
parties planned to form a joint venture ("JV"). In exchange for a 50% interest
in the JV, the European Partner would have initially provided the JV with up to
$13.5 million in working capital and the Company, through NuOasis International,
would have contributed or caused to be transferred its interest in the entities
which hold the rights to manage the Le Palace Hotel, the Cap Gammarth Casino and
the Hammamet Casino. Covenants in the lease agreement between Cleopatra World
and the lessors of the Cap Gammarth resort facility precluded the execution of a
certain type of management agreement requested by the European Partner. As a
result, the JV with the European Partner as originally envisioned is not capable
of being finalized. As of the date of this Report, the Company is exploring
other structures with the European Partner and soliciting proposals from other
potential JV partners.
In October 1996, the Company and Cleopatra entered into a reorganization
agreement (the "Restructuring Agreement") with Cleopatra which resulted in
NuOasis International issuing $13.5 million ($2 million and $11.5 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 $11.5 million of the
Cleopatra Notes.
On January 27, 1997, the Company and Cleopatra amended the Restructuring
Agreement (the "Amendment") in an effort to stage the development and limit the
initial scale of the JV with the European Partner. The Amendment canceled the $2
million Cleopatra Note and satisfied the $11.5 million Cleopatra Note, with the
2.7 million shares of Hartcourt common stock transferred to Cleopatra in
December 1996. Pursuant to the Amendment and in lieu of NuOasis International
receiving 70% of the outstanding stock of three Cleopatra subsidiaries as
discussed above, NuOasis International shall receive additional shares of
Cleopatra Palace to bring its equity ownership up to 70%. As of December 31,
1996, NuOasis International held a 49% equity ownership of Cleopatra Palace.
Control of the Board of Directors of Cleopatra Palace remains with the other 51%
equity shareholders and accordingly, Cleopatra Palace is presented using the
equity method of accounting and is not consolidated with the Company (see Note 3
included herein). At such time that additional ownership equity in Cleopatra
Palace is acquired (i.e. to bring equity ownership up to 70%), if appropriate,
step acquisition accounting will then be applied and Cleopatra Palace will then
be consolidated with NuOasis International and any earnings or losses not
previously recorded under the equity method of accounting will then be restated
as appropriate.
Following the Restructuring Agreement, 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"). NuOasis
International transferred 600,000 shares of Hartcourt as consideration for the
50% equity ownership of Cleopatra World. Control of the Board of Directors of
Cleopatra World remains with the other 50% equity shareholders and, accordingly,
Cleopatra World is presented using the equity method of accounting and is not
consolidated with the Company (see Note 3 included herein).
[NM\10QA\0123196A.QSB]-2
9
<PAGE>
NONA MORELLI'S II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 (Unaudited)
Note 3. Equity Investments/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. At June 30, 1996, 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 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 its entire interest in Peony Garden for
$22 million, consisting of $10 million of Hartcourt common stock ("Hartcourt
Shares") 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
Hartcourt Shares represented a 43% equity interest in Hartcourt. 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, approximately $7 million, resulting in a $2.6 million
write down during fiscal year ended June 30, 1996. During the quarter ended
December 31, 1996, 3.3 million Hartcourt Shares were exchanged to acquire
additional equity ownership in the Cleopatra entities (see Note 2 included
herein). As a result, the Registrant's equity ownership in and advances to its
Cleopatra subsidiaries and Hartcourt as of December 31, 1996 is as follows:
NuOasis International's
Book Value
NuOasis International's Basis of Investment in
Percentage Ownership and Advances to its
Affiliate at December 31, 1996 Non-Consolidated Affiliates
- -------------------- ---------------------- ---------------------------
Hartcourt 7.5% (A) $ 1,225,805
Cleopatra 49% (B) $ 5,899,184
Cleopatra's World 50% (C) $ 934,927
(A) The percentage ownership is based upon unaudited financial
statements of Hartcourt as of September 30,1996 (latest
available as of the date of this Report). The accounting
method used is the lower of cost or market, and accordingly,
Hartcourt is not consolidated with the Company. The $1,225,805
book value represents 700,000 shares at the original book
value amount of $1.75 per share.
[NM\10QA\0123196A.QSB]-2
10
<PAGE>
NONA MORELLI'S II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 (Unaudited)
(B) The percentage ownership is based upon unaudited
financial statements of Cleopatra as of December 31,
1996. The equity method of accounting is used since the
equity ownership is 49% and control of the Board of
Directors of Cleopatra lies with the other 51% equity
owners. Accordingly, Cleopatra is not consolidated with
the Company.
(C) The percentage ownership is based upon unaudited
financial statements of Cleopatra's World as of
December 31, 1996. Although the equity ownership is
50%, the equity method of accounting is used since
control of the Board of Directors of Cleopatra's
World lies with the other 50% equity owners.
Accordingly, Cleopatra World is not consolidated with the
Company.
The Company's ultimate realization of value from the Hartcourt Shares 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 the Hartcourt Shares at its current basis.
Following the exchange of Hartcourt shares for the Cleopatra Notes (see Note 2
included herein) and the interest in Cleopatra's World, NuOasis International
owned approximately 700,000 of the originally issued Hartcourt Shares, which it
intends to exchange for other equity investments.
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.
On December 24, 1996, in connection with the acquisition of NPC (see Note 2
included herein), notes payables in the aggregate principle amount of $1.2
million were issued by NuOasis Gaming.
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
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 December 31,
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 first quarter of fiscal year 1997.
Exercised Options
On October 8, 1996, 50,000 common shares were issued upon exercise of an option
by John D. Desbrow, Secretary and former Director 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.
[NM\10QA\0123196A.QSB]-2
11
<PAGE>
NONA MORELLI'S II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 (Unaudited)
Note 6. Commitments and Contingencies
Capital Requirements of Cleopatra
At December 31, 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
Hammamet Casino was completed in January 1997. Construction on the Cap Gammarth
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 $13.5 million in aggregate. In addition, Cleopatra's World may
require approximately $1.5 million during 1997 to reduce short term debt and
secure working capital lines of credit. To finance the expected $15 million in
future capital costs, the Company is currently negotiating a JV with a European
Partner and soliciting proposals from potential JV partners. Alternatively,
subject to providing satisfactory collateral, on behalf of Cleopatra, 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 December 31, 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
December 31, 1996, if for any reason, a 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
Sale of Pueblo Building
In February 1997 the Company received notice that the lessor of the Company's
former manufacturing facility in Pueblo, Colorado (the "Pueblo Building")
intends to exercise its option to purchase the Pueblo Building. On February 26,
1997, the sale of the Pueblo Building closed and the Company received a total
consideration of $660,000. As part of the total consideration received, the
Company's mortgage debt in the principle amount of $215,392 was fully satisfied,
the Company received cash in the amount of $148,820, and the Company received
note receivables in the amounts of $50,000 and $210,000, both bearing 8%
interest per annum, and both secured by the Pueblo Building.
Director Resignations
Effective the close of business on January 2, 1997, Liu Chen Mei Huan and Cheng
Tai Chee resigned as Directors of the Registrant in order to pursue other
opportunities. There were no disagreements between the Registrant and either Ms.
Huan or Mr. Chee at the time of their resignations. The letters of resignation
were attached as Exhibits to a current Report on Form 8-K filed on January 2,
1997 (SEC File No. 000-18377).
[NM\10QA\0123196A.QSB]-2
12
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(a) Significant Developments During the Quarter ended December 31, 1996
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 December 24, 1996, Phase I of the NPC acquisition closed (see Note 2
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:
December 31, June 30,
1996 1996
---------------------- -----------------
(unaudited) (audited)
---------------------- -----------------
Working Capital (Deficit) $ (5,501,627) $ (1,923,964)
Cash and Cash Equivalents $ 86,689 $ 50,436
Current Ratio .07 .68
The most significant effects on working capital and its components
during the six months ended December 31, 1996 were the payment of $3.2 million
in principal and interest on the Registrant's note issued to acquire the Gaming
Interest, the continued accrual of legal and professional advisory fees and the
acquisition of NPC by NuOasis Gaming whereby NuOasis Gaming assumed current
liabilities in the approximate amount of $2.1 million as part of acquiring NPC.
The proceeds in the approximate amount of $3 million anticipated to be
received from the exercise of the Option (see Note 2 of the footnotes to the
accompanying unaudited financial statements included herein at Item 1) will not
improve the Company's cash position since the $3 million proceeds are earmarked
and will be used (as described in Note 2 of the footnotes) to purchase CMA and
fund the operations of NuOasis Gaming. However, at such time that the entire NPC
acquisition has occurred, NuOasis Gaming will no longer be consolidated with
Nona, which will cause a positive effect on the Company's negative working
capital, whereby the assumed current liabilities by NuOasis Gaming in the
[NM\10QA\0123196A.QSB]-2
13
<PAGE>
approximate amount of $1.2 million as part of acquiring NPC will no longer be
part of Nona's total short term debt due to the change in reporting entity (i.e.
NuOasis Gaming will no longer be consolidated with Nona).
The Registrant's current plan for growth is to increase its working
capital by continuing to convert 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 this calendar year. However, there are no
assurances that the subject casinos will open during this 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, other than its equity investments, 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
this 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 $2,752,182 for the six months
ended December 31, 1996 as compared to $626,149 cash used by operating
activities for the comparable period last year. The change 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 six months
ended December 31, 1996 as compared to $18,163 cash used by investing activities
for the comparable period last year. The change is primarily attributable to the
sale of 497,157 common shares of NuOasis Gaming (see Note 2 of the footnotes to
the accompanying unaudited financial statements included herein at Item 1).
Cash used by financing activities was $2,840,046 for the six months
ended December 31, 1996 as compared to $207,324 provided by financing activities
for the comparable period last year. The change 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 $198,000
(see Note 5 of the footnotes to the accompanying unaudited financial statements
included herein at Item 1).
(e) Results of Operations
Three Months Ended December 31, 1996 Compared to Three Months Ended
December 31, 1995
The Registrant's total food sales for the three months ended December
31, 1996 were $360,775 as compared to $270,114, for the comparable period last
year, resulting in an increase of $90,661 or 34%. The increase is primarily
attributable to an increase in additional customers and having no interruption
of business similar to the comparable period last year whereby one of two
manufacturing locations underwent remodeling during September and October of
1995.
[NM\10QA\0123196A.QSB]-2
14
<PAGE>
The Registrant's total cost of food sales for the three months ended
December 31, 1996 were $211,290 as compared to $183,890 for the comparable
period last year, resulting in an increase of $27,400 or 15%. The increase in
total cost of food sales is again, primarily attributable to the larger volume
experienced during the current quarter and having no business interruption as
there was during the comparable period last year. A small change in sales mix
also caused a slight decrease of 9% in relative total cost of sales.
The Registrant's total gaming revenues for the three months ended
December 31, 1996 were $0 as compared to $3,545,356 for the comparable period
this year. The decrease 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 December 31, 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 Registrant's total legal and professional fees, and general and
administrative expenses were $587,305 and $187,501, respectively, for the three
months ended December 31, 1996, as compared to $221,754 and $161,183,
respectively for the comparable period last year. The increase in legal and
professional fees is primarily attributable to an increase in professional
services provided by consultants under professional advisory and management
agreements over the same period last year. Additionally, an increase was
evidenced in public relation fees as the Company incurred increased amounts of
public relation services as a result of the Company's numerous transactions
entered into in the current period compared to the same period last year.
As a result of the NPC acquisition (see Note 2 of the footnotes to the
accompanying unaudited financial statements included herein at Item 1), the
excess of the purchase price over the fair market value of the net assets
acquired was approximately $3,318,107 and was assumed to be allocated to
goodwill. Due to NuOasis Gaming's and NPC's historical negative cash flows from
operations and working capital deficit, the goodwill of $3,318,107 is
immediately written off due to the uncertainty of realizing any future benefit
from this asset. There was no such write off during the comparable period last
year.
The Registrant's total operating loss for the three months ended
December 31, 1996 was $3,975,784 as compared to an operating income of
$1,714,556 for the comparable period last year. The decrease of approximately
$5.7 million is primarily attributable to the lack of gaming revenues due to the
sale of the Gaming Interest discussed above.
The Registrant's total other expense for the current period was
$313,801, as compared to $100,125 for the same period last year. The increase is
primarily attributable to losses from equity investments in the amount of
$286,066. There were no such losses from equity investments during the same
period last year.
Six Months Ended December 31, 1996 Compared to Six Months Ended
December 31, 1995
The Registrant's total food sales for the six months ended December 31,
1996 were $712,146 as compared to $560,276, for the comparable period last year,
resulting in an increase of $151,870 or 27%. The increase is primarily
attributable to an increase in additional customers and having no interruption
of business like the comparable period last year whereby one of two
manufacturing locations underwent remodeling during September and October of
1995.
[NM\10QA\0123196A.QSB]-2
15
<PAGE>
The Registrant's total cost of food sales for the six months ended
December 31, 1996 was $480,866 as compared to $382,651 for the comparable period
last year, resulting in an increase of $98,215 or 26%. The increase in total
cost of food sales is again, primarily attributable to the larger volume
experienced during the current quarter and having no business interruption as
there was during the comparable period last year. A small change in sales mix
also caused a slight decrease of 1% in relative total cost of sales.
The Registrant's total gaming revenues for the six months ended
December 31, 1995 were $7,519,882 as compared to $0 for the comparable period
this year. The decrease 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 $2,134,272 was incurred during the six months
ended December 31, 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 period as there was during the same period last year resulting in a
decrease in total depreciation and amortization expense of approximately $2.1
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 were no such sales during the comparable period last
year.
The Registrant's total legal and professional fees, and general and
administrative expenses were $1,167,447 and $498,047, respectively, for the six
months ended December 31, 1996, as compared to $792,162 and $396,637,
respectively, for the comparable period last year. The increase in legal and
professional fees is primarily attributable to an increase in professional
services provided by consultants under professional advisory and management
agreements over the same period last year. Additionally, an increase was
evidenced in public relation fees as the Company incurred increased amounts of
public relation services as a result of the Company's numerous transactions
entered into in the current period compared to the same period last year.
As a result of the NPC acquisition, the excess of the purchase price
over the fair market value of the net assets acquired was approximately
$3,318,107 and was assumed to be allocated to goodwill. Due to NuOasis Gaming's
and NPC's historical negative cash flows from operations and working capital
deficit, the goodwill of $3,318,107 is immediately written off due to the
uncertainty of realizing any future benefit from this asset. There was no such
write off during the comparable period last year.
The Registrant's total operating loss for the six months ended December
31, 1996 was $5,180,719 as compared to an operating income of $3,831,605 for the
comparable period last year. The decrease of approximately $9 million is
primarily attributable to the lack of gaming revenues due to the sale of the
Gaming Interest discussed above.
The Registrant's total other expense for the current period was
$333,972, as compared to $196,097 for the same period last year. The increase is
primarily attributable to losses from equity investments in the amount of
$286,066. There were no such losses from equity investments during the same
period last year.
[NM\10QA\0123196A.QSB]-2
16
<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:
On January 2, 1997 the Registrant filed a Current Report on
Form 8-K dated January 2, 1997 reporting effective the close
of business on January 2, 1997 the resignation of Liu Chen Mei
Huan and Cheng Tai Chee as Directors of the Registrant.
[NM\10QA\0123196A.QSB]-2
17
<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: April 4 , 1997 By: /s/ Fred G. Luke
--- ----------------------------------
Fred G. Luke,
Chief Executive Officer
and Director
Nona Morelli's II, Inc
Dated: April 4 , 1997 By: /s/ Steven H. Dong
--- ----------------------------------
Steven H. Dong,
Chief Financial Officer and
Principal Accounting Person
Nona Morelli's II, Inc.
Dated: April 4, 1997 By: /s/ Jon L. Lawver
----------------------------------
Jon L. Lawver, President and
Principal Accounting Person
Fantastic Foods International,
Inc.
[NM\10QA\0123196A.QSB]-2
18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 86,689
<SECURITIES> 0
<RECEIVABLES> 193,327
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 415,207
<PP&E> 1,240,250
<DEPRECIATION> (909,081)
<TOTAL-ASSETS> 10,260,952
<CURRENT-LIABILITIES> 5,916,834
<BONDS> 0
0
240,000
<COMMON> 450,723
<OTHER-SE> 2,087,009
<TOTAL-LIABILITY-AND-EQUITY> 10,260,952
<SALES> 360,775
<TOTAL-REVENUES> 360,775
<CGS> 211,290
<TOTAL-COSTS> 211,290
<OTHER-EXPENSES> 4,125,269
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,735
<INCOME-PRETAX> (4,289,585)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,289,585)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,289,585)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>