SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended June 30, 2000 Commission file number 0-18377
NuOASIS RESORTS, INC.
(Exact name of registrant as specified in its charter)
Nevada 84-1126818
(State of other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
4695 MacArthur Court, Suite 1450, Newport Beach, California 92660
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(949) 833-5381
____________
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S- K, is not contained herein and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
The Registrant's revenues for the fiscal year ended June 30, 2000 were
$5,192,905.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of October 31, 2000 was approximately
$1.3 million.
Class Outstanding at October 31, 2000
Common Stock, $.01 par value 66,914,300 shares
Documents Incorporated by Reference:
None
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TABLE OF CONTENTS
PART I
Page
Item 1. Description of Business............................................. 1
Item 2. Description of Property............................................. 11
Item 3. Legal Proceedings................................................... 11
Item 4. Submission of Matters to a Vote of Security-Holders................. 12
PART II
Item 5. Market for Common Equity and Related Stockholder Matters............ 13
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 14
Item 7. Financial Statements................................................ 19
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure............................................. 20
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act................ 20
Item 10. Executive Compensation.............................................. 22
Item 11. Security Ownership of Certain Beneficial Owners and Management...... 24
Item 12. Certain Relationships and Related Transactions...................... 25
PART IV
Item 13. Exhibits and Reports on Form 8-K.................................... 27
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) General
NuOasis Resorts, Inc. (the "Company" or "Resorts") was incorporated in
Colorado on February 6, 1989 and became public in 1990. In January 1998, the
Company was re-incorporated in the state of Nevada. Through subsidiaries, the
Company invests in, leases, manages and operates hotels, legalized gaming
casinos, and related operations. The Company also provides food and ancillary
services in connection with its hotel and gaming operations, and prior to fiscal
2000, manufactured and distributed specialty food products.
(b) Business Development
Through subsidiaries, the Company owns interests in, leases, manages and
operates themed hotels, gaming casinos and related operations worldwide, through
its majority-owned subsidiary Oasis Resorts International, Inc. ("Oasis"). The
Company operates its facilities under two marketing themes: "Cleopatra Palace"
and "Oasis Resorts." The Company's "Cleopatra"-themed facilities are owned and
operated by Cleopatra Palace Resorts and Casinos Limited, a British corporation
("CPRC"), a 75% owned subsidiary of Oasis. CPRC conducts its operations through
Cleopatra Cap Gammarth Casino Limited, a Tunisian corporation in organization
("CCGL") and Cleopatra's World Inc., a British Virgin Island corporation
("CWI"), entities which, at June 30, 2000 were 90% and 80% owned by CPRC,
respectively. The Company's "Oasis Resorts"-themed facility is under development
by Oasis Hotel, Resort & Casino III, Inc. ("Oasis-III") a wholly owned
subsidiary of Oasis.
The Company's food operations were conducted by its wholly-owned
subsidiary, Fantastic Foods International, Inc., a California corporation
("FFI"), doing business under the trade name "The Pasta Fresca Company" ("Pasta
Fresca"). FFI ceased operations during fiscal 2000.
At June 30, 1999, in addition to Oasis and FFI, the Company had six (6)
other subsidiaries - NuOasis International, Inc., a Bahamas corporation
("NuOI"), ACI Asset Management Inc., a Nevada corporation ("ACI"), NuOasis
Properties Inc., a Nevada corporation ("NuOP"), Casino Management of America,
Inc., a Utah corporation ("CMA"), NuOasis Laughlin, Inc., a Colorado corporation
("NuLA"), and NuOasis Las Vegas, Inc., a Colorado corporation ("NuLV"). NuOI is
a holding company for the Oasis investment. CMA, NuLV and NuLA were formed for
the purpose of acquiring a casino gaming interests and gaming assets in Nevada.
ACI and NuOP were formed for the purpose of acquiring certain real estate assets
in California and Colorado. CMA, NuLV, NuLA, ACI, and NuOP were development-
stage companies during each of the three fiscal years ended June 30, 2000.
During fiscal 2000, the Company distributed approximately 90% of the issued
and outstanding common shares of ACI, NuOP, CMA, NuLV and NuLA to the Company's
shareholders of record on June 30, 1999 (the "Spinoff"). The Spinoff was
effective in February 2000 and reduced the number of majority- owned
subsidiaries of the Company to three (3) from eight (8).
As used herein, the term "Company" refers to NuOasis Resorts, Inc. and its
subsidiaries.
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(c) Description of Business
The Company's business interests are comprised of legalized casino gaming
and hotel management, and to a limited extent, real estate acquisition and
development, which, as of the close of fiscal 2000, was still a
development-stage activity. The Company's food manufacturing and distribution
business ceased in fiscal year 2000.
(1) Gaming and Hotel Management Activities
Domestic Gaming Activities
On May 1, 1998, Flexweight Corporation, a Kansas corporation
("Flexweight") acquired 100% of the issued and outstanding common stock of
Oasis-III. Effective October 19,1998, Flexweight reincorporated in Nevada
and changed its name to Oasis Resorts International, Inc. ("Oasis").
Oasis-III holds a 20-acre interest in partially-developed land located in
Oasis, Nevada together with an option to acquire an additional 30 acres
adjacent to the 20-acre parcel. The Oasis- III property presently contains
a 6-unit motel, an eight-pump truck stop, a cafe and mini-market store and
was subdivided from an 1100-acre parcel originally purchased in December
1995 by Oasis-III from Oasis International Hotel and Casino, Inc. ("OIHC"),
which was at the time of the transaction, and continues to be, a
shareholder of Oasis. The motel, truck stop, cafe and store are currently
closed and are available for rent by the Company.
The Company intends to develop the Oasis-III property as a 500-room
resort hotel with a 30,000 square-foot Las Vegas style gaming casino with
38 gaming tables, Keno, Sportsbook, and 1,000 slot machines, together with
an entertainment complex with movie theaters, outdoor rodeo facilities, and
bowling alley. The Company is currently seeking financing to develop this
property.
International Casino Gaming and Hotel Management Activities
Through CPRC, the Company intends to develop and expand its casino
gaming and resort hotel activities outside of the United States. The
Company believes that international leisure and entertainment opportunities
offer much greater potential, and have far less competition than domestic
market because of the "emerging market" status of many of the host
countries. The Company's goal is to capitalize on the expected growth in
tourism trade and the surge of entertainment spending worldwide, and to
take advantage of certain investment opportunities in emerging markets
which appear to be the greatest beneficiaries of this expected growth.
Through CPRC, the Company has been soliciting and evaluating prospects in
certain resort hotel and casino gaming markets in Asia, North Africa, South
America, the Caribbean, and the South Pacific.
CPRC's predecessor, Cleopatra Palace Limited ("CPL"), developed the
concept of resort hotels and Las Vegas style gaming casinos designed along
the theme "Cleopatra Palace," in 1993.
In October 1994, CPL became the lessee of a 200,000 square foot casino
and Las Vegas- style showroom (the "Cap Gammarth Casino") pursuant to a
Casino Lease Agreement and Operating Management Contract (the "Gammarth
Casino Lease") with Societe Animation Loisers Touristique ("SALT"). The Cap
Gammarth Casino is part of a large resort development located in Tunisia,
North Africa, in the town of Gammarth, approximately 6 miles north of the
city of Tunis, the country's capital. In conjunction with this casino, an
affiliate of SALT, Societe Touristique Tunisie Golfe ("STTG"), partially
constructed a five-star hotel (the "Le Palace Hotel"), is currently
attempting to complete construction on an adjacent health and sports
center, a beach club, a 54-unit shopping mall and 250 apartments, all
located within walking distance to the Cap Gammarth Casino (collectively,
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the "Gammarth Resort"). The Gammarth Casino Lease was subsequently assigned
by CPL to CWI who serves as the operator of the Gammarth Resort.
In 1996, CPL deposited approximately $2,000,000 with SALT as a lease
deposit on the Cap Gammarth Casino. In April 1998, CPL converted the Cap
Gammarth Casino lease deposit to a 9% equity ownership in SALT.
After a long history of missed completion dates set by STTG, CWI
opened the Le Palace Hotel in October 1996 with only 100 of 350 total rooms
ready for occupancy, and without any of the other resort facilities.
Through internally operated cash flow and working capital provided by
NuOasis, CWI completed the Le Palace Hotel and marketed the facility since
its opening. While the balance of the resort remained unfinished at June
30, 2000, the Le Palace Hotel has been actively managed and marketed by CWI
with steadily increasing annual room rental rates and revenues; however,
the reputation of the hotel is not what is expected by management for a
5-star hotel due to such delays in completing the Hotel and the balance of
the complex by STTG.
As the Company believes the best solution to the issues at the Le
Palace Hotel is for it to purchase the complex, in September 2000, the
Company made an offer of 24 million Tunisian Dinars, approximately $18
million, to purchase the equity in the Cap Gammarth complex from STTG. The
Company has obtained a financing commitment that it believes is adequate to
fund the acquisition of and complete the development of this real property.
In October 1994, in a separate transaction, CPL entered into an
agreement to lease and operate a casino and French-style cabaret in
Hammamet, Tunisia (the "Hammamet Casino"). The Hammamet Casino was
completed in the first half of calendar 1997 and opened December 6, 1997.
Adjoining the Hammamet Casino is a five-star hotel and villa resort (the
"Hammamet Hotel") which was completed and opened in September 1996, and is
operated by the Occidental Group. The Hammamet Hotel is one of forty-five
(45) hotels planned or currently under construction in south Hammamet as
part of a Tunisian government-sponsored expansion of the Hammamet resort
area. When completed, these additional hotels are expected to provide up to
38,000 additional beds for the Hammamet area. Both the Hammamet Casino and
Hammamet Hotel are situated within walking distance of other hotels, with
approximately 1,800 beds.
CPL financed the completion and opening of the Hammamet Casino through
loans from NuOasis and financing from Cedric Investment Company Inc., a
Panamanian corporation ("Cedric"). In connection with a $1.5 million loan
from Cedric to complete and open the Hammamet Casino, the Company pledged
its 70% interest in Cleopatra Hammamet Casino, Ltd. ("CHL"), the lease
holder of the Hammamet Casino to Cedric. The Company had the right to
repurchase such interest for $1.5 million plus interest. Such right expired
September 22, 1998 and accordingly, the Company had no further interest in
the Hammamet Casino. To finance the remaining expenditures on the Cap
Gammarth Casino, CPRC has been negotiating possible joint ventures with
foreign banks and investment groups.
On April 1, 2000, the Company through Oasis entered into an agreement
to acquire 60% of the voting capital stock of CHL from an unrelated party
for 750,000 shares of Oasis common stock, valued at $2.25 million. The
common shares of Oasis were delivered to the unrelated party; however, due
to certain regulatory and tax considerations, the transaction has not been
completed. Management is unsure at the present time whether the transaction
will be closed. In connection with the agreement, the seller was required
to provide $600,000 of working capital to CHL, of which $300,000 was paid
by the seller. NuOI loaned the remaining $300,000 to CHL and was repaid by
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the seller with 107,413 shares of Oasis common stock. If the transaction is
not closed, the Company could possibly lose its investment of 750,000
shares of Oasis common stock.
Between 1996 and 1999, CPL and other related CPRC subsidiaries,
increased their interest in CWI and entered into Letters of Intent and
contracts to acquire additional proposed and existing resort hotel and
casino gaming interests in the Mediterranean and Southern Europe. On July
7, 1996, CPL entered into an agreement between Compagnie Monastirienne
Immobiliere et Touristique S.A. ("CMI") to take over and operate a casino
in Monastir, Tunisia (the "Monastir Casino Lease"); it entered into an
agreement with CMI dated July 7, 1996 to take over and operate a resort
hotel in Monastir, Tunisia (the "Monastir Hotel Lease"); it entered into an
agreement in principle to lease an existing potential casino site and to
acquire a gaming license in Morocco (the "Morocco Project"); and, it
entered into an agreement to acquire certain real property interests in San
Roque, Spain and the gaming license related to a casino under construction
in Marbella, Spain (the "Marbella Casino"). However, at June 30, 2000, none
of the properties under contract or agreements in principle have been
acquired by the Company or any of its subsidiaries.
In October 1998, the Company exchanged with Oasis, its 75% interest in
CPR for shares of Oasis common stock (the "Oasis Stock"), warrants to
purchase shares of Oasis common stock (the "Oasis Warrants") and promissory
notes issued by Oasis in the aggregate principal amount $180,000,000 (the
"Oasis Notes"). The exchange of the Company's interest in CPR, following
the close of fiscal 1998, for the Oasis Stock, Oasis Warrants and Oasis
Notes resulted in Oasis becoming a controlled subsidiary of the Company.
On November 15, 1999, the Company and Oasis agreed to extinguish the
Oasis Notes and cancel the Oasis Warrants in exchange for the issuance of
an additional 8,111,240 shares of Oasis common stock. As a result, NuOasis
owned approximately 86% of the Oasis issued and outstanding common stock.
(2) Food Manufacturing and Distribution
Prior to fiscal year 2000, through FFI, the Company manufactured,
distributed, and marketed fresh and frozen packed pasta and Italian sauces.
Since September 1993, the Company's food products operations have been
conducted by FFI. In fiscal 1994 the Company's historical food
manufacturing and distribution activities, which include pasta and sauce
products, were transferred from Colorado to California and were operated in
facilities based in Irwindale, California until February 2000. The facility
was USDA certified and produced all of the Company's pasta and sauce
products, including meat and chicken filled products and speciality items
for hotels and restaurants.
The Company utilized its own recipes and those acquired in the
purchase of the assets and business of Italfin, Inc. ("Italfin") and Pasta
Fresca in fiscal 1993. The Company's pasta products were fresh or frozen,
not dried, to maintain 60% of the nutritional value, to cook quickly and to
retain aroma and taste. Its pasta was high in complex carbohydrates making
it a high energy food. The Company's pasta was manufactured under the brand
names "Nona Morelli" and "Pasta Fresca," and contained all natural
ingredients without any preservatives. The "Nona Morelli" and "Pasta
Fresca" brand name pasta products were sold primarily to the retail trade
in supermarkets, club stores and independent grocers in California and
other states and, through contract packaging ("co-packing") for other
independent Supermarkets which sold the Company's products under their
private labels. Fresh and frozen pasta was also sold in bulk for the food
service industry, hotels and restaurants. The Company had lines of no
cholesterol and low cholesterol pasta and packages and marketed pasta with
accompanying sauces. The Company was also a producer and marketer of a
private label and "Nona Morelli" and "Pasta Fresca" brand sauces.
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During fiscal 1999 and 1998, the operations of FFI deteriorated
significantly, as the Company did not have the financial and operational
resources necessary to successfully establish, maintain, or expand its
distribution network. As a result of the business deterioration in prior
years, management of FFI spent much of fiscal 2000 and fiscal 1999
exploring strategic alternatives for its food manufacturing and
distribution business. FFI has essentially ceased operations.
(3) Real Estate Activities
The Company did not have any real estate operations during fiscal 2000
or fiscal 1999.
(d) Marketing
(1) Gaming and Hotel Management
Domestic Gaming
The Company did not have any domestic gaming activities in fiscal 2000
and fiscal 1999 and did not utilize or rely upon any marketing for domestic
gaming activities in fiscal 2000.
International Casino Gaming and Hotel Management
The Company's current activities are located in North Africa, and the
Company's marketing strategy is to target past and repeat middle-market,
value-oriented visitors to its facilities by systematic marketing programs
directed to the individual visitors and to the tour operators who have
historically promoted and booked the tours to the respective areas in the
past. The Company uses general marketing approaches to attract first time
customers to its casinos by advertising its slot player club program,
popular entertainment and other promotions. Once customers enter the
Company's casinos, the Company attempts to capture the name and playing
level of each slot machine and table game player.
The Company uses this information in follow-up promotions. The Company
believes that utilizing the "Cleopatra" theme in the Mediterranean area,
and the proposed "Oasis" theme in other areas, combined with personalized
database driven marketing programs, will create a strong brand image
synonymous with quality casino gaming and hotel facilities, service and
food. With respect to its existing hotel and casino gaming activities in
Tunisia, the Company is currently working with the Tunisian government and
local organizations with the goal of promoting the areas to increase the
number of tourists.
As the markets surrounding the Company's current and future hotel and
casino facilities continue to mature, the Company intends to expand its
focus to other markets in the respective regions. The Company has utilized
and intends to continuously monitor the effectiveness of direct mail,
television advertising, newspapers, billboards and tourist magazine
advertising placed in the surrounding areas to increase the visibility of
the Company's facilities and to promote the image that these facilities are
part of the history and romance of the region. Management believes that the
advent of Las Vegas-style casino gaming in the Mediterranean area will
increase the current length of a tourist's stay as well as increase the
number of tourists into its market areas.
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Food Manufacturing and Distribution
Sales of the Company's products were made through direct marketing by
food brokers with a focus on supermarket chains, other retailers and
restaurants. Typically, the Company's products were delivered to
distribution centers of such supermarket chains for subsequent re-delivery
through the supermarket subsystem as demand dictated. The Company also
marketed its products through distributors under short term "spot sale"
arrangements terminable on short notice. Food brokers utilized by the
Company usually received commissions based on net sales, while distributors
purchased the Company's products for their own account. The Company did not
grant exclusive area distribution rights with respect to any of its
products.
Since fiscal 1998, the operations of FFI deteriorated significantly,
as the Company did not have the financial and operational resources
necessary to successfully establish, maintain, or expand its distribution
network. As a result of the business deterioration, FFI has substantially
ceased operations.
(e) Raw Materials
Gaming and Hotel Management
The Company's international casino gaming and hotel management, and its
proposed real estate acquisition and development activities, are not
manufacturing-based businesses and therefore do not rely on raw materials.
Food Manufacturing and Distribution
The Company's domestic food manufacturing and distribution segment required
raw materials which were readily available such as flour, tomatoes and
domestically-grown spices. The Company has not experienced any difficulty
obtaining any raw materials for its domestic food operations in the past.
(f) Patents, Trademarks and Licenses
Gaming and Hotel Management
The Company's proposed international gaming activities do not require
patents or trademarks, and the Company does not intend to rely on patents or
trademarks. The operations of the proposed gaming casinos and resort hotel
properties will depend on and be subject to gaming licenses and permits from
their respective jurisdictions. With respect to the current casino gaming and
hotel operations in Tunisia, the respective permits and gaming licenses are
issued to the Company and the owner/operators of the hotel complexes, of which
the casinos are a part.
Food Manufacturing and Distribution
Although the Company's formulas and recipes are not subject to patent
protection, it considers these proprietary and uses confidentiality agreements
as appropriate in an attempt to protect such formulas and recipes. The Company
has received a trademark for "Nona Morelli" from the United States Patent and
Trademark Office, which it used on some of its products.
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(g) Seasonality
Gaming and Hotel Management
The Company's international casino gaming and hotel management activities
are seasonal and are strongly affected by weather, political stability, and
other factors that influence the tourist trade. Higher revenues are typically
realized from the Company's current operations in North Africa during the late
spring, summer and early fall months. Additionally, due to their location on the
southern Mediterranean coast, tourist traffic at the Cap Gammarth Resort can be
adversely affected by severe weather.
Food Manufacturing and Distribution
The Company's food manufacturing, and distribution businesses, are not
seasonal in nature.
(h) Customer Dependence
Gaming and Hotel Management
The Company's domestic gaming, and its international casino gaming and
hotel management activities are solely dependent upon Tunisian tourism and the
Company's ability to attract foreign visitors to its Tunisian operations.
Food Manufacturing and Distribution
For the year ended June 30, 1999, the Company's food operations had three
major customers, all distributors, each of which accounted for more than 15% of
the Company's sales with respect to its food manufacturing and distribution
segment. FFI earned no revenues in fiscal 2000.
(i) Backlog of Orders
Gaming and Hotel Management
The Company's domestic gaming, together with its international gaming and
hotel management and its real estate subsidiaries, were not subject to the type
of business activities which would give rise to "orders."
Food Manufacturing and Distribution
At June 30, 2000, FFI, the Company's food manufacturing and distribution
subsidiary, had no significant backlog for orders.
(j) Government Contracts
None of the Company's industry segment activities were involved with
material government contracts in fiscal 2000 or fiscal 1999.
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(k) Competition
Gaming and Hotel Management Activities
Domestic Gaming
During fiscal 2000 and 1999, the Company did not have any domestic
gaming activities.
International Gaming and Hotel Management Activities
The Company, directly and through NuOI, competes with other casino
gaming and hotel management companies for opportunities to manage casino
gaming and hotel management activities in emerging international gaming
jurisdictions. The Company expects many competitors to enter new
international jurisdictions that authorize gaming, some of whom may have
more personnel and greater financial and other resources than the Company
or its subsidiaries.
Further expansion of international legalized gaming in the markets
where the Company is active or proposes to become active could also
significantly and adversely affect its proposed gaming activities. In
particular, the expansion of casino gaming in or near any geographic area
where the Company is active, or in pursuit of a gaming license or rights to
manage casino gaming activities, may diminish or otherwise detract from the
activities of the Company or its subsidiaries. In this regard, the Company
believes that its gaming markets are extremely competitive and expects them
to become even more competitive as the number of gaming and other
entertainment establishments increases. Such competition is growing in the
Mediterranean market and the Company also competes with gaming facilities
worldwide. It is also possible that substantial competition could cause the
supply of casino gaming facilities to exceed the demand for casino gaming.
Additionally, many of the Company's competitors have more casino
gaming industry experience, larger operations or significantly greater
financial and other resources than the Company. Given these factors it is
possible that substantial competition could have a material adverse effect
on the Company's future results of operations.
Food Manufacturing and Distribution
Although the Company has no market data compiled on the fresh pasta
industry, management believes that Contadina, a division of Carnation
Foods, is the fresh pasta industry leader accounting for in excess of 50%
of nationally fresh pasta sales. However, in certain states in which the
Company operated, management believes Contadina controls less than 50% of
this market in the aggregate. Other major retail competitors are Tyson
Foods under the trade name Mallard's, Pasta Mia, Trios, Pasta Perfecta,
DiGiorno, Romance and Monterey Pasta Company.
Competitive factors in the industry include product quality and taste,
freshness, healthfulness, brand name awareness among consumers, advertising
and promotion, supermarket shelf space, product shelf life, package design,
price and reputation among consumers. Competition is severe in each area,
and industry leaders, such as Contadina, are extremely strong in most
competitive areas.
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Real Estate Activities
During fiscal 2000 and 1999, the Company did not have any operating
activities with respect to real estate acquisitions and development either
domestically or internationally.
(l) Research and Development
As part of the Company's domestic food manufacturing process, the Company
enhanced existing products and developed new products on a continuous basis. The
Company did not have any direct costs associated with customer-sponsored
research and development activities. As to its real estate, casino gaming and
hotel management activities, it does not have a research and development
department or budget. Market research is conducted on the subsidiary level as to
each particular property or project.
(m) Government Regulation
Gaming and Hotel Management Activities
Domestic Gaming
During fiscal 2000 and 1999, the Company did not have any domestic
gaming activities.
International Casino Gaming and Hotel Management Activities
The Company's international operations are generally dependent on the
continued licenseability, qualification and operations of the Company or
the subsidiaries and/or that hold the requisite licenses or permits in the
jurisdictions where it conducts or proposes to conduct gaming and hotel
management activities. Generally, such operations are reviewed periodically
by local, state and/or federal governmental authorities. In addition, in
most jurisdictions, the Company's directors and many of the employees of
casinos and hotels are often required to be approved. The failure of the
Company or any of its key personnel to obtain or retain a license or a
permit in a particular jurisdiction could have a material adverse effect on
the Company's ability to continue or expand its casino gaming and/or hotel
management operations, or to obtain or retain licenses or permits in other
jurisdictions. In addition, any regulations adopted by the local, state
and/or federal governmental authorities, the legislatures or any
governmental authority in jurisdictions in which the Company intends to
have casino gaming and/or hotel management operations, may materially
adversely affect its operations.
At the close of fiscal 2000, the Company's only international casino
gaming and hotel management investments were in Tunisia, North Africa.
Under Tunisian law, casino gaming is closely supervised and monitored
through the use of on-site government representatives and strict published
operating procedures. The process through which a company obtains a license
to conduct casino gaming in Tunisia is similar to that of many of the
various states in the U.S. which have recently adopted legalized gaming
statutes, involving background checks, personal interviews and the
discretionary right of the government body overseeing gaming activities to
deny or withdraw a license to any applicant.
The Tunisian government has approved the Company's management for
gaming licenses at the Cap Gammarth Casino and the Hammamet Casino.
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Food Manufacturing and Distribution
The Company was regulated by the Los Angeles County Health Department
United States Department of Agriculture ("USDA"), and the United States
Food and Drug Administration. The Company was subject to various
regulations with respect to cleanliness, maintenance of food production
equipment, storage cooling and cooking temperatures, food handling and
storage, and is subject to on-site inspections. The finding of a failure to
comply with one or more regulatory re quirements could result in a variety
of sanctions, including fines.
(n) Compliance With Environmental Laws
Compliance with United States federal, state and local provisions
regulating the discharge of materials into the environment or otherwise relating
to the protection of the environment has no material effect on the capital
expenditures, earnings and competitive position and operations of the Company's
food manufacturing, international casino gaming and hotel management activities.
The Company's food operation has no material effect on environmental laws.
Pasteurization of products and cooking of ingredients are of no major concern to
environmental requirements.
(o) Employees
There were three (3) corporate officers of the Company and 185 employees of
significant subsidiaries who rendered services during fiscal 2000 and fiscal
1999.
(p) Forward Looking Statements
Certain statements contained herein include forward-looking statements
based on management's current expectations of the Company's future performance.
Predictions relating to future performance are inherently uncertain and subject
to a number of risks. Consequently, the Company's actual results could differ
materially from the expectations expressed in this Report. Factors that could
cause the Company's actual results to differ materially from the expected
results include, among other things: increases in the number and the intensely
competitive nature of competitors in the markets in which the Company operates;
the seasonality of the hotel and casino gaming industry in certain markets in
which the Company operates; the susceptibility of the Company's operating
results to adverse weather conditions and natural disasters; the availability of
sufficient capital to finance the Company's business plan on terms satisfactory
to the Company; the risk that jurisdictions in which the Company proposes to
operate hotels or casinos rescind or fail to enact legislation permitting casino
gaming or do not enact such legislation in a timely manner; changes in
governmental regulations governing the Company's activities; changes in labor,
equipment and capital costs; the ability of the Company to consummate
contemplated joint ventures and acquisitions on terms satisfactory to the
Company, and to obtain necessary regulatory approvals therefor; and other risks
detailed in the Company's filings with the Securities and Exchange Commission
("SEC").
Additionally, all statements contained herein that are not historical
facts, including but not limited to statements regarding the Company's current
business strategy, the Company's prospective joint ventures, asset sales and
expansions of existing projects, and the Company's plans for future development
and operations, are based upon current expectations. In addition to being
forward- looking in nature, these statements involve a number of risks and
uncertainties. Generally, the words "anticipates," "believes," "estimates,"
"expects," and similar expressions as they relate to the Company and its
management are intended to identify forward-looking statements. The Company
wishes to caution readers not to place undue reliance on any such forward-
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looking statements, which statements are made pursuant to the Private Litigation
Reform Act of 1995 and, as such, speak only as of the date made.
ITEM 2. DESCRIPTION OF PROPERTY
(a) Corporate Headquarters
Since September 1993, the Company has maintained its corporate headquarters
in Orange County, California. The Company's headquarters is currently located at
4695 MacArthur Court, Suite 1450, Newport Beach, California 92660, and is
subleased from an affiliate, NewBridge Capital, Inc. ("NewBridge"), on a
month-to-month basis as part of an Advisory and Management Agreement assigned to
NewBridge. The Company believes that these facilities are suitable and ade quate
for its present needs.
(b) Gaming and Hotel Management Facilities
Domestic Gaming
At the close of fiscal 2000, the Company did not own any domestic gaming,
real property interests or personal property, nor did it have any domestic
gaming activities subject to lease obligations.
International Gaming and Hotel Management Facilities
At the close of fiscal 2000, the Company, through its subsidiaries, was a
lessee under two (2) lease agreements related to the Cap Gammarth Casino and the
Gammarth Resort in Tunisia. Due to its position as a lessee, neither the Company
or its subsidiaries owned any real or personal property. Should the Company
close the acquisition of 60% of CHL, the Company would also be a lessee under a
lease agreement related to the Hammamet Casino.
Food Manufacturing and Distribution Facilities
FFI was the lessee of approximately 10,000 square feet of food
manufacturing space in Irwindale, California. In fiscal 1999, FFI moved from its
production facility in Irwindale, California and began an arrangement where
another USDA qualified manufacturer packaged the FFI products. FFI is no longer
a lessee.
(d) Real Estate Activities
The Company did not have any domestic or international real estate
operations at June 30, 2000 or June 30, 1999.
ITEM 3. LEGAL PROCEEDINGS
Monterosso and GRPV Litigation
On November 10, 1998, GRPV (now known as TotalAxcess.com, Inc.) and Joseph
J. Monterosso ("Monterosso") filed a lawsuit in California Superior Court
against the Company and seven (7) other defendants, currently pending as Case
No. 807984 in Superior Court of California, County of Orange (the "Monterosso
Litigation"). The complaint alleges that the Company and the other defendants
made material misrepresentations in connection with the sale of Series D
11
<PAGE>
Warrants to purchase common stock and shares of Series B Preferred Stock of GRPV
owned by the Company and sold in fiscal 1997 to Monterosso. Monterosso seeks
equitable rescission of the transaction or, alternatively, unspecified monetary
damages. The case was set for trial on July 17, 2000, but has been postponed
until subpoenaed information is received by the Company. The Company has firmly
denied the allegations and is vigorously defending the case. An adverse ruling
could have a material adverse effect on the financial condition of the Company.
In July 2000, the Company entered into an Indemnification Agreement and
Agreement to Defend with YSRO Program Exchange B.V., a Netherlands Antilles
corporation ("YSRO"). Under the terms of this agreement, the Company exchanged
cash of $200,000, its interest in the Group V Litigation, and Fred G. Luke's
interest in the Group V Litigation. In return, YSRO agreed to undertake the
obligation to pay all costs and expenses in defending the Company and Fred G.
Luke and in pursuit of counterclaims against one more of the plaintiffs.
STTG and SALT
One of the Company's indirect subsidiaries, CWI, is currently in
arbitration with STTG, the developer/owner of the Gammarth Resort over the
amount of rent due for the LePalace Hotel since its opening. Through June 30,
2000, the Company has not paid rents to STTG in connection with its lease
arrangement. However, the Company paid opening costs and purchased equipment
totaling approximately $1.8 million which were the responsibility of STTG. STTG
filed a complaint and received an arbitration award for calendar year lease
rental payments for 1997 and 1998, net of amounts expended by the Company. At
June 30, 2000, the Company owed STTG approximately $4.0 million for the rental
payments, net of costs and expenses and trade receivables from STTG under the
agreement.
Although the award due STTG is final, management of CWI is not in agreement
with this award because it does not provide for completion of the property nor a
provision for economic damages that CWI suffered as a result of the complex
being incomplete. Currently, the Company is pursuing additional arbitration for
the rents that will be due for the years 1999 and 2000, which also demands that
STTG be required to complete the complex and pay economic damages suffered by
CWI.
However, the Company believes the best solution to the issues at the Le
Palace Hotel are for it to purchase the complex. The Company has obtained a
financing commitment that it believes is adequate to fund the acquisition of and
complete the development of this real property and has made an offer to purchase
the Cap Gammarth Complex from STTG. In the event management is unsuccessful in
its arbitration or legal actions, or fails to pay the past-due rent payments,
the Company will in all likelihood lose its rights to operate the Le Palace
Hotel.
On July 13, 1998, Resorts filed a civil complaint for damages in the U.S.
District Court, District of Nevada against SALT and several other defendants. On
July 2, 1999 the District Court adjudged and decreed compensatory damages in the
amount of $292 million plus interest and $10 million in punitive damages (the
"SALT Judgment"). The SALT Judgment affects the Cap Gammarth Casino and is
expected to result in the Company foreclosing on the interest of SALT and the
individual defendant's equity ownership of SALT. CPRC management currently has
instituted proceedings in Tunisia to collect upon its money judgement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
There were no matters submitted to a vote of security-holders in fiscal
2000.
12
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
Through August 16, 1995, the Company's common stock was traded on the
NASDAQ Small CapSM System under the symbol "NONA." From August 16, 1995 through
January 19, 1998, the Company's shares traded on the Electronic Bulletin Board
under the Symbol "NONA." From January 1998 to March 2000 the Company's shares
traded on the Electronic Bulletin Board under the symbol "NUOA." In March 2000,
as a result of the Company failing to be in compliance with respect to the
disclosure requirements of the Exchange Act, the NASD delisted the Company's
common stock and ceased trading on the Bulletin Board. The Company intends to
take the steps necessary to resume trading after it becomes current with its
Exchange Act filing requirements.
The range of high and low "bid" quotations for the Company's common stock
for the last two fiscal years as reported by NASDAQ OTC Bulletin Board are
provided below. These over-the-counter market quotations reflect inter-dealer
prices without retail markup, markdown or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
Bid Price of Common Stock
<S> <C> <C>
Fiscal 2000 High Low
Quarter ended 06/30/00 $.03 $.01
Quarter ended 03/31/00 $.10 $.01
Quarter ended 12/31/99 $.05 $.02
Quarter ended 09/30/99 $.07 $.03
Fiscal 1999 High Low
Quarter ended 06/30/99 $.06 $.02
Quarter ended 03/31/99 $.06 $.02
Quarter ended 12/31/98 $.06 $.03
Quarter ended 09/30/98 $.10 $.04
</TABLE>
(b) Holders
The approximate number of holders of record of each class of equity
securities of the Company as of June 30, 2000, was as follows:
Approximate
Number of
Title of Class Record Holders
Common Stock, $.01 par value 2,000
Series D Preferred Stock,
$ .01 par value 3
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This approximate number of record holders of common stock does not include
an unknown number of beneficial holders whose shares are registered in "street
name."
(c) Dividends
The Company has not paid any cash dividends with respect to its common
stock or preferred stock since its inception. During fiscal 2000, the Company
distributed approximately 90% of the issued and outstanding common shares of
five of its previously, wholly owned subsidiaries to the holders of its common
stock. No cash or property dividends were paid or declared during fiscal 1999.
As of the date of this Report, the Board of Directors of the Company has not
approved a dividend distribution policy. There are no contractual restrictions
on the Company's present or future ability to pay dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(a) Forward Looking Statements
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED
IN THIS FORM 10-KSB ARE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE SET FORTH IN SUCH FORWARD LOOKING STATEMENTS. SUCH RISKS AND
UNCERTAINTIES INCLUDE, WITHOUT LIMITATION, THE COMPANY'S DEPENDENCE ON THE
TIMELY DEVELOPMENT, INTRODUCTION AND CUSTOMER ACCEPTANCE OF SERVICES AND
PRODUCTS, THE IMPACT OF COMPETITION AND DOWNWARD PRICING PRESSURES, THE ABILITY
OF THE COMPANY TO REDUCE ITS OPERATING EXPENSES AND RAISE ANY NEEDED CAPITAL AND
THE EFFECT OF CHANGING ECONOMIC CONDITIONS.
(b) Significant Events
(1) Cleopatra Hammamet
On April 1, 2000, the Company through Oasis entered into an agreement
to acquire 60% of the voting capital stock of CHL from an unrelated party
for 750,000 shares of Oasis common stock, valued at $2.25 million. The
common shares of Oasis were delivered to the unrelated party; however, due
to certain regulatory and tax considerations, the transaction has not been
completed. Management is unsure at the present time whether the transaction
will ultimately close. In connection with the agreement, the seller was
required to provide $600,000 of working capital to CHL, of which $300,000
was paid by the seller. NuOI loaned the remaining $300,000 to CHL and was
repaid by the seller with 107,413 shares of Oasis common stock. If the
transaction is not closed, the Company could possibly lose its investment.
(2) Cleopatra's World
CWI operates the Le Palace Hotel under a 15-year operating agreement
with the Lessor. At present, the parties are in dispute over rental
payments. An initial arbitration award covering rent through 1998 has been
rendered. Although the award due the Lessor is final, management of CWI is
not in agreement with this award because it does not provide for completion
of the property nor a provision for economic damages that CWI suffered as a
result of the complex being incomplete. Currently, the Company is pursuing
additional arbitration for the rents that will be due for the calendar
years 1999 and 2000, which demands that STTG be required to complete the
complex and pay economic damages suffered by it.
14
<PAGE>
Because the parties have been unable to agree upon a long term
solution, the Company's management has been unable to generate working
capital or financing to pay the rent that was awarded. The Lessor is
currently seeking an injunction to remove CWI from the Le Palace Hotel. CWI
continues to seek legal reprieve. CWI believes that the most viable long
term solution is for it to purchase the Cap Gammarth Complex. Management
has tendered an offer of 24.0 million Tunisian Dinars ($18.0 million
converted to U.S. dollars at the exchange rate on June 30, 2000) to acquire
the Cap Gammarth Complex, which does not include the Cap Gammarth Casino.
Management has secured a commitment from a domestic, private investment
fund to enable them to effect the transaction.
There are no assurances that the Company will be successful in
receiving an acceptance to its offer or that the financing will be
available in the event the offer is accepted. In the event management is
unable to complete the acquisition or fails to pay the past-due lease
payments, the Company will in all likelihood lose its rights to operate the
Le Palace Hotel. Since the Company has only one operating subsidiary, CWI,
all revenues, substantially all operating assets, and operating
liabilities, are those of the operations of the Le Palace Hotel.
(3) CPR and Oasis
In October 1998 the Company exchanged with Oasis, its 75% interest in
CPR for shares of Oasis common stock (the "Oasis Stock"), warrants to
purchase shares of Oasis common stock (the "Oasis Warrants") and promissory
notes issued by Oasis in the aggregate principal amount $180,000,000 (the
"Oasis Notes"). The exchange of the Company's interest in CPR for the Oasis
Stock, Oasis Warrants and Oasis Notes resulted in Oasis becoming a
controlled subsidiary of the Company.
On November 15, 1999, the Company and Oasis agreed to extinguish the
Oasis Notes and cancel the Oasis Warrants for issuance of an additional
8,111,240 shares of Oasis common stock. Subsequent to this transaction,
NuOasis owned approximately 86% of the Oasis issued and outstanding common
stock.
During the year ended June 30, 2000, the Company sold 837,685 shares
of ORI's common stock and recognized a related gain on sale aggregating
approximately $362,000.
(4) Dega Technologies, Inc.
In November 1998, NuOI entered into an exchange agreement with Dega
Technology, Inc. ("Dega"), whereby NuOI received 4,792,165 shares of Dega
common stock, a $500,000 Secured Convertible Promissory Note (the "Note"),
and $100,000 in cash. In exchange, NuOI transferred 500,000 shares of Oasis
common stock to Dega, which had a book value of $243,314. The Note was
collateralized by the 500,000 shares of Oasis common stock issued to Dega
and 100% of the outstanding capital stock of H Bar C Acquisition
Corporation, a wholly-owned subsidiary of Dega. Additionally, the Note was
convertible into a minimum of 500,000 shares of Dega common stock.
During the year ended June 30, 1999, NuOI transferred an aggregate of
1,107,165 shares of Dega common stock to related entities in exchange for a
reduction in NuOI liabilities and intercompany receivables. In addition,
NuOI exchanged 2,846,000 Dega shares, along with other consideration, for
cash and a right to acquire shares of common stock of Phileo Management
Company, Inc. (currently, NewCom, Inc.) ("Phileo"). In September 1999, the
Company entered into a note purchase agreement with Phileo, whereby the
Company acquired cash of $250,000 and a reduction in the amount owed to
NuVen Advisors, Inc. by the Company (which Phileo believes it owns or has
the right to acquire) of $222,000. In exchange, the Company agreed to sell,
assign, and transfer the $500,000 Dega Note to Phileo. As of June 30, 2000,
NuOI owns 839,000 shares of Dega common stock, which were fully reserved
for given Dega's bankruptcy filing during fiscal 1999. The Company realized
a $472,000 gain on sale of the Note during the year ended June 30, 2000.
15
<PAGE>
(5) Organizational Schematic
As a result of the Spinoff, the CPL Restructuring in fiscal 1999, and
the exchange with Oasis in fiscal 1999, the Company's organizational
structure and equity interests in its subsidiaries significantly changed
effective July 1, 1998 (the beginning of fiscal 1999). All of the Company's
interest in the "Cleopatra"-themed and development-stage "Oasis"-themed
assets and entities became owned by Oasis, a controlled subsidiary of the
Company. Also, effective July 1, 1998, the Company disposed of its interest
in CPL. The Company's organizational structure as of June 30, 2000 giving
effect to the fiscal 1999 transactions, and the Spinoff effected in
February 2000, is as follows:
NuOasis Resorts Inc.
|
| |
NuOasis International Inc. Fantastic Foods International Inc.
|
Oasis Resorts International Inc.
| |
Oasis III CPR
|
| |
Cleopatra Cleopatra's
Cap Gammarth World
(c) Going Concern
The Company has experienced recurring net losses, has limited liquid
resources and has negative working capital. Management's intent is to continue
searching for additional sources of capital and new additional international
gaming and hotel management opportunities. In the interim, the Company intends
to continue operating with minimal overhead and key administrative functions
provided by consultants who are compensated primarily in the form of the
Company's common stock. It is estimated, based upon its historical operating
expenses and current obligations, that the Company may need to utilize its
common stock for future financial support to finance its needs during fiscal
year 2001 and thereafter. The Company's consolidated financial statements for
fiscal 2000 and 1999 have been presented under the assumption that it will
continue as a going concern.
Management's plans with respect to these matters are as follows:
1. Acquire the Le Palace Hotel and the adjacent complex in Cap Gammarth
(collectively the "Cap Gammarth Complex"), which excludes the Cap Gammarth
Casino. By acquiring the property, management expects to eliminate
approximately $4.0 million of accrued rental payments to Societe
Touristique Tunisie-Golfe ("STTG" or "Lessor") for operation of the Le
Palace Hotel. Management has tendered an offer to acquire the Cap Gammarth
Complex for approximately $18.0 million. The Company has obtained a
financing commitment that it believes is adequate to fund the acquisition
of and complete the development of this real property, as well as pursue
the acquisition of similar properties. The Le Palace Hotel currently is
generating positive cash flow before the accrual of rent. Management
believes that the cash flow from operations will be sufficient to service
the current operating liabilities if the acquisition is successful.
2. Should the offer to acquire the Cap Gammarth Complex not be accepted,
management intends to continue to seek a legal reprieve based upon the fact
that the parties have been unable to negotiate a long term solution. The
Lessor is currently seeking an injunction to remove CWI from the Le Palace
Hotel.
16
<PAGE>
In the event management is unsuccessful in its arbitration or legal
actions, or fails to pay the past-due rent payments, the Company will in
all likelihood lose its rights to operate the Le Palace Hotel.
3. Pursue collection of its judgment against Societe D'Animation et de Loisirs
Club Touristique ("SALT"), the owner of the Cap Gammarth Casino and operate
with minimal fixed overhead. Management is currently attempting to seek
collection by perfecting its claim in the Tunisian courts. Management
believes that it will successfully perfect its judgement, which is expected
to result in the Company foreclosing on the interest of SALT and the
individual defendants' equity ownership of SALT.
There are no assurances that management's plans will be successful even if
the actions described above are completed.
(d) Liquidity and Capital Resources
A comparison of working capital, cash and cash equivalents and current
ratios for the past two fiscal years are reflected in the following table:
<TABLE>
<CAPTION>
June 30,
2000 1999
<S> <C> <C>
Net Loss $ (2,702,577) $ (5,555,741)
Working Capital (Deficit) $(12,910,579) $(12,414,113)
Cash and Cash Equivalents $ 885,532 $ 121,340
Current Ratio .11 .07
</TABLE>
The most significant effects on working capital and its components during
fiscal 2000 were the sale of equity investments by NuOI and the advancing of
cash generated to other subsidiaries and the operations of the Le Palace Hotel &
Resort, the continued accrual of rent on the Le Palace Hotel & Resort as well as
general administrative expenses and legal and professional advisory fees.
The Company's current plan for growth is to increase its working capital by
arranging debt and equity financing to finance the activities of its
subsidiaries and for future acquisitions. Additionally, the Company anticipates
receiving a distribution of net operating revenues from its hotel management
activities and its proposed international casino gaming activities beginning in
fiscal 2001. However, the Le Palace Hotel & Resort has been in operation for
more than two (2) years, but has yet been able to generate positive cash flows
and there are no assurances that it will be able to generate positive cash flow,
or that the Cap Gammarth Casino will open or generate positive cash flow. As of
the close of fiscal 2000, the Company's sole operations were derived from its
hotel management subsidiary and, therefore, there is considerable risk that the
Company will not have adequate working capital to sustain its current status or
that the Company or its subsidiaries may not be able to secure the required debt
or equity financing to complete their proposed projects on a timely basis. In
such event the Company or its subsidiaries may be forced to sell all or certain
projects, or contribute them to a third party on terms which would preclude the
Company from realizing significant future benefit, or any benefit at all from
the projects. The Company may also need to issue additional shares of its common
stock to pay for services incurred, to generate working capital for the
development and current operations of its subsidiaries, or to continue to
sustain itself.
17
<PAGE>
(e) Capital Expenditures
General
The Company has no commitments for material capital expenditures, but the
Company's subsidiaries are seeking financing commitments to complete their
various projects, as follows:
Cap Gammarth Casino
At June 30, 1999, the Gammarth Casino had approximately $1,000,000
remaining to be paid as security deposits and advance rent before the Company
could take possession and open the facility. Additionally, there was an
estimated $6,000,000 remaining to be paid for furniture, fixtures and equipment,
bankroll and pre-opening costs for the casino.
To finance the remaining expenditures on the Gammarth Casino, the Company
has been negotiating debt financing and possible joint ventures with foreign
banks and investment groups.
Gammarth Resort
During fiscal 1998, CWI made a partial payment on the lease on the Gammarth
Resort and, simultaneously, filed a request for arbitration in its dispute with
the developer, STTG, claiming that STTG had breached the terms of the underlying
lease by not completing for occupancy, on a timely basis, the Le Palace Hotel,
the shopping arcade, the health club or the beach club comprising the resort in
accordance with the terms of the lease, causing CWI significant loss of revenue
and profits. In December 1999, the arbitration board awarded STTG a judgement
against CWI of 2.6 million Tunisian Dinars for rent through December 1998.
Through June 30, 2000, the Company has not paid rents to STTG in connection with
its lease arrangement and owes STTG approximately $4.0 million, net of expenses,
equipment purchased and trade receivables.
Although the award due the Lessor is final, management of CWI is not in
agreement with this award because it does not provide for completion of the
property nor a provision for economic damages that CWI suffered as a result of
the complex being incomplete. Currently, the Company is pursuing additional
arbitration for the rents that will be due for the years 1999 and 2000, which
demands that STTG be required to complete the complex and pay economic damages
suffered by it.
However, the Company believes the best solution to the issues at the Le
Palace Hotel are for it to purchase the complex. The Company has obtained a
financing commitment that it believes is adequate to fund the acquisition of and
complete the development of this real property and has made an offer to purchase
the Cap Gammarth Complex from STTG. In the event management is unsuccessful in
its arbitration or legal actions, or fails to pay the past-due rent payments,
the Company will in all likelihood lose its rights to operate the Le Palace
Hotel.
(f) Cash Flows
Cash used in operating activities was $1,834,112 for the year ended June
30, 2000 as compared to cash provided by operating activities of $183,477 for
the comparable 1999 period. The decrease in operating cash flow is primarily
attributable to a decrease in the net loss by $2.6 million, a gain of $1.4
million on sale of investments compared to a loss in fiscal 1999 of $.8 million,
an increase in accounts receivable of $1.1 million and an increase in accrued
expenses of $.6 million.
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<PAGE>
Cash provided by investing activities was $2.6 million for the year ended
June 30, 2000 as compared to $141,000 of cash used by investing activities for
the comparable 1999 period. The change is primarily attributable to the sale of
equity investments in fiscal 2000.
Cash used by financing activities was $224,000 for the year ended June 30,
2000 as compared to $224,000 in cash used by financing activities for the
comparable 1999 period. The fiscal 2000 results were primarily due to receipt of
funds from subscriptions receivable offset by principal payments on notes
payable.
(g) Results of Operations
Year Ended June 30, 2000 Compared to Year Ended June 30, 1999.
The Company had no food distribution sales for the year ended June 30, 2000
as compared to $262,000 for the year ended June 30, 1999. The decrease is
primarily attributable to the cessation of manufacturing activities, as well as
unrenewed and expired co-packing agreements. In fiscal 2000, the Le Palace Hotel
had revenues of $5,193,000 compared to revenue of $5,523,000 for fiscal 1999.
The decrease is primarily due to fiscal 2000 revenues that were deemed to be
uncollectible. To date, the hotel has not been able to realize its potential due
the failure of the developer to complete certain amenities at the hotel, the Cap
Gammarth Casino and the surrounding properties associated with the complex.
Occupancy rates have been in the 35% to 45% range during the summer months and
10% to 18% during the winter months.
The Company's total cost of food distribution sales for the year ended June
30, 1999 was $239,000. In fiscal 2000, the Le Palace Hotel had a cost of sales
of $6,408,000 as compared to $5,795,000 for fiscal 1999. The increase is
primarily due to increased rent expense due to scheduled rent increases.
The Company's total general and administrative expenses and legal and
professional fees were $2,343,000 for fiscal 2000, as compared to $3,712,000 for
fiscal 1999. The decrease is primarily attributable to operations of the Le
Palace Hotel, FFI, and reduced usage of consultants during fiscal 2000. Prior to
fiscal 2000, CWI incurred expenses related to marketing the Le Palace Hotel as
well as to attempt to finish the complex.
During fiscal 2000, the Company recognized a gain of $1.4 million on sale
of equity investments as compared to a loss of $305,000 for fiscal 1999. The
increase in fiscal year 2000 relates primarily to the sales of the Dega
Technologies, Inc. note payable and sales of common stock of ORI and The
Hartcourt Companies, Inc.
As a result of the above, the Company's total operating loss for fiscal
2000 was $2.2 million as compared to an operating loss of $4.3 million for
fiscal 1999.
During fiscal 2000, interest expense (net) decreased to $412,000 from
$565,000 during fiscal 1999. This decrease is primarily due to current year
principal payments on outstanding notes payable and an increase in interest
income of $45,000.
The aggregate losses from ACI, NuOP, CMA, NuLA, and NuLV, which the Company
has presented as discontinued operations, decreased from $640,000 in fiscal 1999
to $123,000 in fiscal 2000. This decrease is primarily attributable to lower
advisory fees and professional services.
ITEM 7. FINANCIAL STATEMENTS
The required financial statements are filed as a part of this Annual Report
on Form 10-KSB commencing on page F-1 attached hereto.
19
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has had no changes in and/or disagreements with its
accountants.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
(a) Identification of Directors and Executive Officers
The Company, pursuant to its Bylaws is authorized to maintain a five (5)
member Board of Directors, and executive officers as needed. The directors and
officers are as follows:
Position
Name Held with the Company Age Dates of Service
Fred G. Luke Director and Chief Executive 53 June 14, 1993 to
Present
Officer
Leonard J. Roman Director and Chief Financial 51 August 2000 to
Present
Officer
Jon L. Lawver Director and Secretary 62 January 1994 to
Present
All directors of the Company hold office until the next annual meeting of
shareholders and until their successors have been elected and qualified.
Vacancies in the Board of Directors are filled by the remaining members of the
Board until the next annual meeting of shareholders. The officers of the Company
are elected by the Board of Directors at its first meeting after each annual
meeting of the Company's shareholders and serve at the discretion of the Board
of Directors or until their earlier resignation or death.
(b) Business Experience
The following is a brief account of the business experience during the past
five years of each director, director nominee and executive officer of the
Company, and the members of its Advisory Board, including principal occupations
and employment during that period and the name and principal business of any
corporation or other organization in which such occupation and employment were
carried on.
Fred G. Luke. Mr. Fred G. Luke has been a Director of the Company since
June 1993, and Chief Executive Officer since July 22, 1993. Mr. Luke has more
than twenty-seven years of experience in domestic and international financing
and the management of private and publicly held companies. Since 1982, Mr. Luke
has provided consulting services and has served, for brief periods lasting
usually not more than six months, as Chief Executive Officer and/or Chairman of
the Board of various publicly held and privately held companies in conjunction
with such financial and corporate restructuring services. In addition to his
position with the Company, Mr. Luke currently serves as Chairman and President
of NuVen and four (4) other publicly-held companies including NewBridge Capital
which owns 19,200,000 shares of NuOasis Series D preferred stock. NuVen provides
managerial, acquisition, and administrative services to public and private
companies, including the Company. NuVen is controlled by Mr. Luke and is an
affiliate of the Company. Mr. Luke received a Bachelor of Arts Degree in
Mathematics from California State University, San Jose in 1969.
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<PAGE>
Leonard J. Roman. Leonard J. Roman has been Chief Financial Officer and a
director since August 2000 and has 29 years of diversified public and private
business management experience. Further, Roman has been a consultant to the
Company since 1999. Since 1997, Mr. Roman has provided consulting services and
has served, for brief periods lasting usually not more than six months, as Chief
Financial Officer of various publicly held and privately held companies in
conjunction with such financial and corporate restructuring services. In
addition to his position with the Company, Mr. Roman currently serves as Chief
Financial Officer of Oasis Resorts, Inc., NewBridge Capital, Inc. and
NetHoldings.Com, Inc. From 1991 to 1994, he was General Manager and Chief
Financial Officer of Cosmar Corporation, from 1995 to 1997 he was President of
Trumpets Holdings, Inc. and was Executive Vice President, Chief Financial
Officer of W-C Designs, Inc. He is a CPA with a B.S. degree from St. John's
University.
Jon L. Lawver. Mr. Jon L. Lawver has been Secretary and a Director of the
Company since June, 1993 and was Chief Financial Officer from June 1993 to April
24, 1996. Mr. Lawver has twenty-two (22) years of experience in the area of bank
financing where he has assisted medium size companies by providing expertise in
documentation preparation and locating financing for expansion requirements. Mr.
Lawver was with Bank of America from 1961 to 1970, ending his employment as Vice
President and Manager of one of its branches. From 1970 to present Mr. Lawver
has served as President and a Director of J.L. Lawver Corp., a financial
consulting firm ("Lawver Corp.") since 1988, as President and a Director of
Eurasia Finance Development Corp., a private finance and equipment leasing
company. Mr. Lawver also serves as an executive officer of FFI.
(c) Identification of Certain Significant Employees and Consultants
During fiscal 1996, Jon L. Lawver, through Lawver Corp., renewed his
Consulting Agreement with the Company to serve as President of FFI through
fiscal 2000. Mr. Lawver has been President of FFI since June 1993. Mr. Lawver
also serves as an officer and director of the Company, NuVen and other
development-stage publicly-held companies affiliated with NuVen.
(d) Family Relationships
Fred Graves Luke is the father of Fred G. Luke. He serves as a Director of
CPRC, CCGL, CHL and CWI.
(e) Involvement in Certain Legal Proceedings
During the past five years, no director or officer of the Company has:
(1) Filed or has filed against him a petition under the federal bankruptcy
laws or any state insolvency law, nor has a receiver, fiscal agent or
similar officer been appointed by a court for the business or property
of such person, or any partnership in which he was a general partner,
or any corporation or business association of which he was an
executive officer at or within two years before such filings.
(2) Been the subject of any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining such person from,
or otherwise limiting his involvement in any type of business,
securities or banking activities.
(3) Been found by a court of competent jurisdiction in a civil action, the
SEC or the Commodity Futures Trading Commission ("FTC") to have
violated any federal or state securities or commodities law, which
judgment has not been reversed, suspended, or vacated.
21
<PAGE>
(f) Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and officers and persons who own more than 10
percent of the Company's equity securities, to file reports of ownership and
changes in ownership with the SEC. Directors, officers and greater than
ten-percent shareholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) reports filed.
Based solely on its review of the copies of the reports it received from
persons required to file, the Company believes that during fiscal 2000, all
filing requirements applicable to its officers, directors and greater than
ten-percent shareholders were complied with.
ITEM 10. EXECUTIVE COMPENSATION
(a) Summary Compensation Table
The following summary compensation table sets forth in summary form the
compensation received during each of the Company's last three completed fiscal
years by the Company's President and four most highly compensated executive
officers other than the President.
<TABLE>
<CAPTION>
Name and Principal Fiscal Salary Other Annual Options
Position Year ($) Compensation ($) Granted (#)
<S> <C> <C> <C> <C>
Fred G. Luke,
Director and Chief 2000 30,000 9,000 N/A
Executive Officer of 1999 150,000 N/A N/A
Resorts, and director of 1998 150,000 N/A N/A
NuOI, CMA, ACI, NuOP,
NuLV, NuLA
Jon L. Lawver
Director of Resorts 2000 N/A N/A N/A
and President of FFI 1999 N/A N/A N/A
1998 100,000 N/A N/A
</TABLE>
(b) Stock Options - The Company
The following table sets forth in summary form the aggregate options
exercised during fiscal year 2000, and the value at June 30, 2000 of unexercised
options for the Company's President and four most highly compensated executive
officers other than the President.
22
<PAGE>
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Option/SAR's at Fiscal Options/SAR's at Fiscal
Shares Year-End (#) Year-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C> <C>
Fred G. Luke, Director and
Chief Executive Officer of
Resorts and certain - - 600,000 Exercisable N/A
subsidiaries
NuVen Advisors, Inc. - - 2,100,000 Exercisable N/A
Jon L. Lawver, President of
FFI and Director of Resorts - - 100,000 Exercisable N/A
</TABLE>
(c) Long-Term Incentive Plans
Not applicable.
(d) Compensation of Directors
The Company has no standard arrangement for the compensation of directors
or their committee participation or special assignments, with the one exception
noted in "(e)" below. The Company has established an Advisory Board to assist
the Board of Directors. Members of the Advisory Board are typically compensated
at the approximate rate of $1,000 per month.
(e) Contracts With Executive Officers
Fred G. Luke became Director of the Company in July 1993. In September
1994, the Company entered into a five (5) year Employment Agreement with Fred G.
Luke ("Luke"), appointing him the Chairman and Chief Executive Officer. The
agreement expired in fiscal 2000 and has not been renewed. Mr. Luke has received
compensation of $1,500 per month as a director since January 2000.
Effective January 1, 1994, the Company entered into a Consulting Agreement
with Jon L. Lawver and Lawver Corp. pursuant to which Mr. Lawver was to perform
professional services and to hold the office of President of FFI for calendar
year 1994. Mr. Lawver's agreement was renewed for the year ended June 30, 1995
and 124,000 shares were issued to him during fiscal 1995. During fiscal 1996,
the Consulting Agreement was again renewed with the same terms for fiscal 1997
and 85,000 shares were issued to him during fiscal 1996 to apply against
services rendered. An additional option of 50,000 shares exercisable at a price
of $1.53 per share was granted during fiscal 1996.
(f) Change of Control
Not applicable.
(g) Report on Repricing of Options
Not applicable.
23
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) and (b) Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information regarding the ownership of the
Company's voting securities by persons owning more than 5% of such securities as
of September 30, 2000, the most recent practicable date.
<TABLE>
<CAPTION>
Amount and Amount and
Nature of Nature of
Beneficial Beneficial
Interest of Interest of Series
Name and Address $.01 par value Percent D Convertible Percent
of Beneficial Owner Common Stock of Class Preferred Stock of Class
<S> <C> <C> <C> <C>
NewBridge Capital Inc.(1) 0 0% 19,200,000 80%
4695 MacArthur Court, Suite 1450
Newport Beach, CA 92660
The Hartcourt Companies, Inc. 0 0% 2,400,000 10%
1196 East Willow Street
Long Beach, CA 90806
Rubec B.V. 0 0% 2,400,000 10%
World Trade Center Curacao
Curacao, Netherlands Antilles
</TABLE>
(1) Gives effect to the one vote per share for each of the outstanding shares
of common stock and D Preferred.
The following sets forth information with respect to the Company's voting
stock beneficially owned by each current and former officer and director, and by
all current and former officers and directors as a group, as of June 30, 2000:
<TABLE>
<CAPTION>
Amount and Nature
Amount and Nature of of Beneficial
Beneficial Interest Percent Interest of Series
Name of Officers and of $.01 par value of D Convertible Percent
Directors(1) Common Stock Class(2) Preferred Stock of Class
<S> <C> <C> <C> <C>
Fred G. Luke(4) 600,000 -- 19,200,000(6) 80%
NuVen Advisors, Inc.(5) 2,100,000 -- -- --
Jon Lawver(3) 100,000 -- -- --
All Officers and
Directors as a
group 2,800,000 -- -- --
</TABLE>
(1) The address of NuVen Advisors, Inc. and each executive officer or Director
is 4695 MacArthur Court, Suite 1450, Newport Beach, California 92660 unless
otherwise shown
(2) Percentage ownership amounts are computed for each holder assuming that
convertible securities and options held by each holder are exercised within
60 days.
(3) Options and shares are held by J.L. Lawver Corp. of which Jon L. Lawver is
the President of J.L. Lawver Corp.
24
<PAGE>
(4) Includes 600,000 shares held beneficially pursuant to options.
(5) Includes 2,100,000 shares held beneficially pursuant to options.
(6) Includes 19,200,000 shares held by NewBridge Capital Inc. for which Mr.
Luke has been defined as a control person through direct and indirect
ownership.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions With Officers
In September 1994, the Company entered into a five-year Employment
Agreement with Fred G. Luke, the Company's Chairman and Chief Executive Officer
("Luke") that expired in September 1999. Luke has been serving as the Company's
Chairman and CEO since approximately July 1993. The terms of this Employment
Agreement called for Luke to receive approximately $10,000 per month and granted
him an option to purchase 1,000,000 shares of the Company's common stock
exercisable at $1.10 per share. Since January 2000, Mr. Luke has received
compensation of $1,500 per month as a director of the Company. The Company
expensed $30,000 and $120,000 during fiscal years 2000 and 1999 pursuant to the
terms of the Employment Agreement. The Company expensed $9,000 during fiscal
2000 for directors' fees. The Company has net amounts due from Luke of $509,860
at June 30, 2000, which includes amounts due under the promissory notes as
described below.
In September 1999, the Company entered into a promissory note with Luke in
the amount of $315,550. In addition, in November 1999, the Company entered into
a second promissory note with Luke in the amount of $240,000. The related notes
bear interest at 8% per annum and are payable, with principal and interest, on
the earlier of, demand or one year from the date of the promissory note,
respectively. In connection with the loans, the Company received security
interests in, an option to purchase 1,000,000 shares of common stock of Hart
Industries at $.01 per share, an option to purchase 15,055 shares of common
stock of NewBridge at $.70 per share, and 22,345 shares of common stock of
NewBridge, which Luke has pledged as collateral for these notes. Hart Industries
and NewBridge are affiliated to the Company through common ownership and
management.
Effective January 1, 1994, the Company entered into a Consulting Agreement
with Jon L. Lawver and J. L. Lawver Corp. (collectively, "Lawver") pursuant to
which Lawver was to perform professional services and to hold the office of
President of FFI. The Company expensed no amounts under this Consulting
Agreement during either fiscal 2000 or 1999, as the operations of FFI have
effectively ceased. The Company had $108,506 due to Lawver at June 30, 2000
pursuant to the Consulting Agreement. Additionally, as of June 30, 2000, FFI had
$288,809 due to Eurasia Finance and Development Corporation, an entity partially
owned by Lawver. The related note bears interest at 8%, is uncollateralized and
has no stated repayment terms. As of June 30, 2000, FFI also had $118,947 due to
Lawver that bears interest at 8%, is uncollateralized and has no stated
repayment terms.
25
<PAGE>
(b) Transactions with Directors and Affiliates
The Luke Trust and Lawver Corp. own 93% and 7%, respectively, of NuVen
Advisors, Inc. ("NuVen"). Luke, as trustee of the Luke Trust, controls the Luke
Trust and Jon L. Lawver is the majority shareholder of Lawver Corp. and thereby
controls Lawver Corp. On June 14, 1993, NuVen acquired the D Preferred (Note 8),
and as a result, NuVen became the Control Person of the Company. On June 14,
1993, Luke became a Director of the Company. On July 22, 1993, following the
resignation of Frank Morelli II, Luke became the Company's Chief Executive
Officer, Chief Financial Officer and Chairman of the Board of Directors. NuVen
has since exchanged all of its shares of the D Preferred. As of June 30, 2000,
19,200,000 shares of the D Preferred are owned by NewBridge, an entity that is
majority owned by NuVen.
Effective February 1, 1994, the Company entered into an Advisory and
Management Agreement with NuVen (the "NuVen Advisory Agreement") to perform
professional and advisory services. Pursuant to the NuVen Advisory Agreement,
the Company agreed to pay NuVen $120,000 annually, payable monthly in $10,000
increments in arrears, and granted NuVen an option to purchase 100,000 shares of
the Company's common stock exercisable at a price of $.80 per share. Effective
October 1, 1999, the NuVen Advisory Agreement was amended to $3,500 per month
and granted an additional fully vested option to purchase 2,000,000 shares of
the Company's common stock at $.06 per share. Additionally, the NuVen Advisory
Agreement was assigned to NewBridge in April 2000 by NuVen. The Company expensed
$61,500 and $120,000 in fiscal 2000 and 1999, respectively, and had a net amount
of $54,807 due from NuVen as of June 30, 2000.
Effective July 1, 1994, NuOI entered into an Advisory and Management
Agreement with NuVen to perform professional and advisory services. Pursuant to
the agreement, NuOI agreed to pay NuVen $240,000 annually, payable monthly in
$20,000 increments in arrears, and granted NuVen an option to purchase 1,100,000
shares of common stock of NuOI exercisable at a price of 110% of the book value
per share on the day of the grant. Effective October 1, 1999, NuOI amended the
Advisory and Management Agreement with NuVen to $3,500 per month. Additionally,
the Advisory and Management Agreement was assigned to NewBridge in April 2000 by
NuVen. NuOI expensed $91,500 and $240,000 in fiscal 2000 and 1999, respectively,
and had a net amount of $1,696,869 due to NuVen as of June 30, 2000.
FFI, CMA, NuLA, NuLV, ACI and NuOP, (collectively "the Companies") each
entered into Advisory and Management Agreements, and amendments thereto, (the
"Agreements") with NuVen to perform professional and advisory services. Pursuant
to the terms of the Agreements, the Companies are required to pay $2,500 to
$3,000 per month, plus expenses, in exchange for NuVen's assistance in the
formulation of possible acquisition strategies, and the management of financial
and general and administrative matters. In addition, the Companies are required
to pay a fee equal to 5% of the value of each business opportunity (as defined)
introduced by NuVen. The Agreements have initial terms of five years, but shall
be automatically extended on an annual basis, unless terminated by either party.
The Agreements canceled and replaced any existing previous agreements. During
fiscal 2000 and 1999, the Companies recorded aggregate expenses of $122,500 and
$213,127 as fees to NuVen, respectively. As of June 30, 2000, FFI had an
aggregate amount of $36,029 due to NuVen.
Richard O. Weed, a director of Oasis provides legal services to the
Company. As of June 30, 2000, the Company owes Mr. Weed $565, and such amount is
included in accounts payable and accrued expenses. During the years ended June
30, 2000 and 1999, the Company received legal services from this director
aggregating $47,565 and $32,881, respectively.
26
<PAGE>
As a result of the February 2000 spin-off of the five wholly-owned
subsidiaries, amounts due to and from CMA, NuLA, NuLV, ACI and NuOP
(collectively "the Prior Subsidiaries") were not eliminated from the
accompanying consolidated balance sheet as of June 30, 2000. Accordingly, the
Company had a net amount of $914,196 due to the Prior Subsidiaries as of June
30, 2000.
On July 18, 1998, ORI entered into an advisory agreement with NuVen through
April 1, 1999. In connection therewith, the Company issued warrants to purchase
70,000 shares of ORI common stock at $30.00 per share. The estimated fair value
of these warrants using the Black-Scholes model was determined to be $3.25 per
share or approximately $227,500, of which approximately $130,000 was charged to
operations from the acquisition of Oasis on October 19, 1998 to June 30, 1999.
The options expire on July 1, 2001. No other remuneration was granted to NuVen
in connection with this advisory agreement.
(c) Transactions with Promoters
Not applicable.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Consolidated Financial Statements
The Consolidated Financial Statements included in this Item are indexed on
Page F-1, "Index to Consolidated Financial Statements."
(b) Financial Statement Schedules
Not applicable.
(c) Exhibits
Unless otherwise noted, Exhibits are filed herewith.
Exhibit
Number Description
3.1 Articles of Incorporation(1)
3.1(a) Articles of Amendment of Articles of Incorporation(2)
3.1(b) Certificate of Amendment of Articles of Incorporation of
International Casino Management, Inc.(2)
3.1(c) Articles of Amendment to the Articles of Incorporation filed
September 26, 1996(2)
3.2 Bylaws(1)
3.3 Certificate of Designations and Preferences of Series C
Convertible Preferred Stock(3)
10.94 Consulting Agreement with Steven Dong(5)
10.95 Consulting Agreement with Lee Linton(6)
27
<PAGE>
10.96 Second Addendum to Fee Agreement with Morris Gore(6)
10.97 Fee Agreement with Kenneth R. O'Neal(6)
10.9 Fee Agreement with Geoffrey G. Riggs(6)
10.100 Fee Agreement with Jonathan L. Small(6)
10.101 Addendum to Consulting Agreement with Sandra V. Alsina(6)
10.102 Fee Agreement with Michael Manson, C.P.A.(6)
10.103 Addendum to Consulting Agreement with Steven H. Dong(6)
10.104 Third Addendum to Consulting Agreement with John D. Desbrow(6)
10.105 Second Addendum to Consulting Agreement with J. L. Lawver
Corp.(6)
10.106 Non-Qualified Stock Option Agreement with Fred G. Luke(6)
10.107 Engagement Letter and Fee Agreement with Woodcox Advertising &
Communications(7)
10.108 Third Addendum to Consulting Agreement with Structure
America(7)
10.109 Second Addendum to Engagement Letter with OTC
Communications(7)
10.110 Consulting Agreement with Albert Rapuano(7)
10.111 January 3, 1996 Addendum to Consulting Agreement with J. L.
Lawver(7)
10.112 1996 Employee Stock Benefit Plan(7)
10.113 Second Addendum to Fee Agreement with Morris C. Gore(7)
10.114 Third Addendum to Fee Agreement with James R. Gordon(7)
10.115 Contracting Agreement with Dynamic Telecommunications, Inc.
dba Dynatel(7)
10.116 Lease Agreement with Theodore DeTello(9)
10.117 Promissory Note and Security Agreement with Foothill Capital
Corporation(10)
10.118 Asset Purchase Agreement dated September 28,1995 with Silver
Faith Development Limited(8)
10.119 Assignment and Bill of Sale dated September 30, 1995 from
Silver Faith Development Limited(8)
10.120 Assignment dated December 29, 1995 to NuOasis International,
Inc., a California Corporation
10.121 $21,000,000 Convertible Secured Promissory Note dated December
31, 1995 to Silver Faith Development Limited(8)
28
<PAGE>
10.122 Assumption Agreement and Release of Liability with Silver
Faith Development Limited dated May 16, 1996(9)
10.123 Amendment, Modification and Ratification of Asset Purchase
Agreement with Silver Faith Development Limited and Beijing
Grand Canal Real Estate Development Co., Ltd.(9)
10.124 Purchase and Sale Agreement dated August 8, 1996 between
NuOasis International Inc., and The Hartcourt Companies,
Inc.(9)
10.125 $12,000,000 Convertible Secured Promissory Note dated August
8, 1996 issued by The Hartcourt Companies, Inc. to NuOasis
International Inc.(9)
10.126 Security Agreement dated August 8, 1996 between NuOasis
International Inc. and The Hartcourt Companies, Inc.(9)
10.127 Assignment and Indemnification Agreement dated August 30, 1996
between NuOasis International, Inc. and The Hartcourt
Companies, Inc.(9)
10.128 Assignment and Bill of Sale between NuOasis International,
Inc., and Silver Faith Development Limited(9)
10.129 Agreement between NuOasis International, Inc. and Silver
Faith Development Limited(9)
10.130 $3,000,000 Secured Contingent Promissory Note dated May 25,
1995 from Nona Morelli's II, Inc., to Ng Man Sun dba Dragon
Sight International Amusement (Macau) Company(9)
10.131 Assignment dated December 29, 1995 from Nona Morelli's II,
Inc. to NuOasis International Inc.(9)
10.132 Letter of Intent dated August 5, 1996 between the Company and
Ng Man Sun dba Dragon Sight International Amusement (Macau)
Company(9)
10.133 Purchase Agreement dated August 30, 1996 between NuOasis
International Inc. and various purchasers(9)
10.134 Option Agreement with Joseph Monterosso dated June 13, 1996(9)
10.135 Casino Lease and Operating Management Contract between Societe
Loisirs Club Hammamet and Cleopatra Place Limited(9)
10.136 Letter of Intent between Compagnie Monastirienne Immobiliere
et Touristique and Cleopatra Palace Limited(9)
10.137 Letter of Intent dated September 24, 1996 between the Company
and Grand Hotel Krasnapolsky N.V.(9)
10.138 Collateral Substitution Agreement dated December 29, 1995
between the Company and Ng Man Sun(9)
10.139 Collateral Release Agreement dated September 30, 1996 between
the Company and Ng Man Sun(9)
29
<PAGE>
10.140 Agreement of Exchange dated September 30, 1996 between NuOasis
International, Inc. and C/A/K Trustkantoor N.V.(9)
10.141 Operating Agreement between Ng Man Sun and Nona Morelli's II,
Inc.(9)
10.142 Consent to Sale of Interest and Termination of Operating
Agreement(9)
10.143 Agreement dated July 31, 1996 between NuOasis International,
Inc. and Ng Man Sun(9)
10.144 Casino Lease and Operating Management Contact between Societe
d'Animation et de Loisirs Touristiques (S.A.L.T.) and
Cleopatra Palace Limited(9)
10.145 Fourth Addendum to Consulting Agreement with John D.
Desbrow(9)
10.146 Assumption Agreement and Release of Liability with Ng Man Sun
dated December 29, 1995(9)
10.147 Second Addendum to Consulting Agreement with Steven H. Dong(9)
10.148 Agreement dated October 2, 1996 between NuOasis International,
Inc. and Cleopatra World, Inc.(9)
10.149 Amendment to Letter Agreement dated October 7, 1996 by and
between NuOasis International, Inc. and Cleopatra Palace
Limited (the "Letter Agreement")(9)
10.150 Letter of Intent between Compagnie Monastirienne Immobiliere
et Touristique and Cleopatra World, Inc.(9)
10.151 Master Lease between Fantastic Foods International, Inc. and
American Charities Underwriters, Inc.(9)
10.152 Market Analysis of the property at 1745 Erie Avenue, Pueblo,
CO. 81001(10)
10.153 Second Amendment to Letter Agreement dated October 7, 1996 by
and between NuOasis International, Inc. and Cleopatra Palace
Limited (the "Letter Agreement")(10)
10.154 Assignment dated November 27, 1996 from NuOasis International,
Inc. and Cleopatra Palace Limited(10)
10.155 Agreement dated October 27, 1996 between NuOasis
International, Inc. and Grand Hotel Krasnopolsky N.V.(10)
10.156 Agreement dated November 13, 1996 between Cleopatra Palace
Limited and International Banking Company Caribbean N.V.(10)
10.157 Option Agreement dated June 13, 1997 between Nona Morelli's
II, Inc. and Joseph Monterosso(10)
10.158 Stock Purchase Agreement dated May 30, 1997 between Nona
Morelli's II, Inc. and Joseph Monterosso(10)
10.159 Stock Purchase Agreement dated December 19, 1996 with Exhibits
A through F between NuOasis Gaming, Inc. and National Pools
Corporation(10)
30
<PAGE>
10.160 Stock Purchase Agreement dated May 4, 1997 between NuOasis
Gaming, Inc. and Nona Morelli's II, Inc.(10)
10.161 National Pools Corporation letter to Fred G. Luke dated June
4, 1997(10)
10.162 Letter to/from Richard Skjerven dated June 2, 1997, RE: Escrow
Instructions - Stock Purchase Agreement between Nona Morelli's
II, Inc. and National Pools Corporation(10)
10.163 Assignment between NuOasis Gaming, Inc. and Nona Morelli's II,
Inc. dated May 5, 1997(10)
10.164 Indemnification Agreement dated May 30, 1997 between NuOasis
Gaming, Inc. and Nona Morelli's II, Inc.(10)
10.165 Indemnification Agreement dated May 30, 1997 between NuOasis
Gaming, Inc. and Fred G. Luke(10)
10.166 Warrant Purchase Agreement dated August 22, 1997(10)
10.167 Letter from Fred G. Luke to Mr. Joseph Monterosso, GRPV, dated
September 5, 1997, RE: Notice of Conversion of 100,000 shares
of Series B Preferred Stock(10)
10.168 Letter to Joseph Monterosso, GRPV, dated September 3, 1997,
RE: Extension and modification of Put/Option Agreement and
Warrant Purchase Agreement dated August 22, 1997(10)
10.169 Put/Option Agreement, dated August 22, 1997(10)
10.170 Amendment to Agreement, dated August 22, 1997(10)
10.171 Stock Swap Agreement with Flexweight Corporation, dated May 1,
1998(11)
22.1 Schedule of Subsidiaries of the Company
27. Financial Data Schedule
(1) Incorporated by reference from the like numbered exhibits filed with the
Company's Registration Statement on Form S-18, SEC File No. 33-32127-D
(2) Incorporated by reference from the like numbered exhibits filed with the
Company's Registration Statement on Form S-1, SEC File No. 33-43402
(3) Incorporated by reference from the like-numbered exhibits filed with the
Company's 10-K for the fiscal year ended June 30, 1992
(4) Incorporated by reference to Registration Statement on Form S-8, SEC File
No. 33-57270
(5) Incorporated by reference to Registration Statement on Form S-8, SEC File
No. 33-94498
(6) Incorporated by reference to Registration Statement on Form S-8, SEC File
No. 33-99060
(7) Incorporated by reference to Registration Statement on Form S-8, SEC File
No. 33-31064
31
<PAGE>
(8) Incorporated by reference to Exhibit to Form 8-K dated December 31, 1995,
filed on March 5, 1996
(9) Incorporated by reference from the like numbered exhibits filed with the
Company's Form 10-KSB for fiscal year ended June 30, 1996
(10) Incorporated by reference to exhibits to former 8-K dated October 16, 1997,
filed on or about October 21, 1997
(11) Incorporated by reference from the like-numbered exhibit filed with the
Company's Form 10-KSB for fiscal year ended June 30, 1998
(d) Reports
None
32
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NuOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
Date: November 27, 2000 By:/s/ Fred G. Luke
Fred G. Luke, President and
Chairman
Date: November 27, 2000 By:/s/ Leonard J. Roman
Leonard J. Roman, Director
and Chief Financial Officer
Date: November 27, 2000 By:/s/ Jon L. Lawver
Jon L. Lawver,
Director and President,
Fantastic Foods International, Inc.
In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
NuOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
Date: November 27, 2000 By:/s/ Fred G. Luke
Fred G. Luke, President and
Chairman
Date: November 27, 2000 By:/s/ Leonard J. Roman
Leonard J. Roman, Director
and Chief Financial Officer
Date: November 27, 2000 By:/s/ Jon L. Lawver
Jon L. Lawver,
Director and President,
Fantastic Foods International, Inc.
33
<PAGE>
NUOASIS RESORTS, INC.
Index to Consolidated Financial Statements
Description Page
Independent Auditors' Report.................................................F-2
Consolidated Balance Sheet as of June 30, 2000...............................F-3
Consolidated Statements of Operations and Comprehensive Loss for
the years ended June 30, 2000 and 1999.....................................F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended June 30, 2000 and 1999...............................................F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 2000 and 1999.....................................................F-6
Notes to Consolidated Financial Statements...................................F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
NuOasis Resorts, Inc.
Newport Beach, California
We have audited the accompanying consolidated balance sheet of NuOasis Resorts,
Inc. (the "Company") as of June 30, 2000, and the related consolidated
statements of operations and comprehensive loss, stockholders' equity (deficit)
and cash flows for the years ended June 30, 2000 and 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the consolidated financial statements of Oasis
Resorts International, Inc., a 65% owned subsidiary, which statements reflect
total assets of $11,817,570 as of June 30, 2000, and total revenues of
$5,192,905 and $5,522,626 for the years ended June 30, 2000 and 1999,
respectively. Those statements were audited by other auditors whose report has
been furnished to us, and in our opinion, insofar as it relates to the amounts
included for Oasis Resorts International, Inc., is based solely on the report of
the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company as of June
30, 2000, and the consolidated results of its operations and its cash flows for
the years ended June 30, 2000 and 1999, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1, the
Company has experienced recurring losses, and has a significant net working
capital deficiency, and total stockholders' deficit. Further, the Company
requires substantial long-term financing to complete certain projects, as well
as working capital financing to satisfy its past due and current obligations.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ HASKELL & WHITE LLP
HASKELL & WHITE LLP
Irvine, California
November 6, 2000
F-2
<PAGE>
NUOASIS RESORTS, INC.
Consolidated Balance Sheet
As of June 30, 2000
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 885,532
Accounts receivable, net of allowance for doubtful accounts
of $97,720 484,976
Inventory 194,775
Other current assets 76,942
Total current assets 1,642,225
Property and equipment:
Property and equipment 195,848
Accumulated depreciation and amortization (49,893)
Total property and equipment, net 145,955
Other assets:
Equity and other investments 2,560,819
Land held for development 3,700,000
Acquisition advances 2,250,000
Security deposits 190,555
Total other assets 8,701,374
TOTAL ASSETS $ 10,489,554
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,189,039
Accrued expenses 5,999,659
Due to affiliates, net 2,634,682
Notes Payable to CPL 3,000,000
Current portion of notes payable 729,424
Total current liabilities 14,552,804
Notes payable, net of current portion 3,270,135
Total liabilities 17,822,939
Commitments and contingencies (Notes 2, 5, 7, 9, 10, and 13)
Stockholders' equity (deficit):
Preferred stock, Series D, $.01 par value;
24,000,000 shares authorized, issued and outstanding
(aggregate liquidation value of up to $10,000,000) 240,000
Common stock, $.01 par value; 75,000,000 shares authorized;
66,914,300 shares issued and outstanding 669,143
Additional paid-in-capital 42,386,414
Common stock subscriptions receivable (10,744)
Accumulated other comprehensive income (loss) 439,038
Accumulated deficit (51,057,236)
Total stockholders' equity (deficit) (7,333,385)
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) $ 10,489,554
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
NUOASIS RESORTS, INC.
Consolidated Statements of Operations and Comprehensive Loss
For the Years Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Years Ended June 30,
2000 1999
<S> <C> <C>
Revenue:
Hotel Rooms and Food $ 5,192,905 $ 5,522,626
Food Distribution - 262,336
5,192,905 5,784,962
Cost of revenue:
Hotel Rooms and Food 6,407,813 5,795,187
Food Distribution - 238,996
Gross (loss) profit (1,214,908) (249,221)
Operating expenses:
General and administrative expenses 1,573,753 3,043,472
Legal and professional fees 769,007 668,267
(Gain) loss on sale of investments, net (1,390,297) 304,614
Loss on sale of property and equipment - 84,390
952,463 4,100,743
Operating loss (2,167,371) (4,349,964)
Other income (expenses):
Interest expense, net of interest income
of $78,963 and $33,912, respectively (411,822) (564,750)
Loss before income tax provision (2,579,193) (4,914,714)
Income tax provision (800) (800)
Loss from continuing operations (2,579,993) (4,915,514)
Discontinued operations:
Loss from operations of wholly-owned
subsidiaries spun off to stockholders of
NRI, net of income taxes of none 122,584 640,227
Net loss (2,702,577) $(5,555,741)
Items of other comprehensive income (loss):
Unrealized gain on investments - 93,000
Reclassification adjustment 457,000 -
Foreign currency translation adjustments 215,962 154,781
Comprehensive loss $(2,029,615) $(5,307,960)
Basic and diluted net loss per common share:
Loss from continuing operations $ (.04) $ (.07)
Loss from discontinued operations - (.01)
Net loss $ (.04) $ (.08)
Weighted average number of common shares
outstanding 66,914,300 66,914,300
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
NUOASIS RESORTS, INC.
Consolidated Statements of Stockholders' Equity (Deficit)
For the Years Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Common Accum.
Preferred Common Treasury Additional Stock Other
Stock Stock Stock Paid-In Subscript. Comprehen. Accumulated
Shares Amount Shares Amount Shares Amount Capital Receivable (Loss) (Deficit) Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
June 30,
1998 24,000,000 $240,000 66,914,300 $669,143 9,430,000 $(4,715,200)$46,887,088 $(782,536) $(481,705)$(44,333,685) $(2,516,895)
Issuance
of treas.
stock - - - -(9,430,000) 4,715,200 (4,304,112) - - - 411,088
Net change
in common
stock
subscription
receivable - - - - - - (218,562) 432,991 - - 214,429
Unrealized
gain on
marketable
equity
securities - - - - - - - - 93,000 - 93,000
Foreign
currency
translation
adjustment - - - - - - - - 154,781 - 154,781
Net loss - - - - - - - - - (5,555,741) (5,555,741)
Balance at
June 30,
1999 24,000,000 240,000 66,914,300 669,143 - - 42,364,414 (349,545) (233,924) (49,889,426) (7,199,338)
Net change
in common
stock
subscript
receivable - - - - - - - 338,801 - - 338,801
Dividend
distribution
of wholly-
owned
subsidiaries - - - - - - - - - 1,534,767 1,534,767
Value of
options
granted - - - - - - 22,000 - - - 22,000
Unrealized
gain on
marketable
equity
securities
redemption
adjustment - - - - - - - - 457,000 - 457,000
Foreign
currency
translation
adjustment - - - - - - - - 215,962 - 215,962
Net loss - - - - - - - - - (2,702,577) (2,702,577)
Balance at
June 30,
2000 24,000,000 $240,000 66,914,300 $669,143 - $ - $42,386,414 $ (10,744)$ 439,038 $(51,057,236)$(7,333,385)
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
NUOASIS RESORTS, INC.
Consolidated Statements of Cash Flows
For the Years Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,702,577) $(5,555,741)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 63,174 30,070
Services exchanged for marketable securities 55,250 -
(Gain) loss on sale of investments, net (1,390,297) 758,895
Loss on sale of property and equipment - 84,390
Write-off or impairment of advances/investments - 31,019
Value of stock options granted for advisory services 22,000 -
Increases (decreases) from changes in assets and
liabilities:
Accounts receivable, net 1,078,186 307,242
Inventory (22,121) 31,111
Other current assets (39,929) 86,418
Security deposits 486,311 (169,749)
Accounts payable 290,664 247,378
Accrued expenses 614,925 3,522,675
Due to affiliates, net (289,698) 809,769
Net cash (used in) provided by operating activities (1,834,112) 183,477
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed asset additions (194,608) (266,611)
Proceeds from sales of assets - 25,920
Proceeds from sale of equity investments 2,800,839 100,000
Net cash provided by (used in) investing activities 2,606,231 (140,691)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock subscriptions receivable 310,045 -
Advances to STTG - (198,966)
Principal payments on notes payable (533,934) (25,000)
Net cash used in financing activities (223,889) (223,966)
Foreign currency effect on cash 215,962 154,781
Net increase (decrease) in cash 764,192 (26,399)
Cash and cash equivalents, beginning of period 121,340 147,739
Cash and cash equivalents, end of period $ 885,532 $ 121,340
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
NUOASIS RESORTS, INC.
Consolidated Statements of Cash Flows (continued)
For the Years Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
<S> <C> <C>
Cash paid during the year for:
Interest $ 220,000 $ 350,489
Income taxes $ 800 $ 800
Non-cash investing and financing activities:
Dividend distribution of five
wholly-owned subsidiaries $ 1,534,767 $ -
Common stock of subsidiary issued for
acquisition advance $ 2,250,000 $ -
Decrease in common stock subscriptions receivable $ 28,756 $ 214,429
Acquisition of investments in exchange for amounts
due from affiliates, net $ 174,500 $ -
Stock options issued for services rendered $ 22,000 $ -
Treasury stock exchanged for assets and services $ - $ 411,088
Notes payable assumed in acquisition of ORI $ - $ 3,925,000
Note payable to CPL assumed in exchange $ - $ 3,000,000
Acquisition of land held for development in
acquisition of ORI $ - $ 3,700,000
Acquisition of investments $ - $ 2,327,505
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
1. Summary of Significant Accounting Policies and Description of Business
Description of Business
NuOasis Resorts, Inc. and its subsidiaries (the "Company"), a Nevada
corporation, operates as a holding company primarily for investments in leisure
and entertainment-related businesses. At June 30, 2000, the Company had two
wholly-owned subsidiaries and one majority-owned subsidiary as detailed in the
table below.
<TABLE>
<CAPTION>
Ownership Interest Ownership Interest
Subsidiary at June 30, 2000 at June 30, 1999
<S> <C> <C>
Oasis Resorts International, Inc.
("Oasis" or "ORI") 65% 49%
NuOasis International, Inc. ("NuOI") 100% 100%
Fantastic Foods International, Inc. ("FFI") 100% 100%
Casino Management of America, Inc. ("CMA") 10% 100%
NuOasis Laughlin, Inc. ("NuLA") 10% 100%
NuOasis Las Vegas, Inc. ("NuLV") 10% 100%
NuOasis Properties, Inc. ("NuP") 10% 100%
ACI Asset Management, Inc. ("ACI") 10% 100%
</TABLE>
Oasis (formerly Flexweight Corporation, a Kansas corporation) was originally
incorporated under the name Flexweight Drill Pipe Company in 1958. On May 1,
1998, Oasis, then Flexweight Corporation, merged with Oasis Resorts Hotel and
Casino-III, Inc. ("Oasis III"), which held 20 acres of partially developed land
in Oasis, Nevada. In connection with the merger, Oasis issued 602,000 shares of
common stock to the shareholders of Oasis III to acquire 100% of the issued and
outstanding common stock of Oasis III. In addition, the Company issued the
shareholders of Oasis III 200,000 shares of Oasis common stock in connection
with the real estate agreement dated April 9, 1998 (Note 4). Upon the close of
the merger, the shareholders of Oasis held 149,916 shares of common stock and
the shareholders of Oasis III held approximately 80% of the issued and
outstanding common stock of Oasis. Oasis III has title to 20 acres of commercial
real estate located in Nevada which management intends to develop into a gaming
complex.
On October 19, 1998, Oasis reincorporated in Nevada and changed its name from
Flexweight Corporation to Oasis Resorts International, Inc. to better reflect
its new corporate direction. The Company then entered into a purchase agreement
with NuOI to acquire its 75% interest in Cleopatra Palace Resorts and Casinos
Ltd. (Note 2).
F-8
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
1. Summary of Significant Accounting Policies and Description of
Business (continued)
Description of Business (continued)
Oasis includes the accounts of Cleopatra Palace Resorts and Casinos Ltd.
("CPRC"), its 75%-owned subsidiary. CPRC includes the accounts of its 80%-owned
subsidiary Cleopatra's World, Inc. ("CWI" or "Cleopatra's World"), and its
90%-owned subsidiary Cleopatra Cap Gammarth, Limited ("CCGL"). Oasis is a
publicly traded company.
NuOI is a holding company, primarily for the Oasis investment, and FFI is the
Company's food manufacturing and distribution subsidiary that has substantially
ceased operations.
CMA, NuLA, NuLV, NuP, and ACI are, in substance, shell companies, as they had no
significant, non-affiliated assets, liabilities or operations at June 30, 2000,
and during the years ended June 30, 2000 and 1999. In February 2000, the Company
completed the spinoff of approximately 90% of these five previously wholly-owned
subsidiaries. The spinoff was effected through the distribution of one share of
common stock of each subsidiary for every 10 shares of the Company's outstanding
stock payable to the respective NuOasis stockholders of record on June 30, 1999.
The shares of each of these companies is restricted and no market is expected to
develop until each of the subsidiaries has filed a registration statement on
Form 10-SB, and other reports as required. Accordingly, the accompanying
consolidated financial statements for the year ended June 30, 2000 include the
results of operations and cash flows from each of the spun-off subsidiaries for
the period of July 1, 1999 through the effective date of spin-off of February 4,
2000. As of June 30, 2000, management estimates that the Company owns
approximately 10% of the outstanding common stock and 100% of the outstanding
preferred stock of each subsidiary, and management has valued these securities
at $0 based on the factors described above.
Principles of Consolidation
The accompanying consolidated financial statements for the year ended June 30,
2000, include the accounts of ORI, NUOI and FFI. They also include the accounts
of CMA, NuLA, NuLV, NuP and ACI from July 1, 1999 through the effective date of
their spin-off which is February 4, 2000.
The accompanying consolidated financial statements for the year ended June 30,
1999, include the accounts of ORI, NUOI, FFI, CMA, NuLA, NuLV, NuP and ACI.
All material intercompany accounts and transactions have been eliminated in
consolidation.
Minority Interest
The accompanying consolidated balance sheet at June 30, 2000 excludes minority
interest for the 35% ownership interest in ORI not owned by the Company since
ORI has a stockholder deficiency at June 30, 2000.
F-9
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
1. Summary of Significant Accounting Policies and Description of
Business (continued)
Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, 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.
Fiscal Year End
During fiscal 1999, ORI changed its fiscal year end from August 31 to June 30 to
conform to the fiscal year of the Company.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less on the date of acquisition to be cash equivalents.
Inventory
Inventory is stated at the lower of cost or market, computed on the first-in,
first-out basis.
Property and Equipment and Depreciation
Property and equipment are stated at cost. Repairs and maintenance are charged
to expense as incurred and expenditures for improvements are capitalized. The
Company evaluates the usage of its equipment throughout the fiscal year.
Depreciation of property and equipment is provided over the lesser of the
estimated useful lives of the related assets using the straight-line method.
Estimated useful lives are three to five years.
Depreciation expense charged to operations was $63,174 and $30,070 for the years
ended June 30, 2000 and 1999, respectively.
Goodwill
Goodwill represents the excess of purchase price over the estimated fair value
of the net assets of acquired businesses. Goodwill is stated at cost and is
amortized on a straight-line basis over the expected period to be benefitted.
During fiscal 1999, Oasis recorded goodwill of approximately $8 million in
connection with its acquisition of 75% of CPRC (Note 2). Management of Oasis
determined that such goodwill was impaired based on the financial condition of
CPRC and its subsidiaries, and based on significant future capital requirements
that were not yet funded. The goodwill impairment charge was eliminated in
consolidation during fiscal 1999.
F-10
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
1. Summary of Significant Accounting Policies and Description of
Business (continued)
Equity Investments
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" that addresses the accounting and reporting for
investments in equity securities that have readily determinable fair values and
investment in debt securities. The statement requires that management classify
these investments as either held-to-maturity, available for sale or trading
securities.
As described in Notes 2 and 3, CWI has an equity investment in a private entity
in which its equity interest is 9% at June 30, 2000.
Impairment Loss
The Company assesses the recoverability of long-lived assets by determining
whether the depreciation and amortization of property and goodwill over their
remaining life can be recovered through projected undiscounted future cash
flows. The amount of impairment, if any, is measured based on fair value and is
charged to operations in the period in which such impairment is determined by
management. During the year ended June 30, 2000, management has noted no
indicators of impairment.
Interest Capitalization
Oasis capitalizes interest charges incurred for development of its land.
However, since management has curtailed development until such time funds can be
raised, no interest has been capitalized during the years ended June 30, 2000
and 1999.
Loss Per Share
Basic EPS is computed as net loss divided by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur from common shares issuable through stock options,
warrants and other convertible securities (Note 8). Diluted EPS is equal to
basic EPS since the effect of any convertible securities would be anti-dilutive.
Foreign Currency
The consolidated financial statements of the Company's non-U.S. operations are
translated into U.S. dollars for financial reporting purposes. The assets and
liabilities of non-U.S. operations whose functional currencies are other than
the U.S. dollar are translated at rates of exchange at fiscal year- end, and
revenues and expenses are translated at average exchange rates for the fiscal
year. The cumulative translation effects are reflected as a component of
accumulated other comprehensive income (loss). Foreign currency gains and losses
on transactions denominated in other than the functional currency of an
operation are reflected in other income (expense).
F-11
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
1. Summary of Significant Accounting Policies and Description of
Business (continued)
Stock Splits
All share amounts for ORI have been retroactively adjusted for the one for five
reverse stock split approved on February 8, 2000.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes" which requires the use of the liability method of
accounting for income taxes. Accordingly, deferred tax assets and liabilities
are determined based on the difference between the financial statement and tax
bases of assets and liabilities, using enacted tax rates in effect for the year
in which the differences are expected to reverse. Current income taxes are based
on the year's income taxable for federal and state income tax reporting
purposes.
Revenue Recognition
CWI recognizes revenue as it earned, which is generally the date upon which a
hotel guest occupies a room and/or utilizes the hotel's services. FFI recognizes
revenue upon shipment of food products to its customers. The management of CWI
and FFI perform ongoing credit evaluations and potential credit losses are
expensed at the time the related accounts receivable is estimated to be
uncollectible.
Employee Stock Options
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." In conformity with the provisions of SFAS No. 123, the Company
has determined that it will not change to the fair value method presented by
SFAS No. 123 and will continue to follow APB Opinion No. 25 for measurement and
recognition of employee stock-based transactions. There were no stock options
granted during the years ended June 30, 2000 and 1999, except as described in
Note 10.
Non-employee Stock Options
Shares of the Company's common stock issued to non-employees for services are
recorded in accordance with SFAS No. 123 at the fair market value of the stock
issued or the fair market value of the services provided, whichever value is
more reliably measurable.
Fair Value of Financial Instruments
SFAS No. 107 requires disclosure about fair value for all financial instruments
whether or not recognized, for financial statement purposes. The fair value
amounts have been determined by the Company using available market information
and appropriate valuation methodologies. Considerable judgment is necessary to
interpret market data and develop estimated fair values. The Company has
determined that the fair value of all financial instruments approximated their
carrying value as of June 30, 2000 and 1999.
F-12
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
1. Summary of Significant Accounting Policies and Description of
Business (continued)
Reporting Comprehensive Income (Loss)
The Company reports the components of comprehensive income (loss) using the
income statement approach. Comprehensive income (loss) includes net income
(loss), as well as certain non-stockholder items that are reported directly
within a separate component of stockholders' equity and bypass net income
(loss). Components which give rise to the other comprehensive income are foreign
currency translation adjustments and unrealized gains and losses on marketable
securities.
Disclosures about Segments of an Enterprise and Related Information
The Company provides disclosures of financial and descriptive information about
its operating segments in annual and interim financial reports issued to
stockholders. The Company defines an operating segment as a component of an
enterprise that engages in business activities that generate revenue and incur
expense, whose operating results are reviewed by the chief operating decision
maker in the determination of resource allocation and performance, and for which
discrete financial information is available. During the years ended June 30,
2000 and 1999, management believes that it had two reportable operating
segments; North African casino gaming and hotel management and domestic food
manufacturing and distribution.
Reclassification of Prior Year Amounts
To enhance comparability, the 1999 consolidated financial statements have been
reclassified, where appropriate, to conform with the financial statement
presentation used in 2000.
Going Concern
The Company has experienced recurring losses from operations and, at June 30,
2000, the Company has a working capital deficit of $12.9 million and a total
stockholders' deficit of $7.3 million. The Company requires approximately $5
million of immediate working capital to complete the final phase of construction
of the Le Palace Hotel & Resort and the Cleopatra Cap Gammarth casino, as well
as service certain past-due trade creditors. Additionally, the Company will
require significant amounts of additional capital to meet obligations of the
hotel and casino as they become due during the next 12 months. Further, the
Company is in arbitration with the owners of the Le Palace Hotel & Resort for
calendar year 1999 and 2000 rents unpaid by the Company. At June 30, 2000, the
Company owed a net amount of approximately $4.04 million under the related Le
Palace Hotel and Resort lease agreement.
In addition, the Company requires approximately $70 million to continue the
development of ORI's gaming facility in Oasis, Nevada, and may be subject to
foreclosure proceedings in the event the Company is unable to raise the
financing necessary to complete the project.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans with respect to these matters are as
follows:
F-13
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
1. Summary of Significant Accounting Policies and Description of
Business (continued)
Going Concern (continued)
1. Acquire the Le Palace Hotel and the adjacent complex in Cap Gammarth
(collectively the "Cap Gammarth Complex"), which excludes the Cap Gammarth
Casino. By acquiring the property, management expects to eliminate
approximately $4.0 million of accrued rental payments to Societe
Touristique Tunisie-Golfe ("STTG" or "Lessor") for operation of the Le
Palace Hotel. Management has tendered an offer to acquire the Cap Gammarth
Complex for approximately $18.0 million. The Company has obtained a
financing commitment that it believes is adequate to fund the acquisition
of and complete the development of this real property, as well as pursue
the acquisition of similar properties. The Le Palace Hotel currently is
generating positive cash flow before the accrual of rent. Management
believes that the cash flow from operations will be sufficient to service
the current operating liabilities if the acquisition is successful.
2. Should the offer to acquire the Cap Gammarth Complex not be accepted,
management intends to continue to seek a legal reprieve based upon the fact
that the parties have been unable to negotiate a long term solution. The
Lessor is currently seeking an injunction to remove CWI from the Le Palace
Hotel. In the event management is unsuccessful in its arbitration or legal
actions, or fails to pay the past-due rent payments, the Company will in
all likelihood lose its rights to operate the Le Palace Hotel.
3. Pursue collection of its judgment against Societe D'Animation et de Loisirs
Club Touristique ("SALT"), the owner of the Cap Gammarth Casino (Note 13)
and operate with minimal fixed overhead. Management is currently attempting
to seek collection by perfecting its claim in the Tunisian courts.
Management believes that it will successfully perfect its judgement, which
is expected to result in the Company foreclosing on the interest of SALT
and the individual defendants' equity ownership of SALT.
There are no assurances that management's plans will be successful even if the
actions described above are completed. No adjustments have been made to the
accompanying consolidated financial statements as a result of these
uncertainties.
2. Acquisition and Liquidation of Investments
Restructuring and the Formation of CPRC
NuOI entered into an exchange agreement to acquire its 75% interest in CPRC on
July 1, 1998. CPRC was formed by the management of NuOI as a means to
consolidate its off-shore hotel and casino operations, principally in Tunisia.
CPRC was a multi-step restructuring, whereby CPRC first issued 12,553,125 shares
to CWI to acquire from CWI its 9% equity interest in SALT, the SALT Casino Lease
rights, and $1.9 million note due from Societe Loisirs Club Hammamet ("Club
Hammamet"); CWI immediately thereafter exchanged 8,490,625 CPRC shares to fully
satisfy the $13 million notes payable due to CPL. Then CPRC acquired the
remaining CPL assets for 946,875 shares and a $3 million note due from the
Company, then acquired an 80% interest in CWI and a 100% interest in Club
Hammamet from NuOI for 11,500,000 CPRC shares, and finally, CPRC increased its
ownership in CCGL to 90% by assigning to CCGL, $3.5 million of notes due from
the Company and its rights to the SALT Casino Lease. As a result, CPRC owns an
80% interest in CWI, a 90% interest in CCGL, a 100% interest in
F-14
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
2. Acquisition and Liquidation of Investments (continued)
Restructuring and the Formation of CPRC (continued)
Club Hammamet and a 9% equity interest in SALT. In addition, the restructuring
of CPRC satisfied the $13 million of notes due CPL by CWI, recapitalized ORI by
$10 million, and reduced a portion of its notes receivable from the Company by
$3 million. As a result of this restructuring, the Company acquired 75% of CPRC
and disposed of its 60% interest in CWI and its 70% interest in CPL.
Oasis Resorts International, Inc.
In May 1998, the Company entered into an Exchange Agreement with Oasis (formerly
Flexweight Corporation) whereby the Company issued 3,250,000 shares of treasury
stock in exchange for 200,000 shares of common stock of ORI and an option to
purchase shares in the future such that the Company may maintain a 19.5% equity
interest in ORI, or $2.5 million in market value. At that time, ORI's primary
assets consisted of 20 acres of partially-developed land in Oasis, Nevada which
management intends to develop into a gaming complex. As of June 30, 2000, the
200,000 ORI shares are pledged as a lease deposit on behalf of CWI for the
benefit of the leaseholders of the Le Palace Hotel (Note 5).
On October 19, 1998, ORI entered into a purchase agreement with NuOI to acquire
its 75% interest in CPRC. CPRC had previously acquired all of the equity
interest owned by NuOI in CCGL, which operates the casino Cleopatra Cap
Gammarth, a right to reacquire an interest in Cleopatra Hammamet Limited ("CHL")
(below), which operates the casino Cleopatra Hammamet Casino, and CWI which
operates the Le Palace Hotel & Resort at Cap Gammarth. All of the properties are
located in Tunisia. CPL is a predecessor company to CPRC, an entity controlled
by NuOI, which previously held the interests in the Cleopatra Hammamet Casino
and the Cleopatra Cap Gammarth Casino.
In connection with its acquisition of CPRC, ORI issued 1,363,450 shares of ORI
common stock, common stock purchase warrants representing the right to acquire
7,200,000 shares at $30.00 per share, and promissory notes with an aggregate
face value of $180 million to NuOI. At the time of the transaction, ORI had no
ability to repay the notes, and therefore, the notes had an estimated fair value
substantially less than the face value at the date of issuance. Based on the
estimated enterprise value of ORI at the date of the acquisition of
approximately $16.6 million, management valued the debt at $7 million. On
November 15, 1999, management of ORI and the Company agreed to extinguish this
debt and cancel the 7,200,000 warrants for the issuance of an additional
8,111,240 shares of ORI common stock. This arrangement increased the Company's
ownership interest in ORI to over 80%.
During the year ended June 30, 2000, the Company sold 837, 685 shares of ORI's
common stock and received net proceeds aggregating $1,238,031. As of June 30,
2000, the Company owns 65% of the outstanding common stock of ORI (Note 1).
F-15
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
2. Acquisition and Liquidation of Investments (continued)
Oasis Resorts International, Inc. (continued)
On April 1, 2000, ORI entered into an agreement to acquire 60% of the voting
capital stock of CHL from an unrelated party for 750,000 shares of ORI common
stock valued at $2,250,000. The common shares of ORI were delivered to the
unrelated party; however, due to certain regulatory and tax considerations, the
transaction has not been completed. Management is unsure at the present time
whether the transaction will ultimately close. The value of the ORI common stock
exchanged is included in the accompanying consolidated balance sheet as
acquisition advances. In connection with the agreement, the seller was required
to provide $600,000 of working capital to CHL, of which, $300,000 was paid by
the seller. NuOI agreed to provide the balance of $300,000 in exchange for
107,143 shares of ORI common stock previously delivered to the unrelated party.
CWI and the Le Palace Hotel & Resort
During fiscal 1997, NuOI exchanged 600,000 shares of common stock of The
Hartcourt Companies Inc. for a 50% equity ownership in CWI. CWI is the lessee of
the Le Palace Hotel & Resort at Cap Gammarth.
On June 1, 1998, CWI acquired certain interests from Cleopatra Palace Limited,
an Irish corporation ("CPL"), for $13 million in notes payable. The assets
acquired consisted of an equity interest of 9% in SALT, with a carrying value of
$3.1 million, the leasehold interest in the Cap Gammarth Casino, with a carrying
value of approximately $424,000, and a receivable from Club Hammamet with a face
value of $1.9 million.
In connection with a letter agreement dated April 26, 1998, NuOI increased its
equity interest in CWI from 50% to 60% with the issuance of $10 million of notes
payable due from the Company, marketable securities consisting of 2,000,000
shares of the Company valued at $254,000 and 280,000 shares of common stock of
The Hartcourt Companies, Inc. valued at $403,000; and its rights under certain
promissory notes that had no carrying values, and an estimated fair market value
of $0.
In connection with the reorganization and the formation of CPRC, the Company
disposed of its direct equity interest in CWI, while ORI effectively increased
its ownership interest to 80% in CWI through the purchase of an additional
equity interest from an individual affiliated with ORI and existing shareholder
of CPRC. No value was attributed to this transaction since CWI had no
significant net assets.
CWI operates the Le Palace Hotel under a 15-year operating agreement with the
Lessor. At present, the parties are in dispute over rental payments. An initial
arbitration award covering rent through 1998 has been rendered. Although the
award due the Lessor is final, management of CWI is not in agreement with this
award because it does not provide for completion of the property nor a provision
for economic damages that CWI suffered as a result of the complex being
incomplete. Currently, the Company is pursuing additional arbitration for the
rents that will be due for the calendar years 1999 and 2000, which demands that
STTG be required to complete the complex and pay economic damages suffered by
it.
F-16
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
2. Acquisition and Liquidation of Investments (continued)
CWI and the Le Palace Hotel & Resort (continued)
Because the parties have been unable to agree upon a long term solution, the
Company's management has been unable to generate working capital or financing to
pay the rent that was awarded. The Lessoris currently seeking an injunction to
remove CWI from the Le Palace Hotel. CWI continues to seek legal reprieve. CWI
believes that the most viable long term solution is for it to purchase the Cap
Gammarth Complex. Management has tendered an offer of 24.0 million Tunisian
Dinars ($18.0 million converted to U.S. dollars at the exchange rate on June 30,
2000) to acquire the Cap Gammarth Complex, which does not include the Cap
Gammarth Casino. Management has secured a commitment from a domestic, private
investment fund to enable them to effect the transaction.
There are no assurances that the Company will be successful in receiving an
acceptance to its offer or that the financing will be available in the event the
offer is accepted. In the event management is unable to complete the acquisition
or fails to pay the past-due lease payments, the Company will in all likelihood
lose its rights to operate the Le Palace Hotel. Since the Company has only one
operating subsidiary, CWI, all revenues, substantially all operating assets, and
operating liabilities, are those of the operations of the Le Palace Hotel.
In connection with the operation of the Le Palace Hotel & Resort, the Company
provides employees of Societe Touristique Tunisie-Golfe ("STTG" or the "Lessor")
meals and allowances while working at the Cap Gammarth complex. In fiscal 2000
and 1999, the Company incurred reimbursable expenses amounting to approximately
$100,000 and $199,000, respectively, which were offset against amounts accrued
for rents.
CPL and the Cleopatra Cap Gammarth Casino
In October 1993, the Company acquired a 70% equity interest in CPL, an Irish
corporation. CPL is the lessee of a 200,000 square foot casino and Las
Vegas-style showroom presently under construction (the "Cap Gammarth Casino")
pursuant to a Casino Lease Agreement and Operating Management Contract with
Societe Touristique Tunisie-Golfe ("STTG"). Subsequently, the real property
interest was transferred from STTG to SALT. The Cap Gammarth Casino has not yet
been completed and no financing is currently in place to complete the project.
In May 1995, the Company exchanged a 42% interest in CPL for a 40% net profits
interest in gaming operations conducted at the Holiday Inn and Hyatt hotels in
Macau. However, in June 1997, the Company reacquired the 42% interest in CPL as
part of a recapitalization of CPL resulting in an increase in the Company's
ownership of CPL to 70% from 28%.
During April 1998, and in anticipation of a restructuring of the Cleopatra
themed entities, CPL exchanged its equity ownership in SALT, the Hammamet Casino
lease and certain advances due from CHL with Cleopatra's World for approximately
$13 million in notes receivables.
In connection with the reorganization and the formation of CPRC, the Company
disposed of its direct equity interest in CPL in exchange for CPRC shares.
F-17
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
2. Acquisition and Liquidation of Investments (continued)
CPL and the Cleopatra Cap Gammarth Casino (continued)
On July 13, 1998, the Company filed a civil complaint for damages in the U.S.
District Court, District of Nevada against SALT and several other defendants. On
July 2, 1999, the District Court adjudged and decreed compensatory damages in
the amount of approximately $300 million plus interest, and $10 million in
punitive damages. Management is proceeding in Tunisia to collect upon its
judgement. No amounts have been recorded in these consolidated financial
statements as a result of this gain contingency.
Hammamet Casino
In October 1994, CPL entered into an agreement with Club Hammamet to lease and
operate a 60,000 square foot casino and French-style cabaret in Hammamet,
Tunisia (the "Hammamet Casino"), which was opened for business in December 1997.
On or about September 26, 1997, in order to finance the remaining expenditures
on the Hammamet Casino, the Company and Club Hammamet entered into an agreement
with Cedric International Company Inc., a Panamanian corporation ("Cedric")
pursuant to which the Company and Cedric each agreed to contribute $1.5 million
to the capital of Club Hammamet in making the first annual lease payments on the
Hammamet Casino, the Company pledged to Cedric its 70% interest in Hammamet
Casino. The Company and Cedric agreed that Cedric will return such interest when
and if the Company reimburses Cedric for all funds advanced prior to September
26, 1998 (on an all or nothing basis), plus interest at the rate of 15% per
annum. The Company did not reimburse Cedric, due to sustained losses at the
Hammamet Casino, and the Company forfeited its right to reacquire its interest
in Hammamet Casino. Accordingly, the Company impaired its related investment and
charged operations approximately $1.9 million during fiscal 1998.
As discussed above, on April 1, 2000, ORI entered into an agreement to acquire a
60% interest in CHL for 750,000 shares of common stock valued at $2.25 million.
The transaction has not yet closed, however, the consideration was tendered. The
seller was required to contribute $600,000 of working capital and settle all
past due rents owed by the seller. The seller contributed $300,000 of the
required capital. The Company agreed to contribute the balance of the $300,000
in exchange for 107,500 shares of ORI's common stock. According to management of
CHL, CHL has incurred operating losses since opening the Hammamet Casino in
1997. In the event the transaction is completed, CHL will require significant
working capital to fund operating losses until such time, if ever, CHL becomes
profitable.
Group V Corporation and Monterosso
In December 1996, Group V Corporation (currently, TotalAxcess.com, Inc.) ("Group
V"), then a controlled subsidiary of the Company, closed the purchase of
National Pools Corporation. Subsequently, Group V's new President, Mr. Joseph
Monterosso ("Monterosso") exercised an option granted to him by the Company to
acquire 150,000 shares of Group V Series B Preferred Stock, which is convertible
into shares of Group V common stock at a ratio of 7.8 to 1. The remaining
100,000 shares of Group V Series B Preferred Stock then outstanding was owned by
the Company and was converted into 7,800,000 shares of Group V common stock. In
September 1997, the Company and Monterosso entered into a Put/Option Agreement
(the "Put") under which the Company had the right to require Monterosso to
purchase the Company's remaining 7,800,000 shares of Group V common stock at a
price of $.15 per share. The Put also gave Monterosso the option to purchase
these shares at $.15 per share. Concurrent with the Put, the Company sold to
Monterosso its interest in 6,000,000
F-18
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
2. Acquisition and Liquidation of Investments (continued)
Group V Corporation and Monterosso (continued)
New Class D Warrants, which entitle the holder to receive two shares of Group V
common stock for $1.00. In exchange, the Company received a $1,800,000
promissory note due in September 1998.
During the year ended June 30, 1998, the Company transferred certain assets,
including its rights in the Put and the $1,800,000 promissory note, to CWI in
exchange for additional equity interests. As a result of this exchange, CWI
received approximately 4,800,000 shares of Group V common stock. During fiscal
1998, CWI satisfied certain liabilities by exchanging shares of Group V common
stock, and as of June 30, 1998, CWI owned approximately 2,000,000 million Group
V shares. Given the uncertainty surrounding the pending litigation with Group V
and Monterosso (Note 13), management believes that such shares have been
impaired, and as a result, the related carrying value of the securities was
reduced to $0 during fiscal 1998.
Additionally, in connection with the Put, the Company transferred approximately
2,800,000 million shares of Group V common stock to an escrow account pending
delivery to Monterosso. The remaining shares of Group V common stock that were
owned by the Company at June 30, 1997 that were not exchanged with CWI or
transferred to an escrow account, were distributed to Monterosso and the escrow
agent during the year ended June 30, 1998.
In November 1998, Group V and Monterosso filed a lawsuit against the Company and
certain other defendants alleging material misrepresentations in connection with
the sales of the Group V New Class D Warrants and the Group V common shares
(Note 13).
Dega Technologies, Inc.
In November 1998, NuOI entered into an exchange agreement with Dega Technology,
Inc. ("Dega"), whereby NuOI received 4,792,165 shares of Dega common stock, a
$500,000 Secured Convertible Promissory Note (the "Note"), and $100,000 in cash.
In exchange, NuOI transferred 500,000 shares of Oasis common stock to Dega,
which had a book value of $243,314. The Note was collateralized by the 500,000
shares of Oasis common stock issued to Dega and 100% of the outstanding capital
stock of H Bar C Acquisition Corporation, a wholly-owned subsidiary of Dega.
Additionally, the Note was convertible into a minimum of 500,000 shares of Dega
common stock.
During the year ended June 30, 1999, NuOI transferred an aggregate of 1,107,165
shares of Dega common stock to related entities in exchange for a reduction in
NuOI liabilities and intercompany receivables. In addition, NuOI exchanged
2,846,000 Dega shares, along with other consideration, for cash and a right to
acquire shares of common stock of Phileo Management Company, Inc. (currently,
NewCom, Inc.) ("Phileo") (below). In September 1999, the Company entered into a
note purchase agreement with Phileo, whereby the Company acquired cash of
$250,000 and a reduction in the amount owed to NuVen Advisors, Inc. by the
Company (which Phileo believes it owns or has the right to acquire) of $222,000.
In exchange, the Company agreed to sell, assign, and transfer the $500,000 Dega
Note to Phileo. As of June 30, 2000, NuOI owns 839,000 shares of Dega common
stock, which were fully reserved for given Dega's bankruptcy filing during
fiscal 1999. The accompanying financial
F-19
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
2. Acquisition and Liquidation of Investments (continued)
Dega Technologies, Inc. (continued)
statements include a $472,000 gain on sale of the Note during the year ended
June 30, 2000 and an aggregate of $31,019 related to the impairment of Dega
shares and the Note during the year ended June 30, 1999.
Dragon Asset Exchange Arrangement
During the year ended June 30, 1999, management and Dragon Sight International
Amusement Company ("Dragon") reached an informal arrangement whereby the Company
transferred 2,846,000 shares of Dega common stock and 1,500,000 shares of ORI
common stock to Dragon. In exchange, the Company received cash of $250,000 and a
right to acquire shares of common stock of Phileo with an estimated fair market
value of $560,000. The Company did not recognize any gain or loss in connection
with this asset exchange and recorded its Dragon investment using the basis of
the Dega and ORI shares exchanged in this transaction.
3. Equity and Other Investments
The Company had the following equity and other investments as of June 30, 2000:
Non-Current Assets:
SALT $ 2,000,000 (A)
Dragon 560,819 (B)
$ 2,560,819
(A) In fiscal year 1997, CPL acquired a 20% interest in Societe
D'Animation Et De Loisirs Club Touristique, a corporation incorporated
in Tunisia ("SALT"). SALT is the owner of the Cap Gammarth Casino and
the lessor of the Cap Gammarth Casino leased by CPL. In exchange for
its 20% interest in SALT, CPL made lease deposits of $2,000,000. CPL
subsequently received $300,000 as compensation for not exercising its
pre-emption rights on a subsequent recapitalization by SALT, resulting
in a dilution of CPL interest from 20% to 9%. No financial statements
have been prepared for SALT to date.
(B) The acquisition and nature of the Dragon investment is described in
Note 2.
During fiscal 2000, NuOI, on behalf of NuVen Advisors, Inc., liquidated 102,500
shares of The Hartcourt Companies, Inc. common stock for cash of $1,793,000. At
June 30, 2000, the Company has recorded all unremitted proceeds as amounts due
to affiliates in the accompanying consolidated balance sheet.
During fiscal 2000 and 1999, NuOI, on behalf of CWI, liquidated 138,218 and
741,872 shares of The Hartcourt Companies, Inc. common stock for cash of
$199,000 and $264,000, respectively. In connection therewith, CWI recorded a
gain on sale of $1,000 during fiscal 2000 and a loss on sale of $803,000 during
fiscal 1999.
During fiscal 2000, ORI exchanged 3,250,000 shares of the Company's common stock
for consulting services. The shares of the Company were valued at $55,250 upon
the exchange, resulting in a loss
F-20
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
3. Equity and Other Investments (continued)
totaling $294,750, which is included in the accompanying consolidated statement
of operations and comprehensive loss for the year ended June 30, 2000.
During the year ended June 30, 2000, the Company received 47,500 shares of
common stock of the Hartcourt Companies, Inc. from NuVen in exchange for an
affiliate payable of $47,500. The Company sold these shares in fiscal 2000 and
realized a gain on sale aggregating approximately $816,000. As described in Note
2, the Company also sold 837,685 shares of ORI's common stock in fiscal 2000,
and recognized a related gain on sale aggregating approximately $362,000.
4. Land Held for Development
Oasis III has a 20-acre interest in partially-developed land located in Oasis,
Nevada and an option to acquire an additional 30 acres adjacent to the 20-acre
interest. The subject property was subdivided from an 1,100-acre parcel
originally purchased on December 27, 1995 for $1,450,000 by Oasis International
Hotel & Casino, Inc. ("OIHC"), a current shareholder of ORI through the merger
of Oasis III on May 1, 1998 (Note 1). The property contains a 6-unit motel and
an eight-pump truck stop, including a cafe and mini store. These assets have
been in operation since 1996 and substantial expenditures are required for
improvements in order for the property to be operative in its current state.
OIHC entered into a real estate purchase agreement dated April 9, 1998, as
amended, with Oasis III. In connection therewith, the agreement called for a
purchase price of $5,000,000, consisting of shares of the ORI's common stock
valued at $1,000,000, the assumption of $550,000 First Trust Deed Note Payable
and the issuance of a note payable to OIHC in an original amount totaling
$3,450,000 (Note 7). ORI closed escrow on the property on or about May 7, 1998.
In December 1998, ORI obtained an independent appraisal valuing the 20-acre
parcel at $3.7 million on an "as-is" basis. All land-related costs subsequent to
October 19, 1998, have been expensed as incurred.
5. Lease Deposit
The Company is required to maintain a lease deposit totaling $3 million for the
benefit of the lessor of the Le Palace Hotel. At June 30, 1999, 200,000 shares
of the common stock of ORI were pledged by the Company as collateral for the
required lease deposit. In February 2000, ORI pledged 550,000 shares of ORI
common stock as additional security under the lease arrangement, which
management believes cured the then existing deficiency. However, based on
subsequent declines in the fair market value of ORI's common stock, management
believes that the lease deposit has a fair value less than the required amount
as of June 30, 2000. As a result, the Company may be required to deposit
additional collateral. The lease deposit is eliminated in consolidation as of
June 30, 2000.
F-21
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
6. Due to Affiliates and Notes Payable to CPL
As of June 30, 2000, the Company has $1,168,231 net due collectively to Fred
Luke and NuVen. Advances to and from NuVen and Luke typically are non-interest
bearing, have no stated repayment terms and are uncollateralized. As described
in Note 10, NuVen is owned by certain officers of the Company. Also as described
in Note 10, Luke has two promissory notes due to the Company that are included
in the amount presented. Also as described in Note 10, the Company and certain
of the Company's subsidiaries have entered into Management and Advisory
Agreements with NuVen.
As of June 30, 2000, FFI has $288,809 due to Eurasia Finance and Development
Corporation, an entity partially owned by its President, Jon L. Lawver. The
related note bears interest at 8%, is uncollateralized and has no stated
repayment terms. As of June 30, 2000, FFI also had $118,947 due to Lawver that
bears interest at 8%, is uncollateralized and has no stated repayment terms. In
addition, the Company owes Lawver $108,506 pursuant to a consulting agreement
that is described in Note 10.
As a result of the February 2000 spin-off of five wholly-owned subsidiaries,
amounts due to and from CMA, NuLA, NuLV, ACI and NuP (collectively "the Prior
Subsidiaries") were not eliminated from the accompanying consolidated balance
sheet as of June 30, 2000. Accordingly, the Company had a net aggregate amount
of $914,196 due to the Prior Subsidiaries as of June 30, 2000.
As of June 30, 2000, the Company has net aggregate payables of $35,993 that are
owed to various entities or persons that are affiliated to the Company though
common ownership (Note 10).
The notes payable to CPL, a former subsidiary of the Company, aggregated
$3,000,000 as of June 30, 1999 (Note 2). The related notes payable were due on
May 30, 1999, are collateralized by 3,000,000 shares of the Company's common
stock, and bear interest at the rate of 6% per annum. One of the present
stockholders of CPL is the father of the Company's President.
7. Notes Payable
Notes payable at June 30, 2000 consists of the following:
Note payable - financial institution
Due on demand, including interest at 18% per annum $ 100,000
Note payable - investor
Due on demand, including interest at 10% per annum 500,000
Note payable - OIHC
Annual payments of principal and interest at 9% per annum,
due December 2025 3,399,559
3,999,559
Less current portion (729,424)
Notes payable, net of current portion $ 3,270,135
On March 20, 1997, FFI entered into a working capital loan agreement,
collateralized by notes receivable received from the sale of a former
manufacturing facility, for $100,000 bearing interest at
F-22
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
7. Notes Payable (continued)
18% per annum and maturing on March 19, 1998. This debt was assumed in its
entirety by NuOasis and is past due at June 30, 2000.
In connection with the reverse acquisition of Oasis III by ORI on May 1, 1998,
ORI assumed a $550,000 note payable (Note 4). The note was due May 11, 1999,
with interest-only payments (at an annual rate of 10.0% per annum) of $4,500 per
month. During fiscal 2000, ORI repaid $50,000 of the outstanding principal
balance. The note, amounting to $500,000 outstanding at June 30, 2000, is in
technical default and is currently due on demand. The holder of the note has not
made a demand for payment. Total interest expense in connection with this note
in fiscal 2000 and 1999 was $54,000 and $45,000, respectively.
OIHC agreed to accept a Second Deed of Trust note payable from ORI in the amount
of $3,450,000 related to the acquisition of the 20-acre parcel. The term of this
Second Deed of Trust is for 30 years principal and interest payable at 9% per
annum. ORI has been unable to make the required principal payments, however, the
Second Deed of Trust holder has waived its rights under the events of default
for a period of one year. ORI's ability to continue to make the required
payments is contingent upon its raising additional capital. The principal amount
outstanding at June 30, 2000 was $3.4 million. Total interest expense related to
this note agreement in fiscal 2000 and 1999 was $321,917 and $305,792,
respectively.
Minimum annual principal repayments of notes payable are as follows:
<TABLE>
<CAPTION>
Year Ending
June 30 Amounts Due
<S> <C>
2001 $ 729,424
2002 30,846
2003 33,740
2004 36,905
2005 40,207
Thereafter 3,128,437
$3,999,559
</TABLE>
8. Stockholders' Equity
Preferred Stock
The Company has authorized 25,000,000 shares of preferred stock, which are
divided into four series: Series A, Series B, Series C and Series D. All Series
A and Series B preferred stock was redeemed by the Company prior to or during
fiscal 1993 and returned to the preferred stock treasury.
In October 1992, the Company conducted a private offering of Series C
Convertible Preferred Stock ("C Preferred"). During the fiscal years ended June
30, 1996 and 1995, all Series C preferred shares were converted to common stock,
and no C Preferred remains outstanding.
F-23
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
8. Stockholders' Equity (continued)
During the fiscal year ended June 30, 1993, the Company designated a Series D
Voting Convertible Preferred Stock out of the 24,130,000 redeemed shares of
Series A, Series B and Series C Preferred Stock (the "D Preferred"). The D
Preferred consists of 24,000,000 shares which were originally issued to NuVen
Advisors Inc., formerly New World Capital Inc. ("NuVen") in exchange for
investment securities with an estimated market value, based upon independent
legal and valuation opinions at the time, discounted approximately 50% at the
date of transfer, of $10,000,000. Due to the lack of a date and value certain as
to the redemption and incomplete trading history of the investment securities,
at June 30, 1993, the $10,000,000 aggregate estimated market value of the
investment securities was fully reserved by the Company by a charge against
Additional Paid-in Capital for financial statement purposes.
The D Preferred is redeemable, in whole or in part, at the option of the Board
of Directors, at any time, at a redemption price of up to $24,000,000, or
convertible, at the option of the holder, into a maximum of 10,000,000 shares of
the Company's common stock. The right to convert the D Preferred expired in July
1998 and was extended by the Board of Directors to July 2003.
Common Stock Subscriptions
Common stock subscriptions receivable as of June 30, 2000 consist solely of
stock receivables due from consultants. During fiscal 2000, an officer of the
Company paid in full $310,045 of common stock subscriptions receivable that was
outstanding at June 30, 1999.
Treasury Stock
In August 1996, the Company sold its 40% net profits interest in gaming
operations conducted at the Holiday Inn and Hyatt hotels in Macau. The
consideration for the sale consisted of 20,000,000 shares of the Company's
common stock originally issued by the Company in the purchase of the net profits
interest. On or about September 30, 1996, the 20,000,000 shares were tendered to
a third party escrow agent pending the purchases of replacement properties. The
basis of the stock originally issued for the net profits interest aggregated
$10,000,000, or $.50 per share, and such amount has been historically presented
in the Company's consolidated financial statements as treasury stock.
During the year ended June 30, 1999 the Company liquidated the remaining
9,430,285 common stock treasury shares for $411,088. The proceeds from the
shares liquidated were used to repay debt, related interest expense and related
escrow fees. Because the fair value of the Company's common stock issued in
these transactions was less than the $.50 per share basis, the Company has
reduced additional paid in capital for the difference, which aggregated
$4,304,112 during the year ended June 30, 1999.
Employee Stock Benefit Plan
An employee stock benefit plan ("ESBP") was established during Fiscal 1996,
covering substantially all employees and consultants of the Company. There are
no mandatory contributions required by either the Company or the employees and
consultants, however, the ESBP provides for the issuance of up to 500,000 common
shares of the Company at the discretion of the Board of Directors. To date,
there have been no shares issued under the ESBP.
F-24
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
9. Stock Option Plan
A summary of the status of stock option transactions for the years ended June
30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Outstanding at beginning of year 1,510,000 1,510,000
Granted 2,000,000 -
Exercised - -
Canceled - -
Outstanding at end of year 3,510,000 1,510,000
Range of option exercise prices
outstanding $0.06 to $4.00 $0.58 to $4.00
</TABLE>
At June 30, 2000, options for 3,510,000 shares were fully vested and
exercisable.
Stock options granted during the year ended June 30, 2000 are described in Note
10.
10. Related Party Transactions
Transactions With Officers
In September 1994, the Company entered into a five-year Employment Agreement
with Fred G. Luke, the Company's Chairman and Chief Executive Officer ("Luke")
that expired in September 1999. Luke has been serving as the Company's Chairman
and CEO since approximately July 1993. The terms of this Employment Agreement
called for Luke to receive approximately $10,000 per month and granted him an
option to purchase 1,000,000 shares of the Company's common stock exercisable at
$1.10 per share. Since January 2000, Mr. Luke has received compensation of
$1,500 per month as a director of the Company. The Company expensed $30,000 and
$120,000 during fiscal years 2000 and 1999 pursuant to the terms of the
Employment Agreement. The Company expensed $9,000 during fiscal 2000 for
directors' fees. As described in Note 6, the Company has net amounts due from
Luke of $509,860 at June 30, 2000, which includes amounts due under the
promissory notes described below.
In September 1999, the Company entered into a promissory note with Luke in the
amount of $315,550. In addition, in November 1999, the Company entered into a
second promissory note with Luke in the amount of $240,000. The related notes
bear interest at 8% per annum and are payable, with principal and interest, on
the earlier of, demand or one year from the date of each respective promissory
note. In connection with the loans, the Company received security interests in
an option to purchase 1,000,000 shares of common stock of Hart Industries at
$.01 per share, an option to purchase 15,055 shares of common stock of NewBridge
Capital, Inc. ("NewBridge") at $.70 per share, and 22,345 shares of common stock
of NewBridge. Hart Industries and NewBridge are affiliated to the Company
through common ownership and management.
F-25
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
10. Related Party Transactions (Continued)
Transactions With Officers (continued)
Effective January 1, 1994, the Company entered into a Consulting Agreement with
Jon L. Lawver and J. L. Lawver Corp. (collectively, "Lawver") pursuant to which
Lawver was to perform professional services and to hold the office of President
of FFI. The Company expensed no amounts under this Consulting Agreement during
either fiscal 2000 or 1999, as the operations of FFI have effectively ceased.
The Company had $108,506 due to Lawver at June 30, 2000 pursuant to the
Consulting Agreement. The Company has an additional $407,756 due to Lawver that
is described in Note 6.
Transactions with Directors and Affiliates
The Luke Trust and Lawver Corp. own 93% and 7%, respectively, of NuVen Advisors,
Inc. ("NuVen"). Luke, as trustee of the Luke Trust, controls the Luke Trust and
Jon L. Lawver is the majority shareholder of Lawver Corp. and thereby controls
Lawver Corp. On June 14, 1993, NuVen acquired the D Preferred (Note 8), and as a
result, NuVen became the Control Person of the Company. On June 14, 1993, Luke
became a Director of the Company. On July 22, 1993, following the resignation of
Frank Morelli II, Luke became the Company's Chief Executive Officer, Chief
Financial Officer and Chairman of the Board of Directors. NuVen has since
exchanged all of its shares of the D Preferred. As of June 30, 2000, 19,200,000
shares of the D Preferred are owned by NewBridge, an entity that is majority
owned by NuVen.
Effective February 1, 1994, the Company entered into an Advisory and Management
Agreement with NuVen (the "NuVen Advisory Agreement") to perform professional
and advisory services. Pursuant to the NuVen Advisory Agreement, the Company
agreed to pay NuVen $120,000 annually, payable monthly in $10,000 increments in
arrears, and granted NuVen an option to purchase 100,000 shares of the Company's
common stock exercisable at a price of $.80 per share. Effective October 1,
1999, the NuVen Advisory Agreement was amended to provide for payments of $3,500
per month and granted an additional fully vested option to purchase 2,000,000
shares of the Company's common stock at $.06 per share. The estimated fair value
of this option using the Black-Scholes model was $22,000, which was based on an
expected option life of 39 months, a volatility rate of 73% and a bond
equivalent rate of 6.2%. Such amount was charged to operations in Fiscal 2000.
Additionally, the NuVen Advisory Agreement was assigned to NewBridge in April
2000 by NuVen. The Company expensed $61,500 and $120,000 in fiscal 2000 and
1999, respectively, and had a net amount of $54,807 due from NuVen as of June
30, 2000 (Note 6).
Effective July 1, 1994, NuOI entered into an Advisory and Management Agreement
with NuVen to perform professional and advisory services. Pursuant to the
agreement, NuOI agreed to pay NuVen $240,000 annually, payable monthly in
$20,000 increments in arrears, and granted NuVen an option to purchase 1,100,000
shares of common stock of NuOI exercisable at a price of 110% of the book value
per share on the day of the grant. Effective October 1, 1999, NuOI amended the
Advisory and Management Agreement with NuVen to provide for payments of $3,500
per month. Additionally, the Advisory and Management Agreement was assigned to
NewBridge in April 2000 by NuVen. NuOI expensed $91,500 and $240,000 in fiscal
2000 and 1999, respectively, and had a net amount of $1,696,869 due to NuVen as
of June 30, 2000 (Note 6).
F-26
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
10. Related Party Transactions (continued)
Transactions with Directors and Affiliates (continued)
FFI, CMA, NuLA, NuLV, ACI and NuP, (collectively "the Companies") each entered
into Advisory and Management Agreements, and amendments thereto, (the
"Agreements") with NuVen to perform professional and advisory services.
Effective July 1, 1999, FFI terminated its agreement with NuVen. Pursuant to the
terms of the Agreements, the Companies are required to pay $2,500 to $3,500 per
month, plus expenses, in exchange for NuVen's assistance in the formulation of
possible acquisition strategies, and the management of financial and general and
administrative matters. In addition, the Companies are required to pay a fee
equal to 5% of the value of each business opportunity (as defined) introduced by
NuVen. The Agreements have initial terms of five years, but shall be
automatically extended on an annual basis, unless terminated by either party.
The Agreements canceled and replaced any existing previous agreements. During
fiscal 2000 and 1999, the companies recorded aggregate expenses of $122,500 and
$213,127 as fees to NuVen, respectively. As of June 30, 2000, FFI had an
aggregate amount of $36,029 due to NuVen (Note 6).
A director of Oasis provides legal services to the Company. As of June 30, 2000,
the Company owes this director $565, and such amount is included in accounts
payable and accrued expenses. During the years ended June 30, 2000 and 1999, the
Company received legal services from this director aggregating $47,565 and
$32,881, respectively.
In March 2000, the Company entered into a promissory note with an affiliate of
the Company in the amount of $65,000. The related note bears interest at 8% per
annum and is due on demand. In connection with the loan, the affiliate pledged
as collateral his entire interest in the corporation known as Cleopatra Hammamet
Limited, which management believes to approximate the current value of the note.
Such amount is included in due to affiliates at June 30, 2000 as described in
Note 6.
Advisory Agreement with ORI
On July 18, 1998, ORI entered into an advisory agreement with NuVen through
April 1, 1999. In connection therewith, the Company issued warrants to purchase
70,000 shares of ORI common stock at $30.00 per share. The estimated fair value
of these warrants using the Black-Scholes model was determined to be $3.25 per
share or approximately $227,500, of which approximately $130,000 was charged to
operations from the acquisition of Oasis on October 19, 1998 to June 30, 1999.
The options expire on July 1, 2001. No other remuneration was granted to NuVen
in connection with this advisory agreement.
ORI Director Compensation
Two directors of ORI have entered into agreements that expired September 30,
1999, but have continued on a month-to-month basis since that date. Such
agreements provide for payments of $3,000 per month, of which, no payments have
been made. Included in accounts payable are amounts due to such directors of
$72,000 at June 30, 2000.
F-27
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
11. Income Taxes
The Company and its controlled domestic subsidiaries file a consolidated income
tax return for federal purposes and a combined income tax return for state
purposes.
The Company's net deferred tax asset at June 30, 2000, consist of net operating
loss carryforwards amounting to approximately $19.6 million. At June 30, 2000,
the Company provided a 100% valuation allowance for the tax effect of these net
operating loss carryforwards totaling approximately $6.7 million. During the
years ended June 30, 2000 and 1999, the Company's valuation allowance decreased
$100,000 and increased $1.0 million, respectively. No benefit for income taxes
has been provided in the accompanying consolidated statements of operations,
since all deferred tax assets have been fully reserved. The Company has provided
the valuation allowance since management could not determine that it was "more
likely than not" that the benefits of the deferred tax assets would be realized.
The deferred taxes result from temporary differences relating to the difference
in the basis of assets and liabilities for financial and tax reporting purposes.
As of June 30, 2000, temporary differences relate mainly to reserves recorded
for financial reporting purposes that are not deductible for tax purposes.
As a result of changes in stock ownership which occurred in 1993 and 1995, the
Company's use of its net operating loss carryforwards may be limited by Section
382 of the Internal Revenue Code until such net operating loss carryforwards
expires. During Fiscal 1997, the Company obtained an independent third party
valuation of its stock for purposes of the calculation required by Section 382
in order to determine the extent, if any, to which such net operating loss
carryforwards may be limited.
Deferred tax assets have been computed using the maximum expiration terms of up
to 18 years for federal purposes and 5 years for state purposes. Net operating
losses expire from the years 2004 through 2016.
No provision was made or benefits recognized for U.S. income taxes on
undistributed earnings/losses of foreign subsidiaries as it is the Company's
intention to utilize those earnings in the foreign operations for an indefinite
period of time or repatriate earnings only when tax effective to do so. Foreign
net operating loss carryforwards may not be utilized for United States federal
income tax purposes.
F-28
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
12. Segment Information and Concentration of Credit Risk
Industry Segments
The relative contributions to revenues, gross profit and identifiable assets of
the Company's two reportable operating segments for the years ended June 30,
2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
Revenues
<S> <C> <C>
Hotel Room and Food $ 5,192,905 $5,522,626
Food Distribution $ - $ 262,338
Gross Profit (Loss)
Hotel Room and Food $(1,214,908) $ (272,561)
Food Distribution $ - $ 23,340
</TABLE>
The Company had no identifiable assets related to the food distribution segment,
exclusive of intercompany loans and advances, at June 30, 2000.
As of June 30, 2000, the Company's assets are principally located in two
geographic areas: the United States and North Africa. The following is a summary
of the Company's June 30, 2000 assets by geographic area:
<TABLE>
<CAPTION>
United States North Africa Total
<S> <C> <C> <C>
Cash $ 861,787 $ 23,745 $ 885,532
Accounts receivable, net - 484,976 484,976
Other current assets - 271,717 271,717
Total current assets 861,787 780,438 1,642,225
Property and equipment, net - 145,955 145,955
Equity investments 560,819 2,000,000 2,560,819
Other assets 3,700,000 2,440,555 6,140,555
Total noncurrent assets 4,260,819 4,586,510 8,847,329
Total assets $ 5,122,606 $5,366,948 $10,489,554
</TABLE>
F-29
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
12. Segment Information and Concentration of Credit Risk (Continued)
Significant Customers and Concentration of Credit Risk
In the United States, the Company maintains several cash accounts at several
financial institutions. At June 30, 2000, approximately $531,000 of the
Company's cash accounts exceeded the federally-insured limit. The Company also
has approximately $166,670 on deposit with foreign banks.
The Company had sales in excess of 15% of total food distribution sales to each
of three customers in fiscal 1999.
13. Commitments and Contingencies
CCGL and CWI are lessees under various lease agreements related to the Cap
Gammarth Casino and the Le Palace Hotel, respectively, which require annual
lease payments to be made, monthly or quarterly, over their respective terms,
which range from 16 to 20 years (Note 2). The leases are renewable automatically
for two five-year terms. The Company has not begun operations at the Cap
Gammarth Casino; therefore, management believes that this lease is not yet in
effect. As a result, no rental expense has been included in operations under
this arrangement. Upon consummating the lease, which management expects to occur
around December 2000, the Company will be required to pay the amounts reflected
in the table below. Future annual minimum lease payments by these entities in
each of the next five years and thereafter are as follows:
<TABLE>
<CAPTION>
Amounts Due
Cap
Year Ending Gammarth Le Palace
June 30 Casino Hotel Total
<S> <C> <C> <C>
2001 $ 3,000,000 $ 8,046,861 $ 11,046,861
2002 3,000,000 4,007,150 7,007,150
2003 3,300,000 4,287,650 7,587,650
2004 3,600,000 4,587,785 8,187,785
2005 3,900,000 4,908,930 8,808,930
Thereafter 74,700,000 52,872,889 127,572,889
$ 91,500,000 $ 78,711,265 $ 170,211,265
</TABLE>
Prior to taking possession of the Cleopatra Cap Gammarth Casino under its lease
agreement, the Company is required to make a lease deposit totaling $1 million.
Total rent expense included in operations under the Le Palace Hotel lease for
the years ended June 30, 2000 and 1999 was approximately $2.6 million and $2.5
million, respectively.
F-30
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
13. Commitments and Contingencies (continued)
Legal Proceedings
SALT Judgment
In July 1998, the Company filed a complaint for damages against SALT and several
others due to significant delays in completing the Cleopatra Cap Gammarth
project (Note 2). In July 1999, the Company received a judgment of approximately
$300 million against SALT. Although management is proceeding to collect upon
this judgment, there can be no assurance that the Company will ultimately
realize any amount from this judgment, and the accompanying consolidated
financial statements do not include amounts related to this gain contingency.
STTG Arbitration
The Company has been a party to arbitration with STTG due to significant delays
in completing the Le Palace Hotel and the surrounding resort complex and the
non-payment of accrued rents (Note 2). STTG has received an arbitration award
for calendar year lease rental payments for 1998 and 1997, net of amounts
expended by the Company. At June 30, 2000, the Company owed STTG an aggregate
amount of approximately $4.04 million for the net rental payments under the
agreement.
In August 2000, STTG filed for bankruptcy protection under Tunisian law.
Group V/Monterosso Litigation
In November 1998, Group V Corporation and Joe Monterosso filed a claim against
the Company in connection with the purchase of securities from the Company
alleging material misrepresentation (Note 2) ("Group V Litigation"). In July
1999, the Company filed a cross complaint against Group V Corporation and Joe
Monterosso. The trial date for the action is currently set for March 2001.
Management believes the suit lacks substantial merit and plans to vigorously
defend against the complaint and pursue the cross complaint.
Effective July 15, 2000, the Company entered into an Indemnification Agreement
and Agreement to Defend with YSRO Program Exchange B.V., a Netherlands
corporation ("YSRO"). Under the terms of this agreement, the Company exchanged
cash of $200,000, its interest in the Group V Litigation, and Fred G. Luke's
interest in the Group V Litigation. In return, YSRO agreed to undertake the
obligation to pay all costs and expenses, limited to its net assets, in
defending the Company and Fred G. Luke and in pursuit of counterclaims against
one more of the plaintiffs. As a result of this agreement, the Company recorded
legal fees of $200,000 during the year ended June 30, 2000, and recorded a
corresponding accrued liability at June 30, 2000.
F-31
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
13. Commitments and Contingencies (continued)
Other
FFI is involved, both as plaintiff and defendant, in litigation that originates
in the normal course of business development or operations. Further, FFI is a
defendant in various litigation initiated by certain trade creditors because FFI
violated related repayment terms. The lawsuits generally seek the payment of
fees owed, legal fees and interest. FFI is attempting to settle the lawsuits and
negotiate payment schedules with its creditors.
In January 1995, a consultant to the Company's prior management initiated a
lawsuit involving CMA. The plaintiff had not actively pursued his claims in this
lawsuit and in October 2000 the action was dismissed by the court for inaction
by the plaintiff. The Company believes that there will be no further action
related to this lawsuit. Therefore, no provision has been made in the
accompanying consolidated financial statements for this contingency.
The Company is subject to claims and suits that arise from time to time out of
the ordinary course of its business. Through June 30, 2000, management of the
Company is not aware of any claims that will have a material impact on the
Company's business, financial condition or results of operations which are not
reflected in the accompanying consolidated financial statements.
14. Subsequent Events
On December 29, 1999, ORI entered into an agreement with an unrelated entity to
acquire common stock of Virtual Gaming Technology, Inc. ("VGAM") in exchange for
common stock of ORI, the number of shares of which were to be determined at a
later date. On August 31, 2000, ORI's board of directors approved the exchange
whereby ORI would issue 4,802,032 shares of its newly issued common stock for
1,200,508 shares of VGAM. The transaction closed on August 31, 2000. ORI valued
the securities at $3,803,209 based on the closing price of ORI's common stock on
August 31, 2000, net of a discount of 20%, for blockage, since the shares of
VGAM are thinly traded. Subsequent to year end the value of both VGAM and Oasis
stock has declined considerably.
On August 31, 2000, ORI issued 359,515 shares of common stock to directors and
consultants valued at $355,920. ORI management intends to register these shares
under the 1933 Securities Act.
F-32
