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, 1999 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 530, 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, 1999 were
$5,784,962.
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 May 31, 2000 was approximately $4.0
million.
Class Outstanding at July 31, 2000
Common Stock, $.01 par value 66,914,300 shares
Documents Incorporated by Reference:
None
<PAGE>
TABLE OF CONTENTS
PART I
Page
Item 1. Description of Business............................................ 1
Item 2. Description of Property............................................ 14
Item 3. Legal Proceedings.................................................. 15
Item 4. Submission of Matters to a Vote of Security-Holders................ 15
PART II
Item 5. Market for Common Equity and Related Stockholder Matters........... 16
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 17
Item 7. Financial Statements............................................... 25
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure............................................ 25
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act............... 26
Item 10. Executive Compensation............................................. 27
Item 11. Security Ownership of Certain Beneficial Owners and Management..... 30
Item 12. Certain Relationships and Related Transactions..................... 32
PART IV
Item 13. Exhibits and Reports on Form 8-K................................... 33
<PAGE>
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 manufactures and distributes
specialty food products, and provides food and ancillary services in connection
with its hotel and gaming operations.
(b) Business Development
Through subsidiaries, the Company owns interests in, leases, manages and
operates themed hotels, gaming casinos and related operations worldwide, through
its 49% 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, 1999 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 are 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").
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,
1999.
Prior to the close of the year ended June 30, 1999 ("fiscal 99" or "fiscal
1999"), the Company elected to distribute the issued and outstanding 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 subsidiaries of the Company to three (3) from eight (8).
As used herein, the term "Company" refers to NuOasis Resorts, Inc. and its
subsidiaries prior to the Spinoff.
1
<PAGE>
(c) Description of Business
The Company's business interests are comprised of legalized casino gaming
and hotel management, food manufacturing and distribution, and to a limited
extent real estate acquisition and development, which, as of the close of fiscal
1999, was still a development-stage activity.
(1) Gaming and Hotel Management
Domestic Gaming
As a result of the merger in May 1998 of Flex Holdings Inc. ("Flex"),
a wholly-owned subsidiary of Oasis, into Oasis-III, Oasis acquired the
Oasis-III property, 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 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 evaluating financing proposals to
develop this property.
International Casino Gaming and Hotel Management Activities
In September 1993, the Company formed NuOI through which it currently
develops its international gaming and hotel management operations. The
Company believes that international leisure and entertainment opportunities
offer much greater potential, and have far less competition than domestic
markets because of the "emerging market" status of many of the host
countries. The Company's goal has been 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. As a
result of the Company's research into these expected emerging leisure and
entertainment markets, it has been soliciting and evaluating prospects in
certain markets in Asia, North Africa, the Caribbean and the South Pacific.
During its fiscal year ended June 30, 1994 ("fiscal 1994"), the Company
acquired an interest in two (2) casinos in Macau. The interest in Macau was
subsequently sold in fiscal 1997. Also in fiscal 1994, the Company began
acquiring interests in casino and hotel projects in North Africa, with its
first casino commencing operations in Tunisia on December 7, 1997.
In October 1993, the Company acquired a 70% equity interest in CPL,
which developed the resort hotel and casino gaming theme "Cleopatra
Palace". CPL became the lessee of a 200,000 square foot casino and Las
Vegas-style showroom in the Cap Gammarth area, Tunisia, North Africa (the
"Cap Gammarth Casino") pursuant to a Casino Lease Agreement and Operating
Management Contract (the "Gammarth Lease"). The Cap Gammarth Casino is part
of a large resort development located in Tunisia, approximately 6 miles
north of the city of Tunis, the country's capital. In conjunction with such
casino, the developer of the resort planned to build a five-star hotel (the
"Le Palace Hotel"), a health and sports center, a beach club, a 20-unit
shopping mall, fine restaurants, and 250 apartments (the "Gammarth
Resort"), all located within walking distance to the Cap Gammarth Casino.
2
<PAGE>
At the present time, the Gammarth Resort is approximately 95%
complete. The Cap Gammarth Casino is expected to be completed and ready for
occupancy in fiscal 2001. Due to construction delays by the landlord, the
Cap Gammarth Casino was not completed on time, in accordance with the
Gammarth Lease. NuOI filed litigation to force completion of the property
or, alternatively to seek a judgment against Societe D'Animation et de
Loisirs Club Touristique, a Tunisian corporation ("SALT"), the lessor of
the Cap Gammarth Casinos, and its principal shareholders. The litigation
was decided by the United States Federal Court Central District of Nevada
with a court ordered judgement of $302 million in favor of the Company (the
"SALT Judgment"). The Company is currently proceeding in Tunisia to collect
the SALT Judgment and, since the beginning of fiscal 1998, the Company has
been attempting to complete the Cap Gammarth Casino using its own
resources. To finance the remaining expenditures on the Cap Gammarth
Casino, the Company has been negotiating possible joint ventures with
foreign banks and investment groups, and attempting early collection of its
receivables.
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.
The Company financed the completion and opening of the Hammamet Casino
through a financing agreement with Cedric International Company Inc., a
Panamanian corporation ("Cedric") and loans from the Company's President.
In September 1998, as a result of a low working capital position and
continuing delays in the construction and completion of the additional
hotels surrounding the Hammamet Casino, the Company elected not to conclude
its agreement with Cedric. Adjoining the Hammamet Casino is a five-star
hotel and villa resort which is operated by the Occidental Hotel Group (the
"Hammamet Hotel") and was completed and opened in September 1996. The
Hammamet Hotel is one of over forty (40) hotels planned or currently under
construction in south Hammamet as part of a Tunisian government-sponsored
expansion of the Hammamet resort area. If completed, these additional
hotels in the area should provide up to twenty-five thousand (25,000)
additional beds for the Hammamet area. Both the Hammamet Casino and
Hammamet Hotel are situated within walking distance of other hotels
currently in operation, with approximately eighteen hundred (1,800) beds.
After a long history of missed completion dates set by Societe
Touristique Tunisie-Golfe ("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 surrounding resort facilities. Through internally
generated cash flow and working capital provided by NuOI, CWI completed the
Le Palace Hotel and marketed the facility since its opening. While the
balance of the resort currently remains unfinished, 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 facility by STTG.
During fiscal 1997, NuOI purchased a 50% interest in Cleopatra's
World. Cleopatra's World is the lessee of the Le Palace Hotel.
3
<PAGE>
In fiscal 1998, NuOI provided additional capital to Cleopatra's World
in exchange for an additional 10% equity interest. At the close of fiscal
1997 and fiscal 1998, NuOI held a 70% equity interest in CPL, and a 50% and
60% equity interest, respectively, in Cleopatra's World.
Subsequent to the close of fiscal 1998, in July of 1998, the Company
entered into various agreements with CPL and Cleopatra's World, and the
other related CPL entities, to effect a restructuring (the "CPL
Restructuring"). To effect the restructuring (a) CPL and Cleopatra's World
assigned to a newly-formed entity, Cleopatra Palace Resorts and Casinos
Limited a British corporation ("CPR"), all of their rights, title and
interest in and to (i) the Letter of Intent dated July 7, 1996 between
Compagnie Monastirienne Immobiliere et Touristique S.A. ("CMI") and CPL
(the "Monastir Casino Lease"), (ii) the Letter of Intent between CPL and
CMI dated July 7, 1996 (the "Monastir Hotel Lease"), (iii) CPL's rights to
its application for a Casino Lease and gaming license between CPL and a
Company resident in Morocco (the "Morocco Project"), (iv) CPL's rights to
acquire certain real estate and the building known as the "Casino Nuevo San
Roque" together with the gaming license and the agreement in principle with
Trans Mer S.A. to finance the project (collectively, the "Marbella
Casino"), (v) certain trade accounts receivable, and (vi) CPL's right to
the One Million Five Hundred Thousand Dollars (US$1,500,000) deposit which
it tendered to Club Loisirs Hammamet (the "Club Hammamet"), the Lessor of
the Hammamet Casino. As a result of the CPL Restructuring, the Company
disposed of its CPL and Cleopatra's World interests and acquired 75% of
CPR. CPR owns 80% of Cleopatra's World and 90% of Cleopatra Cap Gammarth
Casino Limited.
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, management of 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. As a result, NuOasis owns
approximately 86% of the Oasis issued and outstanding common stock.
(2) Food Manufacturing and Distribution
Through FFI, the Company manufactures, distributes, and markets 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.
Since February 2000, FFI has used a co-packer to manufacture and distribute
the product.
4
<PAGE>
The Company utilizes 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 are fresh or frozen,
not dried, to maintain 60% of the nutritional value, to cook quickly and to
retain aroma and taste. Its pasta is high in complex carbohydrates making
it a high energy food. The Company's pasta is manufactured under the brand
names "Nona Morelli" and "Pasta Fresca," and contains all natural
ingredients without any preservatives. The "Nona Morelli" and "Pasta
Fresca" brand name pasta products are 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 sell the Company's products under their private labels.
Fresh and frozen pasta is also sold in bulk for the food service industry,
hotels and restaurants. The Company has lines of no cholesterol and low
cholesterol pasta and packages and markets pasta with accompanying sauces.
The Company is also a producer and marketer of a private label and "Nona
Morelli" and "Pasta Fresca" brand sauces.
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, management
of FFI spent much of fiscal 1999 exploring strategic alternatives for its
food manufacturing and distribution business. FFI is no longer
manufacturing and its products are being produced and distributed by
others.
(3) Real Estate Activities
During its fiscal year ended June 30, 1996 ("fiscal 1996"), the
Company acquired from Silver Faith Development Limited ("SFDL"), a company
beneficially owned by Ng Man Sun ("Ng"), an interest in three buildings
under construction located in a large master planned commercial and
residential real estate development located in Beijing, the Peoples
Republic of China ("PRC") known as the Peony Garden Project ("Peony
Garden"). The purchase price of the Company's interest in Peony Garden was
$21 million for which the Company issued an 8% Promissory Note in the
principal amount of $21 million (the "Peony Garden Note"). In fiscal 1997,
the Company reduced the Peony Garden Note by $9.6 million.
In August 1996, the Company sold its interest in Peony Garden to The
Hartcourt Companies, Inc. ("Hartcourt") for $22 million, consisting of $10
million of Hartcourt common stock and a $12 million Convertible Promissory
Note secured by the Peony Garden interest being sold (the "Hartcourt
Note"). Concurrent with the closing of the sale of the Company's interest
in Peony Garden, the Hartcourt Note was assigned to SFDL in exchange for
the Peony Garden Note (the "Note Swap").
The Company did not have any real estate operations during fiscal
1999.
5
<PAGE>
(d) Marketing
(1) Gaming and Hotel Management
Domestic Gaming
The Company did not have any domestic gaming activities in fiscal 1998
and fiscal 1999 and did not utilize or rely upon any marketing for domestic
gaming activities in fiscal 1999.
International Casino Gaming and Hotel Management
The Company sold the Gaming Interest in Macau effective the end of
fiscal 1996 and has not re-entered the Asian market. The Company's current
activities are located in North Africa.
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.
Food Manufacturing and Distribution
There are approximately 40,000 major supermarkets in the United States
and between 4,000 and 6,000 in market areas presently served by the
Company's products. The Company cannot estimate its market share of fresh
pasta sales, but management expects it to be minimal.
Under agreements, the Company contracts direct with supermarket chains
and distributors to market its pasta products under their labels. These
stores are typically responsible for transporting, warehousing,
advertising, distributing, and promoting FFI produced pastas and sauces.
The Company's expenses related to managing these accounts have been
relatively nominal. Thus, the primary costs are limited to production,
packaging, and returns, which are subject to more accurate budgeting and
control.
6
<PAGE>
Sales of the Company's products are made through direct marketing by
food brokers and Company's personnel with a focus on supermarket chains,
other retailers and restaurants. Typically, the Company's products are
delivered to distribution centers of such supermarket chains for subsequent
re-delivery through the supermarket subsystem as demand dictates. The
Company also markets its products through distributors under short term
"spot sale" arrangements terminable on short notice. Food brokers utilized
by the Company usually receive commissions based on net sales, while
distributors purchase the Company's products for their own account. The
Company has not granted exclusive area distribution rights with respect to
any of its products.
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, management
of FFI is currently exploring strategic alternatives for its food
manufacturing and distribution business. FFI no longer manufactures its
products and production and distribution is now performed by others.
(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
requires raw materials which are 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 and does not anticipate any supply problems in the future.
(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. With respect to the
Company's Gaming Interest in Macau, which was sold subsequent to the close
of fiscal 1996, neither Ng nor the Company relied on patents or trademarks.
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 uses on some of its
products.
7
<PAGE>
(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
five major customers, all distributors, each of which accounted for more
than 10% of the Company's sales with respect to its food manufacturing and
distribution segment. After February 2000, the Company no longer
manufacturers or distributes its own products. Instead, the co-packer pays
FFI based on the net profits on FFI products.
(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, 1999, FFI, the Company's food manufacturing and
distribution subsidiary, had no significant backlog for orders. This
reflects production on an as-ordered basis.
(j) Government Contracts
None of the Company's industry segment activities were involved with
material government contracts in fiscal 1999 or fiscal 1998.
(k) Competition
Gaming and Hotel Management Activities
Domestic Gaming
During fiscal 1999 and 1998, the Company did not have any domestic
gaming activities.
8
<PAGE>
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 facilities and resort hotels in emerging international
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 NuOI, 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 and hotel management
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 facilities or resort hotels, may
diminish or otherwise detract from the activities of the Company or its
subsidiaries.
The Company believes that its gaming and hotel management markets are
extremely competitive and expects them to become even more competitive as
the number of gaming, hotel management, and other entertainment
establishments increase. Such competition is growing in the Mediterranean
market and the Company also competes with gaming and hotel management
companies worldwide. It is also possible that substantial competition could
cause the supply of casino gaming facilities and resort hotel management
opportunities to exceed demand. Additionally, many of the Company's
competitors have more 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 operates, 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.
9
<PAGE>
Real Estate
Domestic Properties
During fiscal 1999 and 1998, the Company did not have any operating
activities with respect to domestic real estate acquisitions and
development.
International Properties
The Company's historical international real estate related investments
consisted of Peony Garden, which was sold subsequent to the close of fiscal
1996 and, therefore, competition as it relates to Peony Garden is not
applicable . (l) Research and Development
As part of the Company's domestic food manufacturing process, the
Company enhances existing products and develops 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
Domestic Gaming
During fiscal 1999 and 1998, the Company did not have any domestic
gaming activities.
International Casino Gaming and Hotel Management
The Company's operations are generally dependant on the continued
licenseability, qualification and operations of the Company and its
subsidiaries that hold the licenses 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, 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 its current 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.
Asia The Gaming Interest during the Company's ownership was operated
by Dragon who was a sub-licensee under a 40-year master gaming permit
granted in 1961 by the government of Portugal to STDM. Pursuant to this
arrangement with STDM, Ng owned an interest in seven casinos, two of which
it operated. The arrangement between STDM and Ng is an oral agreement and
the master gaming permit granted to STDM is due to expire in the year 2001
if not renewed or terminated in 1999 upon the return of Macau to the PRC.
Since the Gaming Interest was sold in August 1996, the Company is no longer
affected by the PRC or Portuguese governmental regulations.
10
<PAGE>
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 United States 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 Hammamet Casino.
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 requirements could result in a variety
of sanctions, including fines and the withdrawal of the Company's products
from store shelves. Since February 2000, the Company has used a co-packer
to manufacture and pack its products. The co-packer now has the primary
responsibility for meeting the various heath and safety requirements.
(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
Corporate Officers and Officers of Significant Subsidiaries
Corporate officers of the Company and significant subsidiaries who
rendered services during fiscal 1999 are as follows:
<TABLE>
<CAPTION>
Name Office
<S> <C>
Fred G. Luke Chairman and President of Resorts and NuOI
Jon L. Lawver Director of Resorts and President of FFI
Walter G. Sanders CEO and President of Oasis
Charles R. Longson Vice-President of Oasis
</TABLE>
11
<PAGE>
Gaming and Hotel Management Activities
Domestic Gaming
In fiscal 1995 the Company's former subsidiary, GRPV and its
subsidiary, Ba-Mak (through April 20, 1995, the date Ba-Mak was converted
into Chapter 7 liquidation) employed 4 full-time employees and 10 part-time
employees. All Ba-Mak employees were located in Louisiana. GRPV ceased
employing personnel at Ba-Mak following Ba-Mak's bankruptcy case.
International Gaming and Hotel Management Activities
Asia The Gaming Interest acquired by the Company consisted of a 40%
net profits interest in two Macau casinos. The Company did not acquire any
rights to manage or otherwise participate in the daily operations of the
two Macau casinos and, accordingly, the Company did not have any employees
engaged in the operations of the two Macau casinos. The Gaming Interest was
sold in August 1996.
North Africa At the close of fiscal 1999, the Company's international
subsidiary, NuOI, had only one (1) employee. Cleopatra's World had 175
employees at June 30, 1999 and the Company's other subsidiaries were still
in their development stage and did not have any employees at the close of
fiscal 1998.
Food Manufacturing and Distribution
At the close of fiscal 1999, FFI discontinued food manufacturing and
its product was produced and distributed by others. The president is the
sole remaining employee of FFI.
Real Estate Activities
International Properties
Since Peony Garden was sold in October 1996, the Company has no
employees relating to Peony Garden.
Domestic Properties
The Company's real estate acquisition and development subsidiary,
NuOP, has no employees as of June 30, 1999 or 1998.
12
<PAGE>
(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-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.
(q) Year 2000 Issues
Many computers systems may be unable to interpret data correctly after
December 31, 1999 because they allow only two digits to indicate the year in a
date. The Company and its subsidiaries have assessed this Year 2000 issue as it
relates to their businesses, including their electronic interactions with banks,
vendors, customers, and others. The Company's consolidated financial results
could be adversely affected if one or more of the companies in which it has
material investments were materially adversely affected by the Year 2000 issue.
As of July 31, 2000, the Company had not experienced any difficulties relating
to the Year 2000 issue.
13
<PAGE>
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 530, Newport Beach, California 92660, and is
subleased from an affiliate, NuVen Advisors, Inc. ("NuVen"), on a month-to-month
basis as part of an Advisory and Management Agreement with NuVen. The Company
believes that these facilities are suitable and adequate for its present needs.
(b) Gaming and Hotel Management Facilities
Domestic Gaming
At the close of fiscal 1999, 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
Asia
The Company acquired the Gaming Interest, representing a 40% net
profits interest in two Macau casinos in fiscal 1995. The Gaming Interest
was sold in fiscal 1997. While owning the Gaming Interest, the Company did
not exercise control over the operations of the casinos or acquire any
fixed assets. Accordingly, the Company does not have any facilities or
fixed assets recorded with respect to the two Macau casinos.
North Africa
At the close of fiscal 1999, the Company was the lessee under the
Gammarth Lease related to the Cap Gammarth Casino in Tunisia. Cleopatra's
World is the lessee of the Cap Gammarth Resort (the "Resort Lease"),
pursuant to a Hotel Lease Agreement, dated November 10, 1995, with STTG.
Due to its position as a lessee, the Company did not own any real property
at the close of fiscal 1999.
Food Manufacturing and Distribution Facilities
FFI was the lessee of approximately 10,000 square feet of food
manufacturing space in Irwindale, California. It also owns two trucks for
transportation of its products, various equipment for the manufacture of
pasta and sauces, two refrigeration units for certain raw materials and
finished products and one freezer for finished frozen products.
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.
(d) Real Estate Activities
International Properties
The Company did not have any international real estate operations at
June 30, 1999 or 1998.
Domestic Properties
The Company did not have any domestic real estate operations at June
30, 1999 or 1998.
14
<PAGE>
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
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.
SALT and STTG
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. 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.
The Company is also a party in arbitration with STTG due to significant
delays in completing the Le Palace Hotel. As a result of these delays, the
Company has not paid rent to STTG in connection with the related lease
arrangement. However, the Company has purchased equipment and has paid opening
costs of approximately $1.8 million, which were the responsibility of STTG. STTG
has received an arbitration award for calendar 1997 and 1998 rental payments,
net of amounts expended by the Company. In February 2000, the arbitration was
moved to Paris, France where an arbitration board is presently reviewing the
Company's claim for damages and reduced rent until the project is completed.
In August 2000, STTG filed for bankruptcy under Tunisian law.
FFI Litigation
Following the close of fiscal 1998, FFI incurred four (4) judgement liens
and one California State lien related to vendor disputes dating back to fiscal
1997. FFI has made payment arrangements and agreed to settle three (3) of these
liens. The California State lien remains to be settled.
Other
In January 1995, a consultant to the Company's prior management initiated a
lawsuit involving CMA. The plaintiff has not pursued his claims in this lawsuit
and the Company believes that the case will be dismissed by the court for
inaction by the plaintiff. No provision has been made in the accompanying
financial statements for this contingency.
In September 1999, the Company settled a lawsuit for $51,000 where the
Company did not pay for consulting services under a consulting agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
In January 1998, the Company held a Special Meeting of Shareholders, at
which meeting the following actions were taken by its shareholders:
(i) Jon L. Lawver was elected to serve as a director.
(ii) The Company was re-incorporated in the state of Nevada pursuant
to a statutory merger with NuOasis Resorts, Inc., a Nevada
corporation, effectively changing the Company's name to
"NuOasis Resorts Inc".
The Company did not submit any matters to a vote of security holders during
fiscal 1999.
15
<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 Cap SM 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 or 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
Fiscal 1999 High Low
<S> <C> <C> <C>
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
Fiscal 1998 High Low
Quarter ended 06/30/98 $.17 $.08
Quarter ended 03/31/98 $.19 $.13
Quarter ended 12/31/97 $.58 $.14
Quarter ended 09/30/97 $.35 $.17
</TABLE>
(b) Holders
The approximate number of holders of record of each class of equity
securities of the Company as of June 30, 1999, was as follows:
Approximate
Number of Record
Title of Class Holders
Common Stock, $.01 par value 2,000
Series D Preferred Stock,
$.01 par value 3
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".
16
<PAGE>
(c) Dividends
The Company has not paid any cash dividends with respect to its common
stock or preferred stock since its inception. During fiscal 1995 the Company
declared and paid a property dividend to holders of its common stock consisting
of certain investment securities comprised of approximately 1.5 million shares
of common stock of GRPV. No cash or property dividends were paid or declared
during fiscal 1999, or fiscal 1998. As of the date of this Report, the Board of
Directors of the Company have 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) GRPV
In December 1995, GRPV (as a subsidiary of the Company), entered into
an agreement with the shareholders of NPC to acquire all of the issued and
outstanding shares of NPC (the "NPC Purchase"). As part of the NPC
Purchase, in June 1996, the Company granted an option (the "GRPV Option")
to Monterosso, an officer and shareholder of NPC and the newly approved
President of GRPV, to acquire 250,000 shares of GRPV Series B Preferred
stock (the "GRPV B Shares") owned by the Company. The GRPV Option was
exercisable at a price of $13.00 per share. In December 1996, GRPV closed
on the NPC Purchase, making NPC a wholly-owned subsidiary of GRPV. In June
1997, following the NPC Purchase, Monterosso exercised the GRPV Option to
purchase 128,041 GRPV B Shares, at $13.00 per share by payment to the
Company of approximate $1,665,000. Additionally, in June 1997, GRPV sold
CMA and its subsidiaries, NuLV and NuLA, to the Company for notes
receivable from GRPV aggregating $245,836, $1,140,000 in cash, and a
credit against the Company's intercompany account with GRPV of $95,000.
In August 1997, but effective June 1996, the GRPV Option was amended
(the "Amended Option") canceling the right to acquire 100,000 of the
remaining 121,959 GRPV B Shares, and increasing the exercise price for the
balance, or 21,959 shares from $13.00 per share to $72.20 per share. The
Company subsequently converted the 100,000 shares of GRPV B Shares into
7.8 million shares of GRPV common stock. In September 1997, but effective
June 1997, Monterosso exercised the Amended Option to purchase the
remaining 21,959 GRPV B Shares at $72.20 per share by payment to the
Company of approximately $1,585,000 and the release of the Company from
liability (if any) arising from any events while GRPV was under the
control of the Company. Also in September 1997, the Company and Monterosso
entered into a Put/Option Agreement (the "Put") under which Monterosso had
the option to purchase, and the Company had the right to require
Monterosso to purchase, all of the 7.8 million shares received by the
Company in the conversion of the GRPV B Shares at a price of $.15 per
share.
17
<PAGE>
Concurrent with the Put, the Company sold to Monterosso its interest
in 6,000,000 New Class D Warrants to purchase common stock of GRPV (the
"GRPV D Warrants"). The consideration for the GRPV D Warrants consisted of
a $1,800,000 promissory note due in September 1998 (the "Warrant Note").
As a result of the sale of the GRPV B Shares and the Put a change in
control of GRPV occurred and effective June 13, 1997, GRPV ceased being a
controlled subsidiary of the Company. With the sale of GRPV, the Company
discontinued all domestic gaming activities and did not have any domestic
gaming operations during fiscal 1999 or fiscal 1998.
In November 1998, GRPV and Monterosso filed a lawsuit against the
Company and certain other defendants alleging material misrepresentations
in connection with the sales of the GRPV D Warrants and the GRPV B Shares
(see Item 3).
During the year ended June 30, 1998, the Company transferred certain
assets, including its rights in the Put and the Warrant Note, to CWI in
exchange for additional equity interests. As a result of this exchange,
CWI received approximately 4.8 million shares of GRPV common shares.
During fiscal 1998, CWI satisfied certain liabilities by exchanging shares
of GRPV common stock, and as of June 30, 1998, CWI owned approximately 2.0
million GRPV shares. Given the uncertainty surrounding the pending
litigation with GRPV and Monterosso (see Item 3), management believes that
such shares have been impaired, and as a result, the related carrying
value of the securities has been reduced to $0.
Additionally, in connection with the Put, the Company transferred
approximately 2.8 million shares of GRPV common stock to an escrow account
pending delivery to Monterosso. The remaining shares of GRPV 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 October 1997, pursuant to an "Exchange Agreement", the Company
reacquired 195,000 shares of common stock of Network Long Distance, Inc.
("Network") from GRPV in exchange for $700,000 in cash, a $500,000 note
payable and 3,600,000 treasury shares. Although the Exchange Agreement
provided for the Company to receive cash of $700,000, the Company actually
only received approximately $442,000 in cash. The difference of
approximately $258,000 was applied to the outstanding balance of the
Warrant Note and the Put. The Network Shares reacquired by the Company
were originally acquired by GRPV from the Company in exchange for a
release of liability effective June 1997. During the year ended June 30,
1998, the Company sold all 195,006 shares of Network's common stock and
recorded an aggregate loss on sale of $137,177.
(2) Purchase of Replacement Property
In August 1996, Ng and affiliates of Ng purchased the Gaming Interest
from NuOI under various Purchase Agreements and, as part of the such
Purchase Agreements. NuOI also entered into an Agreement to Exchange with
C/A/K Trustkantor N.V., a trust company ("C/A/K"), to serve as
escrowholder for the shares of Resorts common stock being given to NuOI by
Ng as considered for the purchase of the Gaming Interest.
Pursuant to the Agreement of Exchange, C/A/K received 20,000,000
shares of Resorts common stock (the "C/A/K Shares") to be utilized to
purchase other property, hotel and gaming interests, and other equity
interests in businesses to be acquired by NuOI to replace the Gaming
Interest ("Replacement Property").
18
<PAGE>
During the years ended June 30, 1999 and 1998, the Company issued an
aggregate of 20,000,000 shares of treasury stock in the following
transactions:
~ October 1997, pursuant to an "Exchange Agreement", the Company
reacquired 195,000 shares of common stock of Network Long Distance,
Inc. ("Network") from Group V ("GRPV") in exchange for $700,000 in
cash, a $500,000 note payable and 3,600,000 treasury shares. Although
the Exchange Agreement provided for the Company to receive cash of
$700,000, the Company actually only received approximately $442,000
in cash. The difference of approximately $258,000 was applied to the
outstanding balance of the Warrant Note and the Put. The Network
Shares reacquired by the Company were originally acquired by GRPV
from the Company in exchange for a release of liability effective
June 1997. During the year ended June 30, 1998, the Company sold all
195,006 shares of Network's common stock and recorded an aggregate
loss on sale of $137,177.
~ May 1998, the Company entered into an "Exchange Agreement" with
Flexweight Corporation (currently, Oasis Resorts, Inc.) whereby the
Company issued 3,250,000 shares of treasury stock in exchange for
1,000,000 shares of common stock of Flexweight Corporation and an
option to purchase shares in the future such that the Company may
maintain a 19.5% equity interest in Flexweight Corporation or $2.5
million in market value.
~ The Company issued 2,000,000 shares of treasury stock, along with
$10,000,000 of notes payable issued by NuOasis Resorts, Inc., 280,000
shares of common stock of The Harcourt Companies, Inc., and its
rights in the Warrant Note and the Put, to Cleopatra's World in
exchange for an additional 10% equity interest in Cleopatra's World
that increased the Company's total equity interest in Cleopatra's
World to 60%.
~ In April 1998, the Company issued 750,000 treasury shares to
Cleopatra Cap Gammarth in exchange for rights to equity interests in
any future projects that this entity may control. During the year
ended June 30, 1998, the Company wrote-off this $105,000 investment.
~ During the year ended June 30, 1998, the Company issued 969,715
treasury shares to the third party escrow agent and other parties in
exchange for services rendered. The Company recorded general and
administrative expenses aggregating $116,946 in connection with these
issuances.
~ During the year ended June 30, 1999, the remaining common stock
treasury shares were liquidated for $411,088. The proceeds from the
shares liquidated were used to repay debt, related interest expense
and escrow fees. The Company recorded general and administrative
expenses aggregating $116,946 in connection with these issuances.
19
<PAGE>
Because the fair value of the Company's common stock issued in these
transactions was less than the $.50 per share basis of the common stock
originally issued for the net profits interest, the Company has reduced
additional paid in capital for the difference, which aggregated $4,304,112
and $3,259,279 during the years ended June 30, 1999 and 1998, ]
respectively.
(3) Cleopatra Hammamet
In September 1997, to finance the remaining expenditures on the
Hammamet Casino, the Company and Cleopatra Hammamet entered into an
agreement with Cedric pursuant to which the Company and Cedric each agreed
to contribute $1.5 million to the capital of Cleopatra Hammamet. The
Company pledged its rights to a 70% interest in Hammamet to Cedric to
secure the certain loans and investment by Cedric. The Company and Cedric
agreed that Cedric would return such interest when and if the Company
reimbursed Cedric for all funds advanced prior to the first anniversary
date of the agreement (on an all-or-nothing basis), plus interest at the
rate of 15% per annum. In September 1998, the Company elected not to
reimburse Cedric and, as a result, its rights to ownership interests in
Hammamet was reduced to 21%. At June 30, 1998, the Company wrote-off its
remaining investment in Hammamet.
(4) Cleopatra's World
In April 1998, the Company, the other shareholders of CPL and
Cleopatra's World agreed to restructure to satisfy certain requirements of
a proposed $7,000,000 debt financing by a foreign bank. As a result,
Cleopatra's World and Cleopatra exchanged assets for shares of capital
stock of a former CPL subsidiary, CPR. The restructuring was finalized in
July 1998 resulting in the Company holding a 75% equity interest in CPR
which, in turn, held an 80% equity interest in Cleopatra's World, a 90%
equity interest in a former CPL subsidiary, Cleopatra's Cap Gammarth
Limited ("CCGL"), and a 9% equity interest in SALT (which interest is in
dispute). Without any investment by the Company, it also received rights
to 100% of the equity interest in Cleopatra Hammamet (subject to the
obligations to and claims of Cedric), 70% equity interest in Cleopatra San
Rogue (the development-stage entity formed to build a casino in San Rogue,
Spain), and 70% equity interest in Cleopatra Marbella (the
development-stage entity formed to acquire the Don Carlos Hotel and Resort
in Maribella, Spain).
20
<PAGE>
(5) CPL
The Company maintained its 70% interest in CPL through the end of
fiscal 1998. Following the close of fiscal 1998, as part of the CPL
restructuring, the Company relinquished all of its equity interest in CPL.
(6) 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, management of 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. As a result, NuOasis owns
approximately 86% of the Oasis issued and outstanding common stock.
(7) 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
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
21
<PAGE>
(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 2000 and thereafter. The Company's consolidated financial statements for
fiscal 1999 and 1998 have been presented under the assumption that it will
continue as a going concern.
(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,
1999 1998
<S> <C> <C>
Working Capital (Deficit) $(12,414,113) $(4,446,260)
Cash and Cash Equivalents $ 121,340 $ 147,739
Current Ratio .07 .31
</TABLE>
The most significant effects on working capital and its components during
fiscal 1999 were increases in notes payable to CPL, accrued expenses and due to
affiliates.
The Company's current plan for sustaining operations is to increase its
working capital by arranging debt and equity financing to finance the activities
of its subsidiaries and for future acquisitions. On December 6, 1997, the
Hammamet Casino commenced operations, however, it was not able to generate
positive cash flows through June 30, 1999. Additionally, there are no assurances
that Cap Gammarth Casino will be able to generate positive cash flow, or that it
will even open. As of the close of fiscal 1999, the Company's sole operations
were derived from its food manufacturing and hotel management subsidiaries 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 the 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 finance the operations of its subsidiaries or to continue to
sustain itself.
22
<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:
Capital Requirements
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, and attempting early collection of its receivables.
During fiscal 1998, Cleopatra's World made a partial payment on the lease
on the Gammarth Resort and, simultaneously, filed a request for arbitration in
its dispute with the developer of the Gammarth Resort claiming that the
developer 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 Cleopatra's World significant loss of revenue and profits.
Subsequent to the close of fiscal 1998, the landlord was awarded an arbitration
amount of $2.5 million for past due rent based on a percentage of completion of
the property, however, the matter was removed from the arbitration calendar by
mutual agreement between the parties. The matter has now been put back on the
arbitration calendar. In its deliberations, the arbitration board did not
address the issue of a reduction of rent due to the resort not being completed.
The arbitration was moved to France where an aribitration board is presently
reviewing this matter.
As to any future projects undertaken by the Company, additional project
financing will be required. Capital investments may include all or some of the
following: acquisition and development of land, acquisition of leasehold
investments and contract rights, and construction of other facilities. In
connection with development activities relating to potential acquisitions or new
jurisdictions, the Company also makes expenditures for professional services
which are expenses as incurred. The Company's financing requirements depend upon
actual development costs, the amounts and timing of such expenditures, the
amount of available cash flow from operations and the availability of other
financing arrangements including selling equity securities and selling or
borrowing against assets (including current facilities). The Company may also
consider strategic combinations or alliances. Although there can be no assurance
that the Company can effectuate any of the financing strategies discussed above,
the Company believes that if it determines to seek any additional licenses to
operate gaming or permits to conduct hotel operations in other jurisdictions it
will be able to raise sufficient capital to pursue its strategic plan.
If for any reason, any of the Company's subsidiaries' joint ventures or
projects are unable to borrow or otherwise meet their commitments under current
agreements to provide the furniture, fixtures, equipment and working capital to
acquire, develop and operate future casino gaming and hotel management projects,
the Company may be required to intercede and provide the requisite financing and
working capital, or be forced to sell all or a portion of the respective
interests, or lose the respective rights to the projects and properties
entirely.
23
<PAGE>
(f) Cash Flows
Cash provided by operating activities was $338,258 for the year ended June
30, 1999 as compared to cash used in operating activities of $2,768,939 for the
comparable 1998 period. The increase is primarily attributable to a decrease in
the net loss, an increase in accrued expenses and the decrease from fiscal 1998
write-off or impairment of investments and advances.
Cash used in investing activities was $140,691 for the year ended June
30, 1999 as compared to $2,267,642 of cash provided by investing activities for
the comparable 1998 period. The change is primarily attributable to fiscal 1998
sales of Network and Hartcourt common stock.
Cash used in financing activities was $223,966 for the year ended June 30,
1999 as compared to $72,302 in cash provided by financing activities for the
comparable 1998 period. The change is primarily attributable to advances made to
STTG in fiscal 1999.
(g) Results of Operations
Year Ended June 30, 1999 Compared to Year Ended June 30, 1998.
The Company's total food distribution sales for the year ended June 30,
1999 were $262,336 as compared to $730,538 for the year ended June 30, 1998,
resulting in a decrease of $468,202 or 64%. The decrease is primarily
attributable to the cessation of manufacturing activities, as well as unrenewed
and expired co-packing agreements. In fiscal 1999, the Le Palace Hotel had
revenues of $5,522,626 and compared to revenue of $5,292,604 for fiscal 1998. 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 were $238,996 as compared to $469,440 for the year ended June 30, 1998,
resulting in a decrease of $230,444 or 49%, which is a direct result of the
decrease in food sales. In fiscal 1999, the Le Palace Hotel had a cost of sales
of $5,795,187 and $5,512,702. The increase is due to increased rent expense due
to scheduled rent increases.
Depreciation and amortization decreased by $60,896. The decrease is
attributable to the sale of depreciable assets related to Fantastic Foods.
The Company's total general and administrative expenses and legal and
professional fees were $3,895,477 for fiscal 1999, as compared to $4,235,125 for
fiscal 1998, resulting in a decrease of $339,648 or 8%. The decrease is
primarily attributable to operations of the Le Palace Hotel, FFI, and reduced
usage of consultants during fiscal 1999.
24
<PAGE>
During fiscal 1998, the Company recognized impairment losses aggregating
$6,103,901, which primarily related to Cleopatra Hammamet ($3,700,000),
Cleopatra Cap Gammarth ($600,000), shares of Group V common stock, as well as
certain assets of CWI and CPL.
As a result of the above, the Company's total operating loss for fiscal
1999 was $5.0 million as compared to an operating loss of $10.4 million for
fiscal 1998.
For the years ended June 30, 1999 and 1998, the Company's effective federal
and state income tax rate applied to the book taxable loss differs from the
statutory rate primarily from the effect of foreign controlled corporation
losses for which no deferred taxes were recognized, the change in valuation
allowance to offset deferred tax benefits, and the impact of state taxes net of
federal effect.
As a result of changes in stock ownership which occurred in 1993 and 1995,
the Company's use of its net operating loss carry forwards may be limited by
Section 382 of the Internal Revenue Code until such net operating loss carry
forwards expire. 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 whether such net operating loss carry forwards may be
limited, and the extent of the limitation.
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.
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.
25
<PAGE>
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 for fiscal 1999 were as follows:
<TABLE>
<CAPTION>
Position
Name Held with the Company Age Dates of Service
<S> <C> <C> <C> <C>
Fred G. Luke Chairman of the Board and 52 June 14, 1993 to Present
President
Jon L. Lawver Director and Secretary 61 January 1994 to Present
</TABLE>
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 Chairman 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.
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.") and 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.
26
<PAGE>
(c) Identification of Certain Significant Employees and Consultants
In connection with the acquisition of Italfin and Pasta Fresca in fiscal
1993, FFI entered into an Employment Agreement with Giancarlo Pino for his
services as a Vice President of FFI which was renewed during fiscal 1997. Mr.
Pino's agreement expired on June 30, 1998.
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.
(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 1999, 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.
27
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Fiscal Salary Other Annual Options
Position Year ($) Compensation($) Granted(#)(2)
<S> <C> <C> <C> <C>
Fred G. Luke,
President and Director of 1999 150,000 N/A N/A
Resorts, and director of 1998 150,000 N/A N/A
NuOI, CMA, ACI, NUOP, 1997 189,000(1) N/A N/A
NuLV, NuLA
John D. Desbrow 1999 N/A N/A N/A
Secretary, Resorts 1998 N/A N/A N/A
(12-93 to 5-9-97) 1997 225,000(1) N/A N/A
Steven H. Dong
Chief Financial Officer, 1999 N/A N/A N/A
Resorts 1998 N/A N/A N/A
(7-95 to 6-30-97) 1997 184,000(1) N/A N/A
Jon L. Lawver
Director of Resorts 1999 N/A N/A N/A
and President of FFI 1998 100,000 N/A N/A
1997 100,000 N/A N/A
Albert Rapuano
President of NuOI 1999 N/A N/A N/A
(6-95 to 1-97) 1998 N/A N/A N/A
1997 250,000 N/A N/A
</TABLE>
(1) Salary dollar values include both the Company and GRPV combined base
salary (cash and non-cash) earned.
(2) During the period covered by the Table, the Company did not make any
award of restricted stock, including share units. The number of options
granted are the sum of the number of shares of common stock to be
received upon the exercise of all stock options granted. Except for
stock option plans, the Company does not have in effect any plan that
is intended to serve as incentive for performance to occur over a
period longer than one fiscal year.
(b) Stock Options - The Company
The following table sets forth in summary form the aggregate options
exercised during fiscal year 1999, and the value at June 30, 1999 of unexercised
options for the Company's President and four most highly compensated executive
officers other than the President. There were no options granted during fiscal
1999.
28
<PAGE>
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Option/SAR's at Fiscal Options/SAR's at Fiscal
Shares Year-End (#) Year-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Fred G. Luke, President and
Director of Resorts and certain
subsidiaries - - 600,000 Exercisable N/A
NuVen Advisors, Inc. - - 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. 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
Current 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, appointing him the Chairman and Chief Executive Officer. The agreement
expired in fiscal 2000; however, Mr. Luke serves as the Company's Chairman and
President on a month-to-month basis.
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.
Former Officers
In January 1996, the Company entered into a consulting agreement with
Albert Rapuano, pursuant to which Mr. Rapuano performed gaming consulting
services and to hold the office of President of NuOI through December 31, 1996.
Effective January 1, 1994, the Company and John D. Desbrow entered into a
Consulting Agreement for the engagement of Mr. Desbrow to perform legal services
and to hold the office of Secretary on behalf of the Company until December 31,
1994, amended to continue through June 1997, at which time Mr. Desbrow resigned.
Effective April 1, 1994, GRPV entered into a Consulting Agreement with Mr.
Desbrow for the engagement of Mr. Desbrow to perform legal services and to hold
the office of Secretary, on behalf of GRPV, for the period from April 1, 1994 to
March 31, 1995.
29
<PAGE>
In July 1995, the Company entered into a Consulting Agreement with Steven
H. Dong, pursuant to which Mr. Dong is to perform accounting services and to
hold the office of Chief Financial Officer through June 30, 1996. During fiscal
1996, the Consulting Agreement was renewed with the same terms through June 30,
1997. In July 1995, GRPV entered into a Consulting Agreement with Mr. Dong,
pursuant to which Mr. Dong is to perform accounting services and to hold the
office of Chief Financial Officer through June 30, 1996. Effective July 1, 1996,
the Consulting Agreement was renewed through June 30, 1997. Mr. Dong resigned
June 30, 1997, but has been retained as an accounting consultant on a monthly
basis.
(f) Change of Control
Not applicable.
(g) Report on Repricing of Options
Not applicable.
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 May 31, 2000, the most recent practicable date.
<TABLE>
<CAPTION>
Amount and Amount and Nature
Nature of of Beneficial
Beneficial Interest of
Interest of Series D
Name and Address $.01 par value Percent 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 530
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, 1999:
30
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature
Amount and Nature of Beneficial
of Beneficial Interest Interest of Series D
Name of Officers and of $.01 par value Percent Convertible Percent
Directors(1) Common Stock of Class(2) Preferred Stock of Class
<S> <C> <C> <C> <C>
Fred G. Luke(4) 1,000,000 -- 19,200,000(5) 80%
Jon Lawver(3) 100,000 -- -- --
All Officers and Directors 1,100,000 -- -- --
as a group
</TABLE>
(1) The address of each executive officer or Director is 4695 MacArthur
Court, Suite 530, 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.
(4) Includes 400,000 shares held by Mr. Luke and 600,000 shares held
beneficially pursuant to options.
(5) 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.
31
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transactions with Directors and Affiliates.
Effective February 1, 1994, the NuOasis 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. The Company
expensed $120,000 in fiscal 1999 and 1998, and had a net amount of $271,272 due
to NuVen as of June 30, 1999.
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 $120,000 annually, payable monthly in
$10,000 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. NuOI expensed $120,000 in fiscal 1999 and
1998, and had $335,387 due to NuVen as of June 30, 1999.
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 1999 and 1998, the Companies recorded aggregate expenses of $213,127 and
$162,485 as fees to NuVen, respectively. As of June 30, 1999, the Companies had
an aggregate amount of $411,228 due to NuVen.
Richard O. Weed, a director of Oasis, provides legal services to the
Company. As of June 30, 1999, the Company owes Mr. Weed $146,144, and such
amount is included in accounts payable and accrued expenses. During the years
ended June 30, 1999 and 1998, the Company received legal services from Mr. Weed
aggregating $32,881 and $196,993, respectively.
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.
(b) Indebtedness of Management
During fiscal 1996, 400,000 shares of the Company's common stock were
issued upon exercise of options by Fred G. Luke in the amount of $440,000, or
$1.10 per share. The Company received a note receivable in the amount of
$440,000 and cash payments in the aggregate amount of $40,000 were made during
fiscal 1996, approximately $120,000 in fiscal 1997. The note bears interest of
10% and was due in May 1998. The note receivable has been classified as
Stockholder Receivable during fiscal 1997, 1998 and 1999. At June 30, 1999,
$256,236 is owed under this note receivable.
(c) Transactions with Promoters
Not applicable.
32
<PAGE>
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)
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)
33
<PAGE>
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)
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)
34
<PAGE>
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)
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)
35
<PAGE>
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)
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)
36
<PAGE>
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
37
<PAGE>
(7) Incorporated by reference to Registration Statement on Form S-8,
SEC File No. 33-31064
(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
38
<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: September 1, 2000 By: /s/ Fred G. Luke
Fred G. Luke,
President and Chairman
Date: September 1, 2000 By: /s/ Jon L. Lawver
Jon L. Lawver,
Director and Secretary;
President of 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.
Date: August 30, 2000 By: /s/ Fred G. Luke
Fred G. Luke, President and Chairman
Date: August 30, 2000 By: /s/ Jon L. Lawver
Jon L. Lawver,
Director and Secretary;
President of Fantastic Foods International, Inc.
39
<PAGE>
NUOASIS RESORTS, INC.
Index to Consolidated Financial Statements
Description Page
Independent Auditors' Report................................................ F-2
Consolidated Balance Sheet as of June 30, 1999.............................. F-3
Consolidated Statements of Operations and Comprehensive Loss
for the years ended June 30, 1999 and 1998................................ F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended June 30, 1999 and 1998.............................................. F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 1999 and 1998.................................................... F-6
Notes to Consolidated Financial Statements.................................. F-8
F-1
<PAGE>
HASKELL & WHITE LLP
16485 Laguna Canyon Road
Irvine, CA 92618
Telephone: (949) 833-8312; Fax (949) 833-9421
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, 1999, and the related consolidated
statements of operations and comprehensive loss, stockholders' equity (deficit)
and cash flows for the years ended June 30, 1999 and 1998. 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 49% owned subsidiary, which statements reflect
total assets of $9,715,184 as of June~30, 1999, and total revenues of $5,522,626
and none for the years ended June 30, 1999 and 1998, 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, 1999, and the consolidated results of its operations and its cash flows for
the years ended June 30, 1999 and 1998, 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 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
Irvine, California
July 10, 2000
F-2
<PAGE>
NUOASIS RESORTS, INC.
Consolidated Balance Sheet
As of June 30, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash $ 121,340
Amounts receivable, net of allowance
for doubtful accounts of $50,391 379,304
Equity investments 103,500
Inventory 172,654
Other current assets 115,490
Total current assets 892,288
Property and equipment:
Gaming equipment 256,834
Food manufacturing equipment 1,050,812
Accumulated depreciation and amortization
Total property and equipment, net (1,030,257)
277,389
Other assets:
Equity and other investments 2,810,819
Receivable from STTG 1,183,858
Land held for development 3,700,000
Security deposits 598,389
Total other assets 8,293,066
TOTAL ASSETS $ 9,462,743
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,195,625
Accrued expenses 5,493,240
Due to affiliates, net 1,844,653
Notes payable to CPL 3,000,000
Current portion of notes payable 772,883
Total current liabilities 13,306,401
Notes payable, net of current portion
Total liabilities 3,355,680
16,662,081
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 42,364,414
Common stock subscriptions receivable (349,545)
Accumulated other comprehensive loss (233,924)
Accumulated deficit (49,889,426)
Total stockholders' equity (deficit) (7,199,338)
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) $ 9,462,743
</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, 1999 and 1998
<TABLE>
<CAPTION>
Years Ended June 30,
1999 1998
<S> <C> <C>
Revenue:
Hotel Rooms and Food $ 5,522,626 $ 5,292,604
Food Distribution 262,336 730,538
Other - 47,869
5,784,962 6,071,011
Cost of revenue:
Hotel Rooms and Food 5,795,187 5,512,702
Food Distribution 238,996 469,440
Gross (loss) profit (249,221) 88,869
Operating expenses:
General and administrative expenses 3,013,402 2,939,079
Legal and professional fees 882,075 1,296,046
Depreciation and amortization 30,070 90,966
Loss on sale of investments, net 758,895 61,675
Write-off of advances/investments - 6,103,901
Loss on sale of property and equipment 84,390 -
4,768,832 10,491,667
Operating loss (5,018,053) (10,402,798)
Other income (expenses):
Interest expense, net of interest income
of $33,912 and $85,281, respectively (536,888) (177,411)
Other - 26,690
(536,888) (150,721)
Net loss before income tax provision (5,554,941) (10,553,519)
Income tax provision (800) (800)
Net loss $(5,555,741) $ (10,554,319)
Items of other comprehensive income (loss):
Unrealized gain (loss) on investments 93,000 (550,000)
Foreign currency translation adjustments 154,781 68,295
Comprehensive loss $(5,307,960) $ (11,036,024)
Basic and diluted net loss per common share (.08) (.20)
Weighted average number of common shares
outstanding used to compute net loss per
common share 66,914,300 52,629,341
</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, 1999 and 1998
<TABLE>
<CAPTION>
Preferred Common Treasury Common Accum.
Stock Stock Stock Additional Stock Other
Paid-In Subscription Compreh. 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,
1997 24,000,000 $240,000 48,824,300 $488,240 20,000,115 $(10,002,425)$48,827,297$(324,225) $ - $(33,779,366)$ 5,449,524
Issuance
of common
stock - - 18,090,000 180,900 - - 1,319,070 - - - 1,499,970
Issuance of
treasury
stock - - - -(10,569,715) 5,287,225 (3,259,279) - - - 2,027,946
Net change
in common
stock
subscription
receivable - - - - - - - (458,311) - - (458,311)
Unrealized
loss on
marketable
equity
securities - - - - - - - - (550,000) - (550,000)
Foreign
currency
translation
adjustment - - - - - - - - 68,295 - 68,295
Net loss - - - - - - - - - (10,554,319)(10,554,319)
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
treasury
stock - - - - (9,430,000) 4,715,200 (4,304,112) - - - 411,088
Net change
in common
stock
subscription
receivable - - - - - - (218,991) 432,991 - - 214,429
Unrealized
loss 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)
</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, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(5,555,741) $(10,554,319)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 30,070 90,966
Common stock exchanged for services - 1,499,973
Loss on sale of investments, net 758,895 61,675
Loss on sale of property and equipment 84,390 -
Write-off or impairment of advances/investments 31,019 6,103,901
Increases (decreases) from changes in assets and liabilities:
Accounts receivable, net 307,242 (1,018,241)
Inventory 31,111 2,645
Other current assets 86,418 -
Security deposits (169,749) (38,640)
Accounts payable 247,378 (611,379)
Accrued expenses 3,677,456 -
Due to affiliates, net 809,769 1,694,480
Net cash provided by (used in) operating activities 338,258 (2,768,939)
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed asset additions (266,611) (168,539)
Proceeds from sales of assets 25,920 2,331,727
Proceeds from sale of equity investments 100,000 -
Cash acquired in acquisition - 104,454
Net cash (used in) provided by investing activities (140,691) 2,267,642
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances to STTG (198,966) -
Proceeds from issuance of notes payable - 200,000
Principal payments on notes payable (25,000) (127,698)
Net cash (used in) provided by financing activities (223,966) 72,302
Net decrease in cash (26,399) (428,995)
Cash and cash equivalents, beginning of period 147,739 576,734
Cash and cash equivalents, end of period $ 121,340 $ 147,739
</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, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest
Income taxes $ 350,489 $ -
$ 800 $ 800
Non-cash investing and financing activities:
Treasury stock exchanged for assets and services $ 411,088 $ 2,027,946
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 $ -
(Decrease) increase in common stock subscriptions receivable $ (214,429) $ 458,311
Effects of the consolidation of CWI from non-cash
acquisition of controlling interest:
Accounts receivable $ - $ 619,284
Inventories $ - $ 171,237
Due from affiliates, net $ - $ 553,840
Equity and other investments $ - $ 715,000
Receivable from STTG $ - $ 984,892
Other assets $ - $ 201,908
Accounts payable and accrued expenses $ - $ 4,372,911
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
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 for leisure and entertainment-related
businesses. At June 30, 1999, the Company had seven wholly-owned subsidiaries
and one majority-owned subsidiary engaged in casino gaming and hotel management
and food manufacturing and distribution.
The activities of the Company's subsidiaries are domestic and international,
with limited food manufacturing and distribution activities in the United
States, and casino gaming and hotel management activities in North Africa.
Principles of Consolidation
The June 30, 1999 consolidated financial statements of the Company include the
accounts of the Company and the following subsidiaries:
<TABLE>
<CAPTION>
Subsidiary Ownership Interest
<S> <C> <C>
Oasis Resorts International, Inc. ("Oasis" or "ORI") 49%
NuOasis International, Inc. ("NuOI") 100%
Fantastic Foods International, Inc. ("FFI") 100%
Casino Management of America, Inc. ("CMA") 100%
NuOasis Laughlin, Inc. ("NuLA") 100%
NuOasis Las Vegas, Inc. ("NuLV") 100%
NuOasis Properties, Inc. ("NuP") 100%
ACI Asset Management, Inc. ("ACI") 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, 1999 and 1998
1. Summary of Significant Accounting Policies and Description of Business
(continued)
Principles of Consolidation (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 an distribution subsidiary.
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, 1999,
and during the years ended June 30, 1999 and 1998.
The June 30, 1998 consolidated financial statements include each of the entities
described above, except that they exclude ORI, and include Cleopatra Palace
Limited ("CPL"), a predecessor company to CPRC, as a 70% owned subsidiary and
CWI as a 60% owned subsidiary.
All material intercompany accounts and transactions have been eliminated in
consolidation.
Minority Interest
The accompanying consolidated balance sheet at June 30, 1999, excludes minority
interest for the 51% ownership interest in ORI not owned by the Company since
ORI has a shareholder deficiency at June 30, 1999.
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
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.
F-9
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
1. Summary of Significant Accounting Policies and Description of Business
(continued)
Property and Equipment and Depreciation
Property and equipment, including amounts recorded under capital leases, 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, and amortization of assets under capital
leases is provided over the lesser of the estimated useful lives of the assets
or the lease term using the straight-line method. Estimated useful lives are 7
to 10 years for factory equipment, 5 to 7 years for furniture, fixtures and
transportation equipment.
Depreciation expense, including amortization of assets under capital lease
arrangements, charged to operations was $30,070 and $90,966 for the years ended
June 30, 1999 and 1998, 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.
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 are not
yet funded. The goodwill impairment charge was eliminated in consolidation.
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 of June 30, 1999, CWI owns 138,128 shares of common stock of The Hartcourt
Companies, Inc. Management has classified these equity securities as
available-for-sale based on its intent to continue to exchange the equity
securities for other assets or as payment for liabilities. In accordance with
SFAS No. 115, these equity securities are presented in the accompanying
consolidated balance sheet as current assets at their estimated fair market
values. At June 30, 1999, unrealized holding gains in these securities
aggregated $93,000. Subsequent to June 30, 1999, CWI sold 138,128 shares of
Hartcourt for $199,000. As described in Notes 2 and 3, CWI has an additional
equity investment in a private entity in which its equity interest is 9%.
F-10
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
1. Summary of Significant Accounting Policies and Description of Business
(continued)
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 fiscal 1998, management determined that certain CPL and CWI tangible and
intangible assets, as well as certain investments in and advances to these
entities, were impaired. Such determination considered factors such as the
actual financial and operational performance of these entities versus expected
levels of performance, the lack of current financing commitments and future
prospects. Additionally, the Company wrote-off advances to and investments in
Cleopatra Hammamet and Cleopatra Cap Gammarth (Note 3), as well as certain
shares of Group V Corporation common stock (Note 2). As a result of the above,
the Company recognized a charge aggregating $6,103,901 in the accompanying
statement of operations for the year ended June 30, 1998.
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, 1999
and 1998.
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 loss. Foreign currency gains and losses on
transactions denominated in other than the functional currency of an operation
are reflected in other income (expense).
Stock Splits
All share amounts for ORI have been retroactively adjusted for the one for five
reverse stock split approved on February 8, 2000.
F-11
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
1. Summary of Significant Accounting Policies and Description of Business
(continued)
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. Historically, credit losses have not been material to the
operation of either CWI or FFI.
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, 1999 and 1998.
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, 1999.
F-12
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
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-shareholder 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,
1999 and 1998, 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 1998 consolidated financial statements have been
reclassified, where appropriate, to conform with the financial statement
presentation used in 1999.
Going Concern
The Company has experienced recurring losses from operations and, at June 30,
1999, the Company has a working capital deficit of $12.4 million and a total
stockholders' deficit of $7.2 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. 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 1999 and 1998
rents unpaid by the Company. At June 30, 1999, the Company owed a net amount of
approximately $3.4 million under the related lease agreement.
In addition, the Company requires approximately $70 million to continue the
development of its 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.
F-13
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
1. Summary of Significant Accounting Policies and Description of Business
(continued)
Going Concern (continued)
These factors raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans with respect to these matters include
continuing its search for financing alternatives or strategic alliances that
will assist management in completing the projects, and satisfying its past-due
trade creditors and rents. Meanwhile, the Company will attempt to perfect its
judgment against Societe D'Animation et de Loisirs Club Touristique ("SALT"),
the owner of the Cap Gammarth Casino (Note 12) and operate with minimal fixed
overhead. There are no assurances that such financing will be consummated on
terms favorable to the Company, if at all, or that the Company will be
successful in collecting on its judgment against SALT. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
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 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 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.
F-14
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
2. Acquisition and Liquidation of Investments (continued)
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. At June 30, 1998, the
200,000 ORI shares were 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 re-acquire an interest in Cleopatra Hammamet Limited, 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. As a result, NuOI controls approximately
86% of the ORI's issued and outstanding common stock, and ORI is consolidated in
the accompanying consolidated financial statements (Note 1).
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 the Societe Loisirs Club
Hammamet ("Club Hammamet") with a face value of $1.9 million.
F-15
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
2. Acquisition and Liquidation of Investments (continued)
CWI and the Le Palace Hotel & Resort (continued)
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.
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 Cleopatra Hammamet with Cleopatra's World
for approximately $13 million in notes receivables, which were eliminated in
consolidation as of June 30, 1998.
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.
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.
F-16
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
2. Acquisition and Liquidation of Investments (continued)
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.
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 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 12), 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.
F-17
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
2. Acquisition and Liquidation of Investments (continued)
Group V Corporation and Monterosso (continued)
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.) (below). As of June 30, 1999, NuOI owns 839,000 shares of Dega
common stock and the $500,000 Note, both of which were fully reserved for given
Dega's bankruptcy filing during fiscal 1999. Subsequent to June 30, 1999, the
Company sold the Note to an affiliated entity (Note 14). The accompanying
financial statements include an aggregate of $31,019 related to the impairment
of Dega shares and the Note during the year ended June~30, 1999.
F-18
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
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 1,500,00 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 Management Company, Inc.
(currently, NewCom, Inc.) 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, 1999:
Current Assets:
The Hartcourt Companies, Inc. $ 103,500
Non-Current Assets:
SALT $ 2,000,000(A)
Dragon 810,819(B)
$ 2,810,819
(A) In fiscal 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 1999, NuOI, on behalf of CWI, liquidated 741,872 shares of The
Hartcourt Companies, Inc. common stock for $264,000. In connection therewith,
CWI recorded a loss on sale of $803,000 during fiscal 1999. Subsequent to June
30, 1999, CWI sold an additional 138,128 shares of Hartcourt for $199,000.
As of June 30, 1998, the Company had investments in and advances to Cleopatra
Hammamet aggregating approximately $3.7 million and investments in and advances
to Cleopatra Cap Gammarth aggregating approximately $600,000. Although the
Company does not directly own shares in these entities, the Company did
contribute cash and assets to the entities in exchange for rights to future
equity interests in any projects they may control. Cleopatra Cap Gammarth and
Cleopatra Hammamet's ability to continue as a going concern is dependent upon
many factors, such as the ability to fulfill their financial commitments (Note
13), obtain financing and complete project development, and achieve and sustain
profitable operations and positive cash flow. As a result of continued losses
and the uncertainties surrounding these entities' ability to fund future
commitments and achieve and maintain positive cash flows, the Company wrote-off
its related investments and advances during the year ended June 30, 1998.
During the year ended June 30, 1998, the Company sold 3,009,333 shares of Group
V common stock under the Put described in Note 2, of which approximately
2,800,000 shares are held in escrow. The Company subsequently exchanged the Put,
and the 4,790,667 shares of Group V underlying the Put, with Cleopatra's World
as described in Note 2. In addition, the Company satisfied a $700,000 note
payable via the issuance of 700,000 shares of The Hartcourt Companies, Inc.
common stock.
F-19
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
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. 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 lessors of the Le Palace Hotel. In fiscal 1998, the Company
pledged 200,000 shares of the common stock of ORI as collateral for the required
lease deposit. These 200,000 shares of ORI common stock were originally acquired
by the Company via the issuance of 3,250,000 shares of treasury stock (Notes 2
and 8), and have a book value of $390,000. At June 30, 1999, the Company was
deficient in the collateral held for the lease deposit. In February 2000, ORI
issued 550,000 shares of its common stock to provide additional security under
the lease arrangement, which management believes cured the existing deficiency.
Based on the value of such shares of common stock, the Company may be required
to deposit additional collateral.
6. Due To Affiliates and Notes Payable to CPL
Due to affiliates, net is comprised of the following at June 30, 1999:
<TABLE>
<CAPTION>
<S> <C> <C>
Due to NuVen, net $ 1,017,887
Due to Luke, net 440,732
Due to Lawver, net 386,034
$ 1,844,653
</TABLE>
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.
The Company and certain of the Company's subsidiaries have entered into
Management and Advisory Agreements with NuVen that are described in Note 10.
F-20
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
6. Due To Affiliates and Notes Payable to CPL (continued)
As of June 30, 1999, FFI has $199,969 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, 1999, FFI also had $33,559 due to Lawver that
bears interest at 8%, is uncollateralized and has no stated repayment terms. FFI
also has $44,000 due to Lawver that does not bear interest, is uncollateralized,
and has no stated repayment terms. The Company also owes Lawver $108,506
pursuant to a consulting agreement that is described in 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.
7. Notes Payable
Notes payable at June 30, 1999 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Note payable - financial institution
Due November 1999, payable in monthly principal
installments of $7,290 plus interest at prime plus 4%
(12% at June 30, 1999) $ 78,563
Note payable - financial institution
Due March 1998, payable in full, including interest at 18% 100,000
Note payable - investor
Due on demand, including interest at 10.9% 550,000
Note payable - OIHC
Annual payments of principal and interest at 9%, due
December 2025 3,400,000
4,128,563
Less current portion (772,883)
Notes payable, net of current portion $ 3,355,680
</TABLE>
In October 1995, FFI entered into a working capital loan agreement (the "Loan")
with a financial institution, whereby FFI borrowed $350,000. The Loan was
evidenced by a forty-seven month note bearing interest at the rate of prime plus
4% per annum and collateralized by all accounts receivable, inventory, and
equipment related to FFI food manufacturing activities. At June 30, 1999, the
outstanding principal balance of the Loan was $78,563. The Loan was paid in full
in November 1999.
On March 20, 1997, FFI entered into a working capital loan agreement,
collateralized by notes receivables received from the sale of a former
manufacturing facility, for $100,000 bearing interest at 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, 1999.
F-21
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
7. Notes Payable (continued)
In connection with the reverse acquisition of Oasis III by ORI on May 1, 1998,
ORI assumed the $550,000 note payable (Note 4). On or about December 27, 1995,
Oasis III issued a $300,000 First Trust Deed to an individual as part of the
cash tendered upon close of the purchase of its land held for development. The
term of the note is interest only at a rate of 10.9% per annum, originally due
December 27, 1997, extended until March 27, 1998, and further extended to the
date of closing on or about May 7, 1998 (funded on May 11, 1998). As an
inducement to convince the First Deed of Trust holder to extend credit to ORI,
on May 11, 1998, an additional 2,000 shares of ORI common stock were issued to
the First Deed Trust Holder and the amount of the underlying debt was increased
from $300,000 to $550,000. The note was due May 11, 1999, with interest-only
payments (at an annual rate of 10.9% per annum) of $5,000 per month. The note,
amounting to $550,000 outstanding at June 30, 1999, was extended and is
currently due on demand. Total interest expense in connection with this note in
fiscal 1999 was $45,000.
OIHC agreed to accept a Second Deed of Trust note payable in the amount of
$3.450 million related to the acquisition of the 20-acre parcel on May 11, 1998.
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, OIHC has not notified ORI of any intent to foreclose on the
loan. ORI's ability to continue to make the required payments is contingent upon
its raising additional capital. The principal amount outstanding at June 30,
1999 was $3.4 million. Total interest expense in fiscal 1999 was $305,792
related to this note agreement.
Minimum annual principal repayments of notes payable are as follows:
<TABLE>
<CAPTION>
Year Ending
June 30 Amounts Due
<S> <C> <C>
2000 $ 772,883
2001 28,201
2002 30,846
2003 33,740
2004 36,905
Thereafter 3,225,988
$ 4,128,563
</TABLE>
8. Stockholders' Equity
Capitalization
Except for shares issued for services, there were no private offerings conducted
during the years ended June 30, 1999 or 1998.
F-22
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
8. Stockholders' Equity (continued)
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.
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 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, 1999 consists primarily of
receivables due from an officer and consultants.
During fiscal 1996, 400,000 common shares were issued upon exercise of options
by the Chief Executive Officer of the Company in the amount of $440,000, or
$1.10 per share. The Company received a note receivable in the amount of
$440,000 and cash payments in the aggregate amount of $40,000 were made prior to
year end and approximately $120,000 subsequent to year end. The note bears
interest at 10% and is past due at June 30, 1999. The note receivable has an
outstanding principal balance of $256,236 at June 30, 1999 and such amount is
included in common stock subscriptions receivable in the accompanying
consolidated balance sheet.
F-23
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
8. Stockholders' Equity (continued)
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, 1998, the Company issued an aggregate of
10,569,715 shares of treasury stock in the following transactions:
~ In October 1997, pursuant to an Exchange Agreement, the Company
reacquired 195,000 shares of common stock of Network Long Distance,
Inc. (the "Network Shares") from Group V in exchange for $700,000 in
cash, a $500,000 note payable and 3,600,000 treasury shares. Although
the Exchange Agreement provided for the Company to receive cash of
$700,000, the Company actually only received approximately $442,000 in
cash. The difference of approximately $258,000 was applied to the
outstanding balance of the $1,800,000 warrant note and the Put (Note
2). The Network Shares reacquired by the Company were originally
acquired by Group V from the Company in exchange for a release of
liability effective June 1997 (Note 2). During the year ended June 30,
1998, the Company sold the Network Shares and recorded an aggregate
loss on sale of $137,177.
~ In May 1998, the Company entered into an Exchange Agreement with ORI
whereby the Company issued 3,250,000 shares of treasury stock in
exchange for 1,000,000 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.
~ As described in Note 2, the Company issued 2,000,000 shares of
treasury stock, along with $10,000,000 of notes payable issued by
NuOasis Resorts, Inc., 280,000 shares of common stock of The Hartcourt
Companies, Inc., and its rights in the $1,800,000 warrant note and the
Put, to Cleopatra's World in exchange for an additional 10% equity
interest in Cleopatra's World that increased the Company's total
equity interest in Cleopatra's World to 60%.
~ In April 1998, the Company issued 750,000 treasury shares to Cleopatra
Cap Gammarth in exchange for rights to equity interests in any future
projects that this entity may control. During the year ended June 30,
1998, the Company wrote-off this $105,000 investment (Note 3).
~ During the year ended June 30, 1998, the Company issued 969,715
treasury shares to the third party escrow agent and other parties in
exchange for services rendered. The Company recorded general and
administrative expenses aggregating $116,946 in connection with these
issuances.
F-24
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
8. Stockholders' Equity (continued)
Treasury Stock (continued)
Because the fair value of the Company's common stock issued in these
transactions was less than the $.50 per share basis of the common stock
originally issued for the net profits interest, the Company has reduced
additional paid in capital for the difference, which aggregated $3,259,279
during the year ended June 30, 1998.
During the year ended June 30, 1999, the remaining common stock treasury shares
were liquidated for $411,088. The proceeds from the shares liquidated were used
to repay debt, related interest expense and escrow fees. Because the fair value
of the Company's common stock issued in these transactions was less then the
$.50 per share basis of the common stock originally issued for the net profits
interest, 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.
9. Stock Option Plan
A summary of the status of stock option transactions for the years ended June
30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Outstanding at beginning of year 1,510,000 1,510,000
Granted - -
Exercised - -
Canceled - -
Outstanding at end of year 1,510,000 1,510,000
Range of option exercise prices
outstanding $0.58 to $4.00 $0.58 to $4.00
</TABLE>
At June 30, 1999, options for 1,510,000 shares were fully vested and
exercisable.
F-25
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
10. Related Party Transactions
Transactions With Officers
In September 1994, the Company entered into an Employment Agreement with Fred G.
Luke, the Company's Chairman and Chief Executive Officer ("Luke"). Luke has been
serving as the Company's Chairman and CEO since approximately July 1993. The
terms of the Employment Agreement call for Luke to receive approximately $10,000
per month, retroactive to July 1, 1994, for five years as a base salary; granted
him an option to purchase 1,000,000 shares of the Company's common stock
exercisable at $1.10 per share; provides him with an annual bonus based upon a
number of factors related to the Company's growth and performance which include;
(a) serving on the Company's Board of Directors and as its Chief Executive
Officer; (b) providing advice concerning mergers and acquisitions; (c) corporate
finance; (d) day to day management; (e) guidance with respect to general
business decisions; (f) other duties commonly performed by the Chief Executive
Officer of a publicly-held company; and requires the Company to purchase life
insurance coverage, reimbursement for vehicle expenses, and provide other fringe
benefits. No bonuses have been accrued, paid or are owed as of June 30, 1999.
The Company expensed $120,000 during fiscal years 1999 and 1998 pursuant to the
terms of the Employment Agreement. As described in Note 6, the Company has net
advances due to Luke of $440,732 at June 30, 1999. As described in Note 8, the
Company also has a $256,236 common stock subscription receivable from Luke.
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. Pursuant to the Consulting Agreement, Lawver invoices the Company and
applies the net proceeds received from the sale of stock to the invoiced
amounts. The Consulting Agreement has been renewed on an annual basis by the
Company through fiscal 1999. The Company expensed none and $96,000 in fiscal
1999 and 1998, respectively. The Company had $108,506 due to Lawver at June 30,
1999 pursuant to the Consulting Agreement. The Company has an additional
$277,528 due to Lawver that is described in Note 6.
In July 1995, the Company entered into a Consulting Agreement with Steven H.
Dong ("Dong"), pursuant to which Dong performed accounting services and held the
office of Chief Financial Officer. Pursuant to the agreement, as amended, the
Company agreed to pay Dong $145,000 per annum in cash or in the Company's common
stock payable monthly in arrears and granted him an option to purchase 100,000
shares of the Company's common stock at an exercise price of $1.53 per share.
Under the terms of the Consulting Agreement, Dong invoices the Company and
applies the net proceeds received from the sale of stock to the invoiced
amounts. The Company expensed approximately none and $151,000 in fiscal 1999 and
1998, respectively, and had no amounts due to Dong as of June 30, 1999. Mr.
Dong's Consulting Agreement was terminated around February 1999.
F-26
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
10. Related Party Transactions (continued)
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, 1999,
19,200,000 shares of the D Preferred are owned by New Bridge Capital, Inc., 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. The Company expensed
$120,000 in fiscal 1999 and 1998, and had a net amount of $271,272 due to NuVen
as of June 30, 1999 (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 $120,000 annually, payable monthly in
$10,000 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. NuOI expensed $120,000 in fiscal 1999 and
1998, and had $335,387 due to NuVen as of June 30, 1999.
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. 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 1999 and 1998, the Companies recorded aggregate expenses of $213,127 and
$162,485 as fees to NuVen, respectively. As of June 30, 1999, the Companies had
an aggregate amount of $411,228 due to NuVen.
A director of Oasis provides legal services to the Company. As of June 30, 1999,
the Company owes this director $146,144, and such amount is included in accounts
payable and accrued expenses. During the years ended June 30, 1999 and 1998, the
Company received legal services from this director aggregating $32,881 and
$196,993, respectively.
F-27
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
10. Related Party Transactions (continued)
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, 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 assets at June 30, 1999, consist of net operating
loss carryforwards amounting to approximately $20.1 million. At June 30, 1999,
the Company provided a 100% valuation allowance for the tax effect of these net
operating loss carryforwards totaling approximately $6.8 million. During the
years ended June 30, 1999 and 1998, the Company's valuation allowance increased
$1.0 million and decreased $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, 1999, 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.
F-28
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
11. Income Taxes (continued)
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.
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,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Revenues
Hotel Room and Food $ 5,522,626 $ 5,292,604
Food Distribution $ 262,336 $ 730,538
Gross Profit
Hotel Room and Food $ (272,561) $ (220,098)
Food Distribution $ 23,340 $ 261,098
</TABLE>
Identifiable assets of the Company's food distribution segment are $35,300 as of
June 30, 1999 and are comprised primarily of net property and equipment, trade
accounts receivables and inventories. Identifiable assets exclude intercompany
loans, advances and investments.
F-29
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
12. Segment Information and Concentration of Credit Risk (continued)
As of June 30, 1999, 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, 1999 assets by geographic area:
<TABLE>
<CAPTION>
United North Total
States Africa
<S> <C> <C> <C>
Cash $ 72,642 $ 48,698 $ 121,340
Accounts receivable, net 5,754 373,550 379,304
Equity investments 103,500 - 103,500
Other current assets 58,089 230,055 288,144
Total current assets 239,985 652,303 892,288
Property and equipment, net 20,555 256,834 277,389
Equity investments 810,819 2,000,000 2,810,819
Other assets 3,013,000 2,469,247 5,482,247
Total noncurrent assets 3,844,374 4,726,081 8,570,455
Total assets $ 4,084,359 5,378,384 9,462,743
</TABLE>
Significant Customers and Concentration of Credit Risk
In the United States, the Company maintains several cash accounts at several
financial institutions. At June 30, 1999, none of the Company's cash accounts
exceeded the federally-insured limit. The Company also has approximately $94,929
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 and 1998.
F-30
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
13. Commitments and Contingencies
Operating Leases
The Company leases a manufacturing plant in California for its food processing
operations under a month-to-month lease. The Company also leases a vehicle for
an officer under a three-year, non-cancelable operating lease. NuVen provides
office space to the Company and its subsidiaries, along with general and
administrative personnel, office furniture and equipment, telephone and fax
services, accounting and automobiles pursuant to the various Advisory and
Management Agreements (Note 10).
At June 30, 1999, future minimum rental payments due under non-cancelable
operating leases are as follows:
<TABLE>
<CAPTION>
Year Ending Amounts
June 30, Due
<S> <C> <C>
2000 $ 4,438
</TABLE>
Rent expense associated with these operating leases was $34,355 and $52,533 for
the years ended June 30, 1999 and 1998, respectively.
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 Company has not begun operations
at the 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, 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 Gammarth
Year Ending Casino Le Palace
June 30 Hotel Total
<S> <C> <C> <C> <C>
2000 $ 3,000,000 $ 7,138,146 $ 10,138,146
2001 3,000,000 4,007,150 7,007,150
2002 3,300,000 4,287,650 7,587,650
2003 3,600,000 4,587,785 8,187,785
2004 3,900,000 4,908,930 8,808,930
Thereafter 74,700,000 46,872,889 121,572,889
91,500,000 71,802,550 $ 163,302,550
</TABLE>
F-31
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
13. Commitments and Contingencies (continued)
Operating Leases (continued)
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, 1999 and 1998 was approximately $2.5 million and $2.0
million, respectively.
Legal Proceedings
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. 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 financial statements do not
include amounts related to this gain contingency.
The Company has been a party to arbitration with STTG due to significant delays
in completing the Le Palace Hotel & Resorts. Through June 30, 1999, the Company
has not paid rents to STTG in connection with its lease arrangement. However,
the Company has paid opening costs and purchased equipment totaling
approximately $1.8 million which management believes were the responsibility of
STTG. STTG filed a complaint and received an arbitration award for calendar year
lease rental payments for 1998 and 1997, net of amounts expended by the Company.
At June 30, 1999, the Company owed STTG approximately $3.4 million for the net
rental payments under the agreement. In February 2000, the Company's arbitration
against STTG was moved to France where an arbitration board is presently
reviewing the Company's claim for damages and reduced rent until the project is
completed. In August 2000, STTG filed for bankruptcy protection under Tunisian
law.
In connection with the operation of the Le Palace Hotel & Resorts, the Company
provides employees of STTG meals and allowances while working at the Cap
Gammarth complex. In fiscal 1999 and 1998, the Company incurred reimbursable
expenses amounting to approximately $199,000 and $985,000, respectively. At June
30, 1999, the Company had a receivable from STTG amounting to $1,184,000.
Management believes that amounts receivable from STTG will be subject to right
of offset when the judgement becomes due. Accordingly, no provision for loss has
been reflected against amounts due from STTG.
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). In July 1999, the Company filed a
cross complaint against Group V Corporation and Joe Monterosso. The trial date
for the action is set for September 2000. Management believes the suit lacks
substantial merit and plans to vigorously defend against the complaint and
pursue the cross complaint. No provision has been made in the accompanying
financial statements for this contingency.
F-32
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
13. Commitments and Contingencies (continued)
Legal Proceedings (continued)
In September 1999, the Company settled a claim for non payment of consulting
fees with a former consultant of the Company. The amount of the settlement of
$51,000 was accrued during fiscal 1998.
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 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. FFI has accrued approximately
$50,000 as of June 30, 1998 for such contingencies.
In January 1995, a consultant to the Company's prior management initiated a
lawsuit involving CMA. The plaintiff has not pursued his claims in this lawsuit
and the Company believes that the case will be dismissed by the court for
inaction by the plaintiff. No provision has been made in the accompanying
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, 1999, 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
Spinoff of Five Wholly Owned Subsidiaries
In February 2000, the Company completed the spinoff five of its wholly owned
subsidiaries CMA, NuLA, NuLV, ACI and NuP. The spinoff was effected through the
distribution of 812,500 shares of common stock and 300,000 shares of Series A
preferred stock of each subsidiary to the respective NuOasis shareholders 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. In February
2000, registration statements on Form 10-SB were filed, but were subsequently
retracted. Each subsidiary intends to file a new registration statement so that
the unregistered shares become registered.
Promissory Note
In September 1999, the Company entered into a promissory note with Luke in the
amount of $136,400. The related note bears interest at 8% per annum and required
principal and interest to be paid on March 31, 2000. In connection with the
loan, the Company received a security interest in 2,793,092 shares of common
stock of Scientific NRG, Inc. (currently, NewBridge Capital, Inc.), which Luke
pledged as collateral for this note. Scientific NRG, Inc. is affiliated to the
Company through common ownership and management.
Sale of Dega Note
In September 1999, the Company entered into a note purchase agreement with
Phileo Management Company, Inc. (currently, NewCom, Inc.) ("Phileo"), an entity
affiliated to the Company through common ownership and management. Under the
terms of the purchase, 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 a $500,000 secured, convertible promissory note
issued by Dega (Note 2). The cash acquired by the Company in this transaction
was used to pay amounts owed to Luke (Note 6).
F-33
