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, 1998 Commission file number 0-18377
NuOASIS RESORTS, INC.
(Exact name of registrant as specified in its charter)
Nevada 84-1126818
(State of other jurisdiction (I.R.S. Employer I.D. No.)
of 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, 1998 were
$6,071,011.
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 May 31, 2000
Common Stock, $.01 par value 66,914,300 shares
Documents Incorporated by Reference:
None
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TABLE OF CONTENTS
PART I
Page
Item 1. Description of Business............................................ 1
Item 2. Description of Property............................................ 15
Item 3. Legal Proceedings.................................................. 16
Item 4. Submission of Matters to a Vote of Security-Holders................ 17
PART II
Item 5. Market for Common Equity and Related Stockholder Matters........... 18
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 19
Item 7. Financial Statements............................................... 27
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure............................................ 27
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act............... 28
Item 10. Executive Compensation............................................. 30
Item 11. Security Ownership of Certain Beneficial Owners and Management..... 32
Item 12. Certain Relationships and Related Transactions..................... 34
PART IV
Item 13. Exhibits and Reports on Form 8-K................................... 34
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) General
NuOasis Resorts, Inc. (the "Company" or "Resorts") was incorporated in
Colorado on February 6, 1989 and became public in 1990. Through subsidiaries the
Company invests in, acquires, develops, 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
The Company was originally organized to succeed the business of the Nona
Morelli Limited Partnership which manufactured and marketed specialty Italian
food products, and operated a restaurant in Florence, Colorado from 1986 through
1989.
Prior to December 1992, the business of the Company consisted solely of the
manufacturing, marketing and sale of Italian food products. During its fiscal
year ended June 30, 1993 ("fiscal 1993"), as a result of a number of
acquisitions and investments in the areas of food, legalized gaming and real
estate, the Company was restructured to operate as a holding company.
In fiscal 1993, the Company adopted the strategy to grow its various
business segments through acquisitions made by industry-specific subsidiaries
and, ultimately distribute the shares of each of the subsidiaries to the
Company's shareholders making them publicly-held companies. Since July 1, 1993,
the Company's casino gaming and hotel management activities, as well as, its
food manufacturing and distribution services, and its development-stage real
estate acquisition and development activities, have been owned and operated by
wholly-owned subsidiaries or subsidiaries where the Company exercised voting
control. The Company believes that near to or at the end of each subsidiary's
development-stage, each entity, as a separate publicly-held entity, can access
new equity capital, without being dependent upon the Company which, in turn,
will minimize the Company's financial commitment to support the subsidiaries'
growth. The Company has supervised its subsidiaries and provided financial
support, centralized strategic planning, corporate development, administrative
and other services since their inception.
The Company's historical domestic casino gaming related assets and
operations have been conducted by a former subsidiary, Group V Corporation
(formerly NuOasis Gaming, Inc.), a Delaware corporation ("GRPV"). During the
year ended June 30, 1997 ("fiscal 1997") the Company sold the majority of its
equity and voting control of GRPV and discontinued its domestic gaming
activities.
The Company's international hotel management, casino gaming activities and
development-stage real estate projects are conducted by its wholly-owned
subsidiary, NuOasis International, Inc., a Bahamas corporation ("NuOI"),
successor to NuOasis International Inc., a California corporation (formerly
International Casino Management, Inc.), which owns voting control of Cleopatra
Palace Limited, a corporation organised under the laws of Ireland ("CPL"), and
through Cleopatra's World Inc., a British Virgin Island corporation
("Cleopatra's World" or "CWI").
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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, 1998, in addition to NuOI and FFI, the Company had five (5)
other subsidiaries - 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"). CMA, NuLV and NuLA were formed for the purpose of acquiring 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 the three
fiscal years ended June 30, 1998.
Subsequent to the close of the year ended June 30, 1998 ("fiscal 98" or
"fiscal 1998"), 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 direct subsidiaries of the Company to two (2) from seven
(7).
As used herein, the term "Company" refers to NuOasis Resorts, Inc. and its
subsidiaries prior to the Spinoff.
(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
98, was still a development-stage activity.
(1) Gaming and Hotel Management Activities
Domestic Gaming Activities
In fiscal 1993, the Company embarked on a strategy to grow through
diversification and acquisition, with a focus on its existing food
manufacturing business and the emerging domestic legalized gaming
industry. During fiscal 1993 the Company acquired interests in three
(3) casino gaming ventures in Colorado. In the fiscal year ended June
30, 1994 ("fiscal 1994"), the Colorado casino gaming interests were
assigned to CMA. In the fiscal year ended June 30, 1995 ("fiscal
1995"), the Company acquired voting control of E. N. Phillips Company
Inc. ("ENP") predecessor of GRPV, and ENP's subsidiary BA-MAK Gaming
International Inc. ("Ba-Mak"). Following the acquisition of ENP, the
Company disposed of the Colorado gaming interests.
In December 1996 the Company entered into an agreement to acquire
all of the issued and outstanding capital stock of National Pools
Corporation ("NPC") a development-stage company engaged in "pooled
betting" activities related to various U. S. state lotteries.
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Until April 1995, Ba-Mak operated as a wholly-owned subsidiary of
GRPV, and was active and involved in providing charitable gaming
services in Louisiana. However, from inception through October 1994,
Ba-Mak was unable to generate any operating profits. Additionally, the
Company experienced significant negative cash flow since assuming
control of Ba-Mak and, on October 28, 1994, Ba-Mak filed for protection
under Chapter 11 of the U.S. Bankruptcy Code in the Eastern District of
Louisiana.
In April 1995, upon a motion by the United States Trustee, the
Bankruptcy Court entered an order converting Ba-Mak's Chapter 11
bankruptcy case to a Chapter 7. The Chapter 7 trustee took possession
of Ba-Mak's assets and, during the fiscal year ended June 30, 1998
("fiscal 98") liquidated Ba-Mak's assets for the benefit of its
creditors.
The Company sold the majority of its equity and its voting control
of GRPV in fiscal 1997. With the sale of GRPV, the Company discontinued
all domestic gaming activities and did not have any domestic gaming
operations during fiscal 1998.
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.
Asia In May 1995, the Company purchased a 40% net profit interest
(the "Gaming Interest") in two casinos in Macau, the Diamond Casino
(Holiday Inn) and the Harbor Island Diamond Casino (Hyatt Regency). The
gaming operations were conducted at these two facilities by Mr. Ng Man
Sun ("Ng"), doing business as Dragon Sight International Amusement
(Macau) Company ("Dragon").
In December 1995, the Company assigned the Gaming Interest to its
wholly-owned subsidiary, NuOI. In August 1996, NuOI entered into an
agreement with Ng whereby Ng repurchased the Gaming Interest for twenty
million (20,000,000) shares of the Company's common stock issued by the
Company in the original purchase of the Gaming Interest. On or about
September 30, 1996, the subject shares were tendered to a third party
escrow agent pending the closing of the purchase of replacement
properties which NuOI is currently negotiating to purchase additional
gaming and hotel equity interests ("Replacement Property").
North Africa In October 1993, the Company acquired a 70% equity
interest in CPL, which developed the resort hotel and casino gaming
theme "Cleopatra Palace".
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In fiscal 1994, 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.
At the present time, the Gammarth Resort is approximately 75%
complete. The Cap Gammarth Casino is expected to be completed and ready
for occupancy in fiscal 2000. 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 fiscal 1997, CPL acquired what is presently a 9% interest in
SALT in exchange for lease deposits of $2,000,000 and 1.1 million
Hartcourt shares.
In October 1994, in a separate transaction, CPL entered into an
agreement to lease and operate a casino and French-style cabaret in
Hammamet, Tunisia (the "Hammamet Casino"). The Hammamet Casino was
completed in the first half of calendar 1997 and opened December 6,
1997. Adjoining the Hammamet Casino is a five-star hotel and villa
resort 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.
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In December 1997, the Hammamet Casino opened. 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.
During fiscal 1997, NuOI purchased a 50% interest in Cleopatra's
World. Cleopatra's World is the lessee of the Gammarth Hotel Resort.
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 98, 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") which resulted in the Company disposing of its interest
in CPL, and increasing its interest in Cleopatra's World. 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 interests and
acquired an additional 10% equity interest in Cleopatra's World and 75%
of CPR.
(3) Food Manufacturing and Distribution
Through FFI, the Company manufactures 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 are now operated in facilities based in Irwindale,
California. The facility is USDA certified and produces all of the
Company's pasta and sauce products, including meat and chicken filled
products and speciality items for hotels and restaurants.
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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 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.
(4) 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
1998.
(d) Marketing
Gaming and Hotel Management
Domestic Gaming
The Company discontinued the domestic gaming activities conducted
by Ba-Mak in fiscal 1995 and sold all of its domestic gaming rights in
fiscal 1997. The Company has not utilized or relied upon any marketing
for domestic gaming activities since fiscal 1997.
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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.
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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 subse quent 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 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.
(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.
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(g) Seasonality
Gaming And Hotel Management
The Company's domestic gaming activities were non-operational
following Ba-Mak's liquidation in April 1995, and the Company sold its
voting control of GRPV in fiscal 1997. 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, 1998, 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.
(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, 1998, FFI, the Company's food manufacturing and
distribution subsidiary, had a backlog for orders of approximately
$15,000 as compared to approximately $16,000 at June 30, 1997. 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 1998 or fiscal 1997.
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(k) Competition
Gaming and Hotel Management Activities
Domestic Gaming
During fiscal 1998 and 1997, the Company did not have any
domestic gaming activities.
International Gaming and Hotel Management Activities
The Company, directly and through NuOI, competes with other
casino gaming and hotel management companies for opportunities to
manage casino gaming 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 mar ket in the aggregate. Other major
retail competitors are Tyson Foods under the trade name Mallard's,
Pasta Mia, Trios, Pasta Perfecta, DiGiorno, Romance and Monterey Pasta
Company.
Competitive factors in the industry include product quality and
taste, freshness, healthfulness, brand name awareness among consumers,
advertising and promotion, supermarket shelf space, product shelf life,
package design, price and reputation among consumers. Competition is
severe in each area, and industry leaders, such as Contadina, are
extremely strong in most competitive areas.
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The Company expects Contadina to continue to be a major force due
to its vast resources, name recognition, and good reputation. Although
management believes the Company can compete on the basis of quality,
price, and reliability of delivery, the marketing of food products is
subject to changeable consumer tastes and habits and thus, there is no
assurance the Company can maintain or improve its market position.
Real Estate Activities
Domestic Properties
During fiscal 1998 and 1997, 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 Activities
Domestic Gaming
During fiscal 1998 and 1997, the Company did not have any
domestic gaming activities.
International Casino Gaming and Hotel Management
Activities
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.
11
<PAGE>
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 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.
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 is regulated by the Los Angeles County Health
Department and the United States Food and Drug Administration. The
Company is 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.
(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.
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<PAGE>
(o) Employees
Corporate Officers and Officers of Significant Subsidiaries
Corporate officers of the Company and significant subsidiaries
who rendered services during fiscal 1998 are as follows:
Name Office
Fred G. Luke Chairman and President of Resorts and NuOI
Jon L. Lawver Director of Resorts and President of FFI
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 June 30, 1998 and the Company's other
subsidiaries were still in their development stage and did not have any
employees at the close of fiscal 98.
Food Manufacturing and Distribution
At the close of fiscal 1998, FFI, the food manufacturing and
distribution subsidiary, had 3 employees engaged in administrative
activities, 7 employees engaged in production and 2 employees engaged
in sales. The number of production employees varies depending upon
demand for product and FFI's production procedures. The range for the
two years ending June 30, 1999 was a low of 15 employees and a high of
33 employees. Production employees are generally paid an average of
approximately $7.00 per hour and FFI has not experienced difficulty in
obtaining sufficient labor. None of FFI's employees are covered by a
collective bargaining agreement, and management believes it has very
good employee relations.
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<PAGE>
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, 1998 or 1997.
(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 today 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 been engaged in assessing 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 June 15, 2000, the Company had not
experienced any difficulties relating to the Year 2000 issue.
14
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY.
(a) Corporate Headquarters
The Company owned its corporate headquarters, located in Pueblo, Colorado
until September, 1993. In September 1993, the Company moved its headquarters to
California and subsequently leased its Pueblo facility to a former director and,
in 1998, the Company sold the Pueblo, Colorado facilities. 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 and its southern California food manufacturing facilities are
suitable and adequate for its present needs.
(b) Gaming and Hotel Management Facilities
Domestic Gaming
At the close of fiscal 1998, 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 1998, the Company was the lessee under
the Gammarth Lease related to the Cap Gammarth Casino in Tunisia. And
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 1998.
Food Manufacturing and Distribution Facilities
Through September 1993, the Company conducted its activities
from a 26,000 square foot plant in Pueblo, Colorado (the "Pueblo
Plant"). The Pueblo Plant was purchased by the Company in 1990 and
included 3.2 acres of land. The facility was formerly used by a
beverage distributor and contained 11,000 square feet of refrigerated
space and 5,000 square feet of office space.
15
<PAGE>
In fiscal 1994, the Company relocated its pasta manufacturing
activities to Southern California as part of the Pasta Fresca Company
and Italfin acquisitions. The Pueblo Plant was assigned to FFI in
fiscal 1995. Beginning in fiscal 1996, FFI leased the Pueblo Plant to
an ethnic food manufacturer under a month-to-month lease agreement
calling for the lessee to pay $4,000 per month in advance and satisfy
certain maintenance and other operating costs associated with the
facility. During fiscal 1997, the lessee exercised its option to buy
the facility for $450,000.
At the close of fiscal 1998, 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 during fiscal 1998. FFI
completed remodeling its Irwindale plant, adding a kitchen along with a
research and development unit, to meet USDA requirements to manufacture
filled pasta.
(d) Real Estate Activities
International Properties
The Company did not have any international real estate
operations at June 30, 1998 or 1997.
Domestic Properties
The Company did not have any domestic real estate operations at
June 30, 1998 or 1997.
ITEM 3. LEGAL PROCEEDINGS.
The Company settled, or had agreements to settle all material litigation
where it was a defendant at the close of fiscal 1998 or fiscal 1997, and knows
of no material threatened legal proceedings, other than ordinary routine
litigation incidental to its business. Subsequent to fiscal 1998, the Company
became a party to the following.
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 97 to Monterosso. Monterosso seeks
equitable rescission of the transaction or, alternatively, unspecified monetary
damages. The case is set for trial on July 17, 2000. 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.
16
<PAGE>
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 to litigation with STTG due to significant
delays in completing the Le Palace Hotel. Through June 30, 1998, 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. Subsequent to June 30,
1998, STTG received an arbitration award for calendar 1998 rental payments, net
of amounts expended by the Company.
FFI Litigation
At the close of fiscal 98, FFI did not have any litigation proceedings.
However, following the close of fiscal 98, 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.
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. The
Company has fully accrued for this settlement as of June 30, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
The Company did not submit any matters to a vote of security holders during
fiscal 1998 or 1997. Following the close of fiscal 98, in January 1999, 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."
17
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information
Through August 16, 1995, the Company's common stock was traded on the
NASDAQ Small CapSM System under the symbol "NONA." From August 16, 1995 through
January 19, 1998, the Company's shares traded on the Electronic Bulletin Board
under the Symbol "NONA". Since January 19, 1998 the Company's shares trade on
the Electronic Bulletin Board under the symbol "NUOA".
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 1998 High Low
<S> <C> <C>
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
Fiscal 1997 High Low
Quarter ended 06/30/97 $.41 $.16
Quarter ended 03/31/97 $.72 $.19
Quarter ended 12/31/96 $.84 $.24
Quarter ended 09/30/96 $1.25 $.69
</TABLE>
(b) Holders
The approximate number of holders of record of each class of equity
securities of the Company as of June 30, 1998, was as follows:
Approximate
Number of
Title of Class Record Holders
Common Stock, $.01 par value 2,000
Series D Preferred Stock,
$.01 par value 2
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".
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<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 1998, or fiscal 1997. As of the date of this Report, the Board of
Directors of the Company has not approved a dividend distribution policy. There
are no contractual restrictions on the Company's present or future ability to
pay dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the financial
statements and the notes thereto. The analysis set forth below is provided
pursuant to applicable Securities and Exchange Commission regulations and is not
intended to serve as a basis for projections of future events.
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, 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.
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<PAGE>
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 in the conversion of
the GRPV B Shares at a price of $.15 per share.
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"). The GRPV D Warrants had a book value of
zero on the date of sale.
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 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.
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<PAGE>
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").
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. ("Network") 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 Warrant
Note and the Put. 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. 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.
- In 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%.
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<PAGE>
- 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.
In addition to the above transactions, the Company has not
issued, but has pledged, an additional 1,500,000 shares of treasury
stock as collateral for obligations of Cleopatra's World.
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.
(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 further modify the CWI Restructuring to
satisfy certain requirements of a proposed $7,000,000 debt financing
by a foreign bank. As part of this revised plan of restructuring,
Cleopatra's World and Cleopatra exchanged assets for shares of capital
stock of a former CPL subsidiary, CPR. The CWI Restructuring was
finalized in July 1998 resulting in the Company holding 75% equity
interest CPR which, in turn, held 80% equity interest in Cleopatra's
World, 90% equity interest in a former CPL subsidiary, Cleopatra's Cap
Gammarth Limited ("CCGL"), and a 9% equity interest in SALT (which
interest was in dispute at June 30, 1998). Without any investment by
the Company, it received rights to 100% 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).
22
<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 CWI
Restructuring, the Company relinquished all of its equity interest in
CPL.
(6) CPR and Oasis
In October 1998, following the close of fiscal 1998 and the CWI
Restructuring, 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 shareholders control approximately 86% of the Oasis issued and
outstanding common stock.
(7) Proforma Organizational Schematic
As a result of the Spinoff, the CWI 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 all of its interest in CPL. The
Company's organizational structure at June 30, 1999, giving effect to
the fiscal 1998 and fiscal 1999 transactions, is as follows:
NuOasis Resorts Inc.
|
| |
NuOasis International Inc. Fantastic Foods International Inc.
|
Oasis Resorts International Inc.
| |
Oasis III CPR
|
| | |
Cleopatra Cleopatra Cleopatra's
Hammamet Cap Gammarth World
23
<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 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 1999 and thereafter.
The Company's consolidated financial statements for fiscal 1998 and 1997 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,
1998 1997
<S> <C> <C>
Working (Deficit) Capital $ (4,446,000) $ 1,028,000
Cash and Cash Equivalents $ 148,000 $ 577,000
Current Ratio .31 1.35
</TABLE>
The most significant effects on working capital and its components during
fiscal 1998 were the opening of Cleopatra Hammamet Casino, the continued accrual
of legal and professional advisory fees and the acquisition of a controlling
interest in Cleopatra's World.
The Company's current plan for growth is to increase its working capital by
arranging debt and equity financing to finance the activities of its
subsidiaries and for future acquisitions in its three business segments. On
December 6, 1997, the Hammamet Casino commenced operations, however, it was not
able to generate positive cash flows through June 30, 1998. 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 1998, 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.
24
<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, 1998, 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
and Cleopatra's World is in the process of filing for arbitration in France to
have the rent issue decided.
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.
25
<PAGE>
(f) Cash Flows
Cash used in operating activities was $2,769,000 for the year ended June
30, 1998 as compared to cash provided by operating activities of $3,043,000 for
the comparable 1997 period. The decrease is primarily attributable to the fiscal
1998 write-offs of investments and advances.
Cash provided by investing activities was $2,268,000 for the year ended
June 30, 1998 as compared to $423,236 in cash provided by investing activities
for the comparable 1997 period. The change is primarily attributable to fiscal
1998 sales of Network and Hartcourt common stock.
Cash provided by financing activities was $72,000 for the year ended June
30, 1998 as compared to $2,940,000 in cash used by financing activities for the
comparable 1997 period. The change is primarily attributable to the fiscal 1997
payment of principal and interest on the note payable issued to acquire the
Gaming Interest.
(g) Results of Operations
Year Ended June 30, 1998 Compared to Year Ended June 30, 1997.
The Company's total food distribution sales for the year ended June 30,
1998 were $731,000 as compared to $1,340,000 for the year ended June 30, 1997,
resulting in a decrease of $609,000 or 45%. The decrease is primarily
attributable to unrenewed and expired co-packing agreements. In fiscal 1998, the
Le Palace Hotel had revenues of $2,585,000 from its food service operations and
$ 2,702,000 from its Hotel operations.
The Company's total cost of food distribution sales for the year ended June
30, 1998 were $469,000 as compared to $903,000 for the year ended June 30, 1997,
resulting in a decrease of $434,000 or 48%, which is a direct result of the same
relative decrease in food sales. Gross profit margin increased from 33% compared
to 35% this year. In fiscal 1998, the Le Palace Hotel had a cost of sales of
$1,068,000 related to its food service operations and $ 1,328,000 related to its
Hotel operations representing gross margins of 59% and 51%, respectively.
Depreciation and amortization decreased by $38,000. 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 $4,235,000 for fiscal 1998, as compared to $2,620,000 for
fiscal 1997, resulting in an increase of $1,615,000 or 61%. The increase is
primarily attributable to operations of the Le Palace Hotel. The Company's rent
expense was $1,802,000 during fiscal 1998 compared to $51,000 in fiscal 1997.
The significant increase is a direct result of the operations of the Le Palace
Hotel.
During fiscal 1998, the Company recognized impairment losses aggregating
$6,104,000, which primarily related to Cleopatra Hammamet ($3,700,000),
Cleopatra Cap Gammarth ($600,000), as well as CWI, CPL, and GRPV.
The Company had no loss in equity investments for fiscal 1998 as compared
to a loss of $3,062,000 for fiscal 1997, resulting from the acquisition of the
50% investment in Cleopatra's World during the previous year.
As a result of the above, the Company's total operating loss for fiscal
1998 was $10.5 million as compared to an operating loss of $1.8 million for
fiscal 1997.
26
<PAGE>
The Company recorded an income tax benefit of $382,000 for fiscal year
1997. For the years ended June 30, 1998 and 1997, the Company's effective
federal and state income tax rate applied to book taxable income (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, utilization of net
operating loss carry forwards and 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.
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.
A Current Report on Form 8-K dated July 3, 1997 was filed on July 9, 1997,
reporting under Item 4 a change of accountants on July 3, 1997 from Raimondo
Pettit Group (formerly Raimondo, Pettit & Glassman) to Haskell & White LLP.
There were no disagreements between the Company and its former auditors
regarding accounting and financial disclosure.
27
<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>
Fred G. Luke Chairman of the Board and 52 June 14, 1993 to Present
President
John 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.
28
<PAGE>
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 Inc., a private finance equipment leasing company. Mr. Lawver also
serves as an executive officer of FFI.
(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 1998. 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.
29
<PAGE>
Based solely on its review of the copies of the reports it received from
persons required to file, the Company believes that during fiscal 1998, all
filing requirements applicable to its officers, directors and greater than
ten-percent shareholders were complied with.
ITEM 10. EXECUTIVE COMPENSATION.
(a) Summary Compensation Table
The following summary compensation table sets forth in summary form the
compensation received during each of the Company's last three completed fiscal
years by the Company's President and four most highly compensated executive
officers other than the President.
<TABLE>
<CAPTION>
Name and Principal Fiscal Salary Other Annual Options
Position Year ($) Compensation($) Granted (#)(2)
<S> <C> <C> <C> <C>
Fred G. Luke,
President and Director of 1998 150,000 N/A N/A
Resorts, and director of 1997 189,000(1) N/A N/A
NuOI, CMA, ACI, NUOP, 1996 174,000(1) 130,000 N/A
NuLV, NuLA
John D. Desbrow 1998 N/A N/A N/A
Secretary, Resorts 1997 225,000(1) N/A N/A
(12-93 to 5-9-97) 1996 206,250(1) N/A 50,000
Steven H. Dong
Chief Financial Officer, 1998 N/A N/A N/A
Resorts 1997 184,000(1) N/A N/A
(7-95 to 6-30-97) 1996 165,000(1) N/A 100,000
Jon L. Lawver 1998 100,000 N/A N/A
Director of Resorts 1997 100,000 N/A N/A
and President of FFI 1996 100,000 N/A 50,000
Albert Rapuano 1998 N/A N/A N/A
President of NuOI 1997 250,000 N/A N/A
(6-95 to 1-97) 1996 115,000 N/A 500,000
</TABLE>
(1) Salary dollar values include both the Company and GRPV combined base
salary (cash and non-cash) earned.
(2) During the period covered by the Table, the Company did not make any award
of restricted stock, including share units. The number of options granted
are the sum of the number of shares of common stock to be received upon the
exercise of all stock options granted. Except for stock option plans, the
Company does not have in effect any plan that is intended to serve as
incentive for performance to occur over a period longer than one fiscal
year.
30
<PAGE>
(b) Stock Options - The Company
The following table sets forth in summary form the aggregate options
exercised during fiscal year 1998, and the value at June 30, 1998 of unexercised
options for the Company's President and four most highly compensated executive
officers other than the President. There were no options granted during fiscal
1998.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Option/SAR's at Fiscal Options/SAR's at Fiscal
Year-End (#) Year-End ($)
Shares
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 - - 150,000 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.
31
<PAGE>
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.
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.
32
<PAGE>
<TABLE>
<CAPTION>
Amount and Amount and
Nature of Nature of
Beneficial Beneficial
Name and Address Interest of $.01 Interest of Series
of Officers and par value Percent D Convertible Percent
Directors 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
NuOasis Resorts, Inc. 0 0% 2,400,000 10%
</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, 1998:
<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 -- -- --
Jon Lawver(3) - -- -- --
All Officers and Directors 2,828,000 -- -- --
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.
33
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transactions with Directors and Affiliates.
There were no related transactions or series of similar related
transactions during fiscal 1998 that exceeded an aggregate amount of $60,000
other than loans by Fred G. Luke to NuOI aggregating approximately $1,000,000
during fiscal 1998, which NuOI used to open the Hammamet Casino.
(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 is due in May 1998. The note receivable has been classified as
Stockholder Receivable during fiscal 1997 and fiscal 1998, and was paid during
fiscal 1999.
During fiscal 1998 Fred G. Luke made loans to the Company totaling
approximately $1,000,000 secured by promissary notes issued by NuOI. The
outstanding principal balance on the Luke Loans were $393,000 and $92,300 at
June 30,1998 and 1997, respectively.
(c) Transactions with Promoters
Not applicable.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Consolidated Financial Statements
The Consolidated Financial Statements included in this Item are indexed on
Page F-1, "Index to Consolidated Financial Statements."
(b) Financial Statement Schedules
Not applicable.
(c) Exhibits
Unless otherwise noted, Exhibits are filed herewith.
Exhibit
Number Description
3.1 Articles of Incorporation(1)
3.1(a) Articles of Amendment of Articles of Incorporation(2)
3.1(b) Certificate of Amendment of Articles of Incorporation of
International Casino Management, Inc.(2)
34
<PAGE>
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)
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)
35
<PAGE>
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)
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)
36
<PAGE>
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)
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)
37
<PAGE>
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)
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
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
38
<PAGE>
(3) Incorporated by reference from the like-numbered exhibits
filed with the Company's 10-K for the fiscal year ended
June 30, 1992
(4) Incorporated by reference to Registration Statement on
Form S-8, SEC File No. 33-57270
(5) Incorporated by reference to Registration Statement on
Form S-8, SEC File No. 33-94498
(6) Incorporated by reference to Registration Statement on
Form S-8, SEC File No. 33-99060
(7) Incorporated by reference to Registration Statement on
Form S-8, SEC File No. 33-31064
(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
(d) Reports
None
39
<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: July 12, 2000 By: /s/ Fred G. Luke
Fred G. Luke
President and Chairman
Date: July 12, 2000 By: /s/ Jon L. Lawver
Jon L. Lawver,
Director and President,
Fantastic Foods International, Inc.
In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
NuOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
Date: July 12, 2000 By: /s/ Fred G. Luke
Fred G. Luke, President and Chairman
Date: July 12, 2000 By: /s/ Jon L. Lawver
Jon L. Lawver,
Director and President,
Fantastic Foods International, Inc.
40
<PAGE>
NUOASIS RESORTS, INC.
Index to Consolidated Financial Statements
Description Page
Independent Auditors' Report............................................... F-2
Consolidated Balance Sheet as of June 30, 1998............................. F-3
Consolidated Statements of Operations for the years ended
June 30, 1998 and 1997................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended June 30, 1998 and 1997............................... F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 1998 and 1997................................................... 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, 1998, and the related consolidated
statements of operations, Stockholders' equity (deficit) and cash flows for the
years ended June 30, 1998 and 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of June 30, 1998, and the consolidated results of its operations and
cash flows for the years ended June 30, 1998 and 1997, 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 to the
consolidated financial statements, the Company has experienced recurring losses
from operations and has a net stockholders' deficit at June 30, 1998. Further,
the Company requires substantial long-term financing to complete certain
projects, as well as working capital financing to meet its past-due and current
obligations. These factors raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ HASKELL & WHITE LLP
HASKELL & WHITE LLP
Irvine, California
May 11, 2000
F-2
<PAGE>
NUOASIS RESORTS, INC.
Consolidated Balance Sheet
As of June 30, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash $ 147,739
Amounts receivable, net of allowance
for doubtful accounts of $50,391 686,546
Equity investments 715,000
Inventory 203,765
Other current assets 201,908
Total current assets 1,954,958
Property and equipment:
Gaming equipment 18,109
Food manufacturing equipment 1,143,013
Accumulated depreciation and amortization (1,009,964)
Total property and equipment, net 151,158
Other assets:
Equity investments 2,000,000
Receivable from STTG 984,892
Security deposits 428,640
Total other assets 3,413,532
TOTAL ASSETS $ 5,519,648
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 1,948,247
Accrued expenses 2,964,530
Due to affiliates, net 1,034,884
Notes payable 453,557
Total current liabilities 6,401,218
Total liabilities 6,401,218
Minority interest 1,635,325
Commitments and contingencies (Notes 2, 4, 8, and 12)
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
Treasury shares (4,715,200)
Additional paid-in-capital 46,887,088
Common stock subscriptions receivable (782,536)
Unrealized loss on equity investments (550,000)
Foreign currency valuation 68,295
Accumulated deficit (44,333,685)
Total stockholders' equity (deficit) (2,516,895)
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) $ 5,519,648
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
NUOASIS RESORTS, INC.
Consolidated Statements of Operations
For the Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Years Ended June 30,
1998 1997
<S> <C> <C>
Revenue:
Hotel Rooms and Food $ 5,292,604 $ -
Food Distribution 730,538 1,339,763
Other 47,869 -
6,071,011 1,339,763
Cost of revenue:
Hotel Rooms and Food 5,512,702 -
Food Distribution 469,440 903,446
Gross profit 88,869 436,317
Operating expenses:
General and administrative expenses 2,939,079 775,598
Legal and professional fees 1,296,046 1,844,749
Depreciation and amortization 90,966 128,578
Loss (gain) on sale of investments 61,675 (553,840)
Impairment of advances/investments 6,103,901 -
Loss on sale of property and equipment - 89,213
Total operating expenses 10,491,667 2,284,298
Operating loss (10,402,798) (1,847,981)
Other income (expenses):
Interest expense, net (177,411) (96,594)
Losses in equity investments - (3,061,944)
Other 26,690 65,847
Total other expenses (150,721) (3,092,691)
Net loss before income tax benefit (provision)
and discontinued operation (10,553,519) (4,940,672)
Income tax (provision) benefit (800) 382,494
Net loss before discontinued operation (10,554,319) (4,558,178)
Discontinued operation:
Net loss of discontinued operation - (3,118,107)
Gain on disposal of discontinued operation - 350,249
Net loss $(10,554,319) $ (7,326,036)
Per share amounts:
Net loss before discontinued operation $ (.20) $ (.10)
Discontinued operation - (.06)
Basic and diluted net loss per common share $ (.20) $ (.16)
Weighted average number of common shares
outstanding used to compute net loss per
common share 52,629,341 46,863,961
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
NUOASIS RESORTS, INC.
Consolidated Statement of Stockholders' Equity (Deficit)
For the Years Ended June 30, 1998 and 1997
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Unreal.
Preferred Common Treasury Common Loss on
Stock Stock Stock Additional Stock Mktbl. Fgn.
Paid-In Subscpt's Equity Curr. Accum.
Capital Receiv. Securit. Valu. Deficit Total
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
July 1, 1996 24,000,000 $240 45,022,300 $450 20,000,115 $(10,002) $ 47,649 $(1,708) $ - $ - $(30,220) $ 6,409
Issuance of
common stock - - 3,802,000 38 - - 1,179 - - - - 1,217
Net change in
common stock
subscription
receivable - - - - - - - 1,383 - - - 1,383
Net effects
of the
disposition
of Group V - - - - - - - - - 3,766 3,766
Net loss - - - - - - - - - - (7,326) (7,326)
Balance at
June 30,1997 24,000,000 240 48,824,300 488 20,000,115 (10,002) 48,828 (325) - - (33,780) 5,449
Issuance of
common stock - - 18,090,000 181 - - 1,319 - - - - 1,500
Issuance of
treasury
stock - - - - (10,569,715) 5,287 (3,259) - - - - 2,028
Net change
in common
stock
subscription
receivable - - - - - - - (458) - - - (458)
Unrealized
loss on
marketable
equity
securities - - - - - - - - (550) - - (550)
Foreign
currency
translation
adjustment - - - - - - - - - 68 - 68
Net loss - - - - - - - - - (10,554) (10,554)
Balance at
June 30,1998 24,000,000 $240 66,914,300 $669 9,430,400 $ (4,715) $ 46,888 $ (783) $(550) $ 68 $(44,334)$ (2,517)
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
NUOASIS RESORTS, INC.
Consolidated Statements of Cash Flows
For Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(10,554,319) $(7,326,036)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 90,966 128,578
Common stock exchanged for services 1,499,973 1,334,311
Income tax benefit - (382,494)
Loss (gain) on investments 61,675 (553,840)
Loss on sale of property and equipment - 89,213
Losses in equity investments - 3,061,944
Other - 45,414
Discontinued operation - 2,767,858
Write-off of advances/investments 6,103,901 -
Increases (decreases) from changes in assets and liabilities:
Accounts receivable, net (1,018,241) (151,528)
Due from affiliates 2,170,158 3,887,435
Inventory 2,645 58,426
Other current assets - 15,000
Deposits and other assets (38,640) (4,550)
Accounts payable and accrued expenses (611,379) (708,384)
Due to affiliates (475,678) (182,814)
Net liabilities of discontinued operation - 964,615
Net cash (used in) provided by operating activities (2,768,939) 3,043,148
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed asset additions (168,539) -
Proceeds from sales of assets 2,331,727 432,922
Cash acquired in acquisition 104,454 -
Purchase of leasehold improvements and equipment - (9,686)
Net cash provided by investing activities 2,267,642 423,236
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from collection of stockholder receivables - 198,758
Proceeds from issuance of note payable 200,000 100,000
Principal payments on notes payable (127,698) (3,238,844)
Net cash provided by (used in) financing activities 72,302 (2,940,086)
Net (decrease) increase in cash (428,995) 526,298
Cash and cash equivalents, beginning of period 576,734 50,436
Cash and cash equivalents, end of period $ 147,739 $ 576,734
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
NUOASIS RESORTS, INC.
Consolidated Statements of Cash Flows (continued)
For Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ - $ 47,547
Income taxes $ 800 $ 2,480
Non-cash investing and financing activities:
Exercise of options for reduction of debt $ - $ 29,200
Note received for sale of property and equipment $ - $ 50,000
Exchange of Hartcourt Shares for equity in Cleopatra's World
and Cleopatra $ - $5,775,000
Effects of the consolidation of Cleopatra from non-cash
acquisition of controlling interest
Cash $ - $ 525,056
Accounts receivable $ 619,284 $ -
Inventories $ 171,237 $ -
Due from affiliates, net $ 553,840 $1,543,674
Equity investments $ 715,000 $3,800,022
Other assets $ 201,908 $1,029,617
Accounts payable and accrued expenses $4,372,911 $ 793,698
Stockholders' equity $ - $6,104,671
Treasury stock exchanged for assets and services $5,287,225 $ -
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE>
NUOASIS RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 and 1997
1. Summary of Significant Accounting Policies and Description of Business
Description of Business
NuOasis Resorts, Inc. (formerly, Nona Morelli's II, Inc.) and its subsidiaries
(the "Company"), a Nevada corporation (formerly, a Colorado corporation),
operates as a holding company for leisure and entertainment-related businesses.
At June 30, 1998, the Company had seven wholly-owned subsidiaries and two
majority-owned subsidiaries engaged in food manufacturing and distribution,
casino gaming and hotel management.
The activities of the Company's subsidiaries are domestic and international,
with existing food manufacturing activities in the United States, and casino
gaming and hotel management activities in North Africa.
Principles of Consolidation
The June 30, 1998 consolidated financial statements, and references therein to
the Company, include the accounts of the Company and its wholly-owned
subsidiaries; NuOasis International, Inc. ("NuOasis International"), Fantastic
Foods International, Inc. ("Fantastic Foods"), Casino Management of America,
Inc. ("CMA") NuOasis Laughlin, Inc., ("NuLA") NuOasis Las Vegas, Inc. ("NuLV"),
ACI Asset Management Inc. ("ACI") and NuOasis Properties, Inc. ("NuOasis
Properties"), its 70% owned subsidiary, Cleopatra Palace Limited ("Cleopatra"),
and its 60% owned subsidiary Cleopatra's World, Inc. ("Cleopatra's World" or
"CWI").
The June 30, 1997 consolidated financial statements include each of the entities
described above, except that they exclude Cleopatra's World, which was a 50%
owned subsidiary, and they include Group V Corporation, formerly NuOasis Gaming,
Inc., and now known as TotalAxcess.com, Inc., and its subsidiaries ("Group V")
through June 13, 1997, the date in which the Company sold its controlling
interest in Group V.
All material intercompany accounts and transactions have been eliminated in
consolidation.
Minority Interest
The accompanying consolidated balance sheet as of June 30, 1998 includes
minority interest of $1,635,325. Such amount represents 30% of the stockholders'
equity of Cleopatra that is not owned by the Company at June 30, 1998.
F-8
<PAGE>
Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less on the date of acquisition to be cash equivalents.
Inventory
Inventory is stated at the lower of cost or market, computed on the first-in,
first-out basis.
Property and Equipment and Depreciation
Property and equipment, 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 $90,966 and $128,578 for the years ended
June 30, 1998 and 1997, respectively.
Equity Investments
In May 1993, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 115, "Accounting For Certain
Investments In Debt and Equity Securities." This statement 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, 1998, the Company owns 880,000 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. 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 value. At June 30, 1998,
unrealized holding losses in these securities aggregated $550,000.
As described in Note 3, the Company has an additional equity investment in a
private entity in which its equity interest is 9%.
F-9
<PAGE>
Impairment Loss
In accordance with SFAS No. 121, when indicators of impairment are present, the
Company assesses whether there has been a permanent impairment in the value of
its long-lived assets by considering such factors as estimated, undiscounted
future net cash flows, trends and prospects and other economic factors. During
Fiscal 1998, management determined that certain Cleopatra and Cleopatra's World
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 Group V shares of 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.
Loss Per Share
The net loss per share is computed based upon the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. Common stock equivalents were not considered in the calculations as the
effect would have been anti-dilutive.
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
Cleopatra's World recognizes revenue as it is earned, which is generally the
date upon which a hotel guest occupies a room and/or utilizes the hotel's
services. Fantastic Foods recognizes revenue upon shipment of food products to
its customers. The management of Cleopatra's World and Fantastic Foods 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 Cleopatra's
World or Fantastic Foods.
F-10
<PAGE>
Discontinued Operation
As discussed in Note 2, the Company sold its controlling interest in Group V
during Fiscal 1997. Accordingly, Group V's results have been accounted for as a
discontinued operation in the accompanying consolidated financial statements.
The following table summarizes amounts recorded as the net loss of discontinued
operation in the accompanying consolidated statements of operations:
<TABLE>
<CAPTION>
For the Year Ended
June 30, 1997
<S> <C>
General and administrative expenses $ 287,329
Professional services 490,406
Write off of NPC goodwill 3,318,107
Other 171,315
Loss on discontinued operations of CMA
and GRPV 219,497
Gain on debt forgiveness (1,368,454)
Net loss $ 3,118,200
</TABLE>
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, 1998 and 1997.
Issuance of Stock for Services
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, 1998.
F-11
<PAGE>
Reclassification of Prior Year Amounts
To enhance comparability, the 1997 consolidated financial statements have been
reclassified, where appropriate, to conform with the financial statement
presentation used in 1998.
Going Concern
The Company has experienced recurring net losses, has limited liquid resources
and a significant working capital deficit, management's intent is to continue
searching for additional sources of capital and new operating opportunities. In
the interim, the Company will continue operating with minimal overhead and key
administrative functions will be provided by consultants who are compensated
primarily with the Company's common stock. Management estimates that the Company
will need to utilize its common stock to fund its operations through at least
Fiscal 2000. Also, as disclosed in Note 13, the Cleopatra entities effected a
restructuring during Fiscal 1999. Accordingly, the accompanying consolidated
financial statements have been presented under the assumption the Company will
continue as a going concern.
Recent Accounting Standards
In February 1997, FASB issued SFAS No. 128, "Earnings Per Share" ("EPS"). SFAS
No. 128 requires all companies to present "basic" EPS and, if they have a
complex capital structure, "diluted" EPS. Under SFAS No. 128, "basic" EPS is
computed by dividing income (adjusted for any preferred stock dividends) by the
weighted average number of common shares outstanding during the period.
"Diluted" EPS is computed by dividing income (adjusted for any preferred stock
or convertible stock dividends and any potential income or loss from convertible
securities) by the weighted average number of common shares outstanding during
the period plus the number of additional common shares that would have been
outstanding if any dilutive potential common stock had been issued. The issuance
of anti-dilutive potential common stock should not be considered in the
calculation. In addition, SFAS No. 128 requires certain additional disclosures
relating to EPS. SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997 and, accordingly, the Company has adopted
the provisions of this statement in the accompanying financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in an entity's
financial statements. This statement requires an entity to classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in-capital in the equity section of a statement of
financial position. This statement is effective for fiscal years beginning after
December 15, 1997 and the Company expects to adopt the provision of this
statement in Fiscal 1999. Management does not expect this statement to
significantly impact the Company's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." This statement requires public enterprises
to report financial and descriptive information about its reportable operating
segments and establishes standards for related disclosures about product and
services, geographic areas, and major customers. This statement is effective for
fiscal years beginning after December 15, 1997 and the Company expects to adopt
the provisions of this statement in Fiscal 1999. Management does not expect this
statement to significantly impact the Company's financial statements.
F-12
<PAGE>
2. Acquisition and Liquidation of Investments
Cleopatra
In October 1993, the Company acquired a 70% equity interest in Cleopatra Palace
Limited, an Irish corporation ("Cleopatra"). Cleopatra 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"). The Cap Gammarth Casino has not yet been completed and no financing is
currently in place to complete the project. However, the Company is negotiating
possible joint ventures with foreign investment groups, and exploring potential
debt and/or equity financing alternatives.
In October 1994, Cleopatra entered into an agreement with Societe Loisirs Club
Hammamet ("Club Hammamet") to lease and operate a 60,000 square foot casino and
French-style cabaret in Hammamet, Tunisia (the "Hammamet Casino"). During Fiscal
1997, the lease with STTG and the lease with Club Hammamet were each modified
several times and, as to the lease on the Cap Gammarth Casino, the real property
interest was transferred from STTG to Societe D'Animation et de Loisirs
Touristique, a Tunisian corporation ("SALT") resulting in a change in lessor
from STTG to SALT. The Hammamet Casino was completed and opened for business in
December 1998.
In May 1995, the Company exchanged a 42% interest in Cleopatra 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 Cleopatra as part of a recapitalization of Cleopatra resulting in an increase
in the Company's ownership of Cleopatra to 70% from 28%. Accordingly, the
accounts of Cleopatra as of June 30, 1998 and 1997, are consolidated with the
Company and the investment is no longer accounted for using the equity method of
accounting.
During April 1998, and in anticipation of a restructuring of the Cleopatra
themed entities (Note 13), Cleopatra 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 July 1998, Cleopatra, Cleopatra's World, and certain other Cleopatra themed
entities effected a restructuring which resulted in the Company disposing of its
interest in Cleopatra, decreasing its rights to future equity interests in
Cleopatra Hammamet and increasing its interest in Cleopatra's World.
Cleopatra's World
During Fiscal 1997, NuOasis International Inc. exchanged 600,000 shares of
common stock of The Hartcourt Companies Inc. for a 50% equity ownership in
Cleopatra's World, Inc. a British Virgin Island corporation ("Cleopatra's
World"). Cleopatra's World is the lessee of the Le Palace Hotel and the real
estate and improvements surrounding the Cap Gammarth Casino.
F-13
<PAGE>
Effective April 30, 1998, the Company acquired an additional 10% equity interest
in Cleopatra's World in exchange for $10,000,000 of notes payable issued by
NuOasis Resorts, Inc., 2,000,000 shares of treasury stock (Note 7), and 280,000
shares of common stock of The Hartcourt Companies Inc. In addition, the Company
also transferred its rights under the Warrant Note and the Put (see below) to
Cleopatra's World. As a result of this exchange, the Company's interest in
Cleopatra's World increased from 50% to 60% and, accordingly, the accounts of
Cleopatra's World are consolidated with those of the Company as of June 30,
1998.
Acquisition of NPC, CMA, NuOasis Las Vegas, NuOasis Laughlin and the Sale of
Group V
In December 1995, Group V, as a subsidiary of the Company, entered into an
agreement with the shareholders of National Pools Corporation ("NPC") to acquire
all of the issued and outstanding shares of NPC.
In June 1996, the Company, then the controlling parent of Group V, granted an
option (the "Group V Option") to Mr. Joseph Monterosso ("Monterosso"), the new
President of Group V, to acquire 250,000 shares of Group V Series B Preferred
stock (the "Group V B Shares") owned by the Company. The Group V Option was
exercisable at a price of $13.00 per share.
In December 1996, Group V closed the purchase of NPC, making NPC a wholly-owned
subsidiary of Group V. In June 1997, following the Group V purchase of NPC,
Monterosso exercised the Group V Option to purchase 128,041 Group V B Shares, at
$13.00 per share, by payment to the Company of approximately $1,665,000.
Additionally, in June 1997, Group V sold CMA and its wholly-owned subsidiaries,
NuLV and NuLA, to the Company for $1,140,000 in cash, notes receivable from
Group V aggregating $245,836, and a credit against the Company's intercompany
account with Group V of $95,000.
In August 1997, but effective June 1996, the Group V Option was amended (the
"Amended Option") canceling the right to acquire 100,000 of the 121,959
remaining Group V 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 Group V B Shares into 7,800,000
shares of Group V common stock. In September 1997, but effective June 1997,
Monterosso exercised the Amended Option to purchase 21,959 Group V B Shares, at
$72.20 per share, by payment to the Company of approximately $1,585,000.
Concurrently, Group V released the Company for liability, if any, arising from
any events when the Company controlled Group V, in exchange for approximately
$1,585,000.
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 the Company's remaining
7,800,000 common shares at a price of $.15 per share.
Concurrent with the Put, the Company sold to Monterosso its interest in
6,000,000 New Class D Warrants to purchase common stock of Group V (the "Group V
D Warrants"). Each Group V D Warrant is exercisable at $1.00 per share and will
entitle the holder to receive upon exercise two shares of Group V common stock,
or a total of 12,000,000 common shares. The consideration for the Group V D
Warrants consisted of a $1,800,000 promissory note due in September 1998 (the
"Warrant Note"). In connection with the Company's acquisition of an additional
10% equity interest in Cleopatra's World that is described above, the Company
exchanged its rights in the Warrant Note and the Put with Cleopatra's World.
F-14
<PAGE>
As a result of the transactions described above, a change in control of Group V
occurred and, as of June 13, 1997, Group V is no longer a controlled subsidiary
of the Company. In connection with the sale transactions described above, the
Company recorded an aggregate net gain on disposal of discontinued operations of
approximately $350,000 during Fiscal 1997.
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 D Warrants and the Group V B Shares (Note 12).
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 Group V 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 Group V shares. Given
the uncertainty surrounding the pending litigation with GRPV and Monterosso
(Note 12), 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 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.
Sale of Pueblo Building
During Fiscal 1996, the Company remodeled and improved its food processing
equipment in its California locations and leased its manufacturing facility in
Pueblo, Colorado (the "Pueblo Building") held for sale.
On February 26, 1997, the lessee of the Company's Pueblo Building exercised an
option to purchase the Pueblo Building. As part of the consideration received,
the Company's mortgage debt in the principal amount of $215,392 was fully
satisfied, it received cash in the amount of $148,820, and a note in the amount
of $50,000, bearing 8% interest per annum and secured by the Pueblo Building.
The $50,000 note was paid in full subsequent to June 30, 1997. In connection
with the sale of the Pueblo building, the Company recorded a loss on sale of
approximately $89,000.
F-15
<PAGE>
3. Equity Investments
The Company has the following equity investments as of June 30, 1998:
Current Assets:
The Hartcourt Companies, Inc. $ 715,000
Non-Current Assets:
SALT $ 2,000,000(A)
(A) In Fiscal 1997, Cleopatra 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
presently under construction and the lessor of the Cap Gammarth Casino
leased by Cleopatra. In exchange for its 20% interest in SALT,
Cleopatra made lease deposits of $2,000,000. Cleopatra subsequently
received $300,000 as compensation for not exercising its pre-emption
rights on a subsequent recapitalization by SALT, resulting in a
dilution of Cleopatra's interest from 20% to 9%. No financial
statements have been prepared for SALT to date.
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, a Company in organization, aggregating approximately
$600,000. Although the Company does not 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
(see Note 12), 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 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. 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.
4. Lease Deposit
The Company is required to maintain a lease deposit totaling $3 million for the
benefit of the leaseholders of the Le Palace Hotel. In Fiscal 1998, the Company
pledged 1,000,000 shares of the common stock of Oasis Resorts International,
Inc. ("ORI"), formerly Flexweight Corporation, as collateral for the required
lease deposit. These 1,000,000 shares of common stock were originally acquired
by the Company via the issuance of 3,250,000 shares of treasury stock (Note 7),
and have a book value of $390,000. At June 30, 1998, the Company was deficient
in the collateral held for the lease deposit. ORI subsequently executed a one
for five reverse stock split on February 8, 2000.
In February 2000, ORI issued an additional 550,000 shares of its common stock to
provide additional security under the lease arrangement. Based on the value of
such shares of common stock, the Company may be required to deposit additional
collateral.
F-16
<PAGE>
5. Due To Affiliates
Due to affiliates, net is comprised of the following at June 30, 1998:
Due to NuVen, net $ 995,785
Due to officer, net 39,099
$ 1,034,884
Advances to and from NuVen and the officer typically are non-interest bearing,
have no stated repayment terms and are uncollateralized. As described in Note 9,
NuVen is owned by certain officers of the Company.
Certain of the Company's subsidiaries have entered into Management and Advisory
Agreements with NuVen that are described in Note 9. The Company also has a
$256,236 common stock subscription receivable from its officer that is described
in Note 7.
6. Notes Payable
Notes payable at June 30, 1998 consists of the following:
Note payable - investor
Due July 1998, payable in full, including interest at 6 2/3% $ 200,000
Note payable - financial institution
Due November 1999, payable in monthly principal
installments of $7,290 plus interest at prime plus 4%
(12.5% at June 30, 1998) 124,010
Note payable - financial institution
Due March 1998, payable in full, including interest at 18% 100,000
Note payable - financial institution
Due June 1999, payable in full, including interest at prime
plus 6% (14.5% at June 30, 1998) 29,547
$ 453,557
NuOasis International has a $200,000 note payable to an investor that bears
interest at 6 2/3%, was due in July 1998 and is collateralized by 2,000,000
shares of common stock of NuOasis Resorts, Inc. This note was paid in full
during the year ended June 30, 1999.
In October 1995, Fantastic Foods entered into a working capital loan agreement
(the "Loan") with a financial institution, whereby Fantastic Foods 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 Fantastic Foods food
manufacturing activities. At June 30, 1998, the outstanding principal balance of
the Loan was $124,010. This note was paid in full during the year ended June 30,
1999.
On March 20, 1997, Fantastic Foods entered into a working capital loan
agreement, collateralized by the Notes Receivables received from the sale of the
Pueblo building (Note 2), 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, 1998.
F-17
<PAGE>
On July 22, 1996, Fantastic Foods entered into a $150,000 line of credit
agreement which is collateralized by the Fantastic Foods accounts receivable.
The line of credit has an outstanding principal balance of $29,547 as of June
30, 1998 and outstanding amounts bear interest at prime plus 6%. The line of
credit expired in June 1999, and has been repaid in full.
Minimum annual principal repayments of notes payable are as follows:
<TABLE>
<CAPTION>
Year Ending Amounts
<S> <C> <C>
June 30, Due
1999 $ 417,107
2000 36,450
</TABLE>
$ 453,557
7. Stockholders' Equity
Capitalization
Except for shares issued for services, there were no private offerings conducted
during the years ended June 30, 1998 or 1997.
Preferred Stock
The Company has authorized 25,000,000 shares of preferred stock, which are
divided into four classes or series: Series A, Series B, Series C and Series D.
All Series A, Series B, and Series C preferred stock was redeemed by the Company
prior to or during Fiscal 1996, and returned to the preferred stock treasury.
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, 1998 consists primarily of
receivables due from an officer and consultants.
F-18
<PAGE>
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, 1998. The note receivable has an
outstanding principal balance of $256,236 at June 30, 1998 and such amount is
included in common stock subscriptions receivable in the accompanying
consolidated balance sheet.
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 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.
("Network") 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
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 (See Note 2). 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.
- In 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.
- 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 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, based on the
estimated fair market value of the shares issued.
F-19
<PAGE>
In addition to the above transactions, the Company has not issued, but has
pledged, an additional 1,500,000 shares of treasury stock as collateral for
obligations of Cleopatra's World.
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.
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.
8. Stock Option Plan
A summary of the status of stock option transactions for the years ended June
30, 1998 and 1997 is as follows:
1998 1997
Outstanding at beginning of year 1,510,000 1,560,000
Granted - -
Exercised - (50,000)
Canceled or expired - -
Outstanding at end of year 1,510,000 1,510,000
Option price range at end of year $0.58 $0.58
to $4.00 to $4.00
At June 30, 1998, options for 1,510,000 shares were fully vested and
exercisable. Options expire at various dates through December 2000, although
options may be renewed at the discretion of the Company.
Exercised options
On October 8, 1996, 50,000 common shares were issued upon exercise of an option
by the Company's former Secretary and Director in the amount of $29,200, or
approximately $0.58 per share. In lieu of cash being received for payment of the
exercise price, the Company received a credit of $29,200 against amounts owed to
such officer for services performed pursuant to his consulting agreement.
F-20
<PAGE>
9. 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 (5) 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, 1998.
The Company expensed $120,000 during Fiscal Years 1998 and 1997 pursuant to the
terms of the Employment Agreement. As described in Note 4, the Company has net
advances due to Luke of $39,099 at June 30, 1998. As described in Note 6, 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 Fantastic Foods. Pursuant to the Consulting Agreement, Lawver invoices the
Company and applies the net proceeds received from the sale of stock to the
invoiced amounts. For purposes of any "profit" computation under Section 16(b)
Lawver and the Company have agreed the price paid for the shares is deemed to be
$100,000. The Consulting Agreement has been renewed on an annual basis by the
Company through Fiscal 1998. The Company expensed $100,000 in Fiscal 1998 and
1997, and had $108,506 due to Lawver at June 30, 1998.
In August 1995, Group V entered into an Employment Agreement with Luke, pursuant
to which he served as Group V's President from approximately March 31, 1994
through August 8, 1997 and as Chairman from approximately March 31, 1994 through
November 25, 1997. The terms of the Employment Agreement call for Luke to
receive approximately $4,500 per month, retroactive to April 1, 1994, for five
years as a base salary; and, granted him an option to purchase 3,000,000 shares
of Group V's common stock at an exercise price of $.12 per share. Group V
expensed $54,000 during Fiscal 1997. Luke's Employment Agreement with Group V
was terminated effective May 5, 1997.
Effective January 1, 1994, the Company and John D. Desbrow ("Desbrow") entered
into a Consulting Agreement for the engagement of Desbrow to perform legal
services and to hold the office of Secretary on behalf of the Company until
December 31, 1994. Under the Consulting Agreement the Company contracted to pay
Desbrow $150,000 payable in the Company's common stock issuable in monthly
increments in arrears. Under the terms of the Consulting Agreement, Desbrow
invoices the Company and applies the net proceeds received from the sale of
stock to the invoiced amounts. For purposes of any "profit" computation under
Section 16(b), Desbrow and the Company agreed that the price paid for the shares
was deemed to be $150,000. The Company expensed $128,000 during Fiscal 1997 and
had $120,158 due as of June 30, 1998. Mr. Desbrow's renewed Consulting Agreement
was terminated on May 9, 1997.
F-21
<PAGE>
Effective April 1, 1997, Group V renewed a Consulting Agreement with Desbrow
through March 31, 1997 to perform legal services and to hold the office of
Secretary. Under the renewed Consulting Agreement Group V contracted to pay
Desbrow $75,000 per annum for the renewal term payable in Group V's common
stock. In May 1997, 102,030 common shares were issued in settlement of all
amounts owed to Desbrow as of May 5, 1997. Under the terms of the Consulting
Agreement, Desbrow invoices Group V and applies the net proceeds received from
the sale of stock to the invoiced amounts. For purposes of any "profit"
computation under Section 16(b), Desbrow and Group V have agreed the price paid
for the shares is deemed to be $75,000. Group V expensed $62,500 during Fiscal
1997. Desbrow's renewed Consulting Agreement with Group V was terminated on May
5, 1997.
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. For purposes of any "profit" computation under Section 16(b) Dong and
the Company have agreed the price paid for the shares is deemed to be $145,000.
The Company expensed approximately $151,000 and $145,000 in Fiscal 1998 and 1997
and had approximately $229,000 due to Dong as of June 30, 1998.
In July 1996, Group V renewed a Consulting Agreement with Dong, pursuant to
which Dong is to perform accounting services and to hold the office of Chief
Financial Officer through June 30, 1997. Pursuant to the renewed Consulting
Agreement Group V agreed to pay Dong $39,000 per annum in cash or in Group V's
common stock, payable monthly in arrears. In May 1997, 237,500 common shares
were issued in settlement of all amounts owed to Dong as of May 5, 1997. Under
the terms of the renewed Consulting Agreement, Dong invoices Group V and applies
the net proceeds received from the sale of the stock to the invoiced amounts.
For purposes of any "profit" computation under Section 16(b), Dong and Group V
have agreed the price paid for the shares is deemed to be $39,000. Group V
expensed $39,000 during Fiscal 1997 and Dong's renewed Consulting Agreement with
Group V was terminated effective May 5, 1997.
In January 1996, the Company entered into a Consulting Agreement with Albert
Rapuano ("Rapuano"), pursuant to which Rapuano is to perform gaming consulting
services and to hold the office of President of NuOasis International through
December 31, 1996. Pursuant to the agreement, the Company agreed to pay Rapuano
$250,000 per annum in cash or in the Company's common stock payable monthly in
arrears and granted him an option to purchase 500,000 shares of the Company's
common stock at an exercise price of $.91 per share. Under the terms of the
Consulting Agreement, Rapuano invoices the Company and applies the net proceeds
received from the sale of stock to the invoiced amounts. For purposes of any
"profit" computation under Section 16(b) Rapuano and the Company have agreed the
price paid for the shares is deemed to be $250,000. The Company expensed
$250,000 during Fiscal 1997 and had approximately $256,000 due to Rapuano as of
June 30, 1998.
Transactions with Directors and Affiliates
The Luke Trust and Lawver 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 6), and as a
result, NuVen became the Control Person of the Company. On June 14, 1993, Luke
became a Director. 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. Luke, as Trustee of the Luke Trust,
determines the voting of such shares and, as a result, may be deemed to control
the Luke Trust and the disposition of 24,000,000 shares of the Company's D
Preferred.
F-22
<PAGE>
Effective February 1, 1994, the Company entered into an Advisory and Management
Agreement with NuVen ("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 1998 and 1997 and had a net amount of $139,325 due to NuVen
as of June 30, 1998 (Note 4).
Effective July 1, 1994, NuOasis International entered into an Advisory and
Management Agreement with NuVen to perform professional and advisory services.
Pursuant to the agreement, NuOasis International 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 NuOasis International
exercisable at a price of 110% of the book value per share on the day of the
grant. NuOasis International expensed $120,000 in Fiscal 1998 and 1997 and had
$380,009 due to NuVen as of June 30, 1998.
Fantastic Foods, CMA, NuLA, NuLV, ACI and NuOasis Properties, (collectively "the
Companies") each entered into Advisory and Management Agreements, and amendments
hereto, (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 1998 and 1997, the Companies recorded as
expense $162,485 and $120,000 as fees to NuVen, respectively. As of June 30,
1998, the Companies owe NuVen an aggregate amount of $476,451.
Effective October 1, 1995, Group V renewed its Advisory and Management Agreement
with NuVen to perform professional services for Fiscal 1997. Pursuant to such
renewal, Group V agreed to pay NuVen $120,000 annually, payable monthly in
arrears. In May 1997, 787,180 common shares were issued in settlement of all
amounts owed to NuVen as of May 5, 1997. Group V expensed $120,000, during
Fiscal 1997. NuVen's agreement with Group V was terminated effective May 5,
1997.
On March 17, 1994, Jonathan L. Small ("Small"), Attorney at Law, became a member
of the Board of Directors to fill a vacancy caused by the resignation of a
former Director in June 1993. On October 29, 1993, the Company entered into a
Consulting Agreement with Small to retain his services to evaluate potential
acquisitions and to assist the Company in the general development and execution
of its business plan. On January 5, 1995, Small entered into a Consulting
Agreement effective November 1, 1994, with the Company, to retain Small to serve
on the Board of Directors. During Fiscal 1998 and 1997, the Company incurred
related expenses of $30,000, and as of June 30, 1998, the Company owes Small
$12,000.
During the year ended June 30, 1996, Group V entered into an agreement with
Structure America, Inc. ("SAI") to perform consulting services and Group V
agreed to issue 1,000,000 shares of Group V's common stock to SAI and granted
SAI an option to purchase 1,000,000 shares of Group V's common stock exercisable
at $.12 per share. In May 1997, 1,000,000 common shares were issued in
settlement of all amounts owed to SAI as of May 5, 1997. Group V expensed
$200,000 during Fiscal 1997 and SAI's agreement with Group V was terminated
effective May 5, 1997.
During fiscal year 1996, the Company renewed its agreement with SAI to perform
consulting services. The Company expensed approximately $255,000 during Fiscal
1997 and had approximately $160,000 due to SAI as of June 30, 1998.
F-23
<PAGE>
10. Income Taxes
The Company and its controlled, domestic subsidiaries file a consolidated income
tax return for federal and a combined income tax return for state purposes.
The Company's net deferred tax assets at June 30, 1998, consist of net operating
loss carryforwards amounting to approximately $17 million. At June 30, 1998, the
Company provided a 100% valuation allowance for the tax effect of these net
operating loss carryforwards totaling approximately $5.8 million. During the
years ended June 30, 1998 and 1997, the Company's valuation allowance decreased
$1 million, and none, respectively. No benefit for income taxes has been
provided since all deferred tax assets have been fully reserved. Income tax
expense is not material to the accompanying consolidated statements of
operations.
The deferred taxes result from temporary differences relating to the difference
in the basis of assets and liabilities for financial and tax reporting purposes.
The 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
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. Based on the results of the independent third party valuation, the
Company reversed amounts originally recorded in Fiscal 1996 for income taxes
payable and for the net deferred tax asset. As a result, the Company recorded an
income tax benefit of $382,494 during the year ended June 30, 1997.
Deferred tax assets have been computed using the maximum expiration term of up
to 18 years. Net operating losses expire from the years 2004 through 2015.
No provision was made or benefits recognized for U.S. income taxes on the
undistributed earnings/ losses of the foreign subsidiary 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.
11. Segment Information and Concentration of Credit Risk
Industry Segments
The relative contributions to revenues, gross profit and identifiable assets of
the Company's active industry segments for the years ended June 30, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revenues
Hotel Room and Food $ 5,292,604 $ -
Food Distribution $ 730,538 $ 1,339,763
Gross Profit
Hotel Room and Food $ (220,098) $ -
Food Distribution $ 261,098 $ 436,317
</TABLE>
F-24
<PAGE>
Identifiable assets of the Company's food manufacturing and distribution segment
are $228,920 as of June 30, 1998 and are comprised primarily of net property and
equipment, trade accounts receivables, inventories and other receivables.
Identifiable assets exclude intercompany loans, advances and investments.
As of June 30, 1998, 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, 1998 assets by geographic area:
<TABLE>
<CAPTION>
United States North Africa Total
<S> <C> <C> <C>
Cash $ 37,205 $ 110,534 $ 147,739
Accounts receivable, net 67,262 619,284 686,546
Equity investments 715,000 - 715,000
Other current assets 32,528 373,145 405,673
Total current assets 851,995 1,102,963 1,954,958
Property and equipment, net 133,049 18,109 151,158
Equity investments - 2,000,000 2,000,000
Other assets 12,955 1,400,577 1,413,532
Total noncurrent assets 146,004 3,418,686 3,564,690
Total assets $ 997,999 $ 4,521,649 $ 5,519,648
</TABLE>
Significant Customers and Concentration of Credit Risk
The Company had sales in excess of 15% of total food sales to each of three
customers in Fiscal 1998 and 1997. At June 30, 1998, the Company had three
customers who had accounts receivable that were each in excess of 10% of total
food sales receivables.
In the United States, the Company maintains several cash accounts at several
financial institutions. At June 30, 1998, none of the Company's cash accounts
exceeded the federally-insured limit. The Company also has approximately
$111,000 on deposit with foreign banks.
12. 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 9).
F-25
<PAGE>
At June 30, 1998, future minimum rental payments due under non-cancelable
operating leases are as follows:
<TABLE>
<CAPTION>
Year Ending Amounts
June 30, Due
<S> <C> <C>
1999 $ 4,743
2000 4,348
$ 9,091
</TABLE>
Rent expense charged to operations was $52,533 and $51,932 for the years ended
June 30, 1998 and 1997 respectively.
Cleopatra and Cleopatra's World are lessees under various lease agreements
related to the Cap Gammarth Casino, the Hammamet Casino and the Le Palace Hotel,
which require annual lease payments to be made, monthly or quarterly, over their
respective terms, which range from fourteen to twenty years. Annual lease
payments by these entities in each of the next five years and thereafter are as
follows:
<TABLE>
<CAPTION>
Amounts Due
Cleopatra
Year Ending Cap Gammarth Cleopatra's
June 30, Casino World Total
<S> <C> <C> <C> <C>
1999 $ 3,000,000 $ 3,500,000 $ 6,500,000
2000 3,000,000 3,741,000 6,741,000
2001 3,300,000 4,007,150 7,307,150
2002 3,600,000 4,287,650 7,887,650
2003 3,600,000 4,587,785 8,187,785
Thereafter 69,900,000 57,781,819 127,681,819
$ 86,400,000 $ 77,905,404 $164,305,404
</TABLE>
Capital Requirements of Cleopatra, Cleopatra Hammamet and Cleopatra's World
During Fiscal 1997, the Company negotiated a release of its guarantee of the
obligation of Cleopatra under the lease agreement related to the Cap Gammarth
Casino following a default by the lessor.
At June 30, 1998, the Company had approximately $1,000,000 remaining to be paid,
as a security deposit to take possession of the Cap Gammarth Casino.
Additionally, there is approximately $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 Cap Gammarth Casino, the
Company is negotiating possible joint ventures between NuOasis International and
foreign investment groups, and exploring potential debt and/or equity financing.
There can be no assurance that the Company will be successful in its attempts to
secure such financing. The Company is currently a plaintiff in litigation with
the owners of the Cleopatra Cap Gammarth casino due to delays in the completion
of the project by the owner. The Company has received a judgment totaling
approximately $300 million against Societe D'Animation et de Loisirs
Touristique, a Tunisian corporation ("SALT"), the ultimate collectibility of
which is unknown.
F-26
<PAGE>
In December 1998, the Hammamet Casino opened. The Company financed the
completion and opening of the Hammamet Casino through a financing 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 Cleopatra Hammamet. The Company pledged its rights to equity
interests 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. 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 Cleopatra Hammamet. Accordingly, the Company
impaired its interest in Cleopatra Hammamet as described in Note 3.
During Fiscal 1997, Cleopatra's World made a partial payment to STTG on the
lease on the Cap Gammarth Resort and, simultaneously, filed a request for
arbitration in its dispute with STTG claiming that STTG had breached the lease
by not completing for occupancy, on a timely basis, the hotel, the shopping
arcade, the health club or the beach club comprising the resort, causing
Cleopatra's World significant loss of revenue and profits. Subsequent to the
close of Fiscal 1997, the matter was removed from the arbitration calendar by
mutual agreement between the parties, however, the dispute has not yet been
resolved.
As to any future projects undertaken by the Company, NuOasis International,
Cleopatra or Cleopatra's World, 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, 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, Cleopatra or Cleopatra's World are unable to borrow or
otherwise meet their commitments under current agreements to provide the
furniture, fixtures, equipment and working capital to open the Cap Gammarth
Casino, or acquire and develop future casino gaming and hotel management
projects, the Company may be required to intercede and seek to 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.
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.
F-27
<PAGE>
The Company is also a party to litigation with STTG due to significant delays in
completing the Le Palace Hotel. Through June 30, 1998, 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. Subsequent to June 30, 1998,
STTG received an arbitration award for calendar 1998 rental payments, net of
amounts expended by the Company. As a result, the accompanying financial
statements include $1.8 million for the net rental payments due as of June 30,
1998 under the arbitration agreement.
Fantastic Foods is involved, both as plaintiff and defendant, in litigation that
originates in the normal course of business development or operations. Further,
Fantastic Foods is a defendant in various litigation initiated by certain
creditors because Fantastic Foods violated related repayment terms. The lawsuits
generally seek the payment of fees owed, legal fees and interest. Fantastic
Foods is attempting to settle the lawsuits and negotiate payment schedules with
its creditors. Fantastic Foods 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.
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.
In September 1999, the Company settled a lawsuit for $51,000 where the Company
did not pay for consulting services under a consulting agreement. The Company
has fully accrued for this settlement as of June 30, 1998.
13. Subsequent Events
Restructuring
Subsequent to the close of Fiscal 1998, in July of 1998, the Company entered
into various agreements with Cleopatra and Cleopatra's World, and other related
Cleopatra subsidiaries, to effect a restructuring which resulted in the Company
disposing of its interest in Cleopatra, decreasing its interest in Cleopatra
Hammamet, and increasing its interest in Cleopatra's World. To effect the
restructuring (a) Cleopatra and Cleopatra's World assigned to a newly-formed
entity, Cleopatra Palace Resorts and Casinos Limited a British corporation
("CPRC"), 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 Cleopatra, (ii) the Letter of Intent between
Cleopatra and CMI dated July 7, 1996, (iii) Cleopatra's rights to the Casino
Lease and gaming license between Cleopatra and the Government of Morocco, (iv)
Cleopatra'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, (v) certain trade accounts
receivable, and (vi) Cleopatra's right to the $1.5 million deposit which it
tendered to Club Loisirs Hammamet, the Lessor of the Hammamet Casino. As a
result of the Cleopatra restructuring, the Company became the 75% owner of CPRC
and acquired an additional 10% equity interest in Cleopatra's World.
F-28
<PAGE>
On October 19, 1998, ORI then entered into an exchange agreement with NuOasis
International to acquire NuOasis International's 75% interest in CPRC. CPRC had
previously acquired an equity interest in Cleopatra Cap Gammarth, 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 NuOasis International, 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 NuOasis International. 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 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, NuOasis International shareholders
control approximately 86% of the ORI's issued and outstanding common stock.
Spinoff of five wholly-owned subsidiaries
In February 2000, the Company completed the spinoff of five of its wholly owned
subsidiaries CMA, NuLA, NuLV, ACI and NuOasis Properties. The spin off 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
are 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.
Treasury Shares
During the year ended June 30, 1999, the Company sold all of the remaining
Treasury Shares. The total amount received from the sale of 9,430,000 shares
amounted to $408,663. 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, the Company has reduced additional paid in capital for the
difference, which aggregated $4,306,537 during the year ended June 30, 1999.
During the year ended June 30, 1999, the Company acquired 2.4 million shares of
its Series D preferred stock in exchange for $1 million payable to NuVen.
F-29
