item 14 exhibits financial statements schedules reports form 8k a1 financial statements reports independent certified public accountants f2 consolidated balance sheets june 30 1999 1998 f5 consolidated statements operations years ended june 30 1999 june 30 1998 tenmonth period ended june 30 1997 f7 consolidated statements stockholders equity years ended june 30 1999 june 30 1998 tenmonth period ended june 30 1997 f8 consolidated statements cash flows years ended june 30 1999 june 30 1998 tenmonth period ended june 30 1997 f11 notes consolidated financial statements f13 exhibit item title 21 contract extension concession period operation casino dated 21 july 1997 issued minister finance favor roulette loan agreement dated 9 april 1998 roulette dorsett providing us 420000 loan roulette amendment no1 dated 5 june 1998 agreement dated 3 april 1998 cbc juste dorsett incorporated reference companys form 10q period ended september 30 1998 31 certificate incorporation amendments thereto incorporated herein reference companys registration statement form s1 file 33316571 32 amendment companys certificate incorporation incorporated herein reference companys registration statement form s1 file 33316571 amendment 5 33 amendment companys certificate incorporation incorporated herein reference companys proxy statement dated november 27 1997 34 bylaw company incorporated herein reference companys registration statement form s1 file 33316571 42 form certificate evidencing shares common stock incorporated herein reference companys registration statement form s1 file 33316571 amendment 2 43 form underwriters warrant agreement company underwriter janssenmeyers associates lp including form underwriters warrant incorporated herein reference companys registration statement form s1 file 33316571 amendment 5 45 amendatory agreement dated november 6 1996 company ses family investment trading partnership lp incorporated herein reference companys registration statement form s1 file 33316571 46 form 10 debenture dated september 1996 incorporated herein reference companys registration statement form s1 file 33316571 47 form 10 convertible debenture dated november 1996 incorporated herein reference companys registration statement form s1 file 33316571 101 1996 stock option plan amended restated incorporated herein reference companys registration statement form s1 file 33316571 102 form stock option agreement incorporated herein reference companys registration statement form s1 file 33316571 103 distribution agreement dated october 9 1996 company agrotech 2000 sl incorporated herein reference companys registration statement form s1 file 33316571 amendment 4 104 employment agreement charles h stein company effective june 13 1997 105 form 500 warrant agreement dated august 1996 incorporated herein reference companys registration statement form s1 file 33316571 106 loan agreement dated october 9 1996 company conserver purchasing corporation cpu amended letter agreement dated december 31 1996 company cpc incorporated herein reference companys registration statement form s1 file 33316571 amendment 2 107 form financial consulting agreement company underwriter incorporated herein reference companys registration statement form s1 file 33316571 amendment 5 108 agreement dated august 12 1997 among company sakhalin trading investments limited sgti sovereign gaming leisure limited sovereign incorporated herein reference exhibit 108 companys form 10k fiscal year ended june 30 1997 109 amendment dated august 12 1997 among company sgti sovereign incorporated herein reference exhibit 109 companys form 10k fiscal year ended june 30 1997 1010 development services agreement dated october 2 1997 company dato david chiu incorporated herein reference exhibit 1010 companys form 10k fiscal year ended june 30 1997 1011 consulting agreement effective august 14 1997 company star casino limited incorporated herein reference exhibit 1011 companys form 10k fiscal year ended june 30 1997 1012 proposed form pledge agreement among company brian j bryce jasmine trustees ltd jay haft james v stanton incorporated herein reference exhibit 1012 companys form 10k fiscal year ended june 30 1997 1013 hotel management agreement dated october 2 1997 company dorsett hotels resorts international ltd incorporated herein reference exhibit 1013 companys form 10k fiscal year ended june 30 1997 1015 heads agreement dated october 3 1997 company parbhoes handelmij nv incorporated herein reference exhibit 1015 companys form 10k fiscal year ended june 30 1997 1016 agreement ownership structure sakhalin palace resort project dated june 25 1999 company arter capital ltd valmet sa filed herewith 161 letter regarding change certifying accountant incorporated herein reference companys form 8k dated december 18 1997 form 8k dated june 16 1998 162 letter regarding change certifying accountant incorporated herein reference companys form 8k dated july 23 1999 form 8k dated october 13 1999 271 financial data schedule filed herewith b reports form 8k two reports form 8k filed company dated july 23 1999 october 13 1999 incorporated reference related resignation companys prior accountants engagement companys current accountants signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized cca companies incorporated miles r greenberg miles r greenberg date may 26 2000 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated cca companies incorporated contents report independent certified public accountants board directors stockholders cca companies incorporated audited accompanying consolidated balance sheet cca companies incorporated subsidiaries june 30 1999 related consolidated statements operations stockholders equity cash flows year ended consolidated financial statements responsibility companys management responsibility express opinion consolidated financial statements based audit conducted audit accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures consolidated financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion consolidated financial statements referred present fairly material respects financial position cca companies incorporated subsidiaries june 30 1999 results operations cash flows year ended conformity generally accepted accounting principles spear safer harmon co miami florida march 31 2000 report independent certified public accountants board directors stockholders cca companies incorporated audited accompanying consolidated balance sheet cca companies incorporated subsidiaries june 30 1998 related consolidated statements operations stockholders equity cash flows year ended financial statements responsibility companys management responsibility express opinion financial statements based audit conducted audit accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion consolidated financial statements referred present fairly material respects financial position cca companies incorporated subsidiaries june 30 1998 results operations cash flows year ended conformity generally accepted accounting principles accompanying financial statements prepared assuming company continue going concern discussed note 1 1998 consolidated financial statements companys dependence outside financing recurring losses since inception significant outflows cash operations raise substantial doubt ability continue going concern managements plans regard matters described note 1 1998 consolidated financial statements consolidated financial statements include adjustments might result outcome uncertainty miami florida bdo seidman llp december 15 1998 independent auditors report board directors stockholders cca companies incorporated coconut grove florida audited statements operations changes stockholders equity cash flows conserver corporation america development stage company ten months ended june 30 1997 financial statements responsibility companys management responsibility express opinion financial statements based audit conducted audit accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion financial statements enumerated present fairly material respects results operations cash flow conserver corporation america ten months ended june 30 1997 conformity generally accepted accounting principles richard eisner company llp new york new york august 28 1997 cca companies incorporated consolidated balance sheets june 30 1999 1998 see accompanying notes consolidated financial statements cca companies incorporated consolidated balance sheets june 30 1999 1998 liabilities stockholders equity see accompanying notes consolidated financial statements cca companies incorporated consolidated statements operations see accompanying notes consolidated financial statements cca companies incorporated consolidated statements stockholders equity years ended june 30 1999 1998 ten month period ended june 30 1997 see accompanying notes consolidated financial statements cca companies incorporated consolidated statements stockholders equity continued see accompanying notes consolidated financial statements cca companies incorporated consolidated statements stockholders equity continued see accompanying notes consolidated financial statements cca companies incorporated consolidated statements cash flows see accompanying notes consolidated financial statements cca companies incorporated consolidated statements cash flows continued see accompanying notes consolidated financial statements cca companies incorporated notes consolidated financial statements continued years ended june 30 1999 1998 ten month period ended june 30 1997 note 1 summary significant accounting policies company cca companies incorporated formerly known conserver corporation america company incorporated laws state delaware effective march 6 1996 company initially adopted fiscal year ending august 31 elected change fiscal year end june 30 1997 fiscal year ended june 30 1998 company changed name cca companies incorporated company considered development stage company march 1998 subsidiaries consolidated financial statements include accounts company subsidiaries sakhalin general trading investments ltd sgti sakhalin city center ltd scc dorsett hotels resort international msnd bhd dhri dorsett hotel resorts inc dorsett suriname leisure company avv slc roulette kft roulette majority shareholding disposed december 1998 based operating cyprus russian federation malaysia united states suriname hungary respectively nature operations companys principal line operations provide gaming services ownership management casino suriname addition company planning design stage relating casino mountain resort project sakhalin island principles consolidation accompanying consolidated financial statements include accounts cca subsidiaries collectively company accounts roulette consolidated date acquisition date cca disposed majority interest december 1998 intercompany transactions balances eliminated consolidation scc currently generating losses minority shareholders obligated fund losses accordingly minority interest held scc reflected financial statements casino revenue casino revenue net win gaming activities difference gaming wins losses cash equivalents company considers investments original maturities three months less time purchase cash equivalents times cash balances companys bank accounts united states may exceed federally insured limits cca companies incorporated notes consolidated financial statements continued note 1 summary significant accounting policies continued use estimates preparation financial statements preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates financial instruments carrying amounts financial instruments including loans receivable accounts receivable accounts payable debt approximates fair value excess cost fair value assets acquired excess cost fair value sgti assets acquired amortized straightline basis estimated future periods benefited 30 years company reviews recoverability excess cost fair value assets acquired going basis property equipment leasehold property equipment recorded cost depreciation amortization computed straightline method based estimated useful lives 35 years related assets leasehold improvements amortized shorter life asset lease income taxes purpose financial statements company adopted provisions sfas 109 accounting income taxes periods presented asset liability method sfas 109 deferred taxes recognized differences financial statement income tax bases assets liabilities preferred stock company authorized issue preferred stock specific powers preferences rights qualifications limitations restrictions designated companys board directors time issuance stock based compensation sfas 123 accounting stock based compensation establishes fair value method accounting stockbased compensation plans either recognition disclosure company adopt fair value based method employees instead discloses pro forma effects calculation required statement see note 10 impairment longlived assets company utilizes sfas 121 accounting impairment longlived assets longlived assets disposed provisions statement company evaluated longlived assets financial impairment continue evaluate events changes circumstances indicate carrying amount assets may fully recoverable cca companies incorporated notes consolidated financial statements continued note 1 summary significant accounting policies continued company evaluates recoverability longlived assets measuring carrying amount assets estimated undiscounted future cash flows associated time evaluations indicate future undiscounted cash flows longlived assets sufficient recover carrying value assets adjusted fair values company recorded charges approximately 610000 year ended 1998 relating roulette 4200000 year ended june 30 1999 relating dorsett see note 3 result financial impairment several longlived assets earnings per share effective december 31 1997 company adopted sfas 128 earnings per share simplifies computation earnings per share requiring restatement prior periods basic net loss per share common stock based weighted average number common shares outstanding period diluted loss per share common stock computed basis weighted average number common shares common shares equivalent securities outstanding securities antidilutive effect excluded calculation weighted average number common shares outstanding periods presented retroactively reflects stock splits reverse stock splits effected company options amounting 4062619 year ended june 30 1999 3169619 year ended june 30 1998 1970000 ten month period ended june 30 1997 warrants amounting 3819012 year ended june 30 1999 2260678 year ended june 30 1998 1225000 ten month period ended june 30 1997 included computation net loss per common stockdiluted antidilutive effect foreign currency translation statutory currencies countries company operates cyprus pound russian ruble malaysian ringgit united states dollar suriname guilder hungarian forints reporting currency us dollar 1999 company determined functional currency subsidiaries sgti slc united states dollar assets liabilities materially contracts transactions normal business activities transacted conducted negotiated recorded us dollars companys position operations company integrally connected economies cyprus suriname pursuant financial accounting standards board statement 52 foreign currency translation fas 52 companys russian subsidiary scc situated highly inflationary economy accordingly sccs functional currency us dollar cca companies incorporated notes consolidated financial statements continued note 1 summary significant accounting policies continued 1998 1997 financial statements subsidiaries outside us translated us dollars using methodology consistent statement financial accounting standards sfas 52 foreign currency translation assets liabilities translated us dollars rates prevailing balance sheet dates statements operations translated functional currencies us dollars using average exchange rates applicable years june 30 1998 cumulative foreign currency translation adjustment insignificant therefore disclosed separate component stockholders equity exchange losses approximately 79000 year ended june 30 1998 included general administrative expenses accompanying consolidated statements operations exchange gains losses period ended june 30 1997 future accounting pronouncements june 1998 financial accounting standards board issued sfas 133 accounting derivative instruments hedging activities sfas 133 requires companies recognize derivatives contracts either assets liabilities balance sheet measure fair value certain conditions met derivative may specifically designated hedge objective match timing gain loss recognition hedging derivative recognition changes fair value hedged asset liability attributable hedged risk ii earnings effect hedged forecasted transaction derivative designated hedging instrument gain loss recognized operations period change sfas 133 effective fiscal quarters fiscal years beginning june 15 2000 company entered derivatives contracts either hedge existing risks speculative purposes accordingly company expect adoption new standard july 1 2000 affect consolidated financial statements october 1998 financial accounting standards board issued statement financial accounting standards 134 accounting mortgagebacked securities retained securitization mortgage loans held sale mortgage banking enterprise effective first fiscal quarter beginning december 15 1998 impact companys financial reporting presentation due adoption sfas 134 february 1999 financial accounting standards board issued statement financial accounting standards 135 recession fasb statement 75 technical corrections effective financial statements issued february 15 1999 impact companys financial reporting presentation due adoption sfas 135 reclassifications certain prior year balances reclassified conform 1999 presentation cca companies incorporated notes consolidated financial statements continued note 2 initial new lines business companys original principal business food preservation technology see note 3 due companys desire enter several new lines business inability market distribute preservittm food technology product commercially viable fashion company identified explored several business opportunities entered number new lines business august 1997 company announced diversifying beyond sole line business marketing distributing otherwise commercially exploiting food technology product exploring new line business hotel casino industry new lines business special meeting stockholders company held december 1997 companys stockholders voted approved various proposals regarding new lines business new business opportunities described herein sakhalin island casino resort 1997 company focused gaming opportunity asia currently development stage subject financing year round hotelcasino resort sakhalin island sakhalin project sakhalin island russian territory located north japan new hotelcasino easily accessible gaming activities japan china korea russian mainland scc develop 140 million dollar 450room hotelcasino complex tenacre site center city yuzhnosakhalinsk city development planned nearby ski mountain company plans related casino initially 70 tables 350 slot machines future plans add additional gaming equipment city provide land existing ski resort 101year lease annual cost company manage hotel resort casino management fee equal 3 revenues defined well incentive fee 10 gross profits although currently several small casinos operating island city committed contractually permit increase floor areas extend range operations without written approval scc addition company also certain rights participate development management future casinos within jurisdiction city cca companies incorporated notes consolidated financial statements continued note 2 initial new lines business continued company october 1997 entered stock purchase agreement sakhalin agreement sgti december 1997 executed assignment agreement sovereign gaming leisure limited sovereign pursuant sakhalin agreement company would acquire outstanding shares sgti owns 65 interest scc closed joint stock company incorporated laws russian federation holds rights including necessary gaming licenses operate granted various governmental units develop casino sakhalin addition acquisition sgti company would acquire rights interest sakhalin project held sovereign include certain operating project management agreements december 1997 company completed acquisition 100 shares sgti exchange 2000000 shares common stock company also acquired rights interests sovereign exchange 200000 shares common stock owners sovereign addition two directors company granted options purchase 300000 200000 shares common stock exercise price equal 6125 per share exchange services relating acquisition sgti sakhalin options sakhalin options subsequently expired without exercised companys common stock valued 520 per share date acquisition completed value attributed 2000000 shares companys common stock issued owners sgti 10400000 sakhalin options valued 1091819 capitalized part purchase price sgti companys common stock issued owners sovereign valued 525 per share date assignment agreement entered thus value attributed shares 1050000 part sakhalin agreement company paid 3000000 sgti advance eliminated consolidation intercompany account acquisition accounted purchase accordingly results operations sgti included companys consolidated financial statements since date acquisition cca companies incorporated notes consolidated financial statements continued note 2 initial new lines business continued transaction recorded follows common stock options issued 11491819 acquisition costs 193885 purchase price 11685704 construction progress acquired 3638957 liabilities assumed 3340925 assets 843356 fair value net assets acquired 1141388 excess aggregate purchase price fair market value net assets acquired 10544316 excess aggregate purchase price fair market value net assets acquired amortized 30 years straightline basis company believes appropriate due brick mortar features sakhalin project aspect project successful revenues generated long period time following unaudited pro forma summary present results operations company acquisition occurred september 1 1996 cca companies incorporated notes consolidated financial statements continued note 2 initial new lines business continued fiscal year ending june 30 1999 sgti scc subsidiaries company accordingly pro forma summary year ended june 30 1999 included sakhalin agreement provides upon request company sovereign may agree become project manager construction phase sakhalin project subject reasonable compensation services shall exceed lesser 5 construction cost sakhalin project 5000000 subsequent sakhalin agreement mr dallas dempster paid consultant sovereign recruited president chief executive officer ceo cca accordingly companys current intent employ sovereign manage construction phase sakhalin project directly october 1997 company entered agreement development services agreement mr david chiu certain development services performed including using best efforts secure necessary debt financing guarantees complete turnkey construction sakhalin project development service agreement expired august 1998 without chiu rendering services september 1998 company entered letter intent jsc rosneftegazstroy rngs large russian construction company letter intent aimed rngs guaranteeing financing turnkey construction contract sakhalin project acting subcontractor company rngs never contractually acted letter intent subsequently abandoned june 1999 company entered agreement financing agreement arter group limited arter valmet sa valmet according agreement arter valmet negotiate companys behalf acquire financing 70 sakhalin projects total estimated cost remaining 30 injected equity financing arranged company consideration additional equity raised companys ownership scc increase 80 65 company currently owns sakhalin oblast government city remaining 20 scc subject final negotiations arter valmet successful defined agreement company would arrange transfer percentage interest sgti arter valmet proposed structure ownership shall follows cca 50 shares sgti effective ownership sakhalin project 40 arter 3125 shares sgti effective ownership sakhalin project 25 valmet 1875 shares sgti effective ownership sakhalin project 15 agreement shall effective day qualified commitment funding parties financing agreement accepted terms financing cca companies incorporated notes consolidated financial statements continued note 2 initial new lines business continued sakhalin project requires substantial financing progress november 1999 company submitted loan application financing sberbank russian federation bank financing 1068 million dollars currently application considered financing obtained sberbank company seek financing elsewhere abandon project company forced abandon project due lack financing company attempt market plans licenses rights order recover much historic expenditures possible company unable time quantify recoveries attain date company recorded assets construction progress intangibles totaling 159 million dollars company successful financing sakhalin project company design set infrastructure currently place addition company employ significant number people retain consultants contractors manage design construct property require significant financial resources hotel management agreement fiscal year ending june 30 1998 company entered two hotel management agreements hotel management agreements one agreement dorsett hotels resorts international ltd dhr company owned controlled david chiu far east consortium international ltd fec agreements company acquired right directly subsidiary exclusively manage operate three hotels service right manage operate five hotels scheduled open future right manage properties pursuant longterm contracts hotel operating contracts previously entered owners hotels dhr fec company paid consideration 3 million dollars execution hotel management agreements cash promise issue two million shares companys common stock payable prorata basis assignment hotel operating contracts hotel subsequently company issued 950000 shares common stock assignment contracts three operating hotels july 1998 company borrowed 1 million dollars fec six months interest prime rate plus 1 cca companies incorporated notes consolidated financial statements continued note 2 initial new lines business continued november 4 1998 company held hotel operating contracts three operating hotels total approximately 1200 rooms contrary terms hotel operating contracts company permitted actively manage two hotels addition company notified renovation andor construction five hotels turned company future stopped projects reviewed financial efficacy result failure fec dhr comply terms hotel management agreements parties agreements reached settlement november 1998 terminate agreements exchange mutual releases related obligations according terms settlement company received 450000 cash 700000 shares companys common stock retained 1625000 paid historically company management fees loans see note 3 suriname casino lease april 1998 company entered agreement suriname casino agreement parbhoe handelmij nv parbhoe suriname limited liability company agreement parties formed acquired 50 interest suriname leisure company slc aruban limited liability company develop casino project suriname casino paramaribo capital city suriname pursuant suriname casino agreement companys fully owned subsidiary dorsett entered suriname casino management agreement slc manage suriname casino june 30 1999 company advanced approximately 46 million dollars slc project approximately 40 million dollars spent property equipment leasehold improvements company retains lien security interest property equipment advance paid back slcsee note 7 suriname casino management agreement provides fifteen years exclusive operating rights suriname casino base fee equal three percent revenues defined plus incentive fee ten percent gross profits defined initially company operated small temporary casino commencing october 1998 permanent casino facility completed opened march 1999 company vacated temporary facility suriname casino currently occupies two leased floors totaling 20000 square feet plaza hotel downtown paramaribo casino approximately 20 gaming tables approximately 160 slot machines 50seat restaurant company leased casino premises parbhoe fifteen years ending february 2013 yearly rent 200000 subject future increases based suriname consumer price index cca companies incorporated notes consolidated financial statements continued note 2 initial new lines business continued budapest casino april 1998 companys wholly owned subsidiary dorsett entered agreement casino bahia de cadiz sa cbc mrs teresa juste picon juste purchase 95 interest equity roulette kft roulette hungarian limited liability company roulette owned operated orfeum casino budapest addition part agreement company acquired receivables 15 million dollars due cbc juste loan agreements lease agreements roulette budapest casino june 30 1998 company paid 100000 shareholders roulette deposit toward purchase addition prior closing company advanced additional funds approximately 608000 roulette closing acquisition september 1998 company delivered cadiz juste 17857 shares companys common stock based value 700 per share 125000 total addition agreement required issuance additional shares make shortfall value 125000 value shares delivered average stock price subsequently declined 10day average price proceeding march 1 1999 093 result company issued additional 116813 shares common stock cbc juste may 1999 december 1998 company entered agreement agm international ltd agm israeli junket operator experienced organizing junket premium casino player groups agm granted 50 ownership roulette agreeing pay company 100000 closing pay additional 100000 roulette able renew gaming license due expire november 1999 hungarian gaming board addition agreement required agm part transaction fund 100000 additional operating float needed order continue 50000 general improvements arranging transaction agm company paid minority shareholder roulette fee 75000 capitalized part companys investment 1999 hungarian gaming board made decision reduce number casino licenses existed time company acquired interest roulette unsuccessful bid obtain one reduced number gaming licenses available forced close casino end october 1999 cca companies incorporated notes consolidated financial statements continued note 2 initial new lines business continued june 30 1999 company wrote entire investment roulette delineated investment roulette 300000 loans roulette 608311 908311 less loss roulette subsidiary 298478 609833 less balance investment written 609833 business political economic conditions companys operating construction activities taking place principally russian federation suriname russian federation suriname experienced within last three years significant devaluations currencies banking industry russian federation experienced several major banking failures additionally russian federation currently experiencing consequential changes political leadership currency exchange controls regard activities taking place russian federation suriname managements belief able repatriate earnings without official impediments currency exchange controls place russian federation company addressing order assure ready ability transfer funds country cca companies incorporated notes consolidated financial statements continued note 3 discontinued operations food preservation technology november 1999 company officially abandoned food preservation business accordingly reflected losses attributable business discontinued operations assets food preservation business consisted principally fully reserved loans two companies agrotech cpc addition company plan exercise option acquire controlling equity interest entities possess food preservation technologies results operations food preservation business june 30 1999 classified loss discontinued operations follows tax benefit due loss discontinued operations recorded due companys uncertainty regarding future earnings included costs expenses reserves loans made food division 1620830 1998 1000000 1997 hotel management result termination hotel management agreements company fec dhr november 1998 subsequent dismissal hotel management employees april 1999 company active hotel management operating business company discontinued line business reflected related income assets liabilities discontinued operations company recorded charge 42 million dollars 1998 write carrying value hotel management agreements assets trade names cca companies incorporated notes consolidated financial statements continued note 3 discontinued operations continued results operations hotel management business june 30 1999 classified loss discontinued operations follows note 4 initial public offering private placements inception november 1996 company raised capital necessary business development debt equity private placements june 1997 company completed initial public offering received net proceeds approximately 8859000 sale 2200000 shares common stock 0001 par value common stock per share price 500 july 1997 companys underwriter exercised allotment option purchase aggregate 330000 shares common stock 500 per share resulting company receiving additional net proceeds approximately 1448000 aggregate net proceeds company ipo amounted approximately 10307000 time ipo underwriters obtained underwriters warrants purchase 220000 shares common stock exercisable period four years 825 per share november 1997 company commenced efforts raise additional capital fund new lines business new business opportunities company completed private placement offering february 1998 received net proceeds aggregate approximately 8955000 sale 2044763 shares common stock per share price 514 time offering underwriters obtained underwriters warrants purchase 715678 shares common stock exercisable period four years 514 per share year ended june 30 1999 company received 1676600 sale 2053200 shares common stock private investors time sale common stock company issued warrants purchase 1280334 shares companys common stock exercisable periods ranging 1 4 years exercise prices 100 additional 25000 warrants exercise period one year exercise price 200 per share issued warrant exercise prices exceed market value stock dates issued cca companies incorporated notes consolidated financial statements continued note 5 property equipment leasehold improvements june 30 property equipment leasehold improvements consist following depreciation expense 499494 year ended june 30 1999 16168 year ended june 30 1998 1678 ten month period ended june 30 1997 note 6 income taxes cca dorsett june 30 1999 company net operating loss carryforwards nol approximately 14824000 expire 2014 event change ownership company utilization nol subject limitation certain provisions united states internal revenue code cca u corporation invested dhri total 99665 invested roulette total 908311 due dhri roulette discontinuing operations cca entitled take capital losses investments dhri roulette certain provisions united states internal revenue code capital losses used offset capital gains unused capital losses carried forward indefinitely used future capital gains dorsett managing suriname casino managing sakhalin project management fees generated dorsett subject us tax cca companies incorporated notes consolidated financial statements continued note 6 income taxes continued deferred income taxes comprised following june 30 1999 realization portion companys deferred tax asset june 30 1999 dependent upon future earnings capital gains due uncertainty future earnings capital gains 11346000 valuation allowance provided dhri roulette companys subsidiaries dhri roulette experienced substantial losses closing operations liquidating net assets entity dhri roulette currently dormant company anticipate time future earnings losses may applied accordingly company provided deferred tax assets dhri roulette scc subject russian corporate tax taxable profits sakhalin project commences operations currently federal profit tax 11 regional tax high 19 addition repatriation profits generated scc russian federation cca may highly regulated russian central bank taxing authority transfers funds entities outside russian federation require special authorization central bank payment dividends subject heavy double taxation laws company believes sakhalin project commences operations russian central bank taxing authority make profit repatriation concessions available cca companies incorporated notes consolidated financial statements continued note 6 income taxes continued sgti holds companys investment scc incorporated cyprus companies registered cyprus managed controlled outside cyprus liable tax income occurring derived received outside country suriname casino slc requested government suriname grant certain concessions regarding imposition taxes import duties opinion companys counsel based upon suriname investment act slc entitled following exemptions temporary exemption income new undertakings profits new undertakings exempt tax first years operations subject maximum profit twice amount invested new undertaking free depreciation first investments new undertakings facility provides assets represent first investment new undertakings may depreciated without restriction accordingly assets depreciated fashion accelerated basis otherwise order offset profits year full amount assets initially invested temporary exemption import duties new undertakings business expansions facility provides full partial exemption import duties operating assets used operations new undertakings also materials goods used generate operating assets accordingly provision income tax duties made regard activities conducted slc june 30 1998 company tax purposes operations therefore net operating loss expenses incurred date preoperating accordingly capitalized subsequent commencement operations capitalized expenses amortized sixty months cca companies incorporated notes consolidated financial statements continued note 7 longterm notes payable september 1998 company borrowed 600000 50 coowner parbhoe slc construction permanent casino facilities interest loan calculated using interest rate 3 per month december 1998 company arranged borrow additional 10 million dollars 50 coowner slc ultimately 750000 advanced slc used complete construction casino loan subject 4 monthly interest payable within six months disbursement loan paid full august 1999 outstanding balance loans owing parbhoe paid excess cash flow generated operations slc addition slc repays company funds advanced principal payments approximately 015 every 085 excess cash flow utilized pay back advances must paid parbhoe see note 2 note 8 related party transactions legal company incurred legal fees approximately 127000 year ended june 30 1999 546000 year ended june 30 1998 149000 ten month period ended june 30 1997 related parties addition free legal services amounting 60000 recorded additional paidin capital provided related parties ten month period ended june 30 1997 none provided 1999 1998 company issued 187500 options valued approximately 285619 june 30 1998 25000 options valued approximately 50000 june 30 1997 fees described value options issued 1998 amortized legal expense counsel rendered services legal expense 171000 charged year ended june 30 1998 balance 115000 charged year ended june 30 1999 consultants year ended june 30 1999 company issued 300000 shares common stock 075 per share valmet consultant services performed relating sakhalin project time company issued 150000 two year warrants valmet exercise price 1 valued 25000 cca companies incorporated notes consolidated financial statements continued note 8 related party transactions continued august 1997 company entered agreement casino consulting agreement star casinos limited consultant casino consulting agreement consultant agreed provide consulting technical services company affiliated entities period two years individual subsequently became president casino division company owns consultant terms casino consulting agreement consultant receive 250000 annually plus reimbursement reasonable expenses addition october 1997 company granted consultant options purchase 100000 shares companys common stock exercisable 650 per share september 1998 exercise price option reduced 650 150 per share market price 125 subsequently december 1999 option price reduced 025 per share market price 013 fifty percent options exercisable first second anniversary dates commencement date expires third anniversary date options valued 140000 company recorded consulting charge issuance options end term agreement provided consultant breach casino consulting agreement consultant also entitled receive 250000 bonus company paid consultant 187000 accrued additional 63000 payable consultant plus reimbursement reasonable expenses year ended june 30 1999 agreement also binds consultant twoyear noncompete nonsolicitation provision termination agreement subsequent yearend consultant agreed accept 250000 shares companys common stock place 250000 bonus due expiration contract december 1999 consulting contract expired stock delivered market price per share 013 although new formal agreement entered consultant agreed continue providing consulting services month basis annualized rate 250000 construction contractors september 1998 89000 shares companys common stock issued maritime services corporation building contractor suriname casino shares issued price 225 per share 200250 maritime agreed accept consideration payment towards construction contract slc cca companies incorporated notes consolidated financial statements continued note 8 related party transactions continued directors company entered threeyear employment contract charles h stein chairman board directors president chief executive officer company took effect upon consummation companys initial public offering securities contract provided annual salary amount less 125000 threeyear noncompete clause upon termination year ended june 30 1998 ten month period ended june 30 1997 stein receive salary accordingly company recorded compensation charges periods amount based upon employment agreement contribution capital salary expense recorded 90000 year ended june 30 1998 105000 ten month period ended june 30 1997 addition year ended june 30 1998 company purchased life insurance policy benefit stein paid rent two properties 1999 1998 1997 stein owned see note 9 life insurance premium approximately 40000 charged operations premium incurred 1999 effective july 1998 stein longer employed company president chief executive officer continued capacity chairman company october 1998 company borrowed 75000 stanton associates lender two promissory notes mr james stanton owner stanton associates also director company loan subject interest rate 8 per annum payable along accrued interest lump sum january 1999 january 1999 lender accepted 153200 shares 050 per share companys common stock principal interest due 76600 officer companys president ceo dempster paid consultant sovereign assigned company 1994 construction management agreement 1994 operation management agreement scc dempster represented company never held beneficial interest stock sovereign september 1998 dempsters nominee dabus international limited established benefit family granted nonplan options purchase 1000000 shares companys common stock 150 per share options granted consideration dempster joining company july 1998 subsequent june 30 1999 exercise price options issued dempster changed 150 025 cca companies incorporated notes consolidated financial statements continued note 9 commitments contingencies company rents office space facilities noncancelable leases february 2013 minimum future rental commitment leases effect june 30 1999 approximates following years ended june 30 2000 236194 2001 234153 2002 234424 2003 202983 2004 200000 thereafter 1733334 2841088 rent expense 532916 year ended june 30 1999 238478 year ended june 30 1998 127574 ten month period ended june 30 1997 rent included payments 6921 1999 91000 1998 70000 1997 two properties owned chairman board used offices company new york london arbitration kai michaelson zamora investments pte ltd zamora result termination hotel management agreements november see note 3 fec assumed financial obligations respect employment president michaelsen companys hotel management subsidiary dhri thorough independent review michaelsens performance fec including extensive investigation allegations regarding michaelsens operating decisions michaelsens employment officially terminated april 1999 april 1999 michaelsen filed claim cca lump sum payment approximately 240000 past future services employment consulting agreements requested arbitration hearing american arbitration association cca companies incorporated notes consolidated financial statements continued note 9 commitments contingencies continued company obtained temporary restraining order staying arbitration petitioned new york supreme court permanent stay hearing companys contention arbitration agreement michaelsen cca march 31 2000 court granted companys petition permanently stay arbitration subsequent order stay michaelsens company zamora filed claim dorsett 80000 new arbitration claim companys counsel believes valid defenses michaelsens claims finally adverse decision rendered companys position award granted michaelsen responsibility fec terms november 1998 termination agreement reason company currently holding 250000 shares issued never delivered fec pursuant november 1998 termination agreement time matter settled provision made accounts regarding michaelsens demands fox capital corporation united resources partners collectively fox 1998 company utilized unsuccessfully services fox secure financing august 1999 fox filed demand arbitration american arbitration association demanding payment 250000 company liquidated damages fee fox alleged company breached letter agreement failing secure adequate collateral proposed loan according terms letter agreement company denied material allegations claim filed counterclaims 250000 seeking recover 25000 commitment fee paid fox alleging fox breached obligations company misrepresenting abilities secure capital financing legal advisers company opinion fox havens claims company merit according counsel company made good faith effort comply provisions letter agreement including procurement proper collateral unreasonably rejected addition commitment letter provides loan close lender approve collateral company liability parties chosen arbitrator action presently exchanging documents related discovery arbitration hearings expected commence spring 2000 consequentially company made provision financial statements based uncertainty outcome arbitration cca companies incorporated notes consolidated financial statements continued note 10 stock options warrants company applies apb opinion 25 accounting stock issued employees related interpretations accounting employee stock options apb opinion 25 exercise price companys employee stock options equals exceeds market price underlying stock date grant compensation cost recognized options granted exercisable either onethird annually anniversary date grant exercisable immediately addition maximum terms four years transferable company estimates fair value stock option warrant grant date using blackscholes optionpricing model plan options companys 1996 stock option plan adopted november 1996 amended december 1996 april 1997 december 1997 plan provides adjustments number type shares covered plan options granted thereunder event reorganization merger recapitalization certain transactions involving company plan authorizes granting incentive stock options nonincentive stock options maximum number shares common stock options may granted 5000000 shares june 30 1999 2172500 options purchase shares common stock granted plan company set aside 2827500 shares common stock future options may granted plan company granted total 500000 options 1999 nonemployee directors vested immediately 350000 options 1998 550000 options 1997 nonemployee directors onethird vested annually anniversary date grant options issued nonemployee directors exercisable 150 expire four years issuance company recorded charge operations corresponding credit additional paidin capital issuance options amounts 233000 1999 386000 1998 700000 1997 additionally september 1998 companys board directors agreed reprice exercise price 1567500 stock options previously granted directors officers employees prices ranging 500 650 150 company recorded additional charge operation approximately 335000 900000 options previously granted directors approximately 90000 237500 options previously granted consultants 1998 1997 fiscal years repricing cca companies incorporated notes consolidated financial statements continued note 10 stock options warrants continued company granted total 1130000 options 1999 employees vested immediately 215000 options 1998 125000 options 1997 employees onethird vested annually anniversary date grant employee options exercisable 150 per share non plan options addition options granted plan company issued additional 1890119 non plan options company granted 352500 options fiscal year 1998 660000 options ten month period ended june 30 1997 lawyers consultants services rendered exercise prices options ranged 500 650 per share options expire four years issuance company recorded charge consulting fees corresponding credit additional paid capital issuance options amount 386000 1998 513000 1997 options issued lawyers consultants fiscal year 1999 company issued 500000 options investors time private placements done company tenmonth period ended june 30 1997 exercise price options 200 expire april 2001 year ended june 30 1998 7881 options 500000 options issued exercised company also repriced 35000 options issued consultant 500 150 exercise date extended august 1998 august 1999 fasb statement 123 accounting stockbased compensation requires company provide pro forma information regarding net income loss net income loss per share compensation cost companys employee stock options determined accordance fair value based method prescribed fasb statement 123 company utilized following weightedaverage assumptions determine fair value cca companies incorporated notes consolidated financial statements continued note 10 stock options warrants continued accounting provisions fasb statement 123 companys pro forma net loss per share would follows summary status companys fixed stock option plan non plan options june 30 1999 1998 1997 changes years period ended presented cca companies incorporated notes consolidated financial statements continued note 10 stock options warrants continued following table presents information relating stock options outstanding june 30 1999 warrants june 30 1999 company warrants amounting 3819012 outstanding warrants exercised warrants exercisable day grant august 15 1999 150000 warrants issued director expired year ended june 30 1999 company issued two consultants threeyear warrants purchase 50000 shares companys common stock 100 per share year ended june 30 1998 company issued one consultant fouryear warrants purchase 100000 shares companys common stock 650 per share 1999 warrants valued 50000 1998 warrants valued 272500 companys operations charged value warrants issued consultants services time issuance august 1996 company issued threeyear warrants directors consultant services purchase 325000 shares companys common stock 500 per share warrants valued 457201 charged operations period ended august 31 1996 warrants exercise price changed 150 per share september 1998 company recorded additional charge operations approximately 125000 warrants previously granted directors consultant repricing subsequent year end 150000 warrants 325000 warrants issued expired company borrowed 1000000 june 1997 simultaneously issued warrants purchase 550000 shares common stock 200 per share creditor affiliate warrants valued approximately 2040000 charged expense time warrants issued 20000 shares previously issued common stock surrendered company cca companies incorporated notes consolidated financial statements continued note 10 stock options warrants continued company issued 1308334 warrants exercise prices 100 200 fiscal year ending 1999 715678 warrants exercise price 514 fiscal year ending 1998 220000 warrants exercise price 825 ten month period ending june 30 1997 time public offering private placement june 1997 company issued warrants consultants services purchase 350000 shares common stock 575 per share warrants valued approximately 705000 charged operations ten month period ended june 30 1997 june 1999 company issued consultant services relating sakhalin project warrants purchase 150000 shares common stock 100 per share warrants valued 25000 recorded capitalized finance costs common stock set aside currently company reserved 7881631 shares common stock exercise options warrants note 11 stockholders equity december 1997 special meeting stockholders amendment companys certificate incorporation approved increasing number common shares authorized 30000000 shares 50000000 shares increasing number preferred shares authorized 5000 shares 5000000 shares time organization company 1666667 shares common stock subscribed conserver investments sa conserver november 1996 company series negotiated transactions repurchased 1366667 shares conserver common stock aggregate sum 1800000 part transaction conserver agreed transfer remaining 300000 shares common stock directly two persons company designated neither affiliated company conserver directors officers employees november 1996 board directors approved 2128874 1 stock split december 1996 board directors approved 1066194 1 stock split subsequently april 1997 board directors approved reverse stock split cancel effect aforementioned two stock splits retroactively reflected accompanying consolidated financial statements cca companies incorporated notes consolidated financial statements continued note 12 business segment information company ceased operations food preservation hotel management business segments year ended june 30 1999 accordingly june 30 1999 companys line business relates casino operations suriname russian federation year ended june 30 1998 companys operations classified three business segments food preservation hotel management casino operations food preservation includes development selling marketing product hotel management includes management exclusive operations certain hotels casino operations include development management certain casinos operating loss segment total operating revenues less expenses deemed related segments operating revenue identifiable assets segment assets used operation unit corporate assets consist principally cash equivalents prepaid expenses leasehold improvements related corporate unit summarized financial information business segment year ended june 30 1998 follows cca companies incorporated notes consolidated financial statements continued note 12 business segment information continued cca companies incorporated notes consolidated financial statements continued note 12 business segment information continued companys main operations located following foreign geographic regions cyprus russian federation suriname budapest june 30 1998 identifiable assets geographical region follows note 13 provisions valuation allowances assets written allowances loans receivables years ended june 30 1999 1998 ten month period ended june 30 1997 follows june 30 1997 company wrote inventory 355800 relating food technology businesssee note 2 june 30 1998 based termination hotel management agreements carrying value management contracts trade names deposit assets acquired reduced fair value company recorded charge 4200000 see note 2 cca companies incorporated notes consolidated financial statements continued note 14 subsequent events july august 1999 company received 125000 two investors purchase 166667 shares companys common stock market value 075 per share addition company agreed issue warrants purchase 83334 shares companys common stock 100 per share investors issued warrants exercisable immediately expire two three years issuance date october 1999 company obtained financing convertible note 350000 danville investments pty ltd australia danville loan subject interest rate 15 per annum payable full maturity loan april 2000 company obligated deposit monthly basis less 30000 separate bank account towards payment loan addition company also issued danville warrants purchase 700000 shares companys common stock 025 per share warrants expire three years grant date danville term note full amount loan repaid option convert outstanding principal plus accrued interest due loan shares common stock company conversion shall price equal fiveday average market closing price ending day prior day conversion company pledged principal payments interest management fees due company suriname leisure company security loan danville december 1999 exercised option convert principal loan plus accrued interest 10500 1481060 shares companys stock based five day average stock price 0132 per share november 1999 securities company delisted nasdaq small cap market delisting occurred due companys failure comply certain nasdaq marketplace rules relating bid price filing requirements nasdaq opinion company failed present definitive plan would enable attain compliance within reasonable period time sustain compliance panel also determined unable evaluate true extent companys compliance nasdaqs continued listing standards absence accurate complete publicly filed audited financial statements november 1999 company annual meeting stockholders granted board directors authority effect 1 10 reverse split common stock march 28 2000 board elected exercise authority effect reverse split expiration date action passed cca companies incorporated notes consolidated financial statements continued note 14 subsequent events continued december 1999 companys board directors agreed reprice exercise price 2095000 options warrants previously granted current directors executive officers 150 025 per share additionally board directors also approved issuance 1000000 options acquire shares common stock company price 025 per share tilden park ltd nominee dempster ceo president director company options expire four years grant date december 1999 company issued warrants investor past underwriter company acquire 450000 shares common stock past services rendered price 050 per share january 2000 companys board directors agreed issue 150000 shares companys common stock 013 per share one legal counsel services rendered company board directors also agreed reprice exercise price 212500 options previously granted two companys legal counsel 150 025 per share approved issuance additional warrants acquire 225000 shares common stock company price 025 per share january 2000 company borrowed 300000 stanton associates stanton entity controlled one companys directors interest loan shall calculated wall street journal prime rate payable monthly basis terms promissory note require company repay loan four monthly installments 15000 commencing february 2000 seven monthly installments 30000 commencing june 2000 final payment 30000 december 31 2000 company granted stanton security interest subordinated danvilles interests principal payments interest management fees due company suriname leisure company addition company also issued stanton warrants purchase 500000 shares companys common stock 025 per share warrants expire four years grant date march 2000 company borrowed 150000 galileo capital llc galileo utilizing convertible debt loan subject interest rate 10 per annum payable full maturity loan october 2000 company required pay six equal monthly installments 25000 commencing may 2000 term loan galileo option convert outstanding principal plus accrued interest due loan shares common stock company conversion price 025 per share galileo exercises conversion option receive one warrant exercisable 025 per share every four shares common stock acquires warrants issued conversion loan described terminate two years date issuance date underlying shares registered ever later additional consideration loan company issued 150000 warrants galileo purchase shares companys common stock warrants exercisable 025 per share expire two years date underlying shares registered item 14 exhibits financial statement schedules reports form 8k a1 financial statements document page report independent auditors balance sheet june 30 1997 statements operations period march 6 1996 date incorporation august 31 1996 ten months ended june 30 1997 period march 6 1996 date incorporation june 30 1997 statements changes stockholders equity period march 6 1996 date incorporation august 31 1996 ten months ended june 30 1997 statements cash flows period march 6 1996 date incorporation august 31 1996 ten months ended june 30 1997 period march 6 1996 date incorporation june 30 1997 notes financial statements a2 exhibits exhibit number description exhibits 31 certificate incorporation amendments thereto incorporated herein reference companys registration statement form s1 file 33316571 32 amendment companys certificate incorporation incorporated herein reference companys registration statement form s1 file 33316571 amendment 5 33 bylaws company incorporated herein reference companys registration statement form s1 file 33316571 42 form certificate evidencing shares common stock incorporated herein reference companys registration statement form s1 file 33316571 amendment 2 43 form underwriters warrant agreement company underwriter including form underwriters arrant incorporated herein reference companys registration statement form s1 file 33316571 amendment 5 exhibit number description exhibits 45 amendatory agreement dated november 6 1996 company ses family investment trading partnership lp incorporated herein reference companys registration statement form s1 file 33316571 46 form 10 debenture dated september 1996 incorporated herein reference companys registration statement form s1 file 33316571 47 form 10 convertible debenture dated november 1996 incorporated herein reference companys registration statement form s1 file 33316571 101 1996 stock option plan amended restated incorporated herein reference companys registration statement form s1 file 33316571 102 form stock option agreement incorporated herein reference companys registration statement form s1 file 33316571 103 distribution agreement dated october 9 1996 company agrotech 2000 sl incorporated herein reference companys registration statement form s1 file 33316571 amendment 4 104 employment agreement charles h stein company effective june 13 1997 105 form 500 warrant agreement dated august 1996 incorporated herein reference companys registration statement form s1 file 33316571 106 loan agreement dated october 9 1996 company conserver purchasing corporation cpu amended letter agreement dated december 31 1996 company cpc incorporated herein reference companys registration statement form s1 file 33316571 amendment 2 107 form financial consulting agreement company underwriter incorporated herein reference companys registration statement form s1 file 33316571 amendment 5 108 agreement dated august 12 1997 among company sakhalin trading investments limited sgti sovereign gaming leisure limited sovereign 109 amendment dated september 9 1997 august 12 1997 agreement among company sgti sovereign 1010 development services agreement dated october 2 1997 company dato david chiu 1011 consulting agreement effective august 14 1997 company star casino limited 1012 proposed form pledge agreement among company brian j bryce jasmine trustees ltd jay haft james v shelton 1013 hotel management agreement dated october 2 1997 company dorsett hotels resorts international ltd 1014 memorandum understanding dated august 20 1997 company arlene streilitz 1015 heads agreement dated october 3 1997 company parbhoes handelmij nv exhibit number description exhibits 271 financial data schedule b reports form 8k reports form 8k filed fourth quarter ended june 30 1997 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized conserver corporation america date october 14 1997 charles h stein charles h stein chairman board chief executive officer president pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated conserver corporation america development stage company n e x page report independent auditors balance sheet june 30 1997 statements operations period march 6 1996 date incorporation august 31 1996 ten months ended june 30 1997 period march 6 1996 date incorporation june 30 1997 statements changes stockholders equity period march 6 1996 date incorporation august 31 1996 ten months ended june 30 1997 statements cash flows period march 6 1996 date incorporation august 31 1996 ten months ended june 30 1997 period march 6 1996 date incorporation june 30 1997 notes financial statements report independent auditors board directors stockholders conserver corporation america coral gables florida audited accompanying balance sheet conserver corporation america development stage company june 30 1997 related statements operations changes stockholders equity cash flows period march 6 1996 date incorporation august 31 1996 ten months ended june 30 1997 period march 6 1996 date incorporation june 30 1997 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements enumerated present fairly material respects financial position conserver corporation america june 30 1997 results operations cash flows period march 6 1996 date incorporation august 31 1996 ten months ended june 30 1997 period march 6 1996 date incorporation june 30 1997 conformity generally accepted accounting principles discussed notes j company currently renegotiating distribution agreement view reduce pricing arrangements regarding cost purchasing conserver 21tm packets modify manufacturing arrangements favorable outcome negotiation achieved agreement terminate result material breach company could without current line business marketing conserver 21 results operations would adversely affected new york new york august 28 1997 respect note september 24 1997 respect notes k2 5 october 2 1997 respect notes k10 october 3 1997 conserver corporation america development stage company balance sheet june 30 1997 assets current assets cash equivalents 7715460 loan receivable note a4 1000000 bad debt reserve note 1000000 advances officers employees 26965 inventory notes b7 j 20000 prepaid expenses current assets 166783 total current assets 7929208 fixed assets net notes b2 c 21986 7951194 liabilities current liabilities accounts payable 292524 accrued expenses 173400 due officers employees 10678 convertible debentures net 60328 discount note 689672 accrued interest 55000 total current liabilities 1221274 commitments matters note g stockholders equity notes e preferred stock par value 01 5000 shares authorized none issued common stock par value 001 30000000 shares authorized 6385404 shares issued outstanding 6386 additional paidin capital 16672672 deficit accumulated development stage 9949138 total stockholders equity 6729920 7951194 see notes financial statements conserver corporation america development stage company statements operations see notes financial statements conserver corporation america development stage company statements changes stockholders equity note e see notes financial statements conserver corporation america development stage company statements cash flows see notes financial statements conserver corporation america development stage company notes financial statements note company 1 conserver corporation america company development stage company rights exclusive distribution product used retard spoilage decay food flowers commercial use united states canada company incorporated delaware march 6 1996 initially adopted fiscal year ending august 31 current year company elected change fiscal year end june 30 development stage company companys activities since inception primarily focused testing developing exploiting conserver 21tmproduct negotiating distribution arrangements raising debt equity financing public private recruiting management personnel respect conserver 21tm product 2 connection organization company 1666667 shares common stock subscribed conserver investments sa together certain affiliates referred hereinafter groupe conserver company series negotiated transactions repurchased 1366667 shares common stock aggregate sum 1800000 remaining 300000 shares common stock transferred november two persons designated company nonaffiliates company groupe conserver directors officers employees 3 march 1996 company entered distribution agreement certain groupe conserver entities exclusive marketing distribution rights conserver 21tm products united states canada conserver 21tm products designed preserve foodstuffs flowers groupe conserver obtained rights conserver xxi see note a4 may 1995 agreement amended october 1996 upon learning dispute conserver xxi groupe conserver threatened companys supply conserver 21tm company entered agreement conserver purchasing corporation purchasing unaffiliated delaware corporation whereby company purchasing would able acquire substantially identical marketing distribution rights conserver xxi event groupe conserver xxi could deliver product pursuant agreement company purchasing dated october 9 1996 subsequently amended december 31 1996 company lent purchasing 375000 purpose enabling purchasing acquire inventory conserver 21tm loans payable demand bearing interest rate 8 per annum collateralized lien purchasings inventory conserver 21tm june 1997 company accepted inventory full payment loans due establishment insolvency proceedings brussels regarding conserver investments sa controlling entity groupe conserver affiliates groupe conservers loss rights conserver xxi company terminated distribution agreement groupe conserver march 1997 4 march 1997 company entered distribution agreement agrotech 2000 sl agrotech company whose principal shareholder controlled conserver xxi establishing company exclusive licensee right import promote distribute market otherwise commercially exploit conserver 21tm products united states canada march 2022 subject extension company also holds option right first refusal exercise exclusive rights throughout world pursuant terms distribution agreement company fails purchase minimum 2000000 conserver 21tm products april 1997 april 1998 fails meet minimum annual purchase goals established agrotech may sell conserver 21tm customers united states canada loss exclusivity sell conserver 21tm products may negatively impact development company business conserver corporation america development stage company notes financial statements note company continued 4 continued distribution agreement automatically extends march 2022 renewable subsequent annual periods distribution agreement may terminated either party written notice 90 days prior end term distribution agreement terminated automatically case insolvency bankruptcy one parties ii may terminated either party substantial breach material provision party breaching party cured breach within 30 days written notice thereof pursuant distribution agreement agrotech right borrow 1000000 company may 1 1997 additional 500000 commencing ninety days initial public offering connection rights director company advanced 500000 agrotech behalf company may 1997 company repaid advance interest thereon 10 proceeds public offering additional 500000 advanced company june 1997 resulting 1000000 loan balance june 30 1997 company provided full reserve receivable balance terms distribution agreement company may obligated extend additional loan 500000 agrotech due current renegotiations company cannot determine present time whether additional loans made whether offsets available terms distribution agreement first 1000000 repayable threeyear period offset conserver 21tm purchases company excess 2000000 annually balance loan payable royalties may due agrotech sales three four year period company fail meet initial purchase commitment subsequent purchase commitments distribution agreement company could lose exclusive right sell conserver 21tm united states canada would materially adversely impact development companys business distribution agreement terminate result material breach company would able distribute conserver 21tm products accordingly company could without current line business marketing conserver 21 5 initial marketing efforts conserver 21tm packets united states indicated company needs renegotiate terms distribution agreement agrotech improve packaging conserver 21 packets company currently discussions agrotech view reduce pricing arrangements regarding conserver 21tm packets modify manufacturing arrangements packaging done united states management company currently discussions usbased company specializes packaging products comparable conserver 21tm identified usbased packaging plants capable packaging conserver 21 estimated packaging costs provided entities indicate company would able reduce wholesale costs conserver 21tm packets product packaged united states management believes cost reduction even partially offset increase royalty percentage paid agrotech would enable company competitively price packets level would profitable company assurance given however company able successfully renegotiate distribution agreement enter packaging arrangement third party satisfaction circumstances company would shift initial marketing efforts focus sale conserver 21tm filters assurance company would able successfully implement revised marketing strategy sustained impairment companys ability market conserver 21tm could significantly delay materially impair companys ability commercialize conserver 21tm conserver corporation america development stage company notes financial statements note company continued 6 november 1996 board directors approved 2128874 1 stock split december 1996 board directors approved 1066194 1 stock split subsequently april 1997 board directors approved reverse stock split cancel effect aforementioned two stock splits retroactively reflected financial statements note b summary significant accounting policies 1 use estimates preparation financial statements preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates 2 fixed assets office equipment carried cost depreciation provided using straightline method 5 years useful lives assets 3 loss per share common stock net loss per share common stock calculated dividing net loss applicable common stock weighted average shares common stock outstanding period common shares issued options warrants granted company prices less offering price twelve months preceding date initial public offering included calculation common shares outstanding since inception using treasury stock method initial public offering price 500 per share 4 income taxes company tax purposes operations net operating loss expenses preoperating accordingly capitalized amortized operations commence 5 stock based compensation company accounts employee stock based compensation including stock options pursuant accounting principles board apb opinion 25 disclosures required statement financial accounting standards 123 found note e1 financial statements 6 fair value financial instruments carrying value cash accounts notes payable approximates fair value shortterm maturity instruments 7 inventory stated lower cost determined firstin firstout basis market value conserver corporation america development stage company notes financial statements note b summary significant accounting policies continued 8 cash equivalents company considers money market accounts investments original maturities three months less time purchase cash equivalents times cash balances companys accounts may exceed federally insured limits 9 february 1997 financial accounting standards board issued statement financial accounting standards 128 earnings per share sfas 128 sfas 128 established new standards computing presenting earnings per share sfas 128 effective periods ending december 15 1997 effective per share data prior periods required restated company yet qualified effect adoption sfas 128 net earnings per share common stock financial accounting standards board recently issued statements financial accounting standards 129 disclosure information capital structure 130 reporting comprehensive income two pronouncements expected significantly change disclosure information presented companys financial statements note c fixed assets fixed assets june 30 1997 summarized follows office equipment 24150 less accumulated depreciation 2164 21986 note convertible debentures september november 1996 company issued oneyear 10 convertible subordinated debentures aggregate amount 750000 debentures accrued interest convertible common shares 500 per share subsequent year end holders 175000 debentures repaid 210000 debentures cancelled loan receivable note k3 holders 365000 remaining debentures elected convert notes shares common stock connection sale debentures company issued 62504 shares common stock valued 312500 accounted debt discount charged expense term note amortization discount ten months ended june 30 1997 approximately 252172 note e stockholders equity 1 stock options company applies apb opinion 25 related interpretations accounting employee stock option purchase plans october 1995 statement financial accounting standards 123 sfas 123 issued requires company elect either expense recognition disclosureonly alternative stock based employee compensation expense recognition provision encouraged sfas 123 would require fair value based financial accounting recognize compensation expense employee stock compensation plans company elected disclosureonly alternative conserver corporation america development stage company notes financial statements note e stockholders equity continued 1 stock options continued company computed pro forma disclosures required sfas 123 employee stock options granted august 31 1996 june 30 1997 using black scholes option pricing model prescribed sfas 123 weighted average fair value date grant options granted period ended august 31 1996 june 30 1997 375 130 per option respectively estimating value options pursuant accounting provisions financial accounting standards sfas 123 company used following assumptions august 31 june 30 1996 1997 risk free interest rate 6 7 expected life 3 years 4 6 years expected volatility 3 dividend yield 00 compensation cost measured using fair value provisions sfas 123 companys net loss net loss per share would 1395993 32 respectively period ended august 31 1996 8599495 159 respectively ten months ended june 30 1997 november 1996 later amended december 1996 april 1997 company adopted stock option plan authorizes granting incentive stock options nonincentive stock options maximum number shares common stock options may granted 1300000 shares june 30 1997 1055000 shares granted stock option plan stock option activity inside outside plan period march 6 1996 date incorporation august 31 1996 ten months ended june 30 1997 summarized follows conserver corporation america development stage company notes financial statements note e stockholders equity continued 1 stock options continued following table presents information relating stock options outstanding june 30 1997 june 30 1997 245000 options available future grant plan 2 warrants august 1996 company issued directors consultants threeyear warrants purchase 325000 shares companys common stock 500 per share warrants valued 457201 charged operations period ended august 31 1996 b connection 1000000 note subsequently repaid company issued warrants debt holder affiliate purchase 550000 shares common stock 2 per share warrants valued approximately 2040000 charged expense completion public offering time warrants issued 20000 shares previously issued common stock surrendered company c june 1997 company issued consultants warrants purchase 350000 shares common stock 575 per share warrants valued approximately 705000 charged operations ten months ended june 30 1997 3 common stock company reserved 3565000 shares common stock exercise options warrants 4 initial public offering june 1997 company completed initial public offering issued 2200000 shares common stock price 5 per share result offering company received net proceeds approximately 8859000 july 1997 company realized proceeds approximately 1448000 issued 330000 shares common stock connection overallotment provision underwriting agreement connection offering company granted underwriter warrants purchase 220000 shares common stock exercisable four year period 825 per share 5 private placement september october november 1996 company completed private placement issued 303000 shares common stock 5 per share aggregate 1515000 conserver corporation america development stage company notes financial statements note f related party transactions company incurred approximately 75000 149000 legal fees related party march 6 1996 date incorporation august 31 1996 ten months ended june 30 1997 respectively including free legal services amounting 60000 ten months ended june 30 1997 recorded additional paidin capital note g commitments matters 1 employment contract company entered threeyear employment contract charles h stein president chief executive officer company took effect upon consummation companys public offering securities mr stein also member board directors contract provides annual salary amount less 125000 threeyear noncompete clause upon termination periods ended august 31 1996 june 30 1997 mr stein receive salary accordingly company recorded compensation charges periods amount based upon employment agreement 125000 per year contribution capital salary expense recorded period march 6 1996 date incorporation august 31 1996 ten months ended june 30 1997 65000 105000 respectively date filing chief executive officer continued waive right take salary board directors accepted mr steins waiver reserved right award mr stein sole discretion amounts waived 2 return subscription funds based companys review investors subscription documents prior acceptance issuance shares investors certain individuals subscribed shares companys common stock found qualified investors within meaning rules promulgated securities act 1933 amended accordingly subsequent august 31 1996 company returned 90000 subscription amounts note h income taxes company tax purposes operations net operating loss expenses preoperating accordingly capitalized amortized operations commence note agrotech distribution agreement pursuant distribution agreement agrotech note a4 company required purchase minimum 2000000 conserver 21tm april 1998 pay royalties 4 net revenues generated commercial use product company fails meet required minimum company could lose exclusivity sell conserver 21tm products conserver corporation america development stage company notes financial statements note agrotech distribution agreement continued distribution agreement also requires company make loans agrotech 1500000 terms distribution agreement first 1000000 loan repayable three year period offset conserver 21tm purchases excess 2000000 annually balance loan payable royalties may due agrotech sales threetofour year period connectin rights director behalf company advanced 500000 agrotech may 1997 company repaid director interest thereon 10 proceeds public offering additional 500000 advanced company june 1997 resulting 1000000 loan balance due agrotech june 30 1997 terms distribution agreement company may obligated extend additional loan 500000 agrotech due current renegotiations company cannot determine present time whether additional loans made whether offsets available company fail meet initial purchase commitment subsequent purchase commitments distribution agreement company could lose exclusive right sell conserver 21tm united states canada would materially adversely impact development companys business distribution agreement terminate result material breach company would able distribute conserver 21tm products accordingly company could without current line business marketing conserver 21 initial marketing efforts conserver 21tm packets united states indicated company needs renegotiate terms distribution agreement agrotech improve packaging conserver 21 packets company currently discussions agrotech view reduce pricing arrangements regarding conserver 21tm packets modify manufacturing arrangements packaging done united states management company currently discussions usbased company specializes packaging products comparable conserver 21tm identified usbased packaging plants capable packaging conserver 21 estimated packaging costs provided entities indicate company would able reduce wholesale costs conserver 21tm packets product packaged united states management believes cost reduction even partially offset increase royalty percentage paid agrotech would enable company competitively price packets level would profitable company result manufacturing difficulties status renegotiations management believes exceeding initial volume commitment necessary offset companys purchases agrotech loan amount remote accordingly company established reserve equal loan amount note j writedown inventory initial purchases conserver 21tm company indicated certain manufacturing limitations packaging process product light limitations unmarketability certain inventory purchased company wrotedown 355000 conserver 21tm inventory june 30 1997 conserver corporation america development stage company notes financial statements note k subsequent events subsequent june 30 1997 company entered following transactions 1 office lease august 1997 company entered fiveyear operating lease office space florida expected commence october 1 1997 upon move future minimum rental payments pursuant thereto follows year ending june 30 amount 1998 66006 1999 88007 2000 88007 2001 88007 2002 88007 thereafter 22002 440036 rent expense period march 6 1997 date incorporation august 31 1996 ten months ended june 30 1997 9552 127574 respectively 2 new business opportunities august 1997 company announced considering diversifying beyond sole line business marketing otherwise commercially exploiting conserver 21tm principal line business exploring possible new line business hotel casino industry new line business connection new line business subject requisite stockholder approval company entered agreement acquire certain rights develop hotel casino project yuzhnosakhalinsk sakhalin island russian federation sakhalin project located 20 minutes air sapporo japan ii entered agreement dato david chiu provide certain development services respect sakhalin project iii reached agreement manage certain hotels dorsett hotels resorts international including hotels presently operating developed united states bali australia canada cambodia malaysia thailand iv entered several related agreements collectively new business opportunities agreements approved companys stockholders provide issuance company certain circumstances subject completion certain terms obligations thereunder 5500000 shares common stock options purchase 600000 shares common stock company anticipates initial capital required proposed new business opportunities would provided proceeds sale additional common stock andor securities company private offerings special meeting stockholders company anticipated held december 1997 companys stockholders asked consider vote series proposals would result company diversifying beyond sole line business promoting marketing distributing selling otherwise exploiting conserver 21tm entering new line business new business opportunities proposed new line business new business opportunities subject requisite stockholder approval company entered agreement dated august 12 1997 sakhalin agreement amended september 9 1997 subject receipt requisite approval companys stockholders sakhalin general trading investments sgti sovereign gaming leisure limited sovereign limited liability company organized laws cyprus pursuant company right acquire share capital sgti includes sgtis rights interest project develop sakhalin project b sgtis ownership interest 50 shares sakhalin city centre limited scc closed joint stock company incorporated laws russian federation turn holds certain rights including guarantee city yuzhnosakhalinsk issue gaming license scc ii rights interest sakhalin project held sovereign including certain operating project management agreements respect project collectively shares rights conserver corporation america development stage company notes financial statements note k subsequent events continued 2 new business opportunities continued consideration shares rights company required deliver sgti stockholders initial payment 500000 paid additional payments 1000000 october 15 1997 1500000 october 31 1997 well 1538462 shares companys common stock issuable upon receipt requisite stockholder approval upon completion companys due diligence company conclude reason wish proceed sakhalin project transactions contemplated sakhalin agreement company right convert cash portion purchase price delivered sgti shares sgti conversion rate one ordinary share sgti 30 delivered company currently 230000 shares outstanding investment sgti likely illiquid assurance company recoup cash paid sakhalin agreement sakhalin agreement provides upon request company sovereign would become project manager construction phase sakhalin project subject agreement reasonable compensation services shall exceed 5 construction cost project 5000000 whichever less connection execution sakhalin agreement companys approval sgti acquired 15 share capital scc certain shareholders resulting sgti owning 65 share capital scc consideration exchange purchase price payable company shares sgti sakhalin agreement increase 461538 shares companys common stock including transaction aggregate total consideration shares rights payable company sgti shareholders 3000000 2000000 shares companys common stock furthermore companys understanding 3000000 cash portion purchase price paid sgti used sgti loan scc sgti holds 65 interest initial development costs sakhalin project october 2 1997 company entered agreement development services agreement datomicron david chiu pursuant company subject approval stockholders subject company acquiring shares sgti would result company owning 65 share capital scc would described transfer chiu 3846 share capital sgti would issue chiu share convertible preferred stock would convert certain specified conditions circumstances 1500000 shares common stock development services agreement provides chiu provide certain development services company connection sakhalin project including using best efforts procure secure necessary debt financing guarantees behalf company subsidiaries affiliates complete turnkey construction sakhalin project financing mutually acceptable terms sakhalin project currently estimated us100 million shares common stock shares sgti issued chiu consideration services issued date mutual execution company nominated affiliate legally enforceable binding agreement lender terms acceptable company sgti scc provide financing realized contemplated pursuant development services agreement company investors sakhalin project would required obtain additional financing behalf scc variety sources including borrowings bank credit facilities sales securities placement term debt construct hotel casino chiu also agreed shall period three years date issuance transfer applicable shares received development services agreement voluntarily involuntarily directly indirectly sell contract sell grant right purchase exchange mortgage pledge hypothecate give bequeath transfer assign encumber alienate way whatsoever dispose hereinafter collectively called transfer shares including options warrants respect shares received way dividend upon increase reduction substitution reclassification combination stock company upon reorganization company applicable notwithstanding foregoing chiu may transfer shares affiliate subject companys consent shall unreasonably withheld chiu also agreed three years issuance date shares give company irrevocable proxy full power substitution vote matters company deems appropriate respect shares meetings stockholders company means written consent stockholders respect matters company designated charles h stein chairman president chief executive officer company authorized person exercise aforementioned voting rights behalf company time mr stein incapacitated act furthermore development services agreement provides event chiu wishes sell part shares three year period described company shall first option purchase part shares chiu agreed give company written notice thereof intent conserver corporation america development stage company notes financial statements note k subsequent events continued 2 new business opportunities continued sell shares company right purchase said shares price equal closing price per share reported nasdaq reported wall street journal date written notice given company ii price offered chiu unaffiliated third party competitor company irrevocable unconditional bona fide written offer bona fide offer applicable company right purchase portion shares giving chiu written notice later 10 business days written notice provided company event company fails exercise option chiu right sell shares third party price offered company without obligations sell shares company however shares sold pursuant bona fide offer within 30 days receipt company chius notice intent sell unsold shares shall remain subject terms development services agreement assuming consummation transactions contemplated company chiu would respective interests sgti 40 25 interest scc respectively remaining 35 interests would continue held 20 city yuzhnosakhalinsk 15 sakhalin oblast regional government october 2 1997 company entered agreement hotel management agreement dorsett hotels resorts international ltd dorsett company controlled chiu pursuant company directly subsidiary would act exclusive operator manager certain hotels owned dorsett consideration dorsett entering hotel management agreement company subject requisite approval companys stockholders would issue dorsett aggregate 2000000 shares conserver common stock upon specified conditions satisfied ii pay dorsett 3000000 hotel management agreement provides twenty year exclusive operating agreements respect management dallas grand hotel dallas texas dorsett regency bali indonesia rockmans regency melbourne australia well operating agreements substantially similar terms five hotels scheduled open within next two years company pursuant terms operating agreement hotel managed would entitled management fees equal three percent gross revenues plus ten percent gross operating profits addition company receive service fees equal four percent gross revenues marketing promotion advertising expenses well additional onehalf one percent gross revenues training costs used turn fund expenses operating agreement would provide event dorsett terminates agreement reason material breach company would entitled termination fee termination fee shall calculated based formula remaining number years agreement multiplied factor event company terminated first five years agreement factor shall sum actual fees paid payable company based revenues generated date plus fees payable company based projected revenues rest year ii event termination first five years factor shall average fees paid payable company preceding two years iii event termination first ten years factor shall average fees paid payable company preceding three years hotel management agreement consummated subject requisite stockholder approval company plans add management team experience major international hotel chains operation management hotels leisure time activities worldwide conserver corporation america development stage company notes financial statements note k subsequent events continued 2 new business opportunities continued dorsett agreed shall period three years date issuance transfer applicable shares received hotel management agreement voluntarily involuntarily directly indirectly sell contract sell grant right purchase exchange mortgage pledge hypothecate give bequeath transfer assign encumber alienate way whatsoever dispose hereinafter collectively called transfer shares including options warrants respect shares received way dividend upon increase reduction substitution reclassification combination stock company upon reorganization company applicable notwithstanding foregoing dorsett may transfer shares subsidiary affiliate dorsett subject companys consent shall unreasonably withheld dorsett also agreed three years issuance date shares dorsett agrees give company irrevocable proxy full power substitution vote matters company deems appropriate respect shares meetings stockholders company means written consent stockholders respect matters company designated charles h stein chairman president chief executive officer company authorized person exercise aforementioned voting rights behalf company time mr stein incapacitated act furthermore hotel management agreement provides event dorsett wishes sell part shares three year period described company shall first option purchase part shares dorsett agreed give company written notice thereof intent sell shares company right purchase said shares price equal closing price per share reported nasdaq reported wall street journal date written notice given company ii price offered dorsett unaffiliated third party competitor company irrevocable unconditional bona fide written offer bona fide offer applicable company right purchase portion shares giving dorsett written notice later 10 business days written notice provided company event company fails exercise option dorsett right sell shares third party price offered company without obligations sell shares company however shares sold pursuant bona fide offer within 30 days receipt company dorsetts notice intent sell unsold shares shall remain subject terms hotel management agreement addition direct issuance shares companys common stock connection foregoing transactions company anticipates funding cash portion initial capital required proposed new line business new business opportunities provided proceeds private sale additional common stock andor securities company private offerings 3 loan investments august 1997 company made 210000 loan investments inc due september 24 1997 bearing interest 10 per annum june 30 1997 investments 210000 convertible debenture holder connection loan pledged conserver rights convertible debt september 24 1997 lieu demanding payment loan conserver elected deduct amounts due loan amounts payable conserver debenture connection transaction investments signed lockup agreement respect securities conserver holds conserver corporation america development stage company notes financial statements note k subsequent events continued 4 options granted july 1997 company issued four year options accordance stock option plan purchase 37500 shares common stock 550 per share options vest immediately august 1997 company issued four year options employees purchase 40000 shares common stock 613 per share also august 1997 company committed issue four year options two directors purchase aggregate 500000 shares common stock 613 per share contingent upon approval shareholders company enter new line business new business opportunities 5 consulting agreement august 14 1997 company entered agreement star casinos limited act casino consultant commencing date stockholders approve agreements respect sakhalin project commencement date period october 1 1997 commencement date consultant paid company fee 21000 month plus reimbursement reasonable expenses commencement date consultant paid annual compensation 250000 year two years granted three year option buy 100000 shares companys stock 650 per share vesting 50 anniversary commencement date consultant also paid bonus 250000 end two year commitment 6 private placement officers company authorized board directors proceed private placement raise 9000000 either issuance treasury shares convertible debt final terms private placement shall approved board 7 international marketing efforts company engaged negotiating various license joint venture agreements companies israel japan canada effort market conserver 21tm territories outside continental united states company signed memorandum understanding israeli company foregoing represent agreements principle binding 8 stock issuance company issued 5000 shares common stock july 1997 consultant services connection providing business introductions prospective customers general corporate advice 9 warrants granted august 1997 company issued four year warrants purchase 100000 shares common stock 650 per share options vest immediately 10 october 3 1997 company entered agreement principle parbhoe handelmij nv surinamese limited liability company create joint venture company develop casino project paramaribo capital city surinam former dutch guyana pursuant agreement joint venture company also enter operating agreement company manage casino exhibit index exhibit number description exhibits 104 employment agreement charles h stein company effective june 13 1997 108 agreement dated august 12 1997 among company sakhalin trading investments limited sgti sovereign gaming leisure limited sovereign 109 amendment dated september 9 1997 august 12 1997 agreement among company sgti sovereign 1010 development services agreement dated october 2 1997 company dato david chiu 1011 consulting agreement effective august 14 1997 company star casino limited 1012 proposed form pledge agreement among company brian j bryce jasmine trustees ltd jay haft james v shelton 1013 hotel management agreement effective october 2 1997 company dorsett hotels resorts international ltd 1014 memorandum understanding dated august 20 1997 company arlene streilitz 1015 heads agreement dated october 3 1997 company parbhoes handelmij nv 271 financial data schedule item 14 exhibits financial statements schedules reports form 8k a1 financial statements exhibit number description exhibits 2 contract extension concession period operation casino dated 21 july 1997 issued minister finance favour roulette loan agreement dated 9 april 1998 roulette dorsett providing us 420000 loan roulette amendment no1 dated 5 june 1998 agreement dated 3 april 1998 cbc juste dorsett incorporated reference companys form 10q period ended september 30 1998 31 certificate incorporation amendments thereto incorporated herein reference companys registration statement form s1 file 33316571 32 amendment companys certificate incorporation incorporated herein reference companys registration statement form s1 file 33316571 amendment 5 33 amendment companys certificate incorporation incorporated herein reference companys proxy statement dated november 27 1997 34 bylaw company incorporated herein reference companys registration statement form s1 file 33316571 42 form certificate evidencing shares common stock incorporated herein reference companys registration statement form s1 file 33316571 amendment 2 43 form underwriters warrant agreement company underwriter janssenmeyers associates lp including form underwriters warrant incorporated herein reference companys registration statement form s1 file 33316571 amendment 5 45 amendatory agreement dated november 6 1996 company ses family investment trading partnership lp incorporated herein reference companys registration statement form s1 file 33316571 46 form 10 debenture dated september 1996 incorporated herein reference companys registration statement form s1 file 33316571 47 form 10 convertible debenture dated november 1996 incorporated herein reference companys registration statement form s1 file 33316571 101 1996 stock option plan amended restated incorporated herein reference companys registration statement form s1 file 33316571 102 form stock option agreement incorporated herein reference companys registration statement form s1 file 33316571 103 distribution agreement dated october 9 1996 company agrotech 2000 sl incorporated herein reference companys registration statement form s1 file 33316571 amendment 4 104 employment agreement charles h stein company effective june 13 1997 105 form 500 warrant agreement dated august 1996 incorporated herein reference companys registration statement form s1 file 33316571 106 loan agreement dated october 9 1996 company conserver purchasing corporation cpu amended letter agreement dated december 31 1996 company cpc incorporated herein reference companys registration statement form s1 file 33316571 amendment 2 107 form financial consulting agreement company underwriter incorporated herein reference companys registration statement form s1 file 33316571 amendment 5 108 agreement dated august 12 1997 among company sakhalin trading investments limited sgti sovereign gaming leisure limited sovereign incorporated herein reference exhibit 108 companys form 10k fiscal year ended june 30 1997 109 amendment dated august 12 1997 among company sgti sovereign incorporated herein reference exhibit 109 companys form 10k fiscal year ended june 30 1997 1010 development services agreement dated october 2 1997 company dato david chiu incorporated herein reference exhibit 1010 companys form 10k fiscal year ended june 30 1997 1011 consulting agreement effective august 14 1997 company star casino limited incorporated herein reference exhibit 1011 companys form 10k fiscal year ended june 30 1997 1012 proposed form pledge agreement among company brian j bryce jasmine trustees ltd jay haft james v stanton incorporated herein reference exhibit 1012 companys form 10k fiscal year ended june 30 1997 1013 hotel management agreement dated october 2 1997 company dorsett hotels resorts international ltd incorporated herein reference exhibit 1013 companys form 10k fiscal year ended june 30 1997 1015 heads agreement dated october 3 1997 company parbhoes handelmij nv incorporated herein reference exhibit 1015 companys form 10k fiscal year ended june 30 1997 132 form 10q quarterly period ended march 31 1998 incorporated herein reference 161 letter change certifying accountant incorporated herein reference companys form 8k dated december 18 1997 form 8k dated june 16 1998 271 financial data schedules b reports form 8k one report form 8k dated june 16 1998 filed fourth quarter ended june 30 1998 incorporated reference related retention companys current accountants signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized cca companies incorporated miles r greenberg miles r greenberg december 15 1998 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated cca companies incorporated contents report independent certified public accountants board directors stockholders cca companies incorporated audited accompanying consolidated balance sheet cca companies incorporated subsidiaries june 30 1998 related consolidated statements operations stockholders equity cash flows year ended financial statements responsibility companys management responsibility express opinion financial statements based audit conducted audit accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion consolidated financial statements referred present fairly material respects financial position cca companies incorporated subsidiaries june 30 1998 results operations cash flows year ended conformity generally accepted accounting principles accompanying financial statements prepared assuming company continue going concern discussed note 1 consolidated financial statements companys dependence outside financing recurring losses since inception significant outflows cash operations raise substantial doubt ability continue going concern managements plans regard matters described note 1 consolidated financial statements include adjustments might result outcome uncertainty miami florida bdo seidman llp december 15 1998 report independent auditors board directors stockholders cca companies incorporated coconut grove florida audited accompanying balance sheet conserver corporation america known cca companies incorporated development stage company june 30 1997 related statements operations changes stockholders equity cash flows period march 6 1996 date incorporation august 31 1996 ten months ended june 30 1997 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements enumerated present fairly material respects financial position conserver corporation america known cca companies incorporated june 30 1997 results operations cash flows period march 6 1996 date incorporation august 31 1996 ten months ended june 30 1997 conformity generally accepted accounting principles company currently renegotiating distribution agreement agrotech 2000 sl reduce cost purchasing conserver 21 trademark packets modify manufacturing arrangements favorable outcome negotiation achieved agreement terminate result material breach company could without current line business marketing conserver 21 trademark results operations would adversely affected richard eisner company llp new york new york august 28 1997 respect note 6 september 24 1997 respect note 2 october 2 1997 october 3 1997 cca companies incorporated consolidated balance sheets see accompanying summary accounting policies notes consolidated financial statements cca companies incorporated consolidated statements operations see accompanying summary accounting policies notes consolidated financial statements cca companies incorporated consolidated statements stockholders equity see accompanying summary accounting policies notes consolidated financial statements cca companies incorporated consolidated statements stockholders equity see accompanying summary accounting policies notes consolidated financial statements cca companies incorporated consolidated statements cash flows cca companies incorporated consolidated statements cash flows cca companies incorporated summary significant accounting policies company cca companies incorporated formerly known conserver corporation america company incorporated laws state delaware march 6 1996 initially adopted fiscal year ending august 31 subsequently company elected change fiscal year end june 30 fiscal year ended june 30 1998 company changed name cca companies incorporated company considered development stage company march 1998 subsidiaries joint subsidiaries sakhalin general trading venture investments ltd sakhalin city center ltd basis presentation dorsett hotels resort international msnd bhd dorsett hotel resorts inc suriname leisure company avv joint venture based operating cyprus russian federation malaysia united states suriname respectively functional currency statutory purposes us dollar russian ruble malaysian ringgit us dollar suriname guilder respectively reporting currency us dollar financial statements translated united states dollars us using methodology consistent statement financial accounting standards sfas 52 foreign currency translation assets liabilities translated us rate prevailing balance sheet dates statements operations translated functional currency us using average exchange rate applicable period june 30 1998 cumulative foreign currency translation adjustment insignificant therefore disclosed separate component stockholders equity exchange gains losses approximately 79000 period ended june 30 1998 included general administrative expenses accompanying consolidated statements operations exchange gains losses periods ended june 30 1997 august 31 1996 cca companies incorporated summary significant accounting policies principles accompanying consolidated financial statements consolidation include accounts cca subsidiaries joint venture collectively company consolidates 50 joint venture since controls board directors responsible management casino operations required fund operations intercompany transactions balances eliminated consolidation minority interest related subsidiaries joint venture currently reflected financial statements due fact minority shareholders required fund losses companies joint venture use estimates preparation financial statements conformity preparation generally accepted accounting principles financial requires management make estimates assumptions statements affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates impairment longlived company adopted statement financial assets accounting standards sfas 121 accounting impairment longlived assets longlived assets disposed 1996 provisions statement company evaluated longlived assets financial impairment continue evaluate events changes circumstances indicate carrying amount assets may fully recoverable company evaluates recoverability longlived assets measuring carrying amount assets estimated undiscounted future cash flows associated time evaluations indicate future undiscounted cash flows longlived assets sufficient recover carrying value assets adjusted fair values cca companies incorporated summary significant accounting policies year ended june 30 1998 company recorded charge 4200000 result financial impairment several longlived assets see note 2 cash equivalents company considers investments original maturities three months less time purchase cash equivalents times cash balances companys account may exceed federally insured limits property equipment recorded cost equipment depreciation amortization computed leasehold straight line method based estimated useful improvements lives 35 years related assets leasehold improvements amortized shorter life asset lease excess cost fair excess cost fair value assets acquired value sakhalin general trading investments ltd assets acquired sgti amortized straightline basis estimated future periods benefited 30 years see note 2 annual basis company reviews recoverability excess cost fair value assets acquired makes adjustments required income taxes purpose financial statements company adopted provisions sfas 109 accounting income taxes periods presented asset liability method sfas 109 deferred taxes recognized differences financial statement income tax bases assets liabilities preferred stock company authorized issue 5000000 shares 001 par value junior preferred stock additional designations powers preferences rights qualifications limitations restrictions may designated companys board directors time cca companies incorporated summary significant accounting policies earnings per share effective december 31 1997 company adopted financial accounting standards sfas 128 earnings per share simplifies computation earnings per share requiring restatement prior periods basic net loss per share common stock based weighted average number common shares outstanding period diluted loss per share common stock computed basis weighted average number common shares common shares equivalent securities outstanding dilutive securities antidilutive effect excluded calculation weighted average number common shares outstanding periods presented retroactively reflects effects companys stock split note 12 options amounting 3177500 1970000 135000 warrants amounting 2260678 1225000 325000 year ended june 30 1998 ten month period ended june 30 1997 period march 6 1996 inception august 31 1996 respectively included computation net loss per common stock diluted antidilutive effect stock based october 1995 fasb issued sfas 123 compensation accounting stock based compensation sfas 123 establishes fair value method accounting stockbased compensation plans either recognition disclosure company adopt fair value based method employees instead disclose pro forma effects calculation required statement future accounting statement financial accounting standards sfas pronouncements 130 reporting comprehensive income establishes standards reporting display comprehensive income components cca companies incorporated summary significant accounting policies accumulated balances comprehensive income defined include changes equity except resulting investments owners distributions owners among disclosures sfas 130 requires items required recognized current accounting standards components comprehensive income reported financial statement displayed prominence financial statements sfas 130 material impact companys financial statements since requirements deal mainly financial disclosures statement financial accounting standards sfas 131 disclosures segments enterprise related information supersedes sfas 14 financial reporting segments business enterprise sfas 131 establishes standards way public companies report information operating segments annual financial statements requires reporting selected information operating segments interim financial statements issued public also establishes standards disclosures regarding products services geographic areas major customers sfas 131 defines operating segments components company separate financial information available evaluated regularly chief operating decision maker deciding allocate resources assessing performance new standard effective financial statements periods beginning december 15 1997 require comparative financial information earlier years restated due recent issuance standard management unable fully evaluate impact may future financial statement disclosures june 1998 financial accounting standards board issued sfas 133 accounting derivative instruments hedging activities sfas 133 requires companies recognize derivatives contracts either assets liabilities cca companies incorporated summary significant accounting policies balance sheet measure fair value certain conditions met derivative may specifically designated hedge objective match timing gain loss recognition hedging derivative recognition changes fair value hedged asset liability attributable hedged risk ii earnings effect hedged forecasted transaction derivative designated hedging instrument gain loss recognized operations period change sfas 133 effective fiscal quarters fiscal years beginning june 15 1999 historically company entered derivatives contracts either hedge existing risks speculative purposes accordingly company expect adoption new standard july 1 1999 affect consolidated financial statements reclassifications certain prior year balances reclassified conform 1998 presentation cca companies incorporated notes consolidated financial statements 1 liquidity accompanying consolidated financial statements prepared assuming company continue going concern basis accounting contemplates recovery companys assets satisfaction liabilities normal course operations since inception company developing food technology product exploring new lines business hotel casino industry companys ultimate ability attain profitable operations dependent upon obtaining additional financing adequate complete construction activities achieve budgeted level operations june 30 1998 company incurred losses totaling 22492210 raises substantial doubt ability continue going concern company process discussing various potential investors andor lenders possibility obtaining additional funds 2 3 million company currently seeking capital debt financing order enable continue operation casino hotel business ii complete suriname casino note 2 realize casinos cash flow potential iii pay material expenses continuing negotiations sakhalin project note 2 maintaining position project however assurance company successful consummating plans consummated enable company attain profitable operations continue going concern 2 new line august 1997 company announced business diversifying beyond sole line business new business marketing distributing otherwise commercially opportunities exploiting food technology product exploring new line business hotel casino industry new line business special meeting stockholders company held december 2 1997 companys stockholders voted approved various proposals regarding new line business new business cca companies incorporated notes consolidated financial statements opportunities described herein sakhalin agreement company entered stock purchase agreement dated october 24 1997 sakhalin agreement sgti sovereign gaming leisure limited sovereign limited liability company organized laws cyprus pursuant company would acquire outstanding shares sgti includes sgtis rights interest project develop sakhalin project b sgtis ownership interest 65 sakhalin city centre ltd scc closed joint stock company incorporated laws russian federation turn holds certain rights including guarantee city yuzhnosakhalinsk issue gaming license scc ii rights interest sakhalin project held sovereign including certain operating project management agreements respect sakhalin project collectively shares rights december 12 1997 company completed acquisition 100 shares sgti thus acquired indirect interest 65 scc ii acquired rights interests sovereign certain operating project management agreements related sakhalin project iii issued 2000000 shares common stock owners sgti addition required sakhalin agreement consideration shares rights company made advances 3000000 eliminated intercompany sgti companys common stock valued 520 per share date acquisition completed value attributed 2000000 shares companys common stock issued owners sgti 10400000 addition options purchase 300000 200000 shares common stock exercise price equal 6125 per share issued two directors options cca companies incorporated notes consolidated financial statements valued 1091800 based blackscholes option pricing model capitalized part purchase price sgti connection sovereign project management agreement company issued 200000 shares common stock companys common stock valued 525 date agreement entered thus value attributed shares 1050000 mr dallas dempster companys president chief operating officer chief executive officer paid consultant sovereign gaming leisure ltd assigned company 1994 construction management agreement 1994 operation management agreement scc company believes hold currently holds beneficial interest stock sovereign september 1998 mr dempsters nominee dabus international limited benefit family granted nonplan options purchase 1000000 shares companys common stock 150 per share aquisition accounted purchase accordingly results operations sgti included companys consolidated financial statements since date acquisition excess aggregate purchase price fair market value net assets acquired 10544300 amortized straight line basis 30 years transaction recorded follows following unaudited pro forma summary presents results operations company acquisition occurred september 1 1996 unaudited pro forma assumes amortization goodwill amounting 10544300 30 years sakhalin agreement provides upon request company sovereign agrees become project manager construction phase sakhalin project subject agreement reasonable compensation services shall exceed 5 construction cost sakhalin project 5000000 whichever less b development services agreement october 2 1997 company entered agreement development services agreement david chiu pursuant company would described transfer chiu 3846 cca companies incorporated notes consolidated financial statements share capital sgti would issue chiu one share convertible junior preferred stock company convertible preferred stock share would convert specified conditions certain circumstances 1500000 shares common stock company development services agreement provides chiu provide certain development services company connection sakhalin project including using best efforts procure secure necessary debt financing guarantees complete turnkey construction sakhalin project financing mutually acceptable terms construction costs sakhalin project currently estimated 100 million shares common stock underlying convertible preferred stock share shares sgti issued chiu consideration services issued date mutual execution company nominated affiliate legally enforceable binding agreement lender terms acceptable company sgti scc provide financing event chiu unable procure secure necessary financing guarantees acceptable company accordance development services agreement convertible junior preferred stock share issued mr chiu would convert 1500000 shares common stock company currently effect 3846 interest chiu would receive company reflected financial statements since able procure necessary financing company currently believe chiu able procure necessary financing thus currently exploring financing options furthermore development services agreement provides event chiu wishes sell part shares cca companies incorporated notes consolidated financial statements three year period described company shall first option purchase part shares chiu company right purchase said shares price equal closing price per share reported nasdaq reported wall street journal date written notice given company ii price offered chiu unaffiliated third party competitor company irrevocable unconditional bona fide written offer bona fide offer applicable development service agreement expired august 1998 c consummation sakhalin agreement development services agreement assuming consummation transactions contemplated company chiu would respective shares sgti 40 25 interest scc respectively remaining 35 interests would continue held 20 city yuzhnosakhalinsk 15 sakhalin oblast regional government sakhalin casino consulting agreement august 14 1997 company entered agreement casino consulting agreement commenced december 2 1997 star casinos limited consultant whereby consultant agreed provide consulting technical services company affiliated entities period two years respect development ongoing operations sakhalin project casino terms casino consulting agreement consultant receive fee 21000 per month plus reimbursement reasonable expenses term agreement adjusted pro rata partial month service ii options purchase 100000 shares companys common stock 650 per share 50 options becoming exercisable first second anniversary cca companies incorporated notes consolidated financial statements dates commencement date expiring third anniversary date based blackscholes option pricing model options valued 140000 company recorded consulting charge 140000 connection issuance options end term agreement provided consultant breach casino consulting agreement consultant also entitled receive 250000 bonus company paid consultant 189000 42000 paid prior entering agreement plus reimbursement reasonable expenses year ended june 30 1998 agreement also binds consultant twoyear noncompete nonsolicitation provision currently consultant appointed president companys casino division e hotel management agreement october 2 1997 company entered agreement hotel management agreement dorsett hotels resorts international ltd dorsett company 100 percent controlled chiu pursuant company acts exclusive operator manager certain hotels owned dorsett hotel management agreement provides twenty year exclusive operating agreements respect management eight hotels parties amended hotel management agreement january 28 1998 whereby consideration dorsett entering hotel management agreement amended issuance dorsett aggregate 800000 shares andor options purchase shares companys common stock upon specific conditions satisfied ii pay dorsett 1000000 amended hotel management agreement appoints company exclusive operator dorsett regency bali dorsett resort seremban dorsett court angkor wat dorsett hotel phuket pursuant amended hotel management agreement company paid dorsett 1000000 cca companies incorporated notes consolidated financial statements granted shares companys common stock since conditions precedent issuance yet satisfied subsequent execution hotel management agreement dorsett company notified mr chiu far east consortium international ltd fec owner certain hotels included october 2 1997 agreement would require separate agreement company terms conditions similar dorsett hotel management agreement january 25 1998 company entered amendment hotel management agreement separate agreement fec hotel management agreement fec whereby cca appointed exclusive operator manager dallas grand hotel dallas rockmans regency melbourne dorsett regency kuala lumpur radisson plaza edmonton consideration fec receiving upon execution fec hotel management agreement 1500000 company granting fec right receive 1200000 shares common stock company price 3675 1200000 shares common stock granted fec granted upon delivery duly executed legally enforceable hotel management contract relating following hotels 275000 shares allocated dallas grand hotel 400000 shares allocated rockmans regency 275000 shares allocated dorsett regency 250000 shares allocated radisson plaza pursuant fec hotel management agreement company paid fec 1500000 issued fec 950000 shares companys common stock price 3675 fair value shares granted 3491250 f tradename january 30 1998 company entered agreement chiu acquire outstanding common stock dorsett hotel resort international ltd dorsett rights trademarks tradenames license rights dorsett tradename well provides hotels resorts cca companies incorporated notes consolidated financial statements management services purchase price stocks 500000 allocated company tradename amortized straightline basis 20 year period amortization expense related tradename 12500 year ended june 30 1998 g november 1998 termination settlement connection problems encountered hotel management agreement fec hotel management agreement company negotiations owners hotels chiu represented company sole stockholder dorsett international representatives parties hma parties hotel management agreements successor dorsett hotels resort international ltd party case four hotels indonesia seremban malaysia cambodia thailand far east consortium international ltd party case four hotels malaysia kuala lumpur australia canada texas november 41998 company entered settlement agreement november settlement agreement hma parties far east consortium limited subsidiaries mr chiu pursuant agreement company paid 450000 cash returned 700000 shares common stock retained 1625000 theretofore paid company management fees loans various obligations related hotel management operations taken parties company parties agreement waived claims matters rescinded agreements june 30 1998 carrying value related assets reduced fair value based terms settlement agreement accordingly company recorded charge cca companies incorporated notes consolidated financial statements 4200000 write carrying amount management contract agreements tradenames charge reflected accompanying consolidated statement operations year ended june 30 1998 therefore remaining balance management contract agreements reflection termination settlement follows h suriname project april 30 1998 company entered agreement parbhoe handelmij nv surinamese limited liability company create 5050 percent joint venture company develop casino project suriname project paramaribo capital city suriname former dutch guyana pursuant agreement joint venture company entered casino management agreement company manage casino according terms agreement june 30 1998 company invested approximately 2566000 project approximately 2399000 included property equipment leasehold improvement pursuant agreement company maintains title property equipment joint venture reimburses company costs property equipment title transferred joint venture total cca companies incorporated notes consolidated financial statements additional funds required advanced company financing outside sources arranged company expected aggregate approximately 3200000 including working capital advances cover initial operating expenses casino management agreement april 30 1998 company entered agreement casino management agreement suriname leisure company avv joint venture related operations suriname project casino management agreement provides fifteen years exclusive operating agreements respect suriname palace casino company pursuant terms casino management agreement entitled base fee equal three percent revenues defined calculated annual basis payable monthly plus incentive fee ten percent gross operating profits defined additionally pursuant terms agreement company leased casino premises parbhoe fifteen year period ending february 28 2013 yearly amount 200000 subject increase based changes suriname consumer price index j budapest casino project april 3 1998 companys wholly owned subsidiary dorsett hotels resorts inc cca dorsett entered agreement amended casino bahia de cadiz sa cadiz mrs teresa juste picon juste purchase 95 interest equity roulette kft roulette hungarian limited liability company owns operates orfeum casino budapest ii receivables 15 million due cadiz juste loan agreements lease agreements roulette budapest project pursuant agreement june 30 1998 company paid 100000 included prepaid current assets cca companies incorporated notes consolidated financial statements loaned 667000 roulette included loans receivablelong term agreement provides cca dorsett manage orfeum casino period april 3 1998 closing acquisition purchase subject approval hungarian gaming supervisory board ii warranties business operations roulette iii normal legal conditions closing cca dorsett required deliver cadiz juste 125000 cca common stock calculated 700 per share equates 17857 shares cca common stock sellers permitted sell companys common stock period six months following effective date september 16 1998 company completed acquisition roulette according terms acquisition agreement case average closing market price companys common stock last ten 10 trading days preceding march 1 1999 less 700 adjusted market price per share company shall deliver sellers certain number additional companys common stock total market value companys shares delivered sellers acquisition date plus ii additional companys shares calculated using adjusted market price shall equal 125000 acquisition accounted purchase method addition company paid 45000 issued 7143 common stock consultant services performed connection acquisition 3 description march 1996 company entered initial line distribution agreement certain groupe business conserver entities exclusive marketing distribution rights conserver 21trademark products united states canada conserver 21trademark products designed preserve food flowers groupe conserver obtained rights conserver xxi see note 12 may 1995 cca companies incorporated notes consolidated financial statements agreement amended october 1996 upon learning dispute conserver xxi groupe conserver threatened companys supply conserver 21trademark company entered agreement conserver purchasing corporation cpc unaffiliated delaware corporation whereby company cpc would able acquire substantially identical marketing distribution rights conserver xxi event groupe conserver could deliver product pursuant agreement company cpc dated october 9 1996 subsequently amended december 31 1996 company lent cpc 375000 purpose enabling cpc acquire inventory conserver 21trademark loans payable demand bearing interest rate 8 per annum collateralized lien cpcs inventory conserver 21trademark june 1997 company accepted inventory full payment loans due establishment insolvency proceedings brussels regarding conserver investments sa controlling entity groupe conserver groupe conservers loss rights conserver xxi company terminated distribution agreement groupe conserver march 1997 march 1997 company entered distribution agreement agrotech 2000 sl agrotech company whose principal shareholder controlled conserver xxi establishing company exclusive licensee right import promote distribute market otherwise commercially exploit conserver 21trademark products united states canada march 2022 subject extension company also holds option right first refusal exercise exclusive rights throughout world pursuant terms distribution agreement company fails purchase minimum 2000000 conserver 21trademark products april 1997 april 1998 fails meet minimum annual cca companies incorporated notes consolidated financial statements purchase goals established agrotech may sell conserver 21trademark customers united states canada company failed meet initial purchase commitment subsequent purchase commitments distribution agreement thus company could lose exclusive rights sell conserver 21trademark united states canada pursuant distribution agreement agrotech right borrow 1000000 company may 1 1997 additional 500000 commencing ninety days initial public offering note 4 connection rights director company advanced 500000 agrotech behalf company may 1997 company repaid advance director interest thereon 10 proceeds public offering additional 500000 advanced company june 1997 resulting 1000000 loan balance june 30 1997 company provided full reserve receivable balance terms distribution agreement company may obligated extend additional loan 500000 agrotech company experienced problems respect pricing packaging conserver 21trademark product conjunction discussions resolve issues agrotech company commenced efforts identify alternative sources products similar conserver 21trademark extensive research company identified one product independent tests company believes efficacious conserver 21trademark product identified result unsuccessful efforts negotiate viable business arrangement agrotech company notified agrotech intention terminate distribution agreement situations experienced agrotech company cca companies incorporated notes consolidated financial statements entered loan agreement cpc due cpcs identification similar product cpc entered two agreements dated december 9 1997 sitedev sarl sitedev owner french company atmos concept sa atmos manufactures alternative similar product company believes although assurance atmos product infringe upon patents conserver 21tm held agrotech company party either agreements sitedev company option sole discretion require cpc assign rights two agreements company purchase atmos shares cpc price terms conditions cpc purchased shares sitedev first agreement cpc acquired 51 shares atmos return advancing 400000 atmos upon execution first agreement december 9 1997 agreed advance additional 250000 atmos fiscal 1998 agreement requires atmos use funds discharge certain debts obligations company advanced 400000 cpc loan agreement dated december 5 1997 fund cpcs initial payment required first agreement see february 1998 advanced additional 250000 cpc remaining payments required first agreement company june 30 1998 advanced cpc additional 970000 inventory purchases overhead requirements discharge additional existing obligations bringing total advances cpc funding atmos aggregate amount 1620000 included loans receivablelong term according loan agreement company cpc unable repay loans made company right cca companies incorporated notes consolidated financial statements exercise option acquire atmos order recoup value loans cpc current economic conditions atmos company provided 1620000 reserve receivable balance cpc currently plan exercise option acquire atmos companys option acquire cpc 51 stock ownership atmos price cpc paid atmos stockholders acquire 51 atmos stock price 1650000 payable 650000 cash atmos discharge existing obligations balance atmos stockholders companys common stock valued 1000000 contingent upon delivery patents atmos product october 1998 companys common stock issued delivered atmos stockholders companys common stock held company secure cpc company breach warranties made atmos stockholders cpc asserted warranties breached among things debt obligations atmos exceed limits warranted consequently company currently plan exercise option acquire cpcs 51 interest atmos product like conserver 21trade mark successfully commercialized assurance atmos product successfully commercialized successful commercialization atmos product subject generally similar difficulties uncertainties commercialization conserver 21trade mark faces cca companies incorporated notes consolidated financial statements loans receivable longterm made following june 30 1998 1997 cpc 1620830 roulette note 2 667085 agrotech 1000000 3287915 1000000 2620830 1000000 667085 4 initial public since inception november 1996 company offering raised capital necessary business development private debt equity private placements june 1997 company completed initial public offering received net proceeds approximately 8859000 sale 2200000 shares common stock 0001 par value common stock per share price 500 july 1997 companys underwriter exercised overallotment option purchase aggregate 330000 shares common stock 500 per share resulting company receiving additional net proceeds approximately 1448000 aggregate net proceeds company ipo amounted approximately 10307000 also connection ipo underwriters obtained underwriters warrants purchase 220000 shares common stock exercisable period four years 825 per share year ended june 30 1998 proceeds ipo used retire convertible debentures amount 175000 note 6 november 1997 company commenced efforts raise additional capital fund new line business new business opportunities note 2 company completed private placement offering february 1998 received net proceeds aggregate approximately 8955000 cca companies incorporated notes consolidated financial statements sale 2044763 shares common stock per share price 514 also connection offering agent obtained warrants purchase 715678 shares common stock exercisable period four years 514 per share cca companies incorporated notes consolidated financial statements 5 property june 30 1998 1997 property equipment leasehold improvements consist following leasehold improvements 6 convertible september november 1996 company issued debentures oneyear 10 convertible subordinated debentures aggregate amount 750000 debentures accrued interest convertible common shares 500 per share year ended june 30 1998 holders 175000 debentures repaid 210000 debentures cancelled loan receivable holders 365000 remaining debentures elected convert notes shares common stock connection sale debentures company issued 62504 shares common stock valued 312500 accounted debt discount charged expense 7 loan august 1997 company made 210000 loan investments dm investments inc due september 241997 bearing interest 10 per annum loan subsequently paid cancellation debentures cca companies incorporated notes consolidated financial statements 8 income taxes june 30 1998 company net operating loss carryforwards nol approximately 1601329 expire 2013 event change ownership company utilization nol carryforward subject limitation certain provisions internal revenue code deferred income taxes comprised following june 30 1998 realization portion companys deferred tax asset june 30 1998 considered likely accordingly 7345670 valuation allowance provided june 30 1997 company tax purposes operations net operating loss expenses preoperating accordingly capitalized amortized operations commence 9 financial carrying amounts financial instruments including loans receivable accounts receivable accounts payable debt approximates fair value 10 related party company incurred approximately 546000 149000 transactions 75000 legal fees related party year ended june 30 1998 ten month period ended june 30 1997 march 6 inception august 31 1996 respectively including free legal services amounting 60000 ten month period ended june 30 1997 amounts recorded additional paidin capital services provided cca companies incorporated notes consolidated financial statements year ended june 30 1998 year ended june 30 1998 company issued 187500 options valued 285619 based blackscholes option pricing model two legal counsels lieu cash payment value options amortized legal expense 171000 year ended june 30 1998 counsel renders services 1998 1997 company made payments 91000 70000 respectively two properties owned chairman board directors used offices company new york london additionally year ended june 30 1998 company purchased life insurance policy benefit chairman board premium approximately 40000 charged operations 11 commitments company rents office space facilities noncancelable leases february 2013 contingencies minimum future rental commitment leases effect june 30 1998 approximates following years ending june 30 1999 324500 2000 303200 2001 300700 2002 299200 2003 224800 thereafter 1933300 3385700 rent expense year ended june 30 1998 ten months ended june 30 1997 march 6 inception august 31 1996 238478 127574 9552 respectively year ended june 30 1998 company entered cca companies incorporated notes consolidated financial statements commitment construction suriname palace casino note 2 commitment leasehold improvements related casino june 30 1998 company open commitments related project approximately 2200000 employment contract company entered threeyear employment contract charles h stein president chief executive officer company took effect upon consummation companys initial public offering securities mr stein also member board directors contract provides annual salary amount less 125000 threeyear noncompete clause upon termination year ended june 30 1998 periods ended june 30 1997 august 31 1996 mr stein receive salary accordingly company recorded compensation charges periods amount based upon employment agreement contribution capital salary expense recorded year ended june 30 1998 ten months ended june 30 1997 period march 6 inception august 31 1996 90000 105000 65000 respectively 12 stock options company fixed stock option plan warrants nonplan options described company applies apb opinion 25 accounting stock issued employees related interpretations accounting employee stock options apb opinion 25 exercise price companys employee stock options equals exceeds market price underlying stock date grant compensation cost recognized companys 1996 stock option plan adopted november 1996 amended december 1996 april 1997 cca companies incorporated notes consolidated financial statements december 1997 plan authorizes granting incentive stock options nonincentive stock options maximum number shares common stock options may granted 5000000 shares june 30 1998 2272500 options purchase shares common stock granted plan fiscal 1998 ten month period ended june 30 1997 period march 6 august 31 1996 company granted 240000 660000 25000 options respectively consultants services rendered exercisable price options range 519 650 per share options expire four years issuance connection options company recorded charge consulting fees corresponding credit additional paid capital amount 386000 513000 112000 respectively connection private placements done company ten month period ended june 30 1997 company issued investors 500000 options exercise price options 200 expire april 2001 generally options granted maximum terms four years transferable options exercisable onethird first anniversary grant onethird second anniversary final onethird third anniversary grant however options granted plan shall become immediately exercisable holder options terminated company longer director company case may subsequent certain events deemed change control company plan provides adjustments number type shares covered plan options granted thereunder event reorganization merger recapitalization certain transactions involving company fiscal 1998 1997 company granted total 350000 cca companies incorporated notes consolidated financial statements 550000 options directors respectively options vest onethird upon date grant one third upon next two anniversaries date grant exercisable 500 650 option expire four years issuance connection options company recorded charge operations corresponding credit additional paid capital amounts 386000 700000 respectively additionally fiscal 1998 1997 period march 6 august 31 1996 140000 125000 110000 options issued employees respectively options vest onethird upon date grant onethird upon next two anniversaries date grant options exercisable 519 613 fasb statement 123 accounting stockbased compensation requires company provide pro forma information regarding net income loss net income loss per share compensation cost companys employee stock options determined accordance fair value based method prescribed fasb statement 123 company estimates fair value stock option grant date using blackscholes optionpricing model following weightedaverage assumptions accounting provisions fasb statement 123 companys pro forma net loss per share would follows cca companies incorporated notes consolidated financial statements summary status companys fixed stock option plan nonplan options june 30 1998 1997 august 31 1996 changes periods ended presented following table presents information relating stock options outstanding june 30 1998 cca companies incorporated notes consolidated financial statements june 30 1998 2727500 options available future grant plan subsequent year end 6000 options exercised price 50 warrants june 30 1998 company warrants amounting 2260678 outstanding warrants exercised warrants exercisable day grant year ended june 30 1998 company issued consultant four year warrants purchase 100000 shares companys common stock 650 per share warrants valued 272500 based blackscholes option pricing model charged operations year ended june 30 1998 august 1996 company issued directors consultants threeyear warrants purchase 325000 shares companys common stock 500 per share warrants valued 457201 charged operations period ended august 31 1996 connection 1000000 note subsequently repaid company issued warrants debt holder affiliate purchase 550000 shares common stock 2 per share warrants valued approximately 2040000 charged expense completion public cca companies incorporated notes consolidated financial statements offering time warrants issued 20000 shares previously issued common stock surrendered company periods ended june 30 1998 1997 company issued 715678 220000 warrants purchase shares companys common stock exercise prices 514 825 per share connection public offering private placement respectively see note 4 june 1997 company issued consultants warrants purchase 350000 shares common stock 575 per share warrants valued approximately 705000 charged operations ten months ended june 30 1997 common stock company reserved 5438178 shares common stock exercise options warrants 13 stockholders december 2 1997 special meeting equity stockholders amendment approved companys certificate incorporation increase number 1 authorized common stock 30000000 shares 50000000 2 authorized preferred stock 5000 shares 5000000 shares connection organization company 1666667 shares common stock subscribed conserver investments sa note 3 together certain affiliates referred hereinafter groupe conserver company series negotiated transactions repurchased 1366667 shares common stock aggregate sum 1800000 remaining 300000 shares common stock transferred november 1996 two persons designated company nonaffiliates company cca companies incorporated notes consolidated financial statements groupe conserver directors officers employees november 1996 board directors approved 2128874 1 stock split december 1996 board directors approved 1066194 1 stock split subsequently april 1997 board directors approved reverse stock split cancel effect aforementioned two stock splits retroactively reflected accompanying consolidated financial statements 14 business segment companys operations classified information three business segments food preservation hotel management agreements casino operations food preservation includes development selling marketing product hotel management agreements include management exclusive operations certain hotels casino operations include development management certain casinos operating loss segment total operating revenue less expenses deemed related units operating revenue identifiable assets segment assets used operation unit corporate assets consist principally cash equivalents prepaid expense leasehold improvements related corporate unit disclosed note 2 company diverted operations fiscal 1998 summarized financial information business segment year ended june 30 1998 follows cca companies incorporated notes consolidated financial statements companys main operations located following foreign geographic regions cyprus russian federation suriname budapest june 30 1998 identifiable assets geographical region follows 15 schedule valuation accounts year ended june 30 valuation 1998 ten month period ended june 30 accounts 1997 follows cca companies incorporated notes consolidated financial statements 16 subsequent september 10 1998 company entered events agreement parbhoes handelmij nv company borrowed 600000 parbhoe working capital purposes interest rate loan 3 per month loan shall payable net operating income defined suriname leisure company connection credit agreement company issued 250000 shares common stock cash valued 200 per share restricted lockup period six months additionally company issued one year warrants purchase 25000 shares common stock 200 per share warrants exercisable time within one year period september 14 1998 companys board directors agreed reprice exercise price 1907500 stock options warrants previously granted directors officers employees prices ranged 500 650 150 additionally board directors also approved issuance 1500000 options acquire shares common stock price 150 per share options expire four years grant date options issued dallas dempster president chief executive officer 1000000 charles stein chairman board 100000 jay haft director 100000 jonathan caplan director 100000 james stanton director 100000 miles greenberg chief financial officer 75000 consultants 25000 also 35000 options issued consultant repriced 500 150 exercise date extended august 16 1998 august 16 1999 september 23 1998 company entered letter intent jsc rosneftegazstroy rngs large russian construction company letter intent may lead rngs guaranteeing financing full cost turnkey construction contract companys sakhalin project note 2 rngs would major subcontractor letter intent also contemplated joint development hotel management business russian federation commonwealth independent states rngs management subsidiary acquired company consummation transactions still conditional substantial negotiations agreements rngs others well approval cca companies incorporated notes consolidated financial statements companys board directors stockholders fully consummated described letter intent company would arrange rngs obtain 51 interest sakhalin project consideration guarantee company would issue 3000000 shares common stock acquisition hotel management company 51 interest sakhalin project could exchanged option company rngs companys issuance additional shares common stock together three million shares would give rngs 51 common stock company thereupon outstanding september 30 1998 89000 shares companys common stock issued maritime services corporation building contractor suriname casino currently construction note 2 shares issued price 225 per share 200250 maritime agreed accept consideration payment towards construction contract joint venture december 3 1998 company received 300000 two investors purchase 400000 shares companys common stock market value 075 per share addition company agreed issue warrants purchase 200000 shares companys common stock 100 per common share issued warrants exercisable immediately expire four years issuance date item 14 exhibits financial statements schedules reports form 8k a1 financial statements reports independent certified public accountants f23 consolidated balance sheets june 30 2000 june 30 1999 f4 consolidated statements operations years ended june 30 2000 june 30 1999 june 30 1998 f6 consolidated statements stockholders equity years ended june 30 2000 june 30 1999 june 30 1998 f7 consolidated statements cash flows years ended june 30 2000 june 30 1999 june 30 1998 f10 notes consolidated financial statements f13 exhibit item title 21 contract extension concession period operation casino dated 21 july 1997 issued minister finance favor roulette loan agreement dated 9 april 1998 roulette dorsett providing us 420000 loan roulette amendment no1 dated 5 june 1998 agreement dated 3 april 1998 cbc juste dorsett incorporated reference companys form 10q period ended september 30 1998 31 certificate incorporation amendments thereto incorporated herein reference companys registration statement form s1 file 33316571 32 amendment companys certificate incorporation incorporated herein reference companys registration statement form s1 file 33316571 amendment 5 33 amendment companys certificate incorporation incorporated herein reference companys proxy statement dated november 27 1997 34 bylaw company incorporated herein reference companys registration statement form s1 file 33316571 42 form certificate evidencing shares common stock incorporated herein reference companys registration statement form s1 file 33316571 amendment 2 43 form underwriters warrant agreement company underwriter janssenmeyers associates lp including form underwriters warrant incorporated herein reference companys registration statement form s1 file 33316571 amendment 5 45 amendatory agreement dated november 6 1996 company ses family investment trading partnership lp incorporated herein reference companys registration statement form s1 file 33316571 46 form 10 debenture dated september 1996 incorporated herein reference companys registration statement form s1 file 33316571 47 form 10 convertible debenture dated november 1996 incorporated herein reference companys registration statement form s1 file 33316571 101 1996 stock option plan amended restated incorporated herein reference companys registration statement form s1 file 33316571 102 form stock option agreement incorporated herein reference companys registration statement form s1 file 33316571 103 distribution agreement dated october 9 1996 company agrotech 2000 sl incorporated herein reference companys registration statement form s1 file 33316571 amendment 4 104 employment agreement charles h stein company effective june 13 1997 105 form 500 warrant agreement dated august 1996 incorporated herein reference companys registration statement form s1 file 33316571 106 loan agreement dated october 9 1996 company conserver purchasing corporation cpu amended letter agreement dated december 31 1996 company cpc incorporated herein reference companys registration statement form s1 file 33316571 amendment 2 107 form financial consulting agreement company underwriter incorporated herein reference companys registration statement form s1 file 33316571 amendment 5 108 agreement dated august 12 1997 among company sakhalin trading investments limited sgti sovereign gaming leisure limited sovereign incorporated herein reference exhibit 108 companys form 10k fiscal year ended june 30 1997 109 amendment dated august 12 1997 among company sgti sovereign incorporated herein reference exhibit 109 companys form 10k fiscal year ended june 30 1997 1010 development services agreement dated october 2 1997 company dato david chiu incorporated herein reference exhibit 1010 companys form 10k fiscal year ended june 30 1997 1011 consulting agreement effective august 14 1997 company star casino limited incorporated herein reference exhibit 1011 companys form 10k fiscal year ended june 30 1997 1012 proposed form pledge agreement among company brian j bryce jasmine trustees ltd jay haft james v stanton incorporated herein reference exhibit 1012 companys form 10k fiscal year ended june 30 1997 1013 hotel management agreement dated october 2 1997 company dorsett hotels resorts international ltd incorporated herein reference exhibit 1013 companys form 10k fiscal year ended june 30 1997 1015 heads agreement dated october 3 1997 company parbhoes handelmij nv incorporated herein reference exhibit 1015 companys form 10k fiscal year ended june 30 1997 1016 agreement ownership structure sakhalin palace resort project dated june 25 1999 company arter capital ltd valmet sa filed herewith 161 letter regarding change certifying accountant incorporated herein reference companys form 8k dated december 18 1997 form 8k dated june 16 1998 162 letter regarding change certifying accountant incorporated herein reference companys form 8k dated july 23 1999 form 8k dated october 13 1999 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized cca companies incorporated miles r greenberg miles r greenberg date may 4 2001 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date dallas r dempster officer president chief executive officer chief operating officer president principal executive officer director may 4 2001 james v stanton vice chairman director may 4 2001 miles r greenberg chief financial officer principal financial officer chief accounting officer may 4 2001 cca companies incorporated contents page independent auditors reports consolidated balance sheets june 30 2000 1999 consolidated statements operations years ended june 30 2000 1999 1998 consolidated statements stockholders equity years ended june 30 2000 1999 1998 consolidated statements cash flows years ended june 30 2000 1999 1998 notes consolidated financial statements report independent certified public accountants board directors stockholders cca companies incorporated audited accompanying consolidated balance sheets cca companies incorporated delaware corporation subsidiaries june 30 2000 1999 related consolidated statements income retained earnings cash flows years ended consolidated financial statements responsibility companys management responsibility express opinion consolidated financial statements based audit conducted audit accordance us generally accepted auditing standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures consolidated financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion consolidated financial statements referred present fairly material respects financial position cca companies incorporated subsidiaries june 30 2000 1999 results operations cash flows year ended conformity us generally accepted accounting principles spear safer harmon co miami florida march 15 2001 report independent certified public accountants board directors stockholders cca companies incorporated audited accompanying consolidated statements operations stockholders equity cash flows cca companies incorporated subsidiaries year ended june 30 1998 financial statements responsibility companys management responsibility express opinion financial statements based audit conducted audit accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion consolidated financial statements referred present fairly material respects results operations cash flows cca companies incorporated subsidiaries year ended june 30 1998 conformity accounting principles generally accepted united states america accompanying financial statements prepared assuming company continue going concern companys dependence outside financing recurring losses since inception significant outflows cash operations raise substantial doubt ability continue going concern managements plans regard matters described consolidated financial statements consolidated financial statements include adjustments might result outcome uncertainty miami florida bdo seidman llp december 15 1998 cca companies incorporated consolidated balance sheets june 30 2000 1999 e 2000 1999 current assets cash equivalents 215559 425662 accounts receivable 18000 prepaid current assets 65788 165262 assets discontinued operations hotel management total current assets 281347 608924 excess cost fair value assets acquired net accumulated amortization 529349 june 30 1999 10014967 property equipment leasehold improvements net 5489279 6131139 sakhalin development costs 2100000 5251396 assets 20300 632664 7890926 22639090 see accompanying notes consolidated financial statements cca companies incorporated consolidated balance sheets continued june 30 2000 1999 liabilities stockholders equity 2000 1999 current liabilities accounts payable 440048 363018 accrued expenses 406755 1060904 income tax payable 144650 notes payable 335000 current portion longterm notes payable 500000 liabilities discontinued operations food 49000 203273 hotel management 45000 total current liabilities 1420453 2127195 longterm notes payable 515900 600000 deferred income taxes 192884 minority interest consolidated subsidiary 671482 89278 commitments contingencies stockholders equity preferred stock par value 01 5000000 shares authorized 2000 1999 one share junior preferred stock issued outstanding june 30 1998 canceled 1999 common stock par value 001 50000000 shares authorized 2000 1999 16326666 shares issued june 30 2000 14014939 shares issued june 30 1999 16328 14016 additional paidin capital 47497489 46892901 accumulated deficit 42423610 27084300 total stockholders equity 5090207 19822617 7890926 22639090 see accompanying notes consolidated financial statements cca companies incorporated consolidated statements operations see accompanying notes consolidated financial statements cca companies incorporated consolidated statements stockholders equity see accompanying notes consolidated financial statements cca companies incorporated consolidated statements stockholders equity continued see accompanying notes consolidated financial statements cca companies incorporated consolidated statements stockholders equity continued see accompanying notes consolidated financial statements cca companies incorporated consolidated statements cash flows see accompanying notes consolidated financial statements cca companies incorporated consolidated statements cash flows continued see accompanying notes consolidated financial statements cca companies incorporated consolidated statements cash flows continued see accompanying notes consolidated financial statements cca companies incorporated notes consolidated financial statements years ended june 30 2000 1999 1998 note 1 summary significant accounting policies company fiscal year ended june 30 1998 cca companies incorporated company changed name conserver corporation america company considered development stage company march 1998 subsidiaries consolidated financial statements include accounts company subsidiaries active subsidiaries sakhalin general trading investments ltd sgti sakhalin city center ltd scc dorsett hotel resorts inc dorsett suriname leisure company avv slc based operating cyprus russian federation united states suriname respectively inactive subsidiaries dorsett hotels resort international msnd bhd dhri roulette kft roulette majority shareholding disposed december 1998 based malaysia hungary respectively nature operations companys principal line operation provide gaming services ownership management casino suriname addition company planning design stage relating casino mountain resort project sakhalin island actively pursuing opportunities principles consolidation accompanying consolidated financial statements include accounts cca subsidiaries collectively company accounts roulette consolidated date acquisition date cca disposed majority interest december 1998 intercompany transactions balances eliminated consolidation scc currently generating losses minority shareholders obligated fund losses accordingly minority interest held scc reflected financial statements casino revenue casino revenue net win gaming activities difference gaming wins losses cash equivalents company considers investments original maturities three months less time purchase cash equivalents times cash balances companys bank accounts united states may exceed federally insured limits cca companies incorporated notes consolidated financial statements continued note 1 summary significant accounting policies continued use estimates preparation financial statements preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates financial instruments carrying amounts financial instruments including loans receivable accounts receivable accounts payable debt approximates fair value excess cost fair value assets acquired company reviews recoverability excess cost fair value assets acquired going basis accordingly determined recoverability goodwill associated sgti assets acquired doubtful accordingly unamortized balance written fiscal 2000 see note 2 historically excess cost fair value assets acquired amortized straightline basis estimated future periods benefited 30 years property equipment leasehold property equipment recorded cost depreciation amortization computed straightline method based estimated useful lives 3 5 years related assets leasehold improvements amortized shorter life asset lease income taxes purpose financial statements company adopted provisions sfas 109 accounting income taxes periods presented asset liability method sfas 109 deferred taxes recognized differences financial statement income tax bases assets liabilities preferred stock company authorized issue preferred stock specific powers preferences rights qualifications limitations restrictions designated companys board directors time issuance stock based compensation sfas 123 accounting stock based compensation establishes fair value method accounting stockbased compensation plans either recognition disclosure company adopt fair value based method employees instead discloses pro forma effects calculation required statement see note 10 impairment longlived assets company utilizes sfas 121 accounting impairment longlived assets longlived assets disposed provisions statement company evaluated longlived assets financial impairment continue evaluate events changes circumstances indicate carrying amount assets may fully recoverable cca companies incorporated notes consolidated financial statements continued note 1 summary significant accounting policies continued company evaluates recoverability longlived assets measuring carrying amount assets estimated undiscounted future cash flows associated time evaluations indicate future undiscounted cash flows longlived assets sufficient recover carrying value assets adjusted fair values company recorded charges approximately 610000 year ended june 30 1999 relating roulette 4200000 year ended june 30 1998 relating dorsett see note 3 305000 costs management contract ramallah project see note 2 13552000 relating sgti scc see note 2 year ended june 30 2000 result financial impairment several longlived assets earnings per share basic net loss per share common stock based weighted average number common shares outstanding period diluted loss per share common stock computed basis weighted average number common shares common shares equivalent securities outstanding securities antidilutive effect excluded calculation weighted average number common shares outstanding periods presented retroactively reflects stock splits reverse stock splits effected company options amounting 4934619 year ended june 30 2000 4062619 year ended june 30 1999 3169619 year ended june 30 1998 warrants amounting 5369013 year ended june 30 2000 3819012 year ended june 30 1999 2260678 year ended june 30 1998 included computation net loss per common stockdiluted antidilutive effect foreign currency translation statutory currencies countries companys subsidiaries based cyprus pound russian ruble malaysian ringgit united states dollar suriname guilder hungarian forints reporting currency us dollar 1999 company determined functional currency subsidiaries sgti slc united states dollar assets liabilities materially contracts transactions normal business activities transacted conducted negotiated recorded us dollars companys position operations company integrally connected currencies cyprus suriname pursuant financial accounting standards board statement 52 foreign currency translation fas 52 companys russian subsidiary scc situated highly inflationary economy accordingly sccs functional currency us dollar cca companies incorporated notes consolidated financial statements continued note 1 summary significant accounting policies continued 1998 financial statements subsidiaries outside us translated us dollars using methodology consistent statement financial accounting standards sfas 52 foreign currency translation assets liabilities translated us dollars rates prevailing balance sheet dates statements operations translated functional currencies us dollars using average exchange rates applicable years june 30 1998 cumulative foreign currency translation adjustment insignificant therefore disclosed separate component stockholders equity exchange losses approximately 79000 year ended june 30 1998 included general administrative expenses accompanying consolidated statements operations recent pronouncements june 1998 financial accounting standards board fasb issued statement financial accounting standards sfas 133 accounting derivative instruments hedging activities sfas 133 sfas 133 requires recognition fair value derivative instruments balance sheet subsequent issuance sfas 133 fasb received many requests clarify certain issues causing difficulties implementation june 2000 fasb issued sfas 138 responds requests amending certain provisions sfas 133 amendments include allowing foreigncurrency exposures reduce need thirdparty derivatives redefining nature interest rate risk avoid sources ineffectiveness impact adopting sfas 133 amended sfas 138 significant october 1998 financial accounting standards board issued statement financial accounting standards 134 accounting mortgagebacked securities retained securitization mortgage loans held sale mortgage banking enterprise effective first fiscal quarter beginning december 15 1998 impact companys financial reporting presentation due adoption sfas 134 february 1999 financial accounting standards board issued statement financial accounting standards 135 recission fasb statement 75 technical corrections effective financial statements issued february 15 1999 impact companys financial reporting presentation due adoption sfas 135 december 1999 securities exchange commission issued staff accounting bulletin 101 revenue recognition financial statements sab 101 sab 101 provides guidance recognition presentation disclosure revenues financial statements requires adoption later fourth quarter fiscal 2001 impact companys financial reporting presentation due adoption sab 101 cca companies incorporated notes consolidated financial statements continued note 1 summary significant accounting policies continued reclassifications certain prior year balances reclassified conform 2000 presentation note 2 lines business companys original principal business food preservation technology see note 3 due companys desire enter several new lines business inability market distribute preservittm food technology product commercially viable fashion company identified explored several business opportunities entered number new lines business august 1997 company announced diversifying beyond sole line business marketing distributing otherwise commercially exploiting food technology product exploring new lines business hotel casino industry new lines business special meeting stockholders held december 1997 companys stockholders voted approved various proposals regarding new lines business new business opportunities described herein sakhalin island russian federation casino resort commencing 1997 company acquired rights secured property 101year lease annual cost ten acre site build operate 140 milliondollar 450room year round hotelcasino resort company initially planned 70 tables 350 slot machines intent add additional gaming equipment site located center city yuzhnosakhalinsk city sakhalin island sakhalin project sakhalin island russian territory located north japan proposed hotelcasino built would easily accessible gaming activities japan china korea russian mainland development planned nearby ski mountain company manage hotel resort casino management fee equal 3 revenues defined well incentive fee 10 gross profits since time company entered numerous discussions several agreements attempts raise capital finance sakhalin project without success 2000 due companys failure proceed based evaluation assets financial impairment required sfas 121 certain capitalized expenditures goodwill excess aggregate purchase price fair market value net assets acquired net amortization totaling approximately 13552000 written see note 1 company continuing explore additional possibilities finance project protect investment cca companies incorporated notes consolidated financial statements continued note 2 lines business continued company believes outlay secure lease city land existing ski resort money expended principally demolition relocation residents living site financially impaired accordingly approximately 2100000 expended connection lease demolition remains companys accounts addition granting lease city committed contractually permit several small existing casinos increase floor areas extend range operations without written approval scc company also certain rights participate development management future casinos within jurisdiction city order events company october 1997 entered stock purchase agreement sakhalin agreement sgti december 1997 executed assignment agreement sovereign gaming leisure limited sovereign pursuant sakhalin agreement company would acquire outstanding shares sgti owns 65 interest scc closed joint stock company incorporated laws russian federation holds rights including necessary gaming licenses operate granted various governmental units develop casino sakhalin addition acquisition sgti company would acquire rights interest sakhalin project held sovereign include certain operating project management agreements december 1997 company completed acquisition 100 shares sgti exchange 2000000 shares common stock company also acquired rights interests sovereign exchange 200000 shares common stock owners sovereign addition two directors company granted options purchase 300000 200000 shares common stock exercise price equal 6125 per share exchange services relating acquisition sgti sakhalin options sakhalin options subsequently expired unexercised companys common stock valued 520 per share date acquisition completed value attributed 2000000 shares companys common stock issued owners sgti 10400000 sakhalin options valued 1091819 capitalized part purchase price sgti companys common stock issued owners sovereign valued 525 per share date assignment agreement consummated thus value attributed shares 1050000 cca companies incorporated notes consolidated financial statements continued note 2 lines business continued part sakhalin agreement company paid 3000000 sgti advance eliminated consolidation intercompany account acquisition accounted purchase accordingly results operations sgti included companys consolidated financial statements since date acquisition transaction recorded follows common stock options issued 11491819 acquisition costs 193885 purchase price 11685704 construction progress acquired 3638957 liabilities assumed 3340925 assets 843356 fair value net assets acquired 1141388 excess aggregate purchase price fair market value net assets acquired 10544316 excess aggregate purchase price fair market value net assets acquired amortized 30 years straightline basis fiscal year ending 2000 company wrote remaining goodwill fiscal year ending june 30 2000 1999 sgti scc subsidiaries company sakhalin agreement provides upon request company sovereign may agree become project manager construction phase sakhalin project subject reasonable compensation services shall exceed lesser 5 construction cost sakhalin project 5000000 subsequent sakhalin agreement mr dallas dempster paid consultant sovereign recruited president chief executive officer ceo cca accordingly companys current intent employ sovereign manage construction phase sakhalin project directly cca companies incorporated notes consolidated financial statements continued note 2 lines business continued october 1997 company entered agreement development services agreement mr david chiu certain development services performed including using best efforts secure necessary debt financing guarantees complete turnkey construction sakhalin project development service agreement expired august 1998 without chiu rendering services september 1998 company entered letter intent jsc rosneftegazstroy rngs large russian construction company letter intent aimed rngs guaranteeing financing turnkey construction contract sakhalin project acting subcontractor company rngs never contractually acted letter intent subsequently abandoned june 1999 company entered agreement financing agreement arter group limited arter valmet sa valmet see notes 4 8 according agreement arter valmet negotiate companys behalf acquire financing 70 sakhalin projects total estimated cost remaining 30 injected equity financing arranged company consideration additional equity raised companys ownership scc increase 80 65 company currently owns sakhalin oblast government city remaining 20 scc subject final negotiations arter valmet successful obtaining commitment funding acceptable company defined agreement company would arrange transfer percentage interest sgti arter valmet proposed structure ownership shall follows cca 50 shares sgti effective ownership sakhalin project 40 arter 3125 shares sgti effective ownership sakhalin project 25 valmet 1875 shares sgti effective ownership sakhalin project 15 cca terminate agreement sixty days notice parties writing time prior arter valmet securing sufficient funding completion project sakhalin project requires substantial financing progress november 1999 company submitted loan application financing sberbank russian federation bank financing 1068 million successful date financing obtained company may forced abandon project company forced abandon project company attempt market plans licenses rights order recover much historic expenditures possible company unable time quantify recoveries attain cca companies incorporated notes consolidated financial statements continued note 2 lines business continued company successful financing sakhalin project company design set infrastructure currently place addition company employ significant number people retain consultants contractors manage design construct property require significant financial resources hotel management agreement fiscal year ending june 30 1998 company entered two hotel management agreements hotel management agreements one agreement dorsett hotels resorts international ltd dhr company owned controlled david chiu far east consortium international ltd fec agreements company acquired right directly subsidiary exclusively manage operate three hotels service right manage operate five hotels scheduled open future right manage properties pursuant longterm contracts hotel operating contracts previously entered owners hotels dhr fec company paid consideration 3 million dollars execution hotel management agreements cash promise issue two million shares companys common stock payable prorata basis assignment hotel operating contracts hotel subsequently company issued 950000 shares common stock assignment contracts three operating hotels july 1998 company borrowed 1 million dollars fec six months interest prime rate plus 1 november 4 1998 company held hotel operating contracts three operating hotels total approximately 1200 rooms contrary terms hotel operating contracts company permitted actively manage two hotels addition company notified renovation andor construction five hotels turned company future stopped projects reviewed financial efficacy result failure fec comply terms hotel management agreements parties agreements reached settlement november 1998 terminate agreements exchange mutual releases related obligations according terms settlement cca received 450000 cash return 700000 shares previously issued stock retained 1625000 previously paid management fees loans see note 3 cca companies incorporated notes consolidated financial statements continued note 2 lines business continued suriname casino lease april 1998 company entered agreement suriname casino agreement parbhoe handelmij nv parbhoe suriname limited liability company agreement parties formed acquired 50 interest suriname leisure company slc aruban limited liability company develop casino project suriname casino paramaribo capital city suriname pursuant suriname casino agreement companys fully owned subsidiary dorsett entered suriname casino management agreement slc manage suriname casino june 30 1999 company advanced approximately 46 million dollars slc project approximately 40 million dollars spent property equipment leasehold improvements company retains lien security interest property equipment advance paid back slc repayment subject certain restrictions based upon obligation repay loan received parbhoe see note 7 june 30 2000 amount owing slc cca towards loans interest costs approximated 3657000 3109028 eliminated consolidation suriname casino management agreement provides fifteen years exclusive operating rights suriname casino base fee equal three percent revenues defined plus incentive fee ten percent gross profits defined initially company operated small temporary casino commencing october 1998 permanent casino facility completed opened march 1999 company vacated temporary facility suriname casino currently occupies two leased floors totaling 20000 square feet plaza hotel downtown paramaribo casino approximately 20 gaming tables approximately 161 slot machines 50seat restaurant company leased casino premises parbhoe see note 9 budapest casino april 1998 companys wholly owned subsidiary dorsett entered agreement casino bahia de cadiz sa cbc mrs teresa juste picon juste purchase 95 interest equity roulette hungarian limited liability company roulette owned operated orfeum casino budapest addition part agreement company acquired receivables 15 million dollars due cbc juste loan agreements lease agreements roulette arranging transaction company paid minority shareholder roulette fee 75000 capitalized part companys investment cca companies incorporated notes consolidated financial statements continued note 2 lines business continued june 30 1998 company paid 100000 shareholders roulette deposit toward purchase addition prior closing company advanced additional funds approximately 608000 roulette closing acquisition september 1998 company delivered cadiz juste 17857 shares companys common stock based value 700 per share 125000 total addition agreement required issuance additional shares make shortfall value 125000 value shares delivered average stock price subsequently declined 10day average price proceeding march 1 1999 093 result company issued additional 116813 shares common stock cbc juste may 1999 december 1998 company entered agreement agm international ltd agm israeli junket operator experienced organizing junket premium casino player groups agm granted 50 ownership roulette agreeing pay company 100000 closing pay additional 100000 roulette able renew gaming license due expire november 1999 hungarian gaming board addition agreement required agm part transaction fund 100000 additional operating float needed order continue 50000 general improvements 1999 hungarian gaming board made decision reduce number casino licenses existed time company acquired interest roulette unsuccessful bid obtain one reduced number gaming licenses available forced close casino end october 1999 june 30 1999 company wrote entire investment roulette delineated investment roulette 300000 loans roulette 608311 908311 less loss roulette subsidiary 298478 609833 less balance investment written 609833 cca companies incorporated notes consolidated financial statements continued note 2 lines business continued ramallah casino march 24 2000 dorsett entered casino management agreement ramallah casino agreement ramallah hotel casino company ltd provide technical advice developmental services manage casino ramallah west bank subsequent time acts war insurrection riots occurred west bank israel provided contracts obligations proceed contract suspended disturbances exist company incurred approximately 305000 costs associated entering ramallah casino agreement based upon circumstances writtenoff see note 1 business political economic conditions companys operating activities taking place principally suriname experienced within last three years significant devaluation currency exchange controls regard activities taking place russian federation suriname managements belief able repatriate earnings without official impediments currency exchange controls place russian federation company addressing order assure ready ability transfer funds country note 3 discontinued operations food preservation technology november 1999 company officially abandoned food preservation business accordingly reflected losses attributable business discontinued operations assets food preservation business consisted principally fully reserved loans two companies agrotech cpc addition company plan exercise option acquire controlling equity interest entities possess food preservation technologies cca companies incorporated notes consolidated financial statements continued note 3 discontinued operations results operations food preservation business june 30 2000 classified loss discontinued operations follows year ended june 30 2000 1999 1998 revenues 9879 costs expenses 64500 425175 2888742 loss discontinued operations 64500 425175 2878863 included costs expenses provisions loans made food division 1620830 1998 hotel management result termination hotel management agreements dorsett fec dhr november 1998 subsequent dismissal hotel management employees april 1999 company active hotel management operating business company discontinued line business reflected related income assets liabilities discontinued operations company recorded charge 42 million dollars 1998 write carrying value hotel management agreements assets trade names see note 2 results operations hotel management business june 30 2000 classified loss discontinued operations follows year ended june 30 2000 1999 1998 revenues 363301 639741 costs expenses 87623 221751 6198247 income loss discontinued operations 87623 141500 5558506 cca companies incorporated notes consolidated financial statements continued note 3 discontinued operations continued unforeseen litigation relating discontinued operations occurred subsequent final accountings required expenditures year company currently anticipate activity connected discontinued operations tax benefit due loss discontinued operations recorded due companys uncertainty regarding future earnings note 4 public offerings private placements july 1997 companys underwriter exercised allotment option received initial public offering 1997 purchase aggregate 330000 shares common stock 500 per share resulting company receiving additional net proceeds approximately 1448000 aggregate net proceeds company ipo amounted approximately 10307000 time ipo underwriters obtained underwriters warrants purchase 220000 shares common stock exercisable period four years 825 per share november 1997 company commenced efforts raise additional capital fund new lines business new business opportunities company completed private placement offering february 1998 received net proceeds aggregate approximately 8955000 sale 2044763 shares common stock per share price 514 time offering underwriters obtained underwriters warrants purchase 715678 shares common stock exercisable period four years 514 per share january 2000 companys board directors agreed issue 150000 shares companys common stock 013 per share one legal counsel services rendered company end term agreement provided casino consultant breach casino consulting agreement casino consultant entitled receive 250000 bonus time casino consultant agreed accept 250000 shares companys common stock place 250000 bonus due december 1999 consulting contract expired stock delivered market price per share 013 see note 8 september 1998 89000 shares companys common stock issued maritime services corporation msc building contractor suriname casino shares issued price 225 per share 200250 msc agreed accept consideration payment towards construction contract slc notes 8 9 cca companies incorporated notes consolidated financial statements continued note 4 public offerings private placements continued january 1999 stanton associates stanton entity controlled one companys directors accepted 153200 shares 050 per share companys common stock principal interest 76600 owed see notes 7 8 year ended june 30 1999 company received 1676600 sale 2053200 shares common stock private investors time sale common stock company issued warrants purchase 1280334 shares companys common stock exercisable periods ranging 1 4 years exercise prices 100 additional 25000 warrants exercise period one year exercise price 200 per share issued warrant exercise prices exceed market value stock dates issued year ended june 30 1999 company issued 300000 shares common stock 075 per share valmet consultant services performed relating sakhalin project time company issued 150000 two year warrants valmet exercise price 1 valued 25000 see notes 2 8 july august 1999 company received 125000 two investors purchase 166667 shares companys common stock market value 075 per share addition company agreed issue warrants purchase 83334 shares companys common stock 100 per share investors warrants exercised time expire two three years issuance date note 10 october 1999 company obtained financing convertible note 350000 danville investments pty ltd australia danville term note full amount loan repaid danville option convert outstanding principal plus accrued interest due loan shares common stock company conversion would price equal fiveday average market closing price ending day prior day conversion danville december 1999 exercised option convert 185000 principal loan plus accrued interest 10500 1481060 shares companys stock based five day average stock price 0132 per share notes 7 10 november 1999 company annual meeting stockholders granted board directors authority effect 1 10 reverse split common stock march 28 2000 board elected exercise authority effect reverse split expiration date action passed march 2000 company issued 264000 shares common stock 025 per share consultant michael davis settlement consulting fees reimbursable business expenses cca companies incorporated notes consolidated financial statements continued note 5 property equipment leasehold improvements june 30 property equipment leasehold improvements consist following 2000 1999 office equipment assets 384977 358591 casino restaurant equipment 1972894 1856678 vehicle 6500 leasehold improvements 4426767 construction progress 2100000 5251396 8891138 11899932 less accumulated depreciation 1301859 517397 7589279 11382535 depreciation expense 784462 year ended june 30 2000 499494 year ended june 30 1999 16168 year ended june 30 1998 note 6 income taxes cca dorsett june 30 2000 cca dorsett united states net operating loss carryforwards nol approximately 7663000 expire 2015 event change ownership company utilization nol subject limitation certain provisions united states internal revenue code addition june 30 2000 cca dorsett capital loss carryovers approximately 5494000 generally used offset capital gains unused capital losses carried forward indefinitely used future capital gains cca companies incorporated notes consolidated financial statements continued note 6 income taxes continued dhri roulette companys subsidiaries dhri roulette experienced substantial losses dhri roulette closed operations liquidated net assets currently dormant company anticipate time future earnings losses may applied accordingly company provided deferred tax assets dhri roulette scc june 30 2000 scc net operating loss carryforwards nol approximately 5065000 expire 2006 carryforward limited 20 loss per year five consecutive years scc subject russian corporate tax taxable profits gambling tax sakhalin project commences operations currently federal profit tax 11 regional tax high 19 addition gambling tax levied based fixed rates per gambling table betting booking office slot machines repatriation profits generated scc russian federation cca may highly regulated russian central bank taxing authority transfers funds entities outside russian federation require special authorization central bank payment dividends subject heavy double taxation laws company believes sakhalin project commences operations russian central bank taxing authority make profit repatriation concessions available sgti holds companys investment scc incorporated cyprus companies registered cyprus managed controlled outside cyprus liable tax income occurring derived received outside country suriname casino 1999 slc requested government suriname government grant certain concessions regarding imposition taxes import duties suriname investment act date government granted company relief company continuing pursue concessions according legal counsel favorable ruling questionable cca companies incorporated notes consolidated financial statements continued note 6 income taxes continued 2000 slc provided income taxes payable government based tax rate 50 net taxable income since inception based suriname hazard games act 1962 act states income tax levied rate 50 proceeds hazard games industry includes casinos slc made provisions income tax duties past based opinions counsel regarding tax concessions granted slc still pursuing tax incentives entitlements believes according suriname law available june 2000 suriname government arbitrarily assessed demanded slc pay 161765 calendar year 1998 42600 calendar year 1999 tax penalties may owed subsequently government arbitrarily assessed additional tax 110000 calendar year 2000 assessments imposed company submitted tax accountings government documenting actual tax liability payable approximately 375000 based suriname tax concessions granted subsequent june 2000 government suriname imposed import duties slcs operating assets slc accrued capitalized amount assessed june 30 2000 amortizing balance five years commencing retroactively april 1 1999 company attempting obtain import duty waiver investment made ministry finance suriname lawyer however difficult obtain decision companys favor due current economic conditions suriname ministry finance trying impose valueadded tax vat slot machines currently ministry finance completed study reporting surinames parliament issue time company cannot quantify amount payable vat slot machines june 30 1998 company tax purposes operations expenses incurred date preoperating accordingly capitalized commencement operations capitalized expenses amortized sixty months deferred income taxes income tax provision consists following current federal state local international 359741 total current tax provision 359741 deferred federal state local international 192884 total provision income taxes 552625 cca companies incorporated notes consolidated financial statements continued note 6 income taxes open continued items give rise deferred tax accounts june 30 2000 follows deferred tax liabilities property plant equipment 192884 deferred tax assets united states loss carryforwards 4605000 international russian loss carryforwards 1519000 net deferred tax asset valuation allowances 5931116 deferred tax asset valuation allowance 6124000 net deferred tax liabilities 192884 realization portion companys deferred tax asset june 30 2000 dependent upon future earnings capital gains due uncertainty future earnings capital gains valuation allowances provided federal state income taxes accrued cumulative undistributed earning foreign subsidiaries earnings reinvested businesses companies june 30 2000 undistributed earnings foreign subsidiaries totaled approximately 760000 determination amount unrecognized deferred tax liability related undistributed earnings practical note 7 notes payable october 1998 company borrowed 75000 stanton associates two promissory notes mr james stanton owner stanton associates also director company loan subject interest rate 8 per annum payable along accrued interest lump sum january 1999 january 1999 stanton accepted shares companys common stock principal interest due see notes 4 8 october 1999 company obtained financing convertible note 350000 danville investments pty ltd australia danville company received proceeds 215000 funded net 135000 discount recorded deferred interest expense deferred interest expense amortized expensed life loan subject interest rate 15 per annum payable full maturity loan april 2000 company obligated deposit monthly basis less 30000 separate bank account towards payment loan addition company also issued danville warrants purchase companys common stock company pledged principal payments interest management fees due company suriname leisure company security loan danville december 1999 exercised option convert 185000 principal loan plus accrued interest 10500 shares companys stock company paid remaining balance 165000 plus interest april 2000 notes 4 10 cca companies incorporated notes consolidated financial statements continued note 7 notes payable continued january 2000 company borrowed 300000 stanton company received proceeds 283000 funded net 17000 discount recorded deferred interest expense deferred interest expense amortized expensed life loan interest loan calculated wall street journal prime rate payable monthly basis terms promissory note require company repay loan four monthly installments 15000 commencing february 2000 seven monthly installments 30000 commencing june 2000 final payment 30000 december 31 2000 company granted stanton security interest subordinated danvilles interests principal payments interest management fees due company suriname leisure company issued stanton warrants purchase shares companys common stock principal amount loan payable yearend 210000 see notes 8 10 14 march 2000 company borrowed 150000 galileo capital llc galileo utilizing convertible debt company received proceeds 146600 funded net 3400 discount recorded deferred interest expense deferred interest expense amortized expensed life loan subject interest rate 10 per annum payable full maturity loan october 2000 company required pay six equal monthly installments 25000 commencing may 2000 term loan galileo option convert outstanding principal plus accrued interest due loan shares common stock company conversion price 025 per share galileo exercises conversion option receive one warrant exercisable 025 per share every four shares common stock acquires warrants issued conversion loan described terminate two years date issuance date underlying shares registered ever later additional consideration loan company issued 150000 warrants galileo purchase shares companys common stock warrants exercisable 025 per share expire two years date underlying shares registered see notes 10 14 longterm september 1998 cca borrowed 600000 50 coowner parbhoe slc construction permanent casino facilities interest loan calculated using interest rate 3 per month see note 9 december 1998 company arranged borrow additional 10 million dollars parbhoe ultimately 750000 advanced slc used complete construction casino loan subject 4 monthly interest rate payable within six months disbursement loan paid full august 1999 cca companies incorporated notes consolidated financial statements continued note 7 notes payable continued outstanding balance loans owing parbhoe cca paid excess cash flow generated operations slc principal payments approximately 015 every 100 excess cash flow utilized pay back advances owed parbhoe see notes 2 9 note 8 related party transactions legal see notes 10 company incurred legal fees approximately 10000 year ended june 30 2000 127000 year ended june 30 1999 546000 year ended june 30 1998 legal counsel owning securities company related counsel company repriced exercise price options warrants previously granted related counsel year ending june 30 2000 expensed approximately 2000 see note 10 company also issued related counsel additional warrants expensed approximately 8000 june 30 2000 see note 10 options issued company related counsel june 30 1998 valued approximately 285619 amortized legal expense counsel rendered services legal expense 171000 charged year ended june 30 1998 balance 115000 charged year ended june 30 1999 consultants june 1999 company entered financing agreement arter group limited arter valmet sa valmet negotiate companys behalf acquire financing see notes 2 4 august 1997 company entered agreement casino consulting agreement star casinos limited consultant casino consulting agreement consultant agreed provide consulting technical services company affiliated entities period two years individual subsequently became president casino division company owns consultant terms casino consulting agreement consultant receive 250000 annually plus reimbursement reasonable expenses addition october 1997 company granted consultant options purchase shares companys common stock company recorded consulting charge issuance options end term agreement provided consultant breach casino consulting agreement consultant also entitled receive 250000 bonus time casino consultant agreed accept companys common stock place 250000 bonus due agreement also binds casino consultant twoyear noncompete nonsolicitation provision termination agreement casino consultant agreed accept shares companys common stock place 250000 bonus due expiration contract see note 4 10 cca companies incorporated notes consolidated financial statements continued note 8 related party transactions continued although new formal agreement entered casino consultant agreed continue providing consulting services month basis annualized rate 250000 company paid casino consultant 187000 year ended june 30 1999 130000 years ended june 30 2000 addition company accrued additional 63000 year ended june 30 1999 72000 year ended june 30 2000 plus reimbursement reasonable expenses see note 14 construction contractors september 1998 company issued shares companys common stock msc building contractor suriname casino payment towards part construction contract slc notes 4 9 directors company entered threeyear employment contract charles h stein chairman board directors president chief executive officer company took effect upon consummation companys initial public offering securities 1997 contract provided annual salary amount less 125000 threeyear noncompete clause upon termination year ended june 30 1998 stein receive salary accordingly company recorded compensation charges year ended june 30 1998 amount based upon employment agreement contribution capital salary expense recorded 90000 year ended june 30 1998 addition year ended june 30 1998 company purchased life insurance policy benefit stein paid rent two properties 1999 1998 stein owned see note 9 life insurance premium approximately 40000 charged operations premium incurred 1999 effective july 1998 stein longer employed company president chief executive officer accordingly received compensation continued capacity chairman board october 1998 company borrowed 75000 january 2000 company borrowed 300000 stanton associates mr james stanton owner stanton associates director company see notes 4 7 10 cca companies incorporated notes consolidated financial statements continued note 8 related party transactions continued officer companys current president ceo dempster paid consultant sovereign assigned company 1994 construction management agreement 1994 operation management agreement scc dempster represented company never held beneficial interest stock sovereign september 1998 dempsters nominees granted nonplan options consideration dempster joining company july 1998 december 2000 plan options services performed note 10 note 9 commitments contingencies rental commitments company rents office space facilities united states noncancelable leases september 2003 minimum future rental commitment leases effect june 30 2000 approximates following years ended june 30 2001 34153 2002 34424 2003 2983 71560 suriname casino currently occupies two leased floors totaling 20000 square feet plaza hotel downtown paramaribo company leased casino premises parbhoe 50 shareholder slc fifteen years ending february 2013 yearly base rent 200000 subject future increases based suriname consumer price index however company continued pay rent rate since beginning lease due dispute parbhoe regarding rental charges company provided increase rent june 30 2000 suriname law regulates maximum amount rent landlord charge july 2000 company determined based maximum rent charged suriname laws overcharged company currently attempting recover excess rent charged approximately 315000 courts based government validated valuation maximum rent permissible suriname laws commenced paying reduced rental approximately 3200 per month litigation settled company able predict future rental expense suriname see note 2 cca companies incorporated notes consolidated financial statements continued note 9 commitments contingencies continued rent expense 256698 year ended june 30 2000 532916 year ended june 30 1999 238478 year ended june 30 1998 rent included payments 6921 1999 91000 1998 two properties owned chairman board used offices company new york london see note 8 nasdaq small cap market delisting november 1999 securities company delisted nasdaq small cap market delisting occurred due companys failure comply certain nasdaq marketplace rules relating bid price filing requirements nasdaq opinion company failed present definitive plan would enable attain compliance within reasonable period time sustain compliance panel also determined unable evaluate true extent companys compliance nasdaqs continued listing standards absence accurate complete publicly filed audited financial statements litigation arbitration company anticipates subjected various lawsuits claims proceedings nature considered normal business kai michaelson zamora investments pte ltd zamora result termination hotel management agreements november see note 3 fec assumed financial obligations respect employment president michaelsen companys hotel management subsidiary dhri thorough independent review michaelsens performance including extensive investigation allegations made fec regarding michaelsens operating decisions michaelsens employment officially terminated april 1999 april 1999 michaelsen filed claim cca lump sum payment approximately 240000 past future services employment consulting agreements requested arbitration hearing american arbitration association cca companies incorporated notes consolidated financial statements continued note 9 commitments contingencies continued company obtained temporary restraining order staying arbitration petitioned new york supreme court permanent stay hearing companys contention arbitration agreement michaelsen cca march 31 2000 court granted companys petition permanently stay arbitration subsequent order stay michaelsens company zamora filed claim dorsett 80000 new arbitration claim september 2000 company settled matter michaelson zamora exchange complete releases company agreed pay 40000 provision expense provided company june 2000 payable twelve months equal installments starting september 30 2000 company currently holding 250000 shares issued never delivered fec pursuant november 1998 termination agreement companys position settlement 40000 plus legal fees 47000 incurred company must repaid fec company deliver shares fox capital corporation united resources partners collectively fox 1998 company utilized unsuccessfully services fox secure financing august 1999 fox filed demand arbitration american arbitration association demanding payment 250000 company liquidated damages fox alleged company breached letter agreement failing secure adequate collateral proposed loan according terms letter agreement company denied material allegations claim filed counterclaims alleging fox breached obligations company misrepresenting abilities secure capital financing august 22 2000 fox havens claims denied company awarded 106289 representing full refund 25000 paid fox company plus companys attorneys fees costs date company paid amount award significant uncertainty regarding judgements collectibility cca companies incorporated notes consolidated financial statements continued note 9 commitments contingencies continued breach slc lease slcs landlord parbhoe contract required provide air conditioning areas leased due parbhoes failure perform timely slc paid 201000 air conditioning equipment installed order get leased area ready occupancy quickly litigation anticipated recover expenditure maritime services corporation msc september 2000 msc brought action united states district court oregon seeking damages amount 200250 plus interest msc claims company issued shares 1998 partial payment construction work performed company obligated buy shares back amount claimed damages notes 4 8 company denied material allegations complaint believes liability claim longterm note payable parbhoe made demand repayment full 600000 loan made cca september 3 1998 see note 7 rigorously defended court basis among defenses based loans terms loan repayable demand prorata basis along existing new loans outstanding cca note 10 stock options warrants company applies apb opinion 25 accounting stock issued employees related interpretations accounting employee stock options apb opinion 25 exercise price companys employee stock options equals exceeds market price underlying stock date grant compensation cost recognized options granted exercisable either onethird annually anniversary date grant exercisable immediately addition maximum terms four years transferable company estimates fair value stock option warrant grant date using blackscholes optionpricing model cca companies incorporated notes consolidated financial statements continued note 10 stock options warrants continued plan options companys 1996 stock option plan adopted november 1996 amended december 1996 april 1997 december 1997 plan provides adjustments number type shares covered plan options granted thereunder event reorganization merger recapitalization certain transactions involving company plan authorizes granting incentive stock options nonincentive stock options maximum number shares common stock options may granted 5000000 shares june 30 2000 3172500 options purchase shares common stock granted plan company set aside 1827500 shares common stock future options may granted plan october 1997 company granted star casinos limited options purchase 100000 shares companys common stock exercisable 650 per share fifty percent options exercisable first second anniversary dates commencement date expire third anniversary date options valued 140000 company recorded consulting charge issuance options note 8 company granted total 500000 options 1999 nonemployee directors vested immediately 350000 options 1998 nonemployee directors onethird vested annually anniversary date grant options issued nonemployee directors exercisable 025 150 expire four years issuance company recorded charge operations corresponding credit additional paidin capital issuance options amounts 233000 1999 386000 1998 company granted total 1000000 fully vested options valid four years tilden park ltd nominee dempster president ceo director company 2000 see notes 8 14 total 1130000 options employees 1999 vested immediately 215000 options 1998 onethird vested annually anniversary date grant employee options exercisable 025 150 cca companies incorporated notes consolidated financial statements continued note 10 stock options warrants continued non plan options addition options granted plan company issued additional 1890119 nonplan options 128000 non plan options forfeited 2000 company issued legal counsel related counsel 25000 options valued approximately 50000 expensed june 30 1997 187500 options valued approximately 285619 june 30 1998 future legal fees value options issued 1998 amortized legal expense counsel rendered services legal expense 171000 charged year ended june 30 1998 balance 115000 charged year ended june 30 1999 see note 8 september 1998 dempsters nominee dabus international limited established benefit family granted nonplan options purchase 1000000 shares companys common stock 150 per share options granted consideration dempster joining company july 1998 see note 8 company granted 352500 options fiscal year 1998 lawyers consultants services rendered exercise prices options ranged 500 650 per share options expire four years issuance company recorded charge consulting fees corresponding credit additional paid capital issuance options amount 386000 1998 options issued lawyers consultants fiscal year 1999 2000 company issued 500000 options investors time private placements done company tenmonth period ended june 30 1997 exercise price options 200 expire april 2001 year ended june 30 1998 7881 options 500000 options issued exercised company also repriced 35000 options issued consultant 500 150 exercise date extended august 1998 august 1999 fasb statement 123 accounting stockbased compensation requires company provide pro forma information regarding net income loss net income loss per share compensation cost companys employee stock options determined accordance fair value based method prescribed fasb statement 123 cca companies incorporated notes consolidated financial statements continued note 10 stock options warrants continued company utilized following weightedaverage assumptions determine fair value accounting provisions fasb statement 123 companys pro forma net loss per share would follows cca companies incorporated notes consolidated financial statements continued note 10 stock options warrants continued summary status companys fixed stock option plan non plan options june 30 2000 1999 1998 changes years ended presented following table presents information relating stock options outstanding june 30 2000 cca companies incorporated notes consolidated financial statements continued note 10 stock options warrants continued warrants year ended june 30 1999 company issued two consultants threeyear warrants purchase 50000 shares companys common stock 100 per share year ended june 30 1998 company issued one consultant fouryear warrants purchase 100000 shares companys common stock 650 per share 1999 warrants valued 50000 1998 warrants valued 272500 companys operations charged value warrants issued consultants services time issuance july august 1999 company agreed issue warrants purchase 83334 shares companys common stock 100 per share two investors warrants exercised time expire two three years issuance date note 4 company issued 1308334 warrants exercise prices 100 200 fiscal year ending 1999 715678 warrants exercise price 514 fiscal year ending 1998 june 1999 company issued consultant services relating sakhalin project warrants purchase 150000 shares common stock 100 per share warrants valued 25000 recorded capitalized finance costs connection acquisition financing company issued 700000 warrants danville october 1999 see notes 4 7 500000 warrants stanton january 2000 see notes 7 8 150000 galileo capital llc march 2000 purchase companys common stock 025 per share see note 7 galileo warrants expire two years date company files new registration danville warrants expire three years date grant stanton warrants expire four years date grant warrants valued 155400 december 1999 company issued warrants investor past underwriter company acquire 450000 shares common stock past services rendered price 050 per share january 2000 company issued warrants related counsel services rendered acquire 225000 shares companys common stock price 025 per share expensed 8000 june 30 2000 see note 8 cca companies incorporated notes consolidated financial statements continued note 10 stock options warrants continued june 30 2000 company warrants amounting 5369013 outstanding warrants exercised warrants exercisable day grant 2000 308333 warrants expired weighted average fair value 2283000 warrants granted year 12 repricing options warrants exercise price warrants purchase 325000 shares companys common stock issued directors consultant 1996 changed 500 150 per share september 1998 company recorded additional charge operations approximately 125000 warrants repricing additionally september 1998 companys board directors agreed reprice exercise price 1567500 stock options previously granted directors officers employees prices ranging 500 650 150 december 1999 repriced 1920000 stock options previously granted directors officers employees priced 150 exercise price 025 1999 company recorded additional charge operations approximately 335000 900000 options previously granted directors approximately 90000 237500 options previously granted consultants 1998 1997 fiscal years repricing 2000 company recorded additional charge approximately 10000 repricing 600000 options 150000 warrants 150 025 previously granted directors company repriced exercise price 212500 options 25000 warrants 150 025 previously granted related counsel expensed approximately 2000 common stock set aside currently company reserved 10303632 shares common stock exercise options warrants note 11 stockholders equity december 1997 special meeting stockholders amendment companys certificate incorporation approved increasing number common shares authorized 30000000 shares 50000000 shares increasing number preferred shares authorized 5000 shares 5000000 shares note 12 business segment information company ceased operations food preservation hotel management business segments year ended june 30 1999 accordingly june 30 1999 companys line business relates casino operations suriname russian federation cca companies incorporated notes consolidated financial statements continued note 12 business segment information continued year ended june 30 1998 companys operations classified three business segments food preservation hotel management casino operations food preservation includes development selling marketing product hotel management includes management exclusive operations certain hotels casino operations include development management certain casinos operating loss segment total operating revenues less expenses deemed related segments operating revenue identifiable assets segment assets used operation unit corporate assets consist principally cash equivalents prepaid expenses leasehold improvements related corporate unit summarized financial information business segment year ended june 30 1998 follows continuing discontinued operations revenues segment food preservation 9900 hotel management 639700 casino corporate total revenues 649600 operating loss segment food preservation 2878800 hotel management 5558500 casino 1374900 corporate 2944700 total operating loss 4319600 8437300 depreciation amortization segment food preservation hotel management 105000 casino 240200 corporate 32800 total depreciation amortization 273000 105000 capital additions segment food preservation hotel management 2734900 casino 5111100 corporate 86800 5197900 2734900 cca companies incorporated notes consolidated financial statements continued note 13 provisions valuation allowances assets written allowances loans receivables years ended june 30 1999 1998 follows year ended june 30 1999 1998 beginning balance 2620830 1000000 provision 608311 1620830 writeoffs 3229141 ending balance 2620830 june 30 1998 based termination hotel management agreements carrying value management contracts trade names deposit assets acquired reduced fair value company recorded charge 4200000 see note 2 note 14 subsequent events october 2000 board directors issued 480000 shares consultant market price 015 final settlement consulting fees 120000 accrued paid difference credited consulting fees june 30 2000 see note 8 subsequent yearend company unable repay loans stanton galileo required terms debt company repaid galileo loan full february 2001 making payments stanton debt based availability funds see note 7 october 2000 company granted fully vested fouryear options purchase 500000 shares chief financial officer exercise price 010 per share october 2000 2230000 options issued officers employees company repriced 025 010 options 500000 warrants 650000 issued stanton related party also repriced 025 010 january 2001 company issued 1333334 shares common stock richard w devries professional corporation purchase price 0075 per share february 2001 company entered nonbinding letter intent acquire applied gaming solutions canada inc agc subject certain preconditions agc operates online lottery vietnam anticipates expanding marketing efforts geographic area covered lottery item 14 exhibits financial statements schedules reports form 8k a1 financial statements report independent certified public accountants f2 consolidated balance sheets june 30 2001 june 30 2000 f3 consolidated statements operations years ended june 30 2001 june 30 2000 june 30 1999 f4 consolidated statements stockholders equity years ended june 30 2001 june 30 2000 june 30 1999 f5 consolidated statements cash flows years ended june 30 2001 june 30 2000 june 30 1999 f8 notes consolidated financial statements f11 exhibit item title 21 contract extension concession period operation casino dated 21 july 1997 issued minister finance favor roulette loan agreement dated 9 april 1998 roulette dorsett providing us 420000 loan roulette amendment no1 dated 5 june 1998 agreement dated 3 april 1998 cbc juste dorsett incorporated reference companys form 10q period ended september 30 1998 31 certificate incorporation amendments thereto incorporated herein reference companys registration statement form s1 file 33316571 32 amendment companys certificate incorporation incorporated herein reference companys registration statement form s1 file 33316571 amendment 5 33 amendment companys certificate incorporation incorporated herein reference companys proxy statement dated november 27 1997 34 bylaw company incorporated herein reference companys registration statement form s1 file 33316571 42 form certificate evidencing shares common stock incorporated herein reference companys registration statement form s1 file 33316571 amendment 2 43 form underwriters warrant agreement company underwriter janssenmeyers associates lp including form underwriters warrant incorporated herein reference companys registration statement form s1 file 33316571 amendment 5 45 amendatory agreement dated november 6 1996 company ses family investment trading partnership lp incorporated herein reference companys registration statement form s1 file 33316571 46 form 10 debenture dated september 1996 incorporated herein reference companys registration statement form s1 file 33316571 47 form 10 convertible debenture dated november 1996 incorporated herein reference companys registration statement form s1 file 33316571 101 1996 stock option plan amended restated incorporated herein reference companys registration statement form s1 file 33316571 102 form stock option agreement incorporated herein reference companys registration statement form s1 file 33316571 103 distribution agreement dated october 9 1996 company agrotech 2000 sl incorporated herein reference companys registration statement form s1 file 33316571 amendment 4 104 employment agreement charles h stein company effective june 13 1997 105 form 500 warrant agreement dated august 1996 incorporated herein reference companys registration statement form s1 file 33316571 106 loan agreement dated october 9 1996 company conserver purchasing corporation cpu amended letter agreement dated december 31 1996 company cpc incorporated herein reference companys registration statement form s1 file 33316571 amendment 2 107 form financial consulting agreement company underwriter incorporated herein reference companys registration statement form s1 file 33316571 amendment 5 108 agreement dated august 12 1997 among company sakhalin trading investments limited sgti sovereign gaming leisure limited sovereign incorporated herein reference exhibit 108 companys form 10k fiscal year ended june 30 1997 109 amendment dated august 12 1997 among company sgti sovereign incorporated herein reference exhibit 109 companys form 10k fiscal year ended june 30 1997 1010 development services agreement dated october 2 1997 company dato david chiu incorporated herein reference exhibit 1010 companys form 10k fiscal year ended june 30 1997 1011 consulting agreement effective august 14 1997 company star casino limited incorporated herein reference exhibit 1011 companys form 10k fiscal year ended june 30 1997 1012 proposed form pledge agreement among company brian j bryce jasmine trustees ltd jay haft james v stanton incorporated herein reference exhibit 1012 companys form 10k fiscal year ended june 30 1997 1013 hotel management agreement dated october 2 1997 company dorsett hotels resorts international ltd incorporated herein reference exhibit 1013 companys form 10k fiscal year ended june 30 1997 1015 heads agreement dated october 3 1997 company parbhoes handelmij nv incorporated herein reference exhibit 1015 companys form 10k fiscal year ended june 30 1997 1016 agreement ownership structure sakhalin palace resort project dated june 25 1999 company arter capital ltd valmet sa filed herewith 161 letter regarding change certifying accountant incorporated herein reference companys form 8k dated december 18 1997 form 8k dated june 16 1998 162 letter regarding change certifying accountant incorporated herein reference companys form 8k dated july 23 1999 form 8k dated october 13 1999 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized cca companies incorporated miles r greenberg miles r greenberg date september 21 2001 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date dallas r dempster officer president chief executive officer chief operating officer president principal executive officer director september 21 2001 james v stanton vice chairman director september 21 2001 miles r greenberg chief financial officer principal financial officer chief accounting officer september 21 2001 cca companies incorporated contents report independent certified public accountants board directors stockholders cca companies incorporated audited accompanying consolidated balance sheets cca companies incorporated delaware corporation subsidiaries june 30 2001 2000 related consolidated statements income retained earnings cash flows years ended june 30 2001 2000 1999 consolidated financial statements responsibility companys management responsibility express opinion consolidated financial statements based audit conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures consolidated financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provides reasonable basis opinion consolidated financial statements referred present fairly material respects financial position cca companies incorporated subsidiaries june 30 2001 2000 results operations cash flows year ended june 30 2001 2000 1999 conformity accounting principles generally accepted united states america spear safer harmon co miami florida september 7 2001 see accompanying notes consolidated financial statements see accompanying notes consolidated financial statements see accompanying notes consolidated financial statements see accompanying notes consolidated financial statements see accompanying notes consolidated financial statements see accompanying notes consolidated financial statements see accompanying notes consolidated financial statements see accompanying notes consolidated financial statements cca companies incorporated notes consolidated financial statements years ended june 30 2001 2000 1999 note 1 summary significant accounting policies subsidiaries consolidated financial statements include accounts company subsidiaries active subsidiaries suriname leisure company avv slc based operating suriname dorsett hotel resorts inc dorsett based operating united states sakhalin general trading investments ltd sgti based cyprus sakhalin city center ltd scc based russian federation relatively dormant commence significant activities upon attaining adequate financing inactive subsidiaries dorsett hotels resort international snd bhd dhri based malaysia roulette kft roulette majority shareholding disposed december 1998 based hungary nature operations companys principal line operation provide gaming services ownership management casino suriname company presently relies entirely except occasional debt equity offerings working capital generated suriname finance activities addition company planning design stage relating casino mountain resort project sakhalin island principles consolidation accompanying consolidated financial statements include accounts cca subsidiaries collectively company accounts roulette consolidated date acquisition date cca disposed majority interest december 1998 intercompany transactions balances eliminated consolidation scc currently generating losses minority shareholders obligated fund losses accordingly minority interest held scc reflected financial statements casino revenue casino revenue net win gaming activities difference gaming wins losses cash equivalents company considers investments original maturities three months less time purchase cash equivalents times cash balances companys bank accounts united states may exceed federally insured limits company required contractually set aside 2 annual revenues slc segregated bank account fund cost future tangible property replacements june 30 2001 cash set aside replacements net expenditures amounted approximately 59000 cca companies incorporated notes consolidated financial statements continued note 1 summary significant accounting policies continued use estimates preparation financial statements preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates financial instruments carrying amounts financial instruments including loans receivable accounts receivable accounts payable debt approximate fair value excess cost fair value assets acquired company reviews recoverability excess cost fair value assets acquired going basis accordingly company determined fiscal year 2000 recoverability goodwill associated sgti assets acquired doubtful accordingly unamortized balance written see note 2 property equipment leasehold property equipment recorded cost depreciation amortization computed straightline method based estimated useful lives 3 5 years related assets leasehold improvements amortized shorter life asset lease advertising costs incurred produce marketing material advertise generally expensed incurred income taxes purpose financial statements company adopted provisions sfas 109 accounting income taxes periods presented asset liability method sfas 109 deferred taxes recognized differences financial statement income tax bases assets liabilities stockholders equity stockholder equity consists accumulated deficit additional paid capital preferred stock common stock 2001 2000 company authorized issue 5000000 shares preferred stock par value 01 specific powers preferences rights qualifications limitations restrictions designated companys board directors time issuance 2001 2000 shares preferred stock issued 2001 2000 company authorized issue 50000000 shares common stock par value 001 2001 18140000 common shares issued 2000 16326666 common shares issued stock based compensation sfas 123 accounting stock based compensation establishes fair value method accounting stockbased compensation plans either recognition disclosure company adopt fair value based method employees instead discloses pro forma effects calculation required statement see note 10 cca companies incorporated notes consolidated financial statements continued note 1 summary significant accounting policies continued impairment longlived assets company utilizes sfas 121 accounting impairment longlived assets longlived assets disposed provisions statement company evaluated longlived assets financial impairment continue evaluate events changes circumstances indicate carrying amount assets may fully recoverable company evaluates recoverability longlived assets measuring carrying amount assets estimated undiscounted future cash flows associated time evaluations indicate future undiscounted cash flows longlived assets sufficient recover carrying value assets adjusted fair values company recorded charges approximately 610000 year ended june 30 1999 relating roulette 305000 costs management contract ramallah project see note 2 year ended june 30 2000 company recorded charges approximately 13552000 relating sgti scc see note 2 result financial impairment several longlived assets earnings per share basic net loss per share common stock based weighted average number common shares outstanding period diluted loss per share common stock computed basis weighted average number common shares common shares equivalent securities outstanding securities antidilutive effect excluded calculation weighted average number common shares outstanding periods presented retroactively reflects stock splits reverse stock splits effected company options amounting 3852500 year ended june 30 2001 4934619 year ended june 30 2000 4062619 year ended june 30 1999 warrants amounting 4624013 year ended june 30 2001 5369013 year ended june 30 2000 3819012 year ended june 30 1999 included computation net loss per common stockdiluted antidilutive effect foreign currency translation statutory currencies countries companys subsidiaries based cyprus pound russian ruble malaysian ringgit united states dollar suriname guilder hungarian forints reporting currency us dollar cca companies incorporated notes consolidated financial statements continued note 1 summary significant accounting policies continued functional currency companys subsidiaries sgti slc united states dollar assets liabilities materially contracts transactions normal business activities transacted conducted negotiated recorded us dollars companys position operations company integrally connected currencies cyprus suriname pursuant financial accounting standards board statement 52 foreign currency translation fas 52 companys russian subsidiary scc situated highly inflationary economy accordingly sccs functional currency us dollar recent pronouncements june 1998 financial accounting standards board fasb issued statement financial accounting standards sfas 133 accounting derivative instruments hedging activities sfas 133 sfas 133 requires recognition fair value derivative instruments balance sheet subsequent issuance sfas 133 fasb received many requests clarify certain issues causing difficulties implementation june 2000 fasb issued sfas 138 responds requests amending certain provisions sfas 133 amendments include allowing foreigncurrency exposures reduce need thirdparty derivatives redefining nature interest rate risk avoid sources ineffectiveness impact companys financial statements adopting sfas 133 amended sfas 138 significant october 1998 fasb issued statement financial accounting standards 134 accounting mortgagebacked securities retained securitization mortgage loans held sale mortgage banking enterprise effective first fiscal quarter beginning december 15 1998 impact companys financial reporting presentation due adoption sfas 134 february 1999 fasb issued statement financial accounting standards 135 recission fasb statement 75 technical corrections effective financial statements issued february 15 1999 adoption sfas 135 materially impact financial statements company december 1999 securities exchange commission issued staff accounting bulletin 101 revenue recognition financial statements sab 101 sab 101 provides guidance recognition presentation disclosure revenues financial statements requires adoption later fourth quarter fiscal 2001 companys financial reporting presentation materially affected adoption sab 101 march 2000 fasb issued fasb interpretation 44 accounting certain transactions involving stock compensation interpretation apb 25 effective july 1 2000 fasb interpretation 44 material impact companys financial statements cca companies incorporated notes consolidated financial statements continued note 1 summary significant accounting policies continued september 2000 fasb issued sfas 140 accounting transfers servicing financial assets extinguishments liabilities replacement fasb 125 statement provides accounting reporting standards transfers servicing financial assets extinguishments liabilities standards transfer financial assets entity recognizes financial servicing assets controls liabilities incurred derecognizes financial assets control surrendered derecognizes liabilities extinguished statement provides consistent standards distinguishing transfers financial assets sales transfers secured borrowings statement effective transfers servicing financial assets extinguishments liabilities occurring march 31 2001 company expect adoption sfas 140 material impact results operations financial position cash flows june 2001 fasb issued sfas 141 sfas 142 sfas 143 sfas 141 business combinations effective business combinations initiated june 30 2001 addresses financial accounting reporting business combinations sfas 141 supersedes apb opinion 16 business combinations fasb statement 38 accounting preacquisition contingencies purchased enterprises companys financial reporting presentation materially affected adoption sfas 141 sfas 142 goodwill intangible assets addresses financial accounting reporting acquired goodwill intangible assets supersedes apb opinion 17 intangible assets sfas 142 required applied fiscal years beginning december 15 2001 sfas 143 accounting asset retirement obligations addresses financial accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs sfas 143 effective financial statements issued fiscal years beginning june 15 2002 companys financial reporting presentation expected materially affected adoption sfas 142 143 reclassifications certain prior year balances reclassified conform 2001 presentation cca companies incorporated notes consolidated financial statements continued note 2 lines business suriname casino lease company party agreement suriname casino agreement parbhoe handelmij nv parbhoe suriname limited liability company agreement parties formed acquired 50 interest suriname leisure company slc aruban limited liability company develop casino project suriname casino paramaribo capital city suriname pursuant suriname casino agreement companys fully owned subsidiary dorsett entered suriname casino management agreement slc manage suriname casino june 30 1999 company advanced approximately 46 million dollars slc project approximately 40 million dollars spent property equipment leasehold improvements company retains lien security interest property equipment advance paid back slc repayment subject certain restrictions based upon obligation repay loan received parbhoe see note 7 june 30 2001 amount due slc cca towards loans interest costs approximated 2192357 eliminated consolidation suriname casino management agreement provides fifteen years exclusive operating rights suriname casino base fee equal three percent revenues defined plus incentive fee ten percent gross profits defined initially commencing october 1998 company operated small temporary casino company moved permanent casino facility completed march 1999 suriname casino currently occupies two leased floors totaling 20000 square feet plaza hotel downtown paramaribo casino approximately 20 gaming tables 161 slot machines 50seat restaurant company leases casino premises parbhoe see note 9 sakhalin island russian federation casino resort company currently owns rights secured property 101year lease annual cost ten acre site build operate 140 milliondollar 450room year round hotelcasino resort company initially planned 70 tables 350 slot machines intent add additional gaming equipment site located center city yuzhnosakhalinsk city sakhalin island sakhalin project sakhalin island russian territory located north japan proposed hotelcasino built would easily accessible gaming activities japan china korea russian mainland development planned nearby ski mountain company manage hotel resort casino management fee equal 3 revenues defined well incentive fee 10 gross profits cca companies incorporated notes consolidated financial statements continued note 2 lines business continued company entered numerous discussions several agreements attempts raise capital finance sakhalin project without success 2000 due companys failure proceed based evaluation assets financial impairment required sfas 121 certain capitalized expenditures goodwill excess aggregate purchase price fair market value net assets acquired net amortization totaling approximately 13552000 written see note 1 company believes outlay secure lease city land existing ski resort money expended principally demolition relocation residents living site financially impaired accordingly approximately 2100000 expended connection lease demolition remains companys accounts addition granting lease city committed contractually permit several small existing casinos increase floor areas extend range operations without written approval scc company also certain rights participate development management future casinos within jurisdiction city sakhalin agreement provides upon request company sovereign may agree become project manager construction phase sakhalin project subject reasonable compensation services shall exceed lesser 5 construction cost sakhalin project 5000000 subsequent sakhalin agreement mr dallas dempster paid consultant sovereign recruited president chief executive officer ceo cca accordingly companys current intent employ sovereign manage construction phase sakhalin project directly october 1997 company entered agreement development services agreement mr david chiu certain development services performed including using best efforts secure necessary debt financing guarantees complete turnkey construction sakhalin project development service agreement expired august 1998 without chiu rendering services september 1998 company entered letter intent jsc rosneftegazstroy rngs large russian construction company letter intent aimed rngs guaranteeing financing turnkey construction contract sakhalin project acting subcontractor company rngs never contractually acted letter intent subsequently abandoned june 1999 company entered agreement financing agreement arter group limited arter valmet sa valmet see notes 4 8 according agreement arter valmet negotiate companys behalf acquire financing 70 sakhalin projects total estimated cost cca companies incorporated notes consolidated financial statements continued note 2 lines business continued march 2001 permitted agreement company notified arter valmet effective may 2001 electing cancel financing agreement sakhalin project requires substantial financing progress financing obtained company may forced abandon project company forced abandon project company attempt market plans licenses rights order recover much historic expenditures possible company unable time quantify recoveries attain 2001 company continues explore additional possibilities protect investment date found viable answer company successful financing sakhalin project company design set infrastructure currently place addition company employ significant number people retain consultants contractors manage design construct property require significant financial resources hotel management agreements certain agreements dorsett hotels resorts international ltd dhr far east consortium international ltd fec company acquired right manage operate three hotels service right manage operate five hotels scheduled open future company paid consideration 3 million dollars cash promised issue two million shares companys common stock payable prorata basis assignment hotel operating contracts hotel subsequently company issued 950000 shares common stock assignment contracts three operating hotels total approximately 1200 rooms contrary terms hotel operating contracts company permitted actively manage two hotels addition company notified renovation andor construction five hotels turned company future stopped projects reviewed financial efficacy result failure comply terms agreements parties reached settlement november 1998 terminate agreements exchange mutual releases according terms settlement cca received 450000 cash return 950000 shares previously issued stock obligation reissue 250000 shares fec retained management fees earned addition company indebtedness one million dollars borrowed fec july 1998 canceled see note 3 9 cca companies incorporated notes consolidated financial statements continued note 2 lines business continued budapest casino september 1998 company purchased 95 interest equity roulette hungarian limited liability company operated orfeum casino budapest addition deposit 100000 paid toward purchase additional advances 608000 made prior closing company delivered sellers 17857 shares companys common stock based value 700 per share 125000 total may 1999 required contract company issued 116813 additional shares common stock make shortfall value stock originally delivered due decline market value stock arranging transaction company paid minority shareholder roulette fee 75000 capitalized part companys investment december 1998 company entered agreement agm international ltd agm israeli junket operator experienced organizing junket premium casino player groups agm given 50 ownership roulette agreeing pay company 100000 closing pay additional 100000 roulette able renew gaming license due expire november 1999 agreement also required agm fund 100000 additional operating capital needed order continue 50000 general improvements 1999 hungarian gaming board decided reduce number casino licenses existed time roulette unsuccessful bid obtain one reduced numbers gaming licenses available forced close casino end october 1999 june 30 1999 company wrote entire investment roulette delineated investment roulette 300000 loans roulette 608311 908311 less loss roulette subsidiary 298478 609833 less balance investment writtenoff 609833 cca companies incorporated notes consolidated financial statements continued note 2 lines business continued ramallah casino march 24 2000 dorsett entered casino management agreement ramallah casino agreement ramallah hotel casino company ltd provide technical advice developmental services manage casino ramallah west bank subsequent time acts war insurrection riots occurred west bank israel provided contracts obligations proceed contract suspended disturbances exist company incurred approximately 305000 costs associated entering ramallah casino agreement based upon circumstances writtenoff see note 1 business political economic conditions companys operating activities taking place principally suriname experienced within last three years significant devaluation currency exchange controls regard activities taking place suriname managements belief able repatriate earnings without official impediments note 3 discontinued operations food preservation technology november 1999 company officially abandoned food preservation business accordingly reflected losses attributable business discontinued operations assets food preservation business consisted principally fully reserved loans two companies agrotech cpc addition company plan exercise option acquire controlling equity interest entities possess food preservation technologies results operations food preservation business june 30 2000 classified loss discontinued operations follows year ended june 30 2000 1999 revenues costs expenses 64500 425175 loss discontinued operations 64500 425175 activities connected food preservation business ceased 2000 cca companies incorporated notes consolidated financial statements continued note 3 discontinued operations continued hotel management result termination hotel management agreements november 1998 subsequent dismissal hotel management employees april 1999 company active hotel management operating business company discontinued line business reflected related income assets liabilities discontinued operations results operations hotel management business june 30 2000 classified loss discontinued operations follows year ended june 30 2000 1999 revenues 363301 639741 costs expenses 221751 6198247 income loss discontinued operations 141500 5558506 unforeseen litigation relating discontinued operations occurred required expenditures year ending june 30 2000 company currently anticipate activity connected discontinued operations tax benefit due loss discontinued operations recorded due companys uncertainty regarding future earnings apply losses note 4 capital structure public offerings private placements september 1998 company issued 89000 shares common stock maritime services corporation msc building contractor suriname casino shares issued price 225 per share 200250 msc agreed accept consideration payment towards construction contract slc notes 8 9 january 1999 stanton associates stanton entity controlled one companys directors accepted 153200 shares 050 per share companys common stock principal interest 76600 owed see notes 7 8 cca companies incorporated notes consolidated financial statements continued note 4 capital structure public offerings private placements continued year ended june 30 1999 company received 1676600 sale 2053200 shares common stock private investors time sale common stock company issued warrants purchase 1280334 shares companys common stock exercisable periods ranging 1 4 years exercise prices 100 additional 25000 warrants exercise period one year exercise price 200 per share issued warrant exercise prices exceed market value stock dates issued year ended june 30 1999 company issued 300000 shares common stock 075 per share valmet consultant services performed relating sakhalin project time company issued 150000 twoyear warrants valmet exercise price 1 valued 25000 see notes 2 8 july august 1999 company received 125000 two investors purchase 166667 shares companys common stock market value 075 per share addition company agreed issue warrants purchase 83334 shares companys common stock 100 per share investors warrants exercised time expire two three years issuance date note 10 october 1999 company obtained financing convertible note 350000 danville investments pty ltd australia danville term note full amount loan repaid danville option convert outstanding principal plus accrued interest due loan shares common stock company conversion would price equal fiveday average market closing price ending day prior day conversion danville december 1999 exercised option convert 185000 principal loan plus accrued interest 10500 1481060 shares companys stock based fiveday average stock price 0132 per share notes 7 10 november 1999 company annual meeting stockholders granted board directors authority affect 1 10 reverse split common stock march 28 2000 board elected exercise authority affect reverse split expiration date action passed casino consulting agreement provided end term agreement casino consultant entitled receive 250000 bonus prior time casino consultant agreed accept 250000 shares companys common stock place 250000 bonus due december 1999 consulting contract expired stock delivered market price per share 013 see note 8 cca companies incorporated notes consolidated financial statements continued note 4 capital structure public offerings private placements continued january 2000 companys board directors agreed issue 150000 shares companys common stock 013 per share one legal counsel services rendered company march 2000 company issued 264000 shares common stock 025 per share consultant michael davis settlement consulting fees reimbursable business expenses october 2000 board directors issued 480000 shares consultant market price 015 final settlement consulting fees 120000 accrued paid difference credited consulting fees year june 30 2000 see note 8 january 2001 company issued 1333334 shares common stock richard w devries professional corporation attorney emsi purchase price 0075 per share note 5 property equipment leasehold improvements june 30 property equipment leasehold improvements consist following depreciation expense 770478 year ended june 30 2001 784462 year ended june 30 2000 499494 year ended june 30 1999 cca companies incorporated notes consolidated financial statements continued note 6 income taxes cca dorsett june 30 2001 cca dorsett united states net operating loss carryforwards nol approximately 8770000 expire 2017 event change ownership company utilization nol subject limitation certain provisions united states internal revenue code addition june 30 2001 cca dorsett capital loss carryovers approximately 5595000 generally used offset capital gains unused capital losses carried forward indefinitely used future capital gains cca dorsett subject corporate income tax rates high 40 produce profit united states dhri roulette companys subsidiaries dhri roulette experienced substantial losses dhri roulette closed operations liquidated net assets currently dormant company anticipate time future earnings losses may applied accordingly company provided deferred tax assets dhri roulette scc june 30 2001 scc net operating loss carryforwards nol approximately 5008000 expire 2007 carryforward limited 20 loss per year five consecutive years scc subject russian corporate tax taxable profits gambling tax sakhalin project commences operations currently federal profit tax 11 regional tax high 19 addition gambling tax levied based fixed rates per gambling table betting booking office slot machines repatriation profits generated scc russian federation cca may highly regulated russian central bank taxing authority transfers funds entities outside russian federation require special authorization central bank payment dividends subject heavy double taxation laws company believes sakhalin project commences operations russian central bank taxing authority make profit repatriation concessions available cca companies incorporated notes consolidated financial statements continued note 6 income taxes continued sgti holds companys investment scc incorporated cyprus companies registered cyprus managed controlled outside cyprus liable tax income occurring derived received outside country suriname casino 1999 slc requested government suriname government grant certain concessions regarding imposition taxes import duties suriname investment act date government granted company relief company continuing pursue concessions feel time chance favorable ruling remote 2000 slc provided income taxes payable government based tax rate 50 net taxable income since inception based suriname hazard games act 1962 act states income tax levied rate 50 proceeds hazard games industry includes casinos slc made provisions income tax duties past based opinions counsel regarding tax concessions granted slc still pursuing tax incentives entitlements believes according suriname law available june 2000 suriname government arbitrarily assessed demanded slc pay 161765 calendar year 1998 42600 calendar year 1999 tax penalties may owed subsequently government arbitrarily assessed additional tax 110000 calendar year 2000 assessments imposed company submitted tax accountings government documenting actual tax liability payable approximately 375000 based suriname tax concessions granted subsequent june 2000 government suriname imposed import duties slcs operating assets slc accrued capitalized amount assessed june 30 2000 amortizing balance five years commencing retroactively april 1 1999 company attempting obtain import duty waiver investment made ministry finance suriname lawyer however difficult obtain decision companys favor due current economic conditions suriname ministry finance trying impose valueadded tax vat slot machines currently ministry finance completed study reporting surinames parliament issue time company cannot quantify amount payable vat slot machines cca companies incorporated notes consolidated financial statements continued note 6 income taxes continued income tax provision realization portion companys deferred tax asset june 30 2001 dependent upon future earnings capital gains due uncertainty future earnings capital gains valuation allowances provided cca companies incorporated notes consolidated financial statements continued note 6 income taxes continued cumulative undistributed earnings foreign subsidiaries june 30 2001 2000 964000 760000 respectively considered permanently reinvested expected remitted company accordingly federal income deferred taxes provided earnings note 7 notes payable october 1998 company borrowed 75000 stanton associates two promissory notes mr james stanton owner stanton associates also director company loan subject interest rate 8 per annum payable along accrued interest lump sum january 1999 january 1999 stanton accepted shares companys common stock principal interest due see notes 4 8 december 1998 company arranged borrow additional 10 million dollars parbhoe ultimately 750000 advanced slc used complete construction casino loan subject 4 monthly interest rate payable within six months disbursement loan paid full august 1999 october 1999 company obtained financing convertible note 350000 danville investments pty ltd australia danville company received proceeds 215000 funded net 135000 discount recorded deferred interest expense deferred interest expense amortized expensed life loan subject interest rate 15 per annum payable full maturity loan april 2000 company obligated deposit monthly basis less 30000 separate bank account towards payment loan addition company also issued danville warrants purchase companys common stock company pledged principal payments interest management fees due company suriname leisure company security loan danville december 1999 exercised option convert 185000 principal loan plus accrued interest 10500 shares companys stock company paid remaining balance 165000 plus interest april 2000 notes 4 10 january 2000 company borrowed 300000 stanton company received proceeds 283000 funded net 17000 discount recorded deferred interest expense deferred interest expense amortized expensed life loan interest loan calculated wall street journal prime rate payable monthly basis terms promissory note require company repay loan four monthly installments 15000 commencing february 2000 seven monthly installments 30000 commencing june 2000 final payment 30000 december 31 2000 company granted stanton security interest subordinated danvilles interest principal payments interest management fees due company suriname leisure company issued stanton warrants purchase shares companys common stock company unable meet original repayment schedule stanton debt made payments based availability funds principal amount loan payable yearend 75000 see notes 8 10 14 cca companies incorporated notes consolidated financial statements continued note 7 notes payable continued march 2000 company borrowed 150000 galileo capital llc galileo utilizing convertible debt company received proceeds 146600 funded net 3400 discount recorded deferred interest expense deferred interest expense amortized expensed life loan subject interest rate 10 per annum payable full maturity loan october 2000 company required pay six equal monthly installments 25000 commencing may 2000 additional consideration loan company issued 150000 warrants galileo purchase shares companys common stock warrants exercisable 025 per share expire two years date underlying shares registered company unable meet original repayment schedule repaid loan full february 2001 see notes 10 14 longterm september 1998 cca borrowed 600000 50 coowner parbhoe slc construction permanent casino facilities interest loan calculated using interest rate 3 per month see note 9 outstanding balance loans owing parbhoe cca paid excess cash flow generated operations slc principal payments approximately 015 every 100 excess cash flow utilized pay back advances owed parbhoe see notes 2 9 note 8 related party transactions legal see note 10 company incurred legal fees approximately 10000 year ended june 30 2000 127000 year ended june 30 1999 legal counsel owning securities company related counsel related counsel provided legal services 2001 options issued company related counsel june 30 1998 valued approximately 285619 amortized legal expense counsel rendered services legal expense 171000 charged year ended june 30 1998 balance 115000 charged year ended june 30 1999 cca companies incorporated notes consolidated financial statements continued note 8 related party transactions continued company repriced exercise price options warrants previously granted related counsel year ending june 30 2000 expensed approximately 2000 see note 10 company also issued related counsel additional warrants expensed approximately 8000 june 30 2000 see note 10 consultants june 1999 company entered financing agreement arter group limited arter valmet sa valmet negotiate companys behalf acquire financing see notes 2 4 company party agreement casino consulting agreement star casinos limited casino consultant expired december 1999 casino consulting agreement consultant agreed provide consulting technical services company affiliated entities period two years david hartley subsequently became president casino division company owned consultant terms casino consulting agreement consultant received 250000 annually plus reimbursement reasonable expenses end term agreement consultant also entitled receive 250000 bonus time casino consultant agreed accept companys common stock place 250000 bonus due agreement also binds casino consultant twoyear noncompete nonsolicitation provision termination agreement see note 4 10 casino consulting agreement concluded casino consultant agreed continue providing consulting services monthtomonth basis annualized rate 250000 company paid casino consultant 187000 year ended june 30 1999 130000 year ended june 30 2000 225000 year ended june 30 2001 addition company accrued additional consulting fees 63000 year ended june 30 1999 72000 year ended june 30 2000 see note 4 25000 year ended june 30 2001 plus reimbursement reasonable expenses construction contractors september 1998 company issued shares companys common stock msc building contractor suriname casino payment towards part construction contract slc notes 4 9 cca companies incorporated notes consolidated financial statements continued note 8 related party transactions continued directors company borrowed stanton associates 75000 october 1998 300000 january 2000 mr james stanton owner stanton associates director company see notes 4 7 10 officer september 1998 dempsters nominees granted nonplan options consideration dempster joining company july 1998 december 2000 additional plan options granted services performed note 10 note 9 commitments contingencies rental commitments company rents office space facilities united states noncancelable leases september 2003 minimum future rental commitment leases effect june 30 2001 approximates following years ended june 30 2002 34424 2003 2983 37407 suriname casino currently occupies two leased floors totaling 20000 square feet plaza hotel downtown paramaribo company leased casino premises parbhoe 50 shareholder slc fifteen years ending february 2013 yearly base rent 200000 subject future increases based suriname consumer price index cca companies incorporated notes consolidated financial statements continued note 9 commitments contingencies continued company continued pay rent rate beginning lease june 2000 without providing increase rent suriname law regulates maximum amount rent landlord charge july 2000 company determined based maximum rent charged suriname laws overcharged company currently attempting recover excess rent charged approximately 315000 courts based government validated valuation maximum rent permissible suriname laws july 2000 company commenced paying reduced rental approximately 3200 per month based valuation litigation settled company able predict future rental expense suriname see note 2 rent expense 82176 year ended june 30 2001 256698 year ended june 30 2000 532916 year ended june 30 1999 nasdaq small cap market delisting november 1999 securities company delisted nasdaq small cap market delisting occurred due companys failure comply certain nasdaq marketplace rules relating bid price filing requirements nasdaq opinion company failed present definitive plan would enable attain compliance within reasonable period time sustain compliance panel also determined unable evaluate true extent companys compliance nasdaqs continued listing standards absence accurate complete publicly filed audited financial statements litigation arbitration company anticipates subjected various lawsuits claims proceedings nature considered normal business kai michaelson zamora investments pte ltd zamora result termination hotel management agreements november see note 3 fec assumed financial obligations respect employment president michaelsen companys hotel management subsidiary dhri thorough independent review michaelsens performance including extensive investigation allegations made fec regarding michaelsens operating decisions michaelsens employment officially terminated april 1999 april 1999 michaelsen filed claim cca lump sum payment approximately 240000 past future services employment consulting agreements requested arbitration hearing american arbitration association cca companies incorporated notes consolidated financial statements continued note 9 commitments contingencies continued company obtained temporary restraining order staying arbitration petitioned new york supreme court permanent stay hearing companys contention arbitration agreement michaelsen cca march 31 2000 court granted companys petition permanently stay arbitration subsequent order stay michaelsens company zamora filed claim dorsett 80000 new arbitration claim september 2000 company settled matter michaelson zamora exchange complete releases company paid 40000 june 30 2001 company held 250000 shares issued never delivered fec pursuant november 1998 termination agreement companys position settlement 40000 plus legal fees 47000 incurred company must repaid fec company deliver shares july 11 company cancelled shares due fecs failure fulfill obligations terms agreement fox capital corporation united resources partners collectively fox 1998 company utilized unsuccessfully services fox secure financing august 1999 fox filed demand arbitration american arbitration association demanding payment 250000 company liquidated damages fox alleged company breached letter agreement failing secure adequate collateral proposed loan according terms letter agreement company denied material allegations claim filed counterclaims alleging fox breached obligations company misrepresenting abilities secure capital financing august 22 2000 fox havens claims denied company awarded 106289 representing full refund 25000 paid fox company plus companys attorneys fees costs date company paid amount award significant uncertainty regarding companys ability collect judgment cca companies incorporated notes consolidated financial statements continued note 9 commitments contingencies continued breach slc lease slcs landlord parbhoe contract required provide air conditioning areas leased due parbhoes failure perform timely slc paid 201000 air conditioning equipment installed order get leased area ready occupancy quickly litigation anticipated recover expenditure maritime services corporation msc september 2000 msc brought action united states district court oregon seeking damages amount 200250 plus interest msc claims company issued shares 1998 partial payment construction work performed company obligated buy shares back amount claimed damages notes 4 8 company denied material allegations complaint believes liability claim longterm note payable parbhoe made demand slc repayment full 600000 loan made cca september 3 1998 see note 7 time parbhoe refused accept interim payments loan slc set aside payments required made based terms loan rigorously defended suriname courts basis among defenses based loans terms loan repayable demand prorata basis along existing new loans outstanding cca additionally loan owed cca slc note 10 stock options warrants company applies fasb interpretation 44 accounting certain transactions involving stock compensation interpretation apb 25 apb opinion 25 accounting stock issued employees related interpretations accounting employee stock options fasb interpretation 44 apb opinion 25 exercise price companys employee stock options equals exceeds market price underlying stock date grant compensation cost recognized cca companies incorporated notes consolidated financial statements continued note 10 stock options warrants continued options granted exercisable either onethird annually anniversary date grant exercisable immediately addition maximum terms four years transferable company estimates fair value stock option warrant grant date using blackscholes optionpricing model plan options companys 1996 stock option plan adopted november 1996 amended december 1996 april 1997 december 1997 plan provides adjustments number type shares covered plan options granted event reorganization merger recapitalization certain transactions involving company plan authorizes granting incentive stock options nonincentive stock options maximum number shares common stock options may granted 5000000 shares june 30 2001 2852500 options purchase shares common stock granted plan company set aside 2147500 shares common stock future options may granted plan company granted total 500000 options 1999 nonemployee directors vested immediately options issued nonemployee directors exercisable 010 150 expire four years issuance company recorded charge operations corresponding credit additional paidin capital issuance options amount 233000 1999 company granted total 1000000 fully vested options valid four years tilden park ltd nominee dempster president ceo director company 2000 see notes 8 14 total 1130000 options granted employees 1999 vested immediately employee options exercisable 010 150 october 2000 company granted fully vested fouryear options purchase 500000 shares miles greenberg chief financial officer company exercise price 010 per share non plan options addition options granted plan company issued additional 1905000 nonplan options 762000 non plan options forfeited 2001 128000 non plan options forfeited 2000 cca companies incorporated notes consolidated financial statements continued note 10 stock options warrants continued company issued legal counsel related counsel 187500 options valued approximately 285619 june 30 1998 future legal fees value options issued 1998 amortized legal expense counsel rendered services legal expense 115000 charged year ended june 30 1999 see note 8 september 1998 dempsters nominee dabus international limited established benefit family granted nonplan options purchase 1000000 shares companys common stock 150 per share options granted consideration dempster joining company july 1998 subsequently transferred tilden park ltd also nominee dempster options repriced 10 october 182000 see note 8 company issued 500000 options investors time private placements done company tenmonth period ended june 30 1997 exercise price options 200 expired april 2001 year ended june 30 1998 7881 options 500000 options issued exercised options exercised prior expiration company also repriced 35000 options issued consultant 500 150 exercise date extended august 1998 august 1999 fasb statement 123 accounting stockbased compensation requires company provide pro forma information regarding net income loss net income loss per share compensation cost companys employee stock options determined accordance fair value based method prescribed fasb statement 123 company utilized following weightedaverage assumptions determine fair value year ended june 30 2001 2000 1999 risk free interest rate 6 expected life 4 years 4 years 4 years expected volatility 05 dividend yield 00 cca companies incorporated notes consolidated financial statements continued note 10 stock options warrants continued accounting provisions fasb statement 123 companys pro forma net loss per share would follows summary status companys fixed stock option plan non plan options june 30 2001 2000 1999 changes years ended presented cca companies incorporated notes consolidated financial statements continued note 10 stock options warrants continued following table presents information relating stock options outstanding june 30 2001 options exercised 2001 warrants year ended june 30 1999 company issued two consultants threeyear warrants purchase 50000 shares companys common stock 100 per share warrants valued 50000 companys operations charged value warrants issued consultants services time issuance july august 1999 company agreed issue warrants purchase 83334 shares companys common stock 100 per share two investors warrants exercised time expire two three years issuance date note 4 company issued 1308334 warrants exercise prices 100 200 fiscal year ending 1999 june 1999 company issued consultant services relating sakhalin project warrants purchase 150000 shares common stock 100 per share warrants valued 25000 recorded capitalized finance costs cca companies incorporated notes consolidated financial statements continued note 10 stock options warrants continued connection acquisition financing company issued 700000 warrants danville october 1999 see notes 4 7 500000 warrants stanton january 2000 see notes 7 8 150000 galileo capital llc march 2000 purchase companys common stock 025 per share see note 7 galileo warrants expire two years date company files new registration danville warrants expire three years date grant stanton warrants expire four years date grant warrants valued 155400 december 1999 company issued warrants investor past underwriter company acquire 450000 shares common stock past services rendered price 050 per share january 2000 company issued warrants related counsel services rendered acquire 225000 shares companys common stock price 025 per share expensed 8000 june 30 2000 see note 8 june 30 2001 company warrants amounting 4624013 outstanding warrants exercised warrants exercisable day grant 2001 warrants granted 745000 warrants expired repricing options warrants exercise price warrants purchase 325000 shares companys common stock issued directors consultant 1996 changed 500 150 per share september 1998 company recorded additional charge operations approximately 125000 warrants repricing additionally september 1998 companys board directors agreed reprice exercise price 1567500 stock options previously granted directors officers employees prices ranging 500 650 150 december 1999 repriced 1920000 stock options previously granted directors officers employees priced 150 exercise price 025 1999 company recorded additional charge operations approximately 335000 900000 options previously granted directors approximately 90000 237500 options previously granted consultants 1998 1997 fiscal years repricing 2000 company recorded additional charge approximately 10000 repricing 600000 options 150000 warrants 150 025 previously granted directors recorded charge 2000 repricing 212500 options 25000 warrants 150 025 previously granted related counsel cca companies incorporated notes consolidated financial statements continued note 10 stock options warrants continued october 2000 company repriced 2230000 options issued officers employees 025 010 addition options 500000 warrants 650000 issued stanton related party also repriced 025 010 company recorded charge approximately 13000 repricing common stock set aside currently company reserved 8476513 shares common stock exercise options warrants note 11 business segment information company ceased operations food preservation hotel management business segments year ended june 30 1999 accordingly june 30 1999 companys line business relates casino operations suriname russian federation note 12 provisions valuation allowances assets written allowances loans receivables years ended june 30 1999 follows year ended june 30 beginning balance 2620830 provision 608311 writeoffs 3229141 ending balance cca companies incorporated notes consolidated financial statements continued note 13 nonbinding written letter intent ags loi february 2001 company entered nonbinding written letter intent applied gaming solutions canada inc corporation organized laws alberta canada ags terms letter intent contemplate company would purchase certain ags assets include operating contract construction lottery capital hanoi ccc equipment infrastructure retail sales outlets organization personnel relations cash shares common stock company since approximately august 1999 ags marketed extent operated cccs online lottery business vietnam around hanoi city letter intent company pay total 1250000 cash issue 1000000 shares common stock closing ags closing definitive agreement reached negotiations continuing note 14 purchase contract may 2001 company entered formal written contract purchase contract subject approval shareholders purchase issued outstanding common stock emerging market solutions international inc emsi 5500000 shares companys stock contract provides closing date september 28 2001 deferred agreement parties contract emsi holds exclusive contract lottery gaming system contract supply online lottery sports betting systems ho chi minh city southern provinces vietnam territory lottery gaming system contract emsi detetour corporation detetour development new technology tourism extends ten years date first online sales begin online lottery gaming system detetour entity owned sovereign socialist republic vietnam controlled national centre natural science technology laws socialist republic vietnam part govern lottery gaming system contract online lottery sports betting operations previously conducted vietnamese authority within territory emsi assets liabilities obligations formal operations commenced june 30 2001 obligations contract conditioned company affecting reverse split securing listing companys common stock reputable exchange funding emsi 3000000 company required contract use best efforts fulfill conditions cca companies incorporated notes consolidated financial statements continued note 14 purchase contract continued company plans fund emsi selling 1500000 additional shares common stock funding shares company measured share consolidation less 200 per share company sellers may cancel purchase contract funding shares sold prior september 28 2001 despite best efforts company obtain approval share consolidation list common stock recognized exchange sell funding shares minimum 3000000 one things happen closing date either sellers collectively company may declare purchase agreement terminated effect company date advanced approximately 435000 340000 prior year end emsi anticipation acquisition company received primarily prospective investors advances purchase common stock emsi transaction completed advances made emsi secured emsi acquisition successful assurance advances repaid company note 15 subsequent events reverse split attempt meet certain listing requirements recognized securities markets company adopted resolution subject approval majority shareholders twentyintoone reverse split companys outstanding shares common stock carried company believes reverse split help increase per share market price companys common stock addition various listing requirements initial public per share price nasdaq market must least 400 initial public per share price amex must 300 listed price must maintained 100 previously mentioned reverse split condition precedent contract purchase emsi change companys name company adopted resolution subject approval majority shareholders board directors authorized change name company cca companies incorporated lottery wagering solutions inc company change name unless purchase emsi consummated company believes purchase consummated new name result distinct recognizable corporate identity better reflects companys future plans amendment companys stock option plan company adopted resolution proposing number shares common stock available grant 1996 stock option plan company increased giving effect share consolidation due reverse split approved shareholders number shares available increase 250000 shares currently available 3000000 shares item 7 managements discussion analysis financial condition results operations change fiscal year company initially adopted fiscal year ending august 31 1997 calendar year company elected change fiscal year end june 30 accordingly following discussion companys results year ended june 30 1998 compared ten months ended june 30 1997 results operations company limited operating history upon evaluation performance prospects made period march 6 1996 march 31 1998 companys activities primarily limited organizational efforts raising public private capital fund organizational expenses development initial implementation business plan food technology business commencing august 1997 companys activities also included organizational fund raising efforts relating entrance business managing owning hotels casinos march 6 1996 june 30 1997 company revenues year ended june 30 1998 company limited revenues 649620 primarily attributable january 1998 commencement hotel management operations november 4 1998 company reached settlement agreement terminating hotel operating contracts fec dhi subsequently april 1999 dismissed hotel management employees consequently april 1999 company active hotel management operating business additionally november 1999 companys board directors determined would discontinue activities efforts respect companys food preservation business since company could effectively develop sufficient market companys food preservation technology accordingly years ended june 30 1999 1998 tenmonth period ended june 30 1997 company reported activities related food division hotel management operations separately gains losses discontinued operations consequently activities reflected statements operations revenues expenses continuing operations represent revenues expenses directly related apportioned companys casino operations results operations year ended june 30 1999 compared year ended june 30 1998 loss continued operations company incurred loss continuing operations 4308465 34 per share year ended june 30 1999 compared loss 4105703 45 per share year ended june 30 1998 increase loss current year resulted writeoff loans totaling approximately 610000 made budapest casino closed october 1999 partially offset profitable operations companys suriname casino opened october 1998 reductions general corporate overhead expenses revenues year ended june 30 1999 company generated revenues 5534249 attributable casino operations suriname budapest generated 4864989 669260 respectively year ended june 30 1998 company revenues attributable casino operations companys budapest suriname casinos began operations september october 1998 respectively marketing promotion year ended june 30 1999 company incurred 360572 marketing promotional expenses connection casino operations companys budapest suriname casinos began operations september october 1998 respectively accordingly company expenses year ended june 30 1998 general administrative expenses general administrative expenses 7566040 year ended june 30 1999 compared 3397974 year ended june 30 1998 included current years expenses 3758233 operating expenses associated companys suriname budapest casinos opened acquired current year 3807807 general corporate overhead including salaries consulting professional fees travel prior year expenses attributable general corporate overhead reclassification approximately 28 million related expenses directly related apportioned discontinued food hotel management operations compensation charges year ended june 30 1999 company recorded noncash compensation charges 783000 attributable reduction exercise price certain stock options warrants previously issued officers directors employees ii issuance stock options purchase 500000 shares common stock year ended june 30 1998 noncash compensation charges 921569 related issuance stock options purchase 390000 shares common stock warrants purchase 100000 shares common stock writedown assets 1999 hungarian gaming board made decision reduce number casino licenses budapest three companys submission application new license unsuccessful casino closed october 1999 current license expired june 30 1999 company wrote balance outstanding loans roulette kft totaling approximately 610000 interest income year ended june 30 1999 interest income 11114 compared 288518 year ended june 30 1998 decrease current year due additional cash available investment prior year proceeds companys public private offerings interest expense year ended june 30 1999 interest expense amounted 445105 compared 74678 year ended june 30 1998 current years expense primarily attributable interest accrued loans made suriname casino joint venture companys joint venture partner prior years expense related amortization debt discount recorded value common stock shares issued convertible debentureholders minority interest companys suriname casino joint venture began operations current fiscal year company controls management joint venture company 50 equity interest casinos operations consolidated company combining casinos current year operating results casinos prior year operating loss attributable preopening expenses minority interest recorded current fiscal year 89278 loss discontinued operations food division november 1999 companys board directors determined would discontinue activities efforts respect companys food preservation business since company could effectively develop sufficient market companys food preservation technology year ended june 30 1999 company revenues food division operations expenses related efforts sell joint venture food division 425175 prior years period included nominal revenues 9879 marketing administrative expenses 2888742 including 162 million provision bad debt loans made inventory purchases obligations related food technology product gain loss discontinued operations hotel management year ended june 30 1999 company revenues 363301 hotel management contracts commenced january 1998 terminated november 4 1998 related marketing administrative expenses 1999 period 221751 prior years period included revenues 639741 marketing administrative expenses 6198247 including 42 million writedown value hotel management contracts subsequent june 30 1998 company entered settlement agreement fec dorsett mr david chiu parities withdrew released parties hotel management agreements june 30 1998 carrying value related assets reduced fair value based terms settlement agreement accordingly company recorded charge 4200000 write carrying amount management contract agreements trade names deposit assets expenses 1998 period also included amortization management contracts direct expenses operating hotel management division indirect expenses related general corporate overhead apportioned division results operations year ended june 30 1998 compared ten months ended june 30 1997 loss continued operations company incurred loss continuing operations 4105703 45 per share year ended june 30 1998 included loss year noncash compensation charges 921569 recorded connection value attributed stock options warrants issued company general administrative expenses 3397974 interest income net interest expense 213840 loss ten months ended june 30 1997 attributable net interest expense amounted 356166 08 per share 1997 period companys activities primarily limited organizational efforts raising public private capital fund organizational expenses development initial implementation business plan discontinued food technology business consequently activities 1997 period reported losses discontinued operations companys food division general administrative expenses general administrative expenses related continuing operations included travel expenses salaries professional consulting fees 3397974 year ended june 30 1998 1997 period activities primarily limited organizational efforts raising public private capital fund initial marketing research development expenses companys discontinued food technology business consequently general administrative expenses incurred 1997 period included reported losses discontinued operations companys food division compensation charges year ended june 30 1998 noncash compensation charges 921569 issuance stock options purchase 390000 shares common stock warrants purchase 100000 shares common stock 1997 period activities primarily limited organizational efforts raising public private capital fund initial marketing research development expenses companys discontinued food technology business consequently compensation charges related issuance stock options 1997 period included reported losses discontinued operations companys food division interest income year ended june 30 1998 interest income 288518 compared 51180 ten months ended june 30 1997 increase due additional cash available investment proceeds companys public private offerings interest expense year ended june 30 1998 interest expense including amortization debt discount 74678 compared 407346 ten months ended june 30 1997 amounts included noncash charges related amortization 60328 252000 respectively debt discount recorded value shares common stock issued convertible debentureholders decrease interest expenses 155346 prior period 14350 current period result repayment certain outstanding obligations company proceeds june 1997 initial public offering loss discontinued operations food division noted november 1999 companys board directors determined would discontinue activities efforts respect companys food preservation business since company could effectively develop sufficient market companys food preservation technology year ended june 30 1998 company nominal revenues 9879 food division operations marketing administrative expenses directly related apportioned food division totaled 2888742 including 162 million provision bad debt prior years period generated revenues expenses 8205901 including noncash compensation charges 4995106 recorded connection value attributed stock options warrants issued company purchase 2385000 shares common stock ii marketing general administrative expenses 1854995 iii 1000000 charge provision bad debt related advances made companys previous conserver 21 trademark supplier terms distribution agreement subsequently terminated iv 355800 writedown unmarketable conserver 21trademark inventory gain loss discontinued operations hotel management year ended june 30 1998 company revenues 639741 marketing administrative expenses 6198247 including 42 million writedown value hotel management contracts subsequent june 30 1998 company entered settlement agreement fec dorsett mr david chiu parities withdrew released hotel management agreements june 30 1998 carrying value related assets reduced fair value based terms settlement agreement accordingly company recorded charge 4200000 write carrying amount management contract agreements trade names deposit assets expenses period also included amortization management contracts direct expenses operating hotel management division indirect expenses related general corporate overhead apportioned division hotel management operations prior 1997 period income taxes ten months ended june 30 1997 company tax purposes operations net operating losses companys expenses preoperating therefore capitalized amortized starting date operations commenced liquidity capital resources since july 1998 company actively sought raise cash loans sales securities order fund past due obligations current operations completion permanent suriname casino facility opened march 31 1999 july 1998 august 1999 company successful raising sufficient funds numerous private investors sale securities enabling fund ongoing operational costs period complete construction suriname casino june 30 1999 company working capital deficit 13 million company continued seek financing discharging current payment obligations working capital june 30 1999 company approximately 425000 cash equivalents hand late august 1999 company began receive cash distributions profits suriname casino joint venture prior late august 1999 cash profits casino used first pay remaining balance due casino construction contract repay 750000 loan previously made suriname casino joint venture partner december 1998 company received average approximately 300000 per month cash distributions casino profits seven months september 1999 march 2000 expects continue near foreseeable future cash flow continue enable company pay current operating expenses fund loan obligations make payments remaining past due obligations company believes distribution profits suriname casino provide adequate cash flow maintain companys current operations next 12 months primarily result delinquent filing form 10k company delisted nasdaq smallcap market company currently trades otc pink sheets expects securities traded otc bulletin board upon filing form 10k subsequent events october 1999 company entered convertible loan agreement private investor received 350000 used fund current past due obligations december 22 1999 lender converted 185000 loan amount together interest received 1481060 shares companys common stock amount loan may converted balance 165000 together 15 interest paid april 30 2000 investor also received warrants purchase 700000 shares common stock exercise price 25 per share exercisable october 11 2002 january 2000 director company mr james v stanton advanced 300000 company also used fund past due obligations loan due december 31 2000 bears interest bank prime rate mr stanton also received warrants purchase 500000 shares common stock exercise price 25 per share exercisable january 18 2004 see item 13 certain relationships related transactions march 1 2000 galileo capital llc provided 150000 convertible loan company interest 10 per annum loan provides payment terms due full october 31 2000 part consideration making loan company galileo capital llc granted warrants purchase 150000 shares companys common stock exercise price 25 per share loan convertible shares companys common stock 25 per share time term loan portion outstanding principal interest balance event portion loan converted company issue additional warrants purchase one 1 share common stock four 4 shares issued galileo capital conversion option warrants exercisable 25 per share prior financing company development stage company march 1998 companys activities since inception march 1996 development stage primarily focused raising debt equity financing public private organizing developing food preservation technology business since mid1997 organizing developing hotel management business casino business company incurred losses since inception june 30 1999 companys accumulated deficit 271 million march 1996 february 1998 company raised capital necessary business development debt equity private placements 1996 private offering common stock convertible debentures raised 49 million june 1997 company developing food preservation technology business company completed initial underwritten public offering initial public offering received net proceeds 10306000 sale 2530000 shares common stock per share price 500 time common stock began quoted nasdaq smallcap market november 1997 february 1998 company began completed another private offering common stock 1997 private offering received net proceeds 89 million sale 2044763 shares common stock 514 per share 1997 private offering largely intended company raise cash initial expenditures new hotel casino businesses companys stockholders meeting december 1997 approved entry businesses june 30 1998 company spent proceeds 1997 private offering directly initial expenditures companys accumulated deficit june 30 1999 included 76 million noncash compensation charges related value attributed stock options warrants issued company historically made extensive use options granted 1996 stock option plan nonplan options warrants november 30 1998 closing bid market price companys common stock fallen 1998 high 8813 new low 469 november 10 1998 september 14 1998 board directors compensation committee expressed concern future critical times company might face problems maintaining loyalty diligence key personnel board voted date reduce exercise price 150 plan nonplan options warrants held thencurrent directors officers employees company persons associated principal london counsel date 80000 nonplan options 325000 warrants 1502500 plan options common stock affected addition board voted grant nonplan plan options market price seven officers directors purchase 15 million shares result effecting reductions grants company recorded 783000 noncash compensation charges fiscal year ending june 30 1999 board subsequently determined december 22 1999 reduce price options warrants held current officers directors key employees 25 per share consideration services rendered incentive maintaining continued efforts success company december 22 1999 board also granted fouryear options purchase additional one million shares common stock exercise price 25 per share nominee companys president mr dallas dempster year 2000 impact business operations march 31 2000 company experienced significant year 2000 impact business operations new accounting standards june 1998 financial accounting standards board issued sfas 133 accounting derivative instruments hedging activities sfas 133 requires companies recognize derivatives contracts either assets liabilities balance sheet measure fair value certain conditions met derivative may specifically designated hedge objective match timing gain loss recognition hedging derivative recognition changes fair value hedged asset liability attributable hedged risk ii earnings effect hedged forecasted transaction derivative designated hedging instrument gain loss recognized operations period change sfas 133 effective fiscal quarters fiscal years beginning june 15 2000 company entered derivatives contracts either hedge existing risks speculative purposes accordingly company expect adoption new standard july 1 2000 affect consolidated financial statements october 1998 financial accounting standards board issued statement financial accounting standards 134 accounting mortgagebacked securities retained securitization mortgage loans held sale mortgage banking enterprise effective first fiscal quarter beginning december 15 1998 impact companys financial reporting presentation due adoption sfas 134 february 1999 financial accounting standards board issued statement financial accounting standards 135 recession fasb statement 75 technical corrections effective financial statements issued february 15 1999 impact companys financial reporting presentation due adoption sfas 135 item 7a item 7 managements discussion analysis financial condition results operations following discussion analysis significant factors affecting companys operating results liquidity capital resources read conjunction accompanying financial statements related notes overview company organized march 1996 development stage activities since date incorporation primarily focused raising debt equity financing public private recruiting management personnel testing developing exploiting conserver 21tm negotiating distribution arrangements companys operations subject risks inherent establishment new business enterprise including need obtain financing lack revenues reliability sources supply uncertainty market acceptance business company incurred losses since inception yet derive revenues operations accumulated deficit june 30 1997 9949138 included 5902307 noncompensation charges related value attributed stock options warrants issued company march 1996 november 1996 company raised capital necessary business development debt equity private placements june 1997 company completed initial underwritten public offering received net proceeds approximately 8900000 sale 2200000 shares common stock per share price 500 july 1997 companys underwriter exercised overallotment option purchase aggregate 330000 shares common stock 500 per share resulting company receiving additional net proceeds 1450000 aggregate net proceeds company offering amounted 10350000 also connection offering company sold underwriters nominal consideration underwriters warrants purchase 220000 shares common stock exercisable period four years 825 per share june 30 1997 approximately 2130000 proceeds offering used general business purposes including 1000000 delivered agrotech loan repayment 1000000 convertible debenture held ses family trust together accrued interest thereon company anticipates balance proceeds offering used working capital general business purposes primarily connection conserver 21tm business subsequent companys fiscal year end company announced august 1997 considering diversifying beyond principal line business marketing distributing conserver 21tm exploring possible new line business hotel casino industry company entered certain agreements regarding proposed new business opportunities new line business new business opportunities including issuance securities company connection therewith subject receipt requisite approval companys stockholders see subsequent events liquidity capital resources section note k notes financial statements company holds exclusive license import promote distribute market sell otherwise commercially exploit conserver 21tm united states canada holds option right first refusal exercise rights throughout world conserver 21tm nontoxic product used retard spoilage decay food flowers company patent conserver 21tm granted exclusive right united states canada right first refusal option countries license market product agrotech 2000 sl spanish company holds patent conserver 21tm manufacturers packages product company right manufacture package conserver 21tm initial geographic marketing efforts company focused primarily united states canada marketing sale conserver 21tm currently constitutes companys sole line business account substantially companys revenues foreseeable future companys new line business new business opportunities approved stockholders result viable operation several methods food preservation commercially available compete directly indirectly companys conserver 21tm order market sell conserver 21tm company need maintain sales force technical expertise food preservation food transportation industries success companys principal line business depend ability demonstrate commercial viability effectiveness conserver 21tm company currently orders conserver 21tm assurance potential customers willing incur costs conserver 21tm initial marketing efforts conserver 21tm packets united states indicated company needs renegotiate terms distribution agreement agrotech improve packaging conserver 21tm packets company currently discussions agrotech view reduce pricing arrangements regarding conserver 21tm packets modify manufacturing arrangements packaging done united states management company currently discussions usbased company specializes packaging products comparable conserver 21tm identified usbased packaging plants capable packaging conserver 21tm estimated packaging costs provided entities indicate company would able reduce wholesale costs conserver 21tm packets product packaged united states management believes cost reduction even partially offset increase royalty percentage paid agrotech would enable company competitively price packets level would profitable company assurance however company able successfully renegotiate distribution agreement favorable terms enter packaging arrangement third party satisfaction circumstances company would shift initial marketing efforts focus sale conserver 21tm filters assurance company would able successfully implement revised marketing strategy sustained impairment companys ability market conserver 21tm could significantly delay materially impair companys ability commercialize conserver 21tm change fiscal year company initially adopted fiscal year ending august 31 incorporated march 6 1996 current calendar year company elected change fiscal year end june 30 accordingly following discussion addresses companys financial results period march 6 1996 august 31 1996 ten months ended june 30 1997 results operations company limited operating history upon evaluation performance prospects made period march 6 1996 june 30 1997 companys activities primarily limited organizational efforts raising public private capital defray organizational expenses development initial implementation business plan principal line business period company revenues since july 1997 company also involved development proposed new line business new business opportunities results operations period march 6 1996 date incorporation august 31 1996 net loss net loss period march 6 1996 august 31 1996 1387071 032 per share included net loss period general administrative expenses 458611 ii noncash compensation charges 907201 connection value attributed stock options warrants issued company general administrative expense period march 6 1996 august 31 1996 general administrative expenses 458611 primarily included expenditures travel expenses salaries professional consulting fees expenses 65000 represented noncash compensation charges services contributed mr charles h stein companys chairman president chief executive officer compensation charges period march 6 1996 august 31 1996 noncash compensation charges 907201 issuance stock options purchase 100000 shares common stock warrants purchase 325000 shares companys common stock interest expense period march 6 1996 august 31 1996 interest expense 21259 net interest income 8741 income taxes period march 6 1996 august 31 1996 company tax purposes operations net operating losses companys expenses preoperating therefore capitalized amortized operations commence results operations ten months ended june 30 1997 net loss net loss ten months ended june 30 1997 8562067 158 per share included net loss period noncash compensation charges 4995106 recorded connection value attributed stock options warrants issued company ii general administrative expenses 1687172 iii 1000000 charge provision bad debt iv interest expense 356166 net interest income v 355800 writedown conserver 21tm inventory vi marketing sales expenses 115576 vii research development costs 52247 compensation charges ten months ended june 30 1997 noncash compensation charges 4995106 issuance stock options purchase 2050000 shares common stock warrants purchase 550000 shares common stock general administrative expense ten months ended june 30 1997 general administrative expenses 1687172 included expenditures consisting primarily travel expenses salaries professional consulting fees expenses 105000 60000 represented noncash compensation charges services contributed mr stein certain legal services provided without charge respectively marketing sales ten months ended june 30 1997 company incurred 115576 marketing sales expenses connection preliminary marketing sales expenses conserver 21tm research development ten months ended june 30 1997 company incurred 52247 research development expenses conserver 21tm consisted primarily product testing conserver 21tm products writedown inventory initial purchases conserver 21tm packets company indicated certain manufacturing limitations packaging process conserver 21tm packets management company believes ultimately rectified light limitations unmarketability inventory purchased company wrote 355800 conserver 21tm inventory ten months ended june 30 1997 provision bad debt terms distribution agreement company advanced 1000000 agrotech june 30 1997 repayable threeyear period offset conserver 21tm purchases company excess purchase minimum 2000000 conserver 21tm products april 1998 initial volume commitment company currently renegotiating distribution agreement view reduce pricing arrangements regarding conserver 21tm packets modify manufacturing arrangements packaging done united states due current uncertainty outcome renegotiation distribution agreement companys ability exceed initial volume commitment conserver 21tm products based current pricing level anticipated renegotiated lower pricing level recent manufacturing difficulties management company believes achieving initial volume commitment necessary offset companys purchases agrotech loan remote accordingly ten months ended june 30 1997 company established reserve equal agrotech loan interest expense ten months ended june 30 1997 interest expense 356166 net interest income 51180 resulting interest accrued companys convertible debentures noncash charges related amortization 252000 debt discount recorded value common stock shares issued convertible debentureholders income taxes ten months ended june 30 1997 company tax purposes operations net operating losses companys expenses preoperating therefore capitalized amortized operations commence liquidity capital resources since date incorporation november 1996 company relied primarily upon privately raised debt equity financing fund operations connection organization company 1666667 shares common stock subscribed conserver investments sa unaffiliated third party company series negotiated transactions september october november 1996 repurchased 1366667 shares common stock aggregate sum 1800000 remaining 300000 shares common stock transferred november 1996 two unaffiliated individuals see note notes financial statements september october november 1996 company completed private placement issued 303000 shares common stock 500 per share aggregate 1515000 may 1996 company issued convertible debenture ses family trading investment partnership lp ses aggregate principal amount 1000000 pursuant terms debenture amended interest accrued rate 12 per annum principal interest paid net proceeds offering company ses agreed amend terms debenture eliminate conversion rights contained therein company estimates would entitled holder receive excess 2000000 shares common stock upon conversion instead ses affiliate received warrants purchase 550000 shares common stock exercise price 200 per share exercisable period six years commencing one year date issuance warrants valued approximately 2040000 charged expense completion offering time warrants issued 20000 shares previously issued common stock surrendered company see note e notes financial statements september november 1996 company issued convertible debentures aggregate principal amounts 600000 150000 respectively principal accrued interest rate 10 per annum payable one year anniversary date issuance holders debentures may elect convert time unpaid principal accrued interest shares common stock rate 500 per share subsequent fiscal year ended june 30 1997 debentures aggregating 150000 issued november 1996 repaid full proceeds offering debentures aggregating 600000 issued september 1996 365000 debentures converted common stock 500 per share 235000 repaid see note notes financial statements connection sale debentures company issued 62504 shares common stock valued 312500 accounted debt discount charged expense term note amortization discount ten months ended june 30 1997 approximately 252172 august 1996 company issued nonemployee directors consultants company threeyear warrants purchase 325000 shares companys common stock 500 per share warrants valued 457201 charged operations period ended august 31 1996 june 1997 company issued consultants warrants purchase 350000 shares common stock 575 per share warrants valued approximately 705000 charged operations ten months ended june 30 1997 companys 1996 stock option plan adopted november 1996 amended december 1996 april 1997 plan authorizes granting incentive stock options nonincentive stock options maximum number shares common stock options may granted 1300000 shares june 30 1997 options purchase 1055000 shares common stock granted plan subsequent companys fiscal year end company issued plan employees stock options purchase aggregate 40000 shares common stock consultants stock options purchase 137500 shares common stock addition company issued consultant 5000 shares common stock august 1997 company made 210000 loan investments inc unaffiliated party due september 24 1997 bearing interest 10 per annum june 30 1997 investments held 210000 convertible debenture issued company connection loan pledged company rights convertible debenture september 24 1997 lieu demanding payment loan company elected deduct amounts due loan amounts payable company debenture connection transaction investments signed lockup agreement respect securities company holds distribution agreement requires company make loans agrotech 1500000 enhancement agrotechs manufacturing capacity interest loan would based oneyear interest rate spanish pesetas published financial times nearest business day following anniversary date distribution agreement terms distribution agreement first 1000000 loan repayable threeyear period offset conserver 21tm purchases company excess 2000000 annually balance loan payable royalties may due agrotech sales three fouryear period june 30 1997 company advanced agrotech 1000000 terms distribution agreement may 1997 delivery initial 500000 loan amount advanced behalf company mr james v stanton director vicechairman company interest rate 10 per annum june 1997 company repaid 500000 loan together accrued interest 5600 proceeds offering ten months ended june 30 1997 company established reserve equal agrotech loan see notes financial statements terms distribution agreement company may obligated extend additional loan 500000 agrotech due current renegotiations company cannot determine present time whether additional loans terms distribution agreement made whether offsets distribution agreement available ten months ended june 30 1997 company incurred 115576 52247 marketing sales expenses research development costs conserver 21tm respectively although company completed initial testing conserver 21tm company completed comprehensive independent tests date relied primarily tests performed commissioned agrotech predecessor interest entities contracted thus possible conserver 21tm may require research development design testing well regulatory clearances prior largerscale commercialization fiscal year ending june 1998 company anticipates significant increase marketing sale costs research development costs conserver 21tm particularly distribution agreement renegotiated companys satisfaction june 1997 company completed initial underwritten public offering received net proceeds approximately 8900000 sale 2200000 shares common stock price 500 per share additional net proceeds 1448000 received company july 1997 result underwriters exercise overallotment option purchase aggregate 330000 shares common stock 500 per share june 30 1997 approximately 2130000 proceeds offering used general business purposes including 1000000 delivered agrotech loan repayment 1000000 convertible debenture held ses family trust together accrued interest thereon company anticipates balance proceeds offering used working capital general business purposes general business purposes primarily connection conserver 21tm business june 30 1997 company available cash equivalents 7715460 company development stage operations subject risks inherent establishment new business enterprise including need obtain financing lack revenues uncertainty market acceptance business company yet derived revenues operations incurred losses since inception accumulated deficit june 30 1997 9929138 operating revenues anticipated time ever company demonstrate commercial viability conserver 21tm company currently orders conserver 21tm assurance potential customers willing incur costs conserver 21tm assurance regarding whether company successfully implement business plan operate profitably company anticipates particularly distribution agreement renegotiated satisfaction 1998 fiscal year enter operating stage conserver 21tm principal line business result incur additional costs connection inventory purchases warehousing shipping hiring additional employees consultants company currently estimates available cash reserves sufficient meet companys liquidity working capital requirements principal line business including additional expenditures inventory purchase leasing new office space hiring additional employees consultants warehouse space june 1999 continued expansion operation companys principal line business beyond period may dependent ability obtain additional financing company currently eight employees company commence sales conserver 21tm andor new line business new business opportunities approved stockholders management company would anticipate significant increase number employees consultants fiscal year ended june 30 1998 possible increase number employees consultants attendant costs cannot estimated time management anticipate however workforce increases time companys principal line business andor proposed new line business potential generate sufficient revenues offset costs event company proceeds new line business new business opportunities company would utilize current cash reserves addition direct issuance shares companys common stock company anticipates funding cash portion initial capital required proposed new line business new business opportunities proceeds private sale additional common stock andor securities company issuances securities would dilutive stockholders types financing would likely constrain companys financial operating flexibility event company proceeds new line business new business opportunities company would obligated pay aggregate approximately 675 million sakhalin agreement hotel management agreement development services agreement casino consulting agreement addition agreements company would required issue certain circumstances subject completion certain terms obligations thereunder 5550000 shares common stock options purchase 600000 shares common stock companys stockholders experience significant dilution percentage ownership interest company upon issuance shares common stock contemplated agreements related new line business new business opportunities event companys plans change assumptions prove inaccurate available cash reserves together privately raised funds prove insufficient fund operations result future changes industry general economic conditions unanticipated increases expenses factors company may required seek additional financing additional equity financing may dilutive stockholders debt financing available likely include restrictive covenants including financial maintenance covenants restricting companys ability incur additional indebtedness pay dividends except disclosed herein respect new line business new business opportunities company current arrangement respect sources additional financing assurance needed financing would available company acceptable terms companys ability obtain additional financing depend upon among things willingness financial organizations participate funding companys financial condition results operations companys future performance subject number business factors including successful renegotiation distribution agreement many factors beyond companys control economic downturns changes marketplace well level competition ability company successfully implement business strategy effectively monitor control costs assurance company able generate significant revenues achieve profitable operations accounting pronouncements pursuant choice afforded financial accounting standard 123 accounting stockbased compensation company elected report basis accounting principles board opinion 25 disclosures required companys election may found note e financial statements companys fiscal year ended june 30 1997 february 1997 financial accounting standards board issued statement financial accounting standards 128 earnings per share sfas 128 sfas 128 established new standards computing presenting earnings per share sfas 128 effective periods ending december 15 1997 effective per share data prior periods required restated company yet qualified effect adoption sfas 128 net earnings per share common stock financial accounting standards board recently issued statements financial accounting standards 129 disclosure information capital structure 130 reporting comprehensive income two pronouncements expected significantly change disclosure information presented companys financial statements subsequent events subsequent companys fiscal year end company announced august 1997 considering diversifying beyond sole line business marketing distributing otherwise commercially exploiting conserver 21tm principal line business exploring possible new line business hotel casino industry new line business connection new line business subject receipt requisite approval companys stockholders company entered agreement acquire certain rights develop hotel casino project yuzhnosakhalinsk sakhalin island russian federation sakhalin project located 20 minutes air sapporo japan ii entered agreement dato david chiu provide certain development services respect sakhalin project iii reached agreement manage certain hotels dorsett hotels resorts international including hotels presently operating developed united states bali australia canada cambodia malaysia thailand iv entered several related agreements collectively new business opportunities addition direct issuance shares companys common stock connection proposed transactions company anticipates funding cash portion initial capital required proposed new line business new business opportunities proceeds private sale additional common stock andor securities company private offerings proposed new line business new business opportunities subject receipt requisite stockholder approval see item 1 proposed new line business new business opportunities special meeting stockholders company anticipates held december 1997 companys stockholders asked consider vote proposal would result company diversifying beyond principal line business entering new line business hotel casino industry specifically involving new business opportunities acquire interest develop manage sakhalin project provide management services hotels sakhalin agreement connection sakhalin project company entered agreement dated august 12 1997 amended september 9 1997 amended sakhalin agreement subject receipt requisite approval companys stockholders sakhalin trading investments limited sgti sovereign gaming leisure limited sovereign limited liability company organized laws cyprus pursuant company would acquire share capital sgti includes sgtis rights interest project develop sakhalin project b sgtis ownership interest 50 shares sakhalin city centre limited scc closed joint stock company incorporated laws russian federation turn holds certain rights including guarantee city yuzhnosakhalinsk issue gaming license scc ii rights interest sakhalin project held sovereign including certain operating project management agreements respect project collectively shares rights consideration shares rights company required terms sakhalin agreement amended pay sgti stockholders initial payment 500000 paid ii 1000000 payable october 15 1997 iii 1500000 payable october 31 1997 iv aggregate 1538462 shares companys common stock valued purpose sakhalin agreement aggregate 10000000 650 per share collectively purchase price companys common stock trading 6125 per share date execution sakhalin agreement upon completion companys due diligence company conclude reason wish proceed sakhalin project transactions contemplated sakhalin agreement company right convert cash portion purchase price delivered sgti shares sgti conversion rate one ordinary share sgti 3000 delivered sgti currently 230000 shares outstanding investment sgti likely illiquid assurance company recoup cash paid sakhalin agreement sakhalin agreement provides upon request company sovereign agrees become project manager construction phase sakhalin project subject agreement reasonable compensation services shall exceed 5 construction cost project 5000000 whichever less connection execution sakhalin agreement companys approval sgti acquired 15 share capital scc certain shareholders resulting sgti owning 65 share capital scc consideration exchange purchase price payable company shares sgti sakhalin agreement increase 461538 shares companys common stock including transaction aggregate total consideration shares rights payable company sgti shareholders 3000000 2000000 shares companys common stock furthermore companys understanding 3000000 cash portion purchase price paid sgti used sgti loan scc sgti hold 65 interest initial development costs sakhlain project development services agreement october 2 1997 company entered agreement development services agreement dato david chiu pursuant company subject approval stockholders subject company acquiring shares sgti would result company owning 65 share capital scc would described transfer chiu 3846 share capital sgti would issue chiu share convertible preferred stock would convert specified conditions certain circumstances 1500000 shares common stock development services agreement provides chiu provide certain development services company connection sakhalin project including using best efforts procure secure necessary debt financing guarantees behalf company subsidiaries affiliates complete turnkey construction sakhalin project financing mutually acceptable terms construction sakhalin project currently estimated 100 million shares common stock shares sgti issued chiu consideration services issued date mutual execution company nominated affiliate legally enforceable binding agreement lender terms acceptable company sgti scc provide financing realized contemplated pursuant development services agreement company investors sakhalin project would required obtain additional financing behalf scc variety sources including borrowings bank credit facilities sales securities placement term debt construct hotel casino chiu also agreed shall period three years date issuance transfer applicable shares received development services agreement voluntarily involuntarily directly indirectly sell contract sell grant right purchase exchange mortgage pledge hypothecate give bequeath transfer assign encumber alienate way whatsoever dispose hereinafter collectively called transfer shares including options warrants respect shares received way dividend upon increase reduction substitution reclassification combination stock company upon reorganization company applicable notwithstanding foregoing chiu may transfer shares affiliate subject companys consent shall unreasonably withheld chiu also agreed three years issuance date shares give company irrevocable proxy full power substitution vote matters company deems appropriate respect shares meetings stockholders company means written consent stockholders respect matters company designated charles h stein chairman president chief executive officer company authorized person exercise aforementioned voting rights behalf company time mr stein incapacitated act furthermore development services agreement provides event chiu wishes sell part shares three year period described company shall first option purchase part shares chiu agreed give company written notice thereof intent sell shares company right purchase said shares price equal closing price per share reported nasdaq reported wall street journal date written notice given company ii price offered chiu unaffiliated third party competitor company irrevocable unconditional bona fide written offer bona fide offer applicable company right purchase portion shares giving chiu written notice later 10 business days written notice provided company event company fails exercise option chiu right sell shares third party price offered company without obligations sell shares company however shares sold pursuant bona fide offer within 30 days receipt company chius notice intent sell unsold shares shall remain subject terms development services agreement consummation sakhalin agreement development services agreement assuming consummation transactions contemplated company chiu would respective shares sgti 40 25 interest scc respectively remaining 35 interests would continue held 20 city yuzhnosakhalinsk 15 sakhalin oblast regional government proposed pledge agreement connection transactions contemplated sakhalin agreement brian j bryce jasmine trustees ltd jay haft james v stanton directors company agreed enter pledge agreement company event proposal relating new line business new business opportunities approved stockholders company special meeting stockholders company would transfer rights obligations sakhalin agreement directors subject directors reimbursing company certain costs expenses incurred company relating sakhalin project including 500000 initial payment sakhalin agreement obligations would secured specified amount shares common stock company owned either directly beneficially directors matter approved board directors meeting held september 10 1997 sakhalin casino consulting agreement effective august 14 1997 company entered agreement casino consulting agreement subject receipt requisite approval companys stockholders commencement date star casinos limited liability company organized laws cyprus consultant whereby consultant agreed provide consulting technical services company affiliated entities period two years commencement date respect development ongoing operations sakhalin project casino terms consulting agreement consultant agreed make available services david hartley commencement date consultant receive fee 21000 per month plus reimbursement reasonable expenses term agreement adjusted pro rata partial month service ii options purchase 100000 shares companys common stock 650 per share 50 options becoming exercisable first second anniversary dates commencement date expiring third anniversary date end term agreement provided consultant breach consulting agreement consultant also entitled receive 250000 bonus period october 1 1997 commencement date consultant paid company fee 21000 month adjusted pro rata partial month service plus reimbursement reasonable expenses company may terminate agreement cause includes material breach agreement ii unavailability hartley iii material misconduct injurious company consultant hartley iv conviction act fraud conviction crime consultant hartley agreement also binds consultant hartley two year noncompete nonsolicitation provision hotel management services october 2 1997 company entered agreement hotel management agreement dorsett hotels resorts international ltd dorsett company controlled chiu pursuant company directly subsidiary would act exclusive operator manager certain hotels owned dorsett consideration dorsett entering hotel management agreement company subject requisite approval companys stockholders would issue dorsett aggregate 2000000 shares conserver common stock upon specified conditions satisfied ii pay dorsett 3000000 hotel management agreement provides twenty year exclusive operating agreements respect management dallas grand hotel dallas texas dorsett regency bali indonesia rockmans regency melbourne australia well operating agreements substantially similar terms five hotels scheduled open within next two years company pursuant terms operating agreement hotel managed would entitled management fees equal three percent gross revenues plus ten percent gross operating profits addition company receive service fees equal four percent gross revenues marketing promotion advertising expenses well additional onehalf one percent gross revenues training costs used turn fund expenses operating agreement would provide event dorset terminates agreement reason material breach company would entitled termination fee termination fee shall calculated based formula remaining number years agreement mulitiplied factor company terminated first five years agreement factor shall sum actual fees paid payable company based revenues generated date plus fees payable company based projected revenues rest year ii event termination first five years factor shall average fees paid payable company preceding two years iii event termination first ten years factor shall average fees paid payable company preceding three years hotel management agreement consummated subject requisite stockholder approval company plans add management team experience major international hotel chains operation management hotels leisure time activities worldwide dorsett agreed shall period three years date issuance transfer applicable shares received hotel management agreement voluntarily involuntarily directly indirectly sell contract sell grant right purchase exchange mortgage pledge hypothecate give bequeath transfer assign encumber alienate way whatsoever dispose hereinafter collectively called transfer shares including options warrants respect shares received way dividend upon increase reduction substitution reclassification combination stock company upon reorganization company applicable notwithstanding foregoing dorsett may transfer shares subsidiary affiliate dorsett subject companys consent shall unreasonably withheld dorsett also agreed three years issuance date shares give company irrevocable proxy full power substitution vote matters company deems appropriate respect shares meetings stockholders company means written consent stockholders respect matters company designated charles h stein chairman president chief executive officer company authorized person exercise aforementioned voting rights behalf company time mr stein incapacitated act furthermore hotel management agreement provides event dorsett wishes sell part shares three year period described company shall first option purchase part shares dorsett agreed give conserver written notice thereof intent sell shares company right purchase said shares price equal closing price per share reported nasdaq reported wall street journal date written notice given company ii price offered dorsett unaffiliated third party competitor company irrevocable unconditional bona fide written offer bona fide offer applicable company right purchase portion shares giving dorsett written notice later 10 business days written notice provided company event company fails exercise option dorsett right sell shares third party price offered company without obligations sell shares company however shares sold pursuant bona fide offer within 30 days receipt company dorsetts notice intent sell unsold shares shall remain subject terms hotel management agreement funding new line business new business opportunities addition direct issuance shares companys common stock connection foregoing transactions company anticipates funding cash portion initial capital required proposed new line business new business opportunities proceeds private sale securities october 3 1997 company entered agreement principle parbhoe handelmij nv surinamese limited liability create joint venture company develop casino project paramaribo capital city surinam former dutch guyana pursuant agreement joint venture company also enter operating agreement company manage casino connection company entering new line business new business opportunities board directors adopted resolutions issue brian j bryce jay haft respectively options purchase 300000 200000 shares common stock exercise price equal 6125 per share issuance options messrs bryce haft directors company subject receipt requisite shareholders approval company enter new line business new business opportunities factors could affect operating results annual report form 10k contains forwardlooking statements additional written oral forwardlooking statements may made company time securities exchange commission sec filings otherwise company cautions readers results predicted forwardlooking statements including without limitation relating companys future business prospects revenues working capital liquidity capital needs interest costs income subject certain risks uncertainties could cause actual results differ materially indicated forwardlooking statements due following factors among risks factors identified time companys filings sec company development stage operations subject risks inherent establishment new business enterprise including need obtain financing lack revenues reliability sources supply uncertainty market acceptance business company yet derived revenues operations incurred losses since inception operating revenues anticipated time ever company demonstrate commercial viability conserver 21tm companys new line business approved stockholders becomes viable operation assurance regarding whether company successfully implement business plan operate profitably company wholly dependant upon distribution agreement agrotech spanish corporation owns rights conserver 21tm manufactures distributes product distribution agreement terminate reason company may able purchase distribute conserver 21tm products initial marketing efforts conserver 21tm packets united states indicated company needs renegotiate terms distribution agreement agrotech improve packaging conserver 21tm product company currently discussions agrotech view reduce pricing arrangements regarding conserver 21tm product modify manufacturing arrangements packaging done united states management company currently discussions usbased company specializes packaging products comparable conserver 21tm identified usbased packaging plants capable packaging conserver 21tm estimated packaging costs provided entities indicate company would able reduce wholesale costs conserver 21tm packets product packaged united states management believes cost reduction even partially offset increase royalty percentage paid agrotech would enable company competitively price packets level would profitable company assurance however company able successfully renegotiate distribution agreement favorable terms enter packaging arrangement third party satisfaction circumstances company would shift initial marketing efforts focus sale conserver 21tm filters assurance company would able successfully implement revised marketing strategy sustained impairment companys ability market conserver 21tm could significantly delay materially impair companys ability commercialize conserver 21tm distribution agreement requires company make loans agrotech 1500000 enhancement agrotechs manufacturing capacity june 30 1997 company advanced agrotech 1000000 terms distribution agreement company may obligated extend additional loan 500000 agrotech due current renegotiations company cannot determine present time whether additional loans terms distribution agreement made whether offsets distribution agreement available agrotech currently operates manufacturing facility near madrid currently company dependent agrotech sole supplier conserver 21tm manufacture supply quality conserver 21tm products company experienced limitations variety quality packaging available agrotech company unable renegotiate terms distribution agreement agrotech assurance company able properly market conserver 21tm packets company fail meet obligations distribution agreement including initial purchase commitment subsequent purchase commitments company could lose exclusive right sell conserver 21tm united states canada would materially adversely impact development companys business distribution agreement terminate result material breach either party agreement company would able distribute conserver 21tm products accordingly company could without current principal line business involving conserver 21tm results operations could materially adversely impacted sustained impairment companys ability acquire market conserver 21tm reason including without limitation cancellation distribution agreement manufacturing packaging difficulties cessation production agrotech may significantly delay seriously impair companys ability commercialize conserver 21tm company believes proposed use conserver 21tm currently subject material federal state local regulatory approvals assurance however future regulatory approvals required united states leading unanticipated expenses delays inherent regulatory process company undertaken investigation applicable requirements may imposed regulatory agencies outside united states guaranty legal restrictions jurisdictions outside united states result delay companys ability commercially develop conserver 21tm jurisdictions company currently orders conserver 21tm products assurance potential customers willing incur costs conserver 21tm conserver 21tm contracted supermarkets retailers distributors growers even accepted entities prove profitable attractive potential customers addition assurance competing products economical attractive companys potential customers marketing sale conserver 21tm currently companys sole line business account substantially companys revenues foreseeable future companys new line business new business opportunities approved stockholders result viable operation success companys principal line business depend ability demonstrate commercial viability effectiveness conserver 21tm success competing products technologies aimed market conserver 21tm commercially used outside spain assurance company establish market conserver 21tm united states canada territories may distribution rights conserver 21tm cannot successfully commercialized conserver 21tm cannot marketed standalone basis likely would material adverse effect companys business financial condition results operations part companys effort exploit international markets currently developing strategic alliances primarily market distribute conserver 21tm canada israel japan assurance proposed transactions result definitive agreements company definitive agreements effectuated introduction conserver 21tm geographic areas identified would commercially accepted profitable addition agreements effectuated companys conserver 21tm operations subject risks inherent international operations company never utilized conserver 21tm conditions volumes required make conserver 21tm profitable cannot predict difficulties may arise connection therewith although company completed initial testing conserver 21tm company completed comprehensive independent tests date relied primarily tests performed commissioned agrotech predecessor interest entities contracted thus possible conserver 21tm may require research development design testing well regulatory clearances prior largerscale commercialization companys ability operate conserver 21tm business successfully depend variety factors many outside companys control including competition cost availability product changes regulatory requirements companys initial marketing activities performed executive officers advisors varying degrees persons prior experience food industry marketing food products services however none experience conserver 21tm marketing product order market sell conserver 21tm company need maintain sales force technical expertise food preservation food transportation industries assurance company able gain expertise marketing efforts successful several methods food preservation commercially available compete directly indirectly companys conserver 21tm products many companys competitors substantially greater financial human resources company well experience marketing selling postharvest life extension products assurance conserver 21tm gain commercial acceptance establish meaningful market share furthermore market share achieved could lost reduced enhanced competition emergence new effective preservation technologies company formerly contracted exclusive rights distribute conserver 21tm united states canada groupe conserver group affiliated entities collectively held exclusive worldwide rights distribute market conserver 21tm conserver xxi sa agrotechs predecessor interest conserver xxi due instigation insolvency proceedings involving conserver investments sa controlling entity groupe conserver affiliates conserver investments alleged breaches including groupe conservers loss rights conserver xxi company terminated former distribution agreement groupe conserver taken steps preserve right assert claims conserver investments insolvency proceedings assurance companys claims successful groupe conserver anyone acting behalf attempt enjoin company exercising rights derived agrotech otherwise make claims company efforts successfully prevent commercialization conserver 21tm temporarily company believe however basis claims new line business new business opportunities regard new line business new business opportunities guarantee company receive requisite approval stockholders approved whether company successfully implement business plan operate profitably companys stockholders experience significant dilution percentage ownership interest company upon issuance shares common stock contemplated agreements related new line business new business opportunities companys current future business plans respect new line business new business opportunities dependent large part changes conditions may adversely impact investments gaming enterprises conditions factors beyond companys control include ability company operate hotels casinos ii competition hospitality entertainment properties iii changes regional local population disposable income composition iv unanticipated increases operating costs v legal restrictions use advertising typically utilized marketing gaming operations vi restrictive changes zoning similar land use laws regulations health safety environmental laws rules regulations vii inability secure property liability insurance fully protect losses obtain insurance reasonable costs viii exercise power eminent domain ix seasonality x changes travel patterns preferences may affected increases gasoline prices changes airline schedules fare strikes weather patterns andor relocation reconstruction highways among factors given rapid developments changes industry impossible accurately predict future trends changes gaming industry effect company particular success companys proposed projects largely dependent tourism active gaming populations japan korea china russian federation although economic viability companys proposed projects least part based upon tourist incentives would streamline process tourists entering regions company plans operate gambling regions assurance restrictions imposed gambling generally regions company plans operate andor tourists entering regions gambling may adversely impact companys results operations collection casino receivables respect projects international customers could adversely affected future business economic trends significant events countries customers reside assurance operating cash flows results operations adversely impacted inability collect receivables highend players addition gaming debts may legally enforced certain foreign jurisdictions certain jurisdictions within united states grounds public policy unenforceability may adverse impact collectability receivables result companys proposed expansion hospitality gaming industries internationally companys operations respect proposed projects subject greater risks inherent international operations possibility loss revenue property equipment due expropriation nationalization war insurrection terrorism civil disturbance instability foreign economies currency fluctuations devaluations adverse tax policies governmental activities may limit disrupt markets restrict payments movement funds result deprivation contract rights company subject taxation number jurisdictions final determination tax liabilities involves interpretation statutes requirements various domestic foreign taxing authorities foreign income tax returns foreign subsidiaries unconsolidated affiliates related entities routinely examined foreign tax authorities assurance risks adverse effect companys results operations item 8 item 7 managements discussion analysis financial condition results operations annual report form 10k contains forwardlooking statements additional written oral forwardlooking statements may made company time securities exchange commission sec filings otherwise company cautions readers results predicted forwardlooking statements including without limitation relating companys future business prospects revenues working capital liquidity capital needs interest costs income subject risks uncertainties could cause actual results differ materially indicated forwardlooking statements due risks factors identified time companys filings sec including discussed report risks uncertainties company overview cca companies incorporated laws state delaware march 6 1996 conserver corporation america changed name december 2 1997 active business cca companies incorporated subsidiaries company operation ownership gaming casino budapest temporary gaming casino suriname permanent casino nearly completed ii development casino hotel project sakhalin russian federation company needs cash continue basic operation ii complete suriname casino realize casinos cash flow potential iii pay material expenses continuing negotiations sakhalin project maintaining position project company recently unable raise adequate cash needs sale securities financing terms acceptable largely result companys need cash report independent certified public accountants covering companys certified financial statements year ended june 30 1998 contained form 10k contains going concern emphasis paragraph however company believes meet cash needs certain conditions discussion companys cash needs proposes meet see liquidity capital resources summary companys original principal business food preservation technology exploitation business development market entry companys principal product business reevaluated possibly sale joint venture business mid1997 company entered various agreements acquire operate gaming casinos hungary suriname ii obtain two years eight hotel management operating contracts mostly hotels asia ii build next two years operate hotel casino sakhalin russian federation island north japan sakhalin project september 1998 company acquired fully operating casino budapest hungary suriname casino owned 50 joint venture company operating small casino temporary quarters hotel company completing larger permanent casino operation company joint venturer provided joint venture entity loans used build used complete begin operating permanent casino january 1999 company also seeking acquire develop andor operate casinos abroad november 1998 company held hotel operating contracts three open hotels total 1200 rooms one actively managed company entered hotel management agreements providing company enter future hotel operating contracts operate five hotels company received operating fees one open hotels since january 1998 two open hotels since march 1998 result failure parties hotel management agreements deliver company physical control practical management power two open hotels notice company renovation construction five hotels deferred reviewed company began negotiations parties status hotel management agreements november 1998 company reached settlement described terminating hotel management agreements existing hotel operating contracts exchanging mutual releases related obligations company received 450000 cash returned 700000 shares common stock retained 1625000 payments management fees loans parties took obligations companys hotel management operation estimated 350000 consequently november 4 1998 company active hotel management operation business company intends resume hotel operating activity future march 1998 company accounting purposes deemed development stage company receipt revenues primarily hotel management operation technically ended status however companys operations still subject risks inherent establishment new business enterprises including need obtain financing lack significant revenues unreliability sources supply uncertainty market acceptance products services company incurred losses since inception march 1996 june 1997 company revenues year ended june 30 1998 company revenues 649620 primarily attributable commencement hotel management operations january 1998 existing hotel operating contracts companys accumulated deficit june 30 1998 22492210 included 6823876 noncash compensation charges related value attributed stock options warrants issued company furthermore consequence settlement hotel management agreements accounting purposes company recorded write assets 4200000 including 2400000 loss relating difference stock price date stock issued stock price date settlement ii value stock retained fec part settlement casino hotel project sakhalin requires company get substantial financing progress september 1998 company entered letter intent jsc rosneftegazstroy rngs large russian construction company letter intent may lead rngs guaranteeing financing full cost turnkey construction contract companys sakhalin project rngs would major subcontractor letter intent also contemplated joint development startup hotel management business russian federation commonwealth independent states rngs management subsidiary acquired company consummation transactions still conditional substantial negotiations agreements rngs others fully consummated described letter intent company would arrange rngs obtain 51 interest sakhalin project consideration guarantee company would issue 3000000 shares common stock acquisition startup hotel management company three years 51 interest sakhalin project could exchanged option company rngs companys issuance additional shares common sock together three million shares previously issued would give rngs 51 common stock company thereupon outstanding letter intent described detail asian countries company formerly managed hotel formerly sought manage hotels russian federation company sakhalin project japan significant potential source gaming visitors sakhalin currently significant economic problems significant political social governmental problems generally regarded overall asian crisis although circumstances vary country asian crisis substantially reduced tourist use business use hotels company managed sought manage asia companys related fees fee structure largely based percentages gross revenue profit adversely affected fact situation russian federation delayed might delay even prevent financing construction operation sakhalin project detailed discussion analysis companys individual operating divisions see divisional overviews item 1 report change fiscal year company initially adopted fiscal year ending august 31 1997 calendar year company elected change fiscal year end june 30 accordingly following discussion companys results year ended june 30 1998 compared ten months ended june 30 1997 results operations company limited operating history upon evaluation performance prospects made period march 6 1996 march 31 1998 companys activities primarily limited organizational efforts raising public private capital defray organizational expenses development initial implementation business plan food technology business commencing august 1997 companys activities also included organizational fund raising efforts relating entrance business managing owning hotels casinos march 6 1996 june 30 1997 company revenues year ended june 30 1998 company revenues 649620 primarily attributable commencement hotel management operations results operations year ended june 30 1998 net loss company incurred net loss 12543072 137 per share year ended june 30 1998 included net loss year noncash compensation charges 921569 recorded connection value attributed stock options warrants issued company ii 1620830 charge provision bad debt iii general administrative expenses 6287544 iv 4200000 writedown value management contracts revenues year ended june 30 1998 company revenues 649620 almost 639740 attributable signing january 1998 hotel management operating contracts company generated revenues prior fiscal periods compensation charges year ended june 30 1998 noncash compensation charges 921569 issuance stock options purchase 390000 shares common stock warrants purchase 100000 shares common stock company incurred 4995106 charges ten months ended june 30 1997 issuance stock options purchase 1835000 shares common stock warrants purchase 550000 shares common stock represents decrease current period companys utilization issuance stock options warrants compensation payments general administrative expenses general administrative expenses included travel expenses salaries professional consulting fees 6287544 year ended june 30 1998 compared 1739419 ten months ended june 30 1997 increase prior period resulted increases companys business activities food technology business additional expenses incurred result companys status publicly traded entity expenses incurred exploring entering business managing owning hotels casinos increase current period primarily attributable increases payroll consulting expenses 944542 legal professional fees 777654 travel expenses 798596 amortization 342578 addition company recorded writedown 554262 related construction progress originally recorded acquisition sgti sakhalin project marketing sales year ended june 30 1998 company incurred 376589 marketing sales expense connection increased marketing sales efforts food technology product completion initial public offering june 1997 company incurred 115576 marketing sales expenses ten months ended june 30 1997 writedown value management contracts subsequent june 30 1998 company entered settlement agreement fec dorsett mr chiu parities withdrew released mentioned hotel management agreements according terms agreement fec keep 250000 950000 shares companys common stock originally issued fec june 30 1998 carrying value related assets reduced fair value based terms settlement agreement accordingly company recorded charge 4200000 write carrying amount management contract agreements trade names deposit assets acquired charge reflected accompanying consolidated statements operations year ended june 30 1998 provision bad debt december 1997 february 1998 company loaned cpc total 650000 use discharging atmos debts obligations june 30 1998 loaned cpc additional 970000 inventory purchases overhead requirements discharge additional atmos obligations bringing total loan made cpc 1620000 presently company anticipate exercise options acquire 51 atmos stock cpc would likely unable repay loans except possibly available proceeds sale stock atmos partially developed business proceeds likely less loans consequently company established reserve equal 1620000 loans made cpc interest income year ended june 30 1998 interest income 288518 compared 51180 ten months ended june 30 1997 increase due additional cash available investment proceeds companys public private offerings interest expensefor year ended june 30 1998 interest expense including amortization debt discount 74678 compared 407346 ten months ended june 30 1997 amounts included noncash charges related amortization 60328 252000 respectively debt discount recorded value common stock shares issued convertible debentureholders decrease actual accrued interest expenses 155346 prior period 14350 current period result repayment certain outstanding obligations company proceeds june 1997 initial public offering results operations ten months ended june 30 1997 net loss net loss ten months ended june 30 1997 8562067 183 per share included net loss period noncash compensation charges 4995106 recorded connection value attributed stock options warrants issued company ii general administrative expenses 1739419 iii 1000000 charge provision bad debt iv interest expense 356166 net interest income v 355800 writedown conserver 21trademarkinventory vi marketing sales expenses 115576 compensation charges ten months ended june 30 1997 noncash compensation charges 4995106 issuance stock options purchase 1835000 shares common stock warrants purchase 550000 shares common stock general administrative expense ten months ended june 30 1997 general administrative expenses 1739419 included expenditures consisting primarily travel expenses salaries professional consulting fees marketing sales ten months ended june 30 1997 company incurred 115576 marketing sales expenses connection preliminary marketing sales expenses conserver 21trademark writedown inventory initial purchases conserver 21trademarkpackets company indicated certain manufacturing limitations packaging process conserver 21trademarkpackets management company believes ultimately rectified light limitations unmarketablility inventory purchased company wrote 355800 conserver 21trademarkinventory ten months ended june 30 1997 provisions bad debt terms distributing agreement company advanced 1000000 agrotech june 30 1997 repayable three year period offset conserver 21trademarkpurchases company excess purchase minimum 2000000 conserver 21trademarkproducts april 1998 initial volume commitment company attempted renegotiate distribution agreement view reduce pricing arrangements regarding conserver 21trademarkpacket manufacturing arrangements packaging done united states due uncertainty existed outcome renegotiations distributing agreement companys ability exceed initial volume commitment conserver 21trademark products based pricing levels anticipated renegotiated lower pricing level manufacturing difficulties management company believed achieving initial volume commitment necessary offset companys purchases agrotech loan remote accordingly ten months ended june 30 1997 company established reserve equal agrotech loan company terminated distribution agreement agrotech fiscal year ended june 30 1998 interest expensefor ten months ended june 30 1997 interest expense 356166 net interest income 51180 resulting interest accrued companys convertible debentures noncash charges related amortization 252000 debt discount recorded value common stock issued convertible debentureholders income taxes ten months ended june 30 1997 company tax purposes operations net operating losses companys expenses preoperating therefore capitalized amortized starting date operations commenced result operations period march 6 1996 date inception august 31 1996 net loss net loss period march 6 august 31 1996 1387071 032 per share included net loss period general administrative expenses 458611 ii noncash compensation charges 907201 connection value attributed stock options warrants issued company general administrative expenses period march 6 august 31 1996 general administrative expenses 458611 primarily included expenditures travel expenses salaries professional consulting fees compensation charges period march 6 august 31 1996 noncash compensation charges 907201 value attributed issuance stock options purchase 100000 shares common stock warrants purchase 325000 shares companys common stock interest expense period march 6 august 31 1996 interest expense 21259 net interest income 8741 income taxes period march 6 august 31 1996 company tax purposes operations net losses companys expenses preoperating therefore capitalized amortized starting date operations commenced liquidity capital resources summmary due lack available cash limited ability obtain financing company forced suspend market entry preservittrademark suspension market entry plans preservittrademarksuspends prospective substantial research development startup expenditures would required market entry substantial expenditures associated suspension although company considering seeking joint venture transaction resumption business another party financing transaction identified party company able sell business sale might produce cash amount cash cannot predicted companys joint venture may soon complete suriname casino fully open anticipated provide cash distributions company anticipates november 30 1998 suriname casino require 15 million cash next 3 months complete funded either company joint venture partner november 15 1998 company funded joint venture 4000000 purposes september 1998 joint venturer loaned subsidiary 600000 3 per month interest rate agreed loans investments made thereafter made venturers would repaid together interest joint ventures cash available net operating income basis pro rata total loan investment balances accrued interest fully operating small budapest casino soon provide cash distributions september 1998 company purchased 95 hungarian company operating budapest casino generated cash losses april company undertook management august 1998 however end august casino begun operate near breakeven company received cash distributions budapest casino company entered letter intent rngs dated september 23 1998 relating sakhalin project expected produce operating income least 18 24 months date negotiation favorable progress toward definitive agreements letter intent might increase companys ability obtain cash incidental interim financing might secured companys interests project progress would probably require company make expenditures travel accounting legal expert related charges possibly substantial expenditures bring budget design construction plans final stages agreement rngs consummated companys need cash construction phase might fulfilled obviated december 1997 company advanced 3000000 issued 2000000 shares common stock part agreement purchase 100 interest sgti turn owns 65 scc company directly developing project june 30 1998 company advanced 3421000 loans sgti development sakhalin project june 30 1998 company debt borrowed money little cash interest expenses consequently interest payments material companys cash position 1997 company repaid outstanding debt obligations proceeds june 6 1997 initial public offering significant portion interest expense statement operations noncash items amortization debt discount recorded value common stock issued exchange convertible debentures november 1998 settlement hotel management agreements ended related payments although company received 450000 cash payment settlement retained 1000000 addition december 3 1998 company received 300000 two individuals purchase 400000 shares common stock market value individuals also issued warrants purchase 200000 shares common stock exercise price 1 per share cash payments applied primarily urgent cash payment obligations arising overall operation businesses since july 1998 company actively sought raise cash loans sales securities unable terms acceptable continuing efforts current financial condition company current market price stock unresolved prospects business future business prospects impaired companys ability borrow otherwise raise capital disadvantageous terms company successful obtaining additional financing operations undertake reduce operating overhead negotiate payment terms vendors attempt obtain additional casino management contracts however assurance company successful accomplishing objectives consequently report independent certified public accountants covering companys consolidated financial statements year ended june 30 1998 contains going concern emphasis paragraph september 30 1998 company working capital deficit 13 million excluding liabilities relieved termination hotel management agreements company seeking least 3000000 financing meet 15 million estimated cost commitment 2200000 june 30 1998 bring suriname casino full operation discharge current payment obligations working capital september 30 1998 company approximately 495000 cash equivalents hand date predicted contingent sources cash 150000 200000 per month anticipated operating profits temporary suriname casino funds made promptly available remaining work permanent suriname casino might open operating late february 1999 impossible reliably predict distributable cash flow casino generate nevertheless company previously projected internal planning purposes distributable cash flow 300000 first month full operation 10 increase month thereafter 4 months leveling company believes additional financing cash sources realized provide adequate cash flow maintain companys current operations next 12 months result delinquent filing form 10k company notified nasdaq possible delisting 12g smallcap market exchange company consequently written nasdaq listings hearings director explain reason delay filing report company become delisted would adverse affect companys ability obtain additional financing currently seeking prior financing company development stage company march 1998 companys activities since inception march 1996 primarily focused raising debt equity financing public private organizing developing food preservation technology business since mid1997 organizing developing hotel management business casino business company incurred losses since inception june 30 1998 company yet derive substantial income operations except 640000 fees hotel management contracts commenced january march 1998 companys accumulated deficit june 30 1998 225 million march 1996 february 1998 company raised capital necessary business development debt equity private placements 1996 private offering common stock convertible debentures raised 49 million june 1997 company developing food preservation technology business company completed initial underwritten public offering initial public offering received net proceeds 10306000 sale 2530000 shares common stock per share price 500 time common stock began quoted nasdaq smallcap market still quoted november 1997 february 1998 company began completed another private offering common stock 1997 private offering received net proceeds 89 million sale 2044763 shares common stock 514 per share 1997 private offering largely intended company raise cash initial expenditures new hotel casino businesses companys stockholders meeting december 1997 approved entry businesses june 30 1998 company spent proceeds 1997 private offering directly initial expenditures companys accumulated deficit june 30 1998 included 68 million noncash compensation charges related value attributed stock options warrants issued company historically made extensive use options granted 1996 stock option plan nonplan options warrants november 30 1998 closing bid market price companys common stock fallen 1998 high 8813 new low 469 november 10 1998 september 14 1998 board directors compensation committee expressed concern future critical times company might face problems maintaining loyalty diligence key personnel board voted date reduce exercise price 150 plan nonplan options warrants held thencurrent directors officers employees company persons associated principal london counsel date 80000 nonplan options 325000 warrants 1502500 plan options common stock affected addition board voted grant nonplan plan options market price seven officers directors purchase 15 million shares result effecting reductions grants company estimates incur additional 750000 noncash compensation charges fiscal year ending june 30 1999 year 2000 impact business operations computers software equipment utilizing microprocessors use two digits identify year date field may unable process accurately certain datebased information year 2000 company recognizes need insure operations adversely affected year 2000 software failures software failures due processing errors potentially arising calculations using year 2000 date recognized risk company addressing issue several different fronts company contact suppliers assess compliance assurance material adverse effect company third parties covert computer systems timely manner way compatible companys systems company believes actions suppliers minimize risks june 30 1998 company incurred material expenses relating year 2000 compliance efforts believes expenses associated completing year 2000 compliance plans material adverse impact companys operations expected exceed 50000 internal external expenses specifically associated modifying internaluse software year 2000 expensed incurred companys current estimates amount time expenses necessary implement test computer systems based facts circumstances existing time nevertheless achieving year 2000 compliance dependent many factors completely within companys control either companys internal system internal systems one significant vendors suppliers fail achieve year 2000 compliance companys business results operations could adversely affected company uses significant number computer software programs operating systems casino internal operations including applications used financial business systems various administration functions extent software applications contain source code unable appropriately interpret upcoming calendar year 2000 level modification even replacement source code applications necessary company process identifying software applications year 2000 compliant anticipates completion process september 1999 given information known time companys systems coupled companys ongoing efforts upgrade replace business critical systems necessary currently anticipated year 2000 costs material adverse impact companys business financial condition results operations new accounting standards june 1997 financial accounting standards board issued statement financial accounting number 130 sfas 130 reporting comprehensive income statement required adopted financial statements issued annual periods beginning december 15 1997 establishes standards reporting display comprehensive income components full set generalpurpose financial statements time company required report total comprehensive income amount include net income well comprehensive income comprehensive income refers revenues expenses gains losses generally accepted accounting principles previously reported separate components equity companys consolidated financial statements sfas 130 material impact companys financial statements since requirements deal mainly financial disclosures june 1997 financial accounting standards board issued statement financial accounting standards number 131 sfas 131 disclosure segments enterprise related information statement required adopted financial statements issued annual periods beginning december 15 1997 establishes standards way public business enterprises report information operating segments financial reports issued shareholders company yet determined financial statement impact sfas 131 june 1998 financial accounting standards board issues sfas 133 accounting derivative instruments hedging activities sfas 133 requires companies recognize derivatives contracts either assets liabilities balance sheet measure fair value certain conditions met derivative may specifically designated hedge objective match timing gain loss recognition hedging derivative recognition changes fair value hedged asset liability attributable hedged risk ii earnings effect hedged forecasted transaction derivative designated hedging instrument gain loss recognized operations period change sfas 133 effective fiscal quarters fiscal years beginning june 15 1999 historically company entered derivatives contracts either hedge existing risks speculative purposes accordingly company expect adoption new standard july 1 1999 affect consolidated financial statements subsequent events subsequent events described item 1 report management discussion analysis companys consolidated financial statements included herein factors could affect operating results annual report form 10k contains forwardlooking statements additional written oral forwardlooking statements may made company time securities exchange commission sec filings otherwise company cautions readers results predicted forwardlooking statements including without limitation relating companys future business prospects revenues working capital liquidity capital needs interest costs income subject certain risks uncertainties could cause actual results differ materially indicated forwardlooking statements due following factors among risks factors identified time companys filings sec food technology business company accounting purposes development stage march 1998 operations still fact subject risks inherent establishment new business enterprise including need obtain financing lack significant revenues reliability sources supply uncertainty market acceptance business company yet derived significant revenues operations incurred losses since inception operating revenues anticipated food technology business time ever company demonstrate commercial viability preservittrademark assurance whether company successfully implement business plan operate profitably company believes proposed use preservittrademarkdoes currently subject material federal state local regulatory approvals assurance however future regulatory approvals required united states canada company anticipated sites market entry leading unanticipated expenses delays inherent regulatory process company undertaken investigation applicable requirements may imposed regulatory agencies outside united states assurance legal restrictions jurisdictions outside united states result delay companys ability commercially develop preservittrademarkin jurisdictions company orders preservittrademarkproducts assurance potential customers willing incur costs preservittrademark preservittrademarkwill contracted supermarkets retailers distributors growers even accepted entities prove profitable attractive potential customers addition assurance competing products economical attractive companys potential customers company never utilized preservittrademarkunder conditions volumes required make preservittrademarkprofitable cannot predict difficulties may arise connection therewith companys ability operate preservittrademarkbusiness successfully others depend variety factors many outside companys control including competition cost availability product changes regulatory requirements market initial marketing activities might performed executive officers advisors varying degrees persons prior experience food industry marketing food products services however none experience preservittrademarkor marketing product order market sell preservittrademark company may need maintain retain sales force technical expertise food preservation food transportation industries assurance company able gain obtain expertise marketing efforts successful several methods food preservation commercially available compete directly indirectly preservittrademark many companys potential competitors may substantially greater financial human resources company well experience marketing selling postharvest life extension products assurance preservittrademarkwill gain commercial acceptance establish meaningful market share furthermore market share achieved could lost reduced enhanced competition emergence new effective preservation technologies hotel business casino business companys current future business plans respect ownership management hotels casinos affected large part changes conditions favorably unfavorably affect investments enterprises many conditions beyond companys control affect ability company operate hotels casinos ii competition hospitality entertainment properties iii changes regional local population disposable income composition iv unanticipated increases operating costs v legal restrictions use advertising typically utilized marketing gaming operations vi restrictive changes zoning similar land use laws regulations health safety environmental laws rules regulations vii inability secure property liability insurance fully protect losses obtain insurance reasonable costs viii exercise power eminent domain ix seasonality x changes travel patterns preferences may affected increases gasoline prices changes airline schedules fare strikes weather patterns andor relocation reconstruction highways among factors given rapid developments changes hotel casino industries impossible accurately predict future trends changes industries effect company particular success companys sakhalin project largely dependent tourism active gaming populations japan korea china russian federation although economic viability project least part based upon tourist incentives would streamline process tourists entering regions company plans operate casinos gaming regions assurance restrictions imposed gaming generally regions company plans operate andor tourists entering regions gambling may adversely impact companys results operations collection casino receivables respect projects international customers could adversely affected future business economic trends significant events countries customers reside assurance operating cash flows results operations adversely impacted inability collect receivables highend players addition gaming debts may legally enforced certain foreign jurisdictions certain jurisdictions within united states grounds public policy unenforceability may adverse impact collectability receivables result companys proposed expansion hotel casino industries internationally companys operations respect proposed projects subject greater risks inherent international operations possibility loss revenues property equipment due expropriation nationalization war insurrection terrorism civil disturbance instability foreign economies currency fluctuations devaluations adverse tax policies governmental activities may limit disrupt markets restrict payments movement funds result deprivation contract rights company subject taxation number jurisdictions final determination tax liabilities involves interpretation statutes requirements various domestic foreign taxing authorities foreign tax authorities routinely examine foreign income tax returns foreign subsidiaries unconsolidated affiliates related entities factors affecting sakhalin project including current economic climate russia see item 1 sakhalin project assurance risks adverse effect companys results operations item 7a item 7 managements discussion analysis financial condition results operations company limited operating history upon evaluation performance prospects made period march 6 1996 march 31 1998 companys activities primarily limited organizational efforts raising public private capital fund organizational expenses development initial implementation business plan food technology business commencing august 1997 companys activities also included organizational fund raising efforts relating entrance business managing owning hotels casinos march 6 1996 june 30 1997 company revenues year ended june 30 1998 company limited revenues 649620 primarily attributable january 1998 commencement hotel management operations later discontinued november 4 1998 company reached settlement agreement terminating hotel operating contracts fec dhi subsequently april 1999 dismissed hotel management employees consequently april 1999 company active hotel management operating business additionally november 1999 companys board directors determined would discontinue activities efforts respect companys food preservation business since company could effectively develop sufficient market companys food preservation technology accordingly years ended june 30 2000 1999 1998 company reported activities related food division hotel management operations separately gains losses discontinued operations consequently activities reflected statements operations revenues expenses continuing operations represent revenues expenses directly related apportioned companys casino operations results operations year ended june 30 2000 compared year ended june 30 1999 loss continued operations company incurred loss continuing operations 15187187 101 per share year ended june 30 2000 compared loss 4308465 34 per share year ended june 30 1999 increase loss current year resulted primarily writeoff assets totaling 13857000 including goodwill construction progress approximately 13552000 related sakhalin project partially offset profitable operations companys suriname casino reductions general corporate overhead expenses revenues year ended june 30 2000 company generated revenues 6981758 suriname casino year ended june 30 1999 company generated revenues 5534249 attributable casino operations suriname budapest generated 4864989 669260 respectively companys budapest suriname casinos began operations september october 1998 respectively company december 1998 transferred majority interest budapest casino additional revenues income recorded company respect casino later closed october 1999 casino license expired marketing promotion years ended june 30 2000 1999 company incurred 333500 360572 respectively marketing promotional expenses connection casino operations companys sales marketing expenses 1999 year included 30659 related budapest casino company expenses related budapest casino year ended june 30 2000 general administrative expenses general administrative expenses 6415452 year ended june 30 2000 compared 7566040 year ended june 30 1999 included current years expenses 3659145 operating expenses associated companys suriname casino 2756307 general corporate overhead including salaries consulting professional fees travel included 1999 expenses 3758233 operating expenses associated companys casino operations 3807807 general corporate overhead 1051500 28 reduction general corporate overhead current year primarily attributable reductions consulting travel legal professional insurance telephone expenses compensation charges year ended june 30 1999 company recorded noncash compensation charges 783000 attributable reduction exercise price certain stock options warrants previously issued nonemployee directors ii issuance stock options purchase 500000 shares common stock year ended june 30 2000 noncash compensation charges 10000 related reduction exercise price certain stock options warrants previously issued nonemployee directors purchase 750000 shares common stock writedown assets since 1997 company entered numerous discussions several agreements attempts raise capital finance sakhalin project without success year ended june 30 2000 due companys failure proceed based evaluation assets financial impairment required sfas 121 certain capitalized expenditures goodwill totaling approximately 13552000 written additionally 2000 result unstable political conditions palestinian west bank middle east company wrote investment 305000 casino operating management agreement entered casino project constructed ramallah 1999 year hungarian gaming board made decision reduce number casino licenses budapest three companys submission application new license unsuccessful casino closed october 1999 current license expired june 30 1999 company wrote balance outstanding loans roulette kft totaling approximately 610000 interest expense year ended june 30 2000 interest expense amounted 423630 compared 445105 year ended june 30 1999 current years expense included approximately 245000 attributable interest accrued loans made suriname casino joint venture companys joint venture partner 179000 expense loans made company general working capital purposes 145000 related amortization debt discount recorded value common stock warrants issued debenture holders prior years expense included approximately 379000 attributable interest accrued loans made suriname casino joint venture companys joint venture partner 66000 interest loans made company general working capital purposes minority interest companys suriname casino joint venture began operations 1999 fiscal year company controls management joint venture company 50 equity interest casinos operations consolidated company minority interest recorded current prior fiscal year 582204 89278 respectively loss discontinued operations food division november 1999 companys board directors determined would discontinue activities efforts respect companys food preservation business since company could effectively develop sufficient market companys food preservation technology years ended june 30 2000 1999 company revenues food division operations expenses related efforts sell joint venture food division 64500 425175 respectively gain loss discontinued operations hotel management year ended june 30 1999 company revenues 363301 hotel management contracts commenced january 1998 terminated november 4 1998 related marketing administrative expenses 1999 period 221751 current year ended june 30 2000 company revenues incurring final expenses 87623 period related legal fees settlement arrangements former officer companys hotel management operation income taxes corporate income tax suriname assessed casino operations 50 net taxable income company recorded income taxes related suriname casino year ended june 30 2000 amount 552625 includes 192884 deferred tax liability taxes recorded 1999 results operations year ended june 30 1999 compared year ended june 30 1998 loss continued operations company incurred loss continuing operations 4308465 34 per share year ended june 30 1999 compared loss 4105703 45 per share year ended june 30 1998 increase loss 1999 year resulted writeoff loans totaling approximately 610000 made budapest casino closed october 1999 partially offset profitable operations companys suriname casino opened october 1998 reductions general corporate overhead expenses revenues year ended june 30 1999 company generated revenues 5534249 attributable casino operations suriname budapest generated 4864989 669260 respectively year ended june 30 1998 company revenues attributable casino operations companys budapest suriname casinos began operations september october 1998 respectively marketing promotion year ended june 30 1999 company incurred 360572 marketing promotional expenses connection casino operations companys budapest suriname casinos began operations september october 1998 respectively accordingly company expenses year ended june 30 1998 general administrative expenses general administrative expenses 7566040 year ended june 30 1999 compared 3397974 year ended june 30 1998 included 1999 years expenses 3758233 operating expenses associated companys suriname budapest casinos opened acquired 1999 year 3807807 general corporate overhead including salaries consulting professional fees travel 1998 year expenses attributable general corporate overhead reclassification approximately 28 million related expenses directly related apportioned discontinued food hotel management operations compensation charges year ended june 30 1999 company recorded noncash compensation charges 783000 attributable reduction exercise price certain stock options warrants previously issued officers directors employees ii issuance stock options purchase 500000 shares common stock year ended june 30 1998 noncash compensation charges 921569 related issuance stock options purchase 390000 shares common stock warrants purchase 100000 shares common stock writedown assets 1999 hungarian gaming board made decision reduce number casino licenses budapest three companys submission application new license unsuccessful casino closed october 1999 current license expired june 30 1999 company wrote balance outstanding loans roulette kft totaling approximately 610000 interest income year ended june 30 1999 interest income 11114 compared 288518 year ended june 30 1998 decrease 1999 year due additional cash available investment 1998 year proceeds companys public private offerings interest expense year ended june 30 1999 interest expense amounted 445105 compared 74678 year ended june 30 1998 1999 years expense primarily attributable interest accrued loans made suriname casino joint venture companys joint venture partner 1998 years expense related amortization debt discount recorded value common stock shares issued convertible debentureholders minority interest companys suriname casino joint venture began operations 1999 fiscal year company controls management joint venture company 50 equity interest casinos operations consolidated company combining casinos current year operating results casinos 1998 year operating loss attributable preopening expenses minority interest recorded 1999 fiscal year 89278 loss discontinued operations food division november 1999 companys board directors determined would discontinue activities efforts respect companys food preservation business since company could effectively develop sufficient market companys food preservation technology year ended june 30 1999 company revenues food division operations expenses related efforts sell joint venture food division 425175 1998 years period included nominal revenues 9879 marketing administrative expenses 2888742 including 162 million provision bad debt loans made inventory purchases obligations related food technology product gain loss discontinued operations hotel management year ended june 30 1999 company revenues 363301 hotel management contracts commenced january 1998 terminated november 4 1998 related marketing administrative expenses 1999 period 221751 1998 years period included revenues 639741 marketing administrative expenses 6198247 including 42 million writedown value hotel management contracts subsequent june 30 1998 company entered settlement agreement fec dorsett mr david chiu parties withdrew released parties hotel management agreements june 30 1998 carrying value related assets reduced fair value based terms settlement agreement accordingly company recorded charge 4200000 write carrying amount management contract agreements trade names deposit assets expenses 1998 period also included amortization management contracts direct expenses operating hotel management division indirect expenses related general corporate overhead apportioned division liquidity capital resources march 1996 february 1998 company raised capital necessary business development debt equity private placements 1996 private offering common stock convertible debentures raised 49 million june 1997 company developing food preservation technology business company completed initial underwritten public offering initial public offering received net proceeds 10306000 sale 2530000 shares common stock per share price 500 time common stock began quoted nasdaq smallcap market november 1997 february 1998 company began completed another private offering common stock 1997 private offering received net proceeds 89 million sale 2044763 shares common stock 514 per share 1997 private offering largely intended company raise cash initial expenditures new hotel casino businesses companys stockholders meeting december 1997 approved entry businesses june 30 1998 company spent proceeds 1997 private offering directly initial expenditures july 1998 august 1999 company actively sought raise cash loans sales securities order fund past due obligations current operations completion suriname casino opened october 1998 occupied permanent quarters march 1999 companys dependance outside financing recurring losses significant outflows cash report companys financial statements year ended june 30 1998 noted substantial doubt companys ability continue going concern company successful raising sufficient funds several private investors sale securities enabling fund ongoing operational costs period complete construction suriname casino company continued finance part issuances securities seek loans finance sakhalin project addition company settled various accounts payable issuance securities fiscal year ended june 30 1999 company received total 1676600 sale 2053200 shares common stock private investors together warrants purchase 1280334 shares 100 per share receipts used general working capital pay existing liabilities towards construction suriname casino fiscal year ended june 30 2000 company received total 125000 sale 166667 shares common stock private investors together warrants purchase 83334 shares 100 per share receipts used general working capital october 1999 company entered convertible loan agreement private investor received 350000 used fund current past due obligations december 22 1999 lender converted 185000 loan amount together interest common stock company balance loan 165000 together 15 interest paid april 30 2000 november 16 1999 companys common stock delisted nasdaq smallcap market companys common stock traded pink sheets national quotation bureau company believes delisting result inability timely file form 10k failure provide definitive plan obtain maintain filing compliance decline stock price required continued listing factors impaired companys subsequent ability issue stock options warrants prices deemed favorable since delisting companys stock price generally declined january 18 2000 mr james v stanton vicechairman company provided 300000 loan company interest bank prime rate loan due full december 31 2000 part consideration providing loan mr stanton granted warrants purchase 500000 shares companys common stock exercise price 25 per share loan maturity extended indefinitely company paying interest current basis principal funds available april 25 2001 loan balance 115000 march 1 2000 galileo capital llc galileo provided 150000 convertible loan company interest 10 per annum loan due october 31 2000 part consideration providing loan galileo granted warrants purchase 150000 shares companys common stock exercise price 25 per share loan convertible shares companys common stock 25 per share time term loan portion outstanding principal interest portion loan converted company would issue additional warrants purchase one 1 share common stock four 4 shares issued galileo conversion option warrants would exercisable 25 per share february 2001 loan interest paid full january 2001 private investor purchased 1333334 shares common stock 075 per share proceeds used general working capital since august 1999 ccas almost sole recurring source cash exclusive loans securities sales described cash payments slc joint venture entity owns suriname casino parbhoe owns hotel casino leased premises companys 50 joint venturer slc dorsett companys 100 owned delaware subsidiary manages slc casino cash payments slc cca parbhoe affiliates made slc management control dorsett according cash allocation priority established suriname casino agreement priority roughly described monthly cash profits generated casino payments initially made certain construction loans parbhoe balance costs casino construction fully paid august 1999 august 1999 payments net cash flow made dorsett accrued management fees owed thereafter interest principal parbhoes loans companys loans roughly respective applicable proportions total loans total loans repaid cash distributed according 50 ownership interests joint venturers distributions none expected substantial amounts loans due joint venturers repaid loans slc interest thereon parbhoe company june 30 2000 approximately 516000 3040000 respectively since january 2000 15 distributable cash flow casino paid parbhoe set aside payment 85 company dorsett paid receipts cca thus total paid company approximately 300000 per month september 1999 may 2000 company believes payments accordance suriname casino agreement parbhoe loan agreement applicable law suriname price controls rents company advised rent casino required lease exceeds lawful rent approximately 14000 per month slc sued parbhoe suriname recover approximately 314000 past overpayments company unable predict outcome suit advised counsel slcs position substantial merit cash recovery reduction rent would subject cash payment priorities described beginning june 2000 casinos revenues adversely affected increased local competition casinos declining local economy worsening conversion value local currency nine months june 2000 february 2001 revenues declined approximately 25 30 period prior year reasons payments company declined 150000 per month june 2000 suriname government asserted exemption 50 tax local corporate income provided investment tax act apply casino income consequence assessed company believed arbitrarily determined amounts tax june 2000 company paid initial assessment 200000 past tax penalties calendar years ended 1998 1999 subsequently paid additional 110000 tax calendar year 2000 april 2001 slc submitted tax reports suriname government calendar years ended 1998 1999 2000 aggregate amount tax expense calculated 375000 payable periods inception june 30 2000 provided current years financial statements companys suriname legal counsel advised company slc company entitled concession refund import duty slcs imported operating assets company paid import duties associated casino construction full subsequent fiscal year ended june 30 2000 suriname tax authorities petitioned concession refund 67000 company believes slc entitled however company unable predict actually receive refund government also contemplating imposing value added tax slot machine revenues sakhalin project currently generating cash losses company future development project require substantial financing despite numerous discussions several agreements company yet able obtain necessary financing company currently able provide believes minimum cash funding required maintain prospects project shareholders scc required either fund sccs losses continued prospects project development project june 25 1999 company entered artervalmet agreement november 1999 applied sberbank financing develop project sberbank acted application company seeking sources financing obtained company might forced abandon project sell rights whatever price recovery could obtained company able quantify price recoveries might obtained company obtains financing proceeds sakhalin project plan establish organization infrastructure currently place hire specialists june 30 2000 company 216000 cash equivalents hand march 31 2001 figure approximately 604000 company believes distribution profits suriname casino provide adequate cash flow maintain companys current operations next 12 months subsequent events october 2000 star casinos limited received 480000 shares companys common stock payment full 120000 accrued consulting services provided david hartley president casino division market price shares time acceptance 15 per share october 18 2000 companys board directors approved reduction exercise price stock options warrants previously issued existing officers directors company consequently 2730000 stock options 650000 warrants exercise prices 25 per share reduced exercise price 10 five day average market value share price october 18 2000 06 per share additionally miles greenberg chief financial officer company granted board date 500000 stock options exercisable 10 per share january 2001 richard devries professional corporation purchased 1333334 shares companys common stock purchase price 075 per share proceeds used general working capital purposes noted february 2001 company entered nonbinding letter intent acquire agc canadian corporation conducts online lottery vietnam transaction subject fulfillment numerous conditions including negotiation execution definitive documents due diligence companies companys raising least 3 million provide necessary funding settlement various issues creditors noteholders agc corporate regulatory approvals recent accounting standards pronouncements june 1998 financial accounting standards board issued sfas 133 accounting derivative instruments hedging activities sfas 133 requires companies recognize derivatives contracts either assets liabilities balance sheet measure fair value certain conditions met derivative may specifically designated hedge objective match timing gain loss recognition hedging derivative recognition changes fair value hedged asset liability attributable hedged risk ii earnings effect hedged forecasted transaction derivative designated hedging instrument gain loss recognized operations period change sfas 133 effective fiscal quarters fiscal years beginning june 15 2000 company entered derivatives contracts either hedge existing risks speculative purposes accordingly company expect adoption new standard july 1 2000 affect consolidated financial statements october 1998 financial accounting standards board issued statement financial accounting standards 134 accounting mortgagebacked securities retained securitization mortgage loans held sale mortgage banking enterprise effective first fiscal quarter beginning december 15 1998 impact companys financial reporting presentation due adoption sfas 134 february 1999 financial accounting standards board issued statement financial accounting standards 135 recission fasb statement 75 technical corrections effective financial statements issued february 15 1999 impact companys financial reporting presentation due adoption sfas 135 december 1999 securities exchange commission issued staff accounting bulletin 101 revenue recognition financial statements sab 101 sab 101 provides guidance recognition presentation disclosure revenues financial statements requires adoption later fourth quarter fiscal 2001 impact companys financial reporting personation due adoption sab 101 item 8 item 7 managements discussion analysis financial condition results operations company limited operating history upon evaluation performance prospects made period march 6 1996 march 31 1998 companys activities primarily limited organizational efforts raising public private capital fund organizational expenses development initial implementation business plan food technology business commencing august 1997 companys activities also included organizational fund raising efforts relating entrance business managing owning hotels casinos march 6 1996 june 30 1997 company revenues year ended june 30 1998 company limited revenues 649620 primarily attributable january 1998 commencement hotel management operations later discontinued november 4 1998 company reached settlement agreement terminating hotel operating contracts fec dhi subsequently april 1999 dismissed hotel management employees consequently april 1999 company active hotel management operating business additionally november 1999 companys board directors determined would discontinue activities efforts respect companys food preservation business since company could effectively develop sufficient market companys food preservation technology accordingly years ended june 30 2001 2000 1999 company reported activities related food division hotel management operations separately gains losses discontinued operations consequently activities reflected statements operations revenues expenses continuing operations represent revenues expenses directly related apportioned companys casino operations results operations year ended june 30 2001 compared year ended june 30 2000 loss continued operations company incurred loss continuing operations 519665 03 per share year ended june 30 2001 compared loss 15187187 101 per share year ended june 30 2000 significantly larger loss prior year resulted primarily writeoff assets totaling 13857000 including goodwill construction progress approximately 13552000 related sakhalin project revenues year ended june 30 2001 company generated revenues 5489191 suriname casino year ended june 30 2000 company generated revenues 6981758 attributable casino operations suriname current year casinos revenues adversely affected increased local competition casinos declining local economy worsening conversion value local currency marketing promotion years ended june 30 2001 2000 company incurred 332730 333500 respectively marketing promotional expenses connection casino operations general administrative expenses general administrative expenses 4884614 year ended june 30 2001 compared 6415452 year ended june 30 2000 included current years expenses 3365594 operating expenses associated companys suriname casino 1519020 general corporate overhead including salaries consulting professional fees travel included prior years expenses 3659145 operating expenses associated companys casino operations 2756307 general corporate overhead 1237287 45 reduction general corporate overhead current year primarily attributable reductions consulting travel legal professional insurance telephone expenses casino operating costs also reduced result decline business revenues experienced current year described compensation charges years ended june 30 2001 2000 noncash compensation charges 13000 10000 respectively related reduction exercise price certain stock options warrants previously issued nonemployee directors writedown assets since 1997 company entered numerous discussions several agreements attempts raise capital finance sakhalin project without success year ended june 30 2000 due companys failure proceed based evaluation assets financial impairment required sfas 121 certain capitalized expenditures goodwill totaling approximately 13552000 written additionally 2000 result unstable political conditions palestinian west bank middle east company wrote investment 305000 casino operating management agreement entered casino project constructed ramallah interest expense year ended june 30 2001 interest expense amounted 198330 compared 423630 year ended june 30 2000 current years expense includes approximately 164000 attributable interest loans made suriname casino joint venture companys joint venture partner 34000 interest loans made company general working capital purposes prior years expense included approximately 245000 attributable interest loans made suriname casino joint venture companys joint venture partner 179000 expense loans made company general working capital purposes 145000 related amortization debt discount recorded value common stock warrants issued debenture holders minority interest companys suriname casino joint venture began operations 1999 fiscal year company controls management joint venture company 50 equity interest casinos operations consolidated company minority interest recorded current prior fiscal year 312947 582204 respectively representing 50 net income generated casino loss discontinued operations food division november 1999 companys board directors determined would discontinue activities efforts respect companys food preservation business since company could effectively develop sufficient market companys food preservation technology year ended june 30 2000 company revenues food division operations expenses related efforts sell joint venture food division 64500 food division related expenses incurred current year gain loss discontinued operations hotel management year ended june 30 2000 company incurred final expenses 87623 related legal fees settlement arrangements former officer companys hotel management operation terminated 1999 fiscal year hotel management related expenses incurred current year income taxes corporate income tax suriname assessed casino operations 50 net taxable income company recorded foreign income taxes amount 269097 related suriname casino year ended june 30 2001 552625 year ended june 30 2000 amounts include deferred tax liability 2001 95000 192884 results operations year ended june 30 2000 compared year ended june 30 1999 loss continued operations company incurred loss continuing operations 15187187 101 per share year ended june 30 2000 compared loss 4308465 34 per share year ended june 30 1999 increase loss current year resulted primarily writeoff assets totaling 13857000 including goodwill construction progress approximately 13552000 related sakhalin project partially offset profitable operations companys suriname casino reductions general corporate overhead expenses revenues year ended june 30 2000 company generated revenues 6981758 suriname casino year ended june 30 1999 company generated revenues 5534249 attributable casino operations suriname budapest generated 4864989 669260 respectively companys budapest suriname casinos began operations september october 1998 respectively company december 1998 transferred majority interest budapest casino additional revenues income recorded company respect casino later closed october 1999 casino license expired marketing promotion years ended june 30 2000 1999 company incurred 333500 360572 respectively marketing promotional expenses connection casino operations companys sales marketing expenses 1999 year included 30659 related budapest casino company expenses related budapest casino year ended june 30 2000 general administrative expenses general administrative expenses 6415452 year ended june 30 2000 compared 7566040 year ended june 30 1999 included current years expenses 3659145 operating expenses associated companys suriname casino 2756307 general corporate overhead including salaries consulting professional fees travel included 1999 expenses 3758233 operating expenses associated companys casino operations 3807807 general corporate overhead 1051500 28 reduction general corporate overhead current year primarily attributable reductions consulting travel legal professional insurance telephone expenses compensation charges year ended june 30 1999 company recorded noncash compensation charges 783000 attributable reduction exercise price certain stock options warrants previously issued nonemployee directors ii issuance stock options purchase 500000 shares common stock year ended june 30 2000 noncash compensation charges 10000 related reduction exercise price certain stock options warrants previously issued nonemployee directors purchase 750000 shares common stock writedown assets since 1997 company entered numerous discussions several agreements attempts raise capital finance sakhalin project without success year ended june 30 2000 due companys failure proceed based evaluation assets financial impairment required sfas 121 certain capitalized expenditures goodwill totaling approximately 13552000 written additionally 2000 result unstable political conditions palestinian west bank middle east company wrote investment 305000 casino operating management agreement entered casino project constructed ramallah 1999 year hungarian gaming board made decision reduce number casino licenses budapest three companys submission application new license unsuccessful casino closed october 1999 current license expired june 30 1999 company wrote balance outstanding loans roulette kft totaling approximately 610000 interest expense year ended june 30 2000 interest expense amounted 423630 compared 445105 year ended june 30 1999 current years expense included approximately 245000 attributable interest accrued loans made suriname casino joint venture companys joint venture partner 179000 expense loans made company general working capital purposes 145000 related amortization debt discount recorded value common stock warrants issued debenture holders prior years expense included approximately 379000 attributable interest accrued loans made suriname casino joint venture companys joint venture partner 66000 interest loans made company general working capital purposes minority interest companys suriname casino joint venture began operations 1999 fiscal year company controls management joint venture company 50 equity interest casinos operations consolidated company minority interest recorded current prior fiscal year 582204 89278 respectively loss discontinued operations food division november 1999 companys board directors determined would discontinue activities efforts respect companys food preservation business since company could effectively develop sufficient market companys food preservation technology years ended june 30 2000 1999 company revenues food division operations expenses related efforts sell joint venture food division 64500 425175 respectively gain loss discontinued operations hotel management year ended june 30 1999 company revenues 363301 hotel management contracts commenced january 1998 terminated november 4 1998 related marketing administrative expenses 1999 period 221751 current year ended june 30 2000 company revenues incurring final expenses 87623 period related legal fees settlement arrangements former officer companys hotel management operation income taxes corporate income tax suriname assessed casino operations 50 net taxable income company recorded income taxes related suriname casino year ended june 30 2000 amount 552625 includes 192884 deferred tax liability taxes recorded 1999 liquidity capital resources march 1996 february 1998 company raised capital necessary business development debt equity private placements 1996 private offering common stock convertible debentures raised 49 million june 1997 company developing food preservation technology business company completed initial underwritten public offering initial public offering received net proceeds 10306000 sale 2530000 shares common stock per share price 500 time common stock began quoted nasdaq smallcap market november 1997 february 1998 company began completed another private offering common stock 1997 private offering received net proceeds 89 million sale 2044763 shares common stock 514 per share 1997 private offering largely intended company raise cash initial expenditures new hotel casino businesses companys stockholders meeting december 1997 approved entry businesses june 30 1998 company spent proceeds 1997 private offering directly initial expenditures july 1998 august 1999 company actively sought raise cash loans sales securities order fund past due obligations current operations completion suriname casino opened october 1998 occupied permanent quarters march 1999 companys dependance outside financing recurring losses significant outflows cash report companys financial statements year ended june 30 1998 noted substantial doubt companys ability continue going concern company successful raising sufficient funds several private investors sale securities enabling fund ongoing operational costs period complete construction suriname casino company continued finance part issuances securities seek loans finance sakhalin project addition company settled various accounts payable issuance securities fiscal year ended june 30 1999 company received total 1676600 sale 2053200 shares common stock private investors together warrants purchase 1280334 shares 100 per share receipts used general working capital pay existing liabilities towards construction suriname casino fiscal year ended june 30 2000 company received total 125000 sale 166667 shares common stock private investors together warrants purchase 83334 shares 100 per share receipts used general working capital october 1999 company entered convertible loan agreement private investor received 350000 used fund current past due obligations december 22 1999 lender converted 185000 loan amount together interest common stock company balance loan 165000 together 15 interest paid april 30 2000 november 16 1999 companys common stock delisted nasdaq smallcap market companys common stock traded otc bulletin board company believes delisting result inability timely file form 10k failure provide definitive plan obtain maintain filing compliance decline stock price required continued listing factors impaired companys subsequent ability issue stock options warrants prices deemed favorable since delisting companys stock price generally declined january 18 2000 mr james v stanton vicechairman company provided 300000 loan company interest bank prime rate loan due full december 31 2000 part consideration providing loan mr stanton granted warrants purchase 500000 shares companys common stock exercise price 25 per share later reduced 10 per share october 18 2000 loan maturity extended indefinitely company paying interest current basis principal funds available august 31 2001 loan balance 55000 march 1 2000 galileo capital llc galileo provided 150000 convertible loan company interest 10 per annum loan due october 31 2000 part consideration providing loan galileo granted warrants purchase 150000 shares companys common stock exercise price 25 per share loan convertible shares companys common stock 25 per share time term loan portion outstanding principal interest portion loan converted company would issue additional warrants purchase one 1 share common stock four 4 shares issued galileo conversion option warrants would exercisable 25 per share february 2001 loan interest paid full january 2001 private investor purchased 1333334 shares common stock 075 per share proceeds used general working capital period may 1 2001 july 31 2001 company received advances approximately 480000 certain persons subscribed purchase common stock company funds used make advances emsi consummation purchase stock subscription agreements subject completion acquisition emsi since august 1999 ccas almost sole recurring source cash exclusive loans securities sales described cash payments slc joint venture entity owns suriname casino parbhoe owns hotel casino leased premises companys 50 joint venturer slc dorsett companys 100 owned delaware subsidiary manages slc casino cash payments slc cca parbhoe affiliates made slc management control dorsett according cash allocation priority established suriname casino agreement priority roughly described monthly cash profits generated casino payments initially made certain construction loans parbhoe balance costs casino construction fully paid august 1999 august 1999 payments net cash flow made dorsett accrued management fees owed thereafter interest principal companys loans net amounts company directed slc pay parbhoe account loans parbhoe made company total loans repaid cash distributed according 50 ownership interests joint venturers distributions none expected substantial amounts loans due joint venturers repaid loans slc interest thereon company june 30 2001 approximately 2708000 company owed parbhoe approximately 516000 since january 2000 15 distributable cash flow casino paid parbhoe directed behalf company set aside payment 85 company dorsett total paid company approximately 300000 per month september 1999 may 2000 company believes payments accordance suriname casino agreement parbhoe loan agreement applicable law beginning june 2000 casinos revenues adversely affected increased local competition casinos declining local economy worsening conversion value local currency fifteen months june 2000 august 2001 revenues declined approximately 25 30 fifteen month period ending may 2000 reasons payments company declined 150000 per month suriname price controls rents company advised rent casino required lease exceeds lawful rent approximately 14000 per month slc sued parbhoe suriname recover approximately 314000 past overpayments company unable predict outcome suit advised counsel slcs position substantial merit cash recovery reduction rent would subject cash payment priorities described june 2000 suriname government asserted exemption 50 tax local corporate income provided investment tax act apply casino income consequence assessed company believed arbitrarily determined amounts tax june 2000 company paid initial assessment 200000 past tax penalties calendar years ended 1998 1999 subsequently paid additional 110000 tax calendar year 2000 april 2001 slc submitted tax reports suriname government calendar years ended 1998 1999 2000 aggregate amount tax expense calculated approximately 375000 payable periods inception december 31 2000 provided current prior years financial statements companys suriname legal counsel advised company slc company entitled concession refund import duty slcs imported operating assets company paid import duties associated casino construction full subsequent fiscal year ended june 30 2000 suriname tax authorities petitioned concession refund 67000 company believes slc entitled however company believes likelihood obtaining refund remote government also contemplating imposing value added tax slot machine revenues sakhalin project currently generating cash losses company future development project require substantial financing despite numerous discussions several agreements company yet able obtain necessary financing company currently able provide believes minimum cash funding required maintain prospects project shareholders scc required either fund sccs losses continued prospects project development project financing obtained company might forced abandon project sell rights whatever price recovery could obtained company able quantify price recoveries might obtained company obtains financing proceeds sakhalin project plan establish organization infrastructure currently place hire specialists acquisition emsi described implementation online lottery sports betting system require significant funding company currently available company actively seeking investors purchase common stock securities company order provide funds projects june 30 2001 company 702000 cash equivalents hand company believes distribution profits suriname casino provide adequate cash flow maintain companys current operations next 12 months recent accounting standards pronouncements june 1998 financial accounting standards board fasb issued statement financial accounting standards sfas 133 accounting derivative instruments hedging activities sfas 133 sfas 133 requires recognition fair value derivative instruments balance sheet subsequent issuance sfas 133 fasb received many requests clarify certain issues causing difficulties implementation june 2000 fasb issued sfas 138 responds requests amending certain provisions sfas 133 amendments include allowing foreigncurrency exposures reduce need thirdparty derivatives redefining nature interest rate risk avoid sources ineffectiveness impact companys financial statements adopting sfas 133 amended sfas 138 significant october 1998 fasb issued statement financial accounting standards 134 accounting mortgagebacked securities retained securitization mortgage loans held sale mortgage banking enterprise effective first fiscal quarter beginning december 15 1998 impact companys financial reporting presentation due adoption sfas 134 february 1999 fasb issued statement financial accounting standards 135 recission fasb statement 75 technical corrections effective financial statements issued february 15 1999 adoption sfas 135 materially impact financial statements company december 1999 securities exchange commission issued staff accounting bulletin 101 revenue recognition financial statements sab 101 sab 101 provides guidance recognition presentation disclosure revenues financial statements requires adoption later fourth quarter fiscal 2001 companys financial reporting presentation materially affected adoption sab 101 march 2000 fasb issued fasb interpretation 44 accounting certain transactions involving stock compensation interpretation apb 25 effective july 1 2000 fasb interpretation 44 material impact companys financial statements september 2000 fasb issued sfas 140 accounting transfers servicing financial assets extinguishments liabilities replacement fasb 125 statement provides accounting reporting standards transfers servicing financial assets extinguishments liabilities standards transfer financial assets entity recognizes financial servicing assets controls liabilities incurred derecognizes financial assets control surrendered derecognizes liabilities extinguished statement provides consistent standards distinguishing transfers financial assets sales transfers secured borrowings statement effective transfers servicing financial assets extinguishments liabilities occurring march 31 2001 company expect adoption sfas 140 material impact results operations financial position cash flows june 2001 fasb issued sfas 141 sfas 142 sfas 143 sfas 141 business combinations effective business combinations initiated june 30 2001 addresses financial accounting reporting business combinations sfas 141 supersedes apb opinion 16 business combinations fasb statement 38 accounting preacquisition contingencies purchased enterprises companys financial reporting presentation materially affected adoption sfas 141 sfas 142 goodwill intangible assets addresses financial accounting reporting acquired goodwill intangible assets supersedes apb opinion 17 intangible assets sfas 142 required applied fiscal years beginning december 15 2001 sfas 143 accounting asset retirement obligations addresses financial accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs sfas 143 effective financial statements issued fiscal years beginning june 15 2002 companys financial reporting presentation expected materially affected adoption sfas 142 143 item 8 item 7a quantitative qualitative disclosure market risk company held material market risk sensitive financial instruments interest therein held none june 30 1999 companys loans payables receivables others including loans payables receivables subsidiaries joint ventures interest thereon expressed dollar obligations payable dollars however part companys routine daily foreign operations conducted local foreign currencies company exposed foreign currency exchange rate risk time foreign gaming revenue revenues received time converted us dollars foreign currency normally converted within 24 48 hours receipt except portion funds used payment operating expenses requiring local currency company entered exchange rate protection arrangements item 8 item 7a quantitative qualitative disclosure market risk company held material market risk sensitive financial instruments interest therein held none june 30 1998 companys loans payables receivables others including loans payables receivables subsidiaries joint ventures interest thereon expressed dollar obligations payable dollars however companys routine daily foreign operations usually conducted local foreign currencies company exposed foreign currency exchange rate risk time foreign gaming revenue revenues received time converted dollars company entered exchange rate protection arrangements item 8 item 8 financial statements supplementary data see pages contained herein part form 10k annual report item 9 item 8 financial statements supplementary data consolidated financial statements company filed part form 10k set forth pages report richard eisner company llp independent auditors dated august 28 1997 september 24 1994 respect notes k8 october 2 1997 respect notes k2 6 october 3 1997 respect note k10 set forth page form 10k item 9 item 8 financial statements supplementary data item 9 item 8 financial statements supplementary data see pages contained herein part form 10k annual report item 9 item 8 financial statements supplementary data see pages contained herein part form 10k annual report item 9 