InterNet Bankruptcy Library - News for January 23, 1997

Bankruptcy News For January 23, 1997

  1. Levitz Furniture Inc. announces third quarter results

  2. Court Approves Gander Mountain Reorganization Plan

  3. Lomas Financial Corporation Announces Definitive Settlement Agreement With
    Unsecured Creditors Committees

  4. Nona Morelli's II, Inc. 1997 Letter to Shareholders

Levitz Furniture Inc. announces third quarter results

BOCA RATON, Fla.--Jan. 23, 1997--Levitz Furniture Inc. (NYSE:LFI) Thursday reported
that sales for the third fiscal quarter ending December amounted to $272.0 million as
compared to $270.1 million last year, an increase of 0.7%.

For comparable stores, the increase was 2.0% Operating income for the quarter was
$11,308,000 versus $5,817,000 last year, excluding the effect of an organizational
restructuring charge in the December 1995 quarter of $5,000,000. The net loss for the
quarter amounted to $1,981,000 or $.07 per common share as compared to a net loss of
$7,254,000 or $.25 per common share last year.

Net loss for the December 1995 quarter includes an after tax charge for an organizational
restructuring of $3,200,000 or $.11 per common share.

Michael Bozic, chairman and chief executive officer of Levitz noted: "Although the
retailing environment for big ticket items was somewhat lackluster, Levitz was able to
achieve a comparable store sales increase of 2.0% for the quarter, its first increase in
eight fiscal quarters. This increase reflects continued consumer acceptance of our new
product lines. Due to the organizational changes made earlier this year and the closing of
five unprofitable satellite stores, our operating expenses have been reduced and our
operating leverage has been enhanced greatly. Operating income increased 94% to
$11,308,000 versus $5,817,000 last year."

For the nine months ended Dec. 31, 1996, sales amounted to $737.3 million as compared
to $763.2 million last year, a decrease of 3.4%. For comparable stores, the decrease was

Net loss for common stockholders amounted to $22,233,000 or $.75 per share as
compared to a net loss of $15,858,000 or $.54 per common share last year.

Net loss for nine months includes an after tax charge of $5,372,000 or $.18 per share due
to the closing of five unprofitable satellite stores.

Net loss for the nine months ended December 1995, includes an after tax charge of
$5,760,000 or $.19 per share reflecting charges for two organizational streamlining efforts
which occurred last year. Levitz is a leading specialty retailer of furniture in the United
States with a chain of 68 warehouse-showrooms and 61 satellite stores located in major
metropolitan areas in 26 states. More information about Levitz is available via the World
Wide Web at

                              (Dollars in thousands)
        ASSETS                                 (Unaudited)

          Cash and cash equivalents             $  7,538    $
          12,755 Receivables                            
          34,947      34,025 Inventories                      
               160,244     140,918 Deposits and prepaid
          expenses            4,846       3,820 Income taxes
          receivable                    943       6,528

           Total current assets                  208,518    

        PROPERTY AND EQUIPMENT, net              215,911    

        PROPERTY UNDER CAPITAL LEASES, net       122,460    

          Intangible leasehold interests          15,957     
          17,053 Deferred financing fees                
          12,817       6,935 Goodwill                         
                18,306      18,693 Other                      
                       5,619       5,707
           Total other assets                     52,699     

          Cash overdrafts                       $ 19,151    $
          17,912 Current portion of long-term debt       
          7,179       2,441 Current portion of obligations
        capital leases                          3,597     
          Accounts payable, trade                  60,329    
          55,933 Accrued expenses and other liabilities  
          85,176     79,640     

          Deferred income taxes                     3,595     
          4,628 Revolver borrowings                     
          74,746     52,516

           Total current liabilities              253,773   

        LONG-TERM DEBT, net of current portion    285,899   

          of current portion                       76,339    

        OTHER NONCURRENT LIABILITIES               26,150    

        DEFERRED INCOME TAXES                      46,167    


          Common stock, at par value                  303     
            303 Capital in excess of par               
          213,560    212,960 Deferred compensation            
                 (1,351)    (1,896) Minimum pension liability
                          (654)     (654) Retained earnings
          (deficit)            (300,598)  (278,365)
           Total stockholders' deficit            (88,740)  

                     (Dollars in thousands except share data)

                                Three Months Ended   Nine
                                Months Ended
                                  1996      1995      1996    

        Net sales                  $272,007   $270,117 
        $737,281   $763,242

        Costs and expenses:
          Cost of sales             151,031    149,987  
          407,871    412,168 Selling, general and
           administrative expenses  102,970    106,974  
           290,262    306,832
          Restructuring expense         -        5,000      -
                 9,000 Charge for store closings     -        
           -       8,295       -    
         Depreciation & amortization  6,698      7,339   
         20,386     22,084
                                260,699    269,300   726,814  

        Operating income             11,308        817   
        10,467     13,158 Interest expense, net        14,365
           12,150    41,704     37,935 Loss before income
        taxes     (3,057)   (11,333)  (31,237)   (24,777)
        Income tax benefit            1,076      4,079   
        11,006      8,919 Loss before extraordinary
         items                       (1,981)    (7,254)
         (20,231)   (15,858)

        Extraordinary items, net of tax
         benefit of $1,090             -         -       
         (2,002)      -    

        Net loss                   $ (1,981)   $(7,254)
        $(22,233)  $(15,858)

        Loss per common share:
         Loss before extraordinary
           items                   $  (0.07)   $ (0.25) $
           (0.68)  $  (0.54)
         Extraordinary items            -         -       
         (0.07)      -    Net loss per common
          share                    $  (0.07)   $ (0.25) $
          (0.75)  $  (0.54)

        Weighted average number of common
         shares outstanding      29,867,217 29,620,628
         29,864,847 29,620,628

CONTACT: Levitz Furniture Inc., Boca Raton Patrick J. Nolan, Sr. Vice President
Finance 561-994-5151


Court Approves Gander Mountain Reorganization Plan

WILMOT, Wis., Jan. 23, 1997 - Gander Mountain, Inc. (Nasdaq Bulletin Board: GNDR),
today reported that the U.S. Bankruptcy Court has confirmed the company's reorganization
plan. On Wednesday, January 21, creditors and shareholders of the company voted in
favor of the plan's approval.

"We are pleased to have completed this long and difficult process. Creditors and
shareholders will receive a return on their investment according to the priority order
described in the plan," said Ralph Freitag, CEO of Gander Mountain.

The reorganization plan was jointly proposed by Holiday, Gander Mountain and the
Official Creditors' Committee. The Chair of the Committee, Gary Chapman of the
Remington Arms Company, said that "the Creditors' Committee, on behalf of all Gander
Mountain vendors, is pleased that the court approved the plan, and looks forward to
working with the new Gander Mountain."

Holiday Companies is a privately-held Bloomington, Minnesota based retailer and
wholesaler of outdoor and other sporting goods as well as gasoline and food products.
With the acquisition of the twelve Gander Mountain stores, Holiday's outdoor sporting
goods group will consist of twenty-six (26) retail stores in four states. In July, 1996,
Holiday acquired five stores from Gander Mountain which included three stores in
Minnesota (Duluth, Maple Grove and St. Cloud) and two stores in Wisconsin (Eau Claire
and LaCrosse). Holiday will continue to operate these stores under the Gander Mountain

Gander Mountain, Inc. is a customer-oriented specialty retailer serving the outdoor
recreation market. The company is recognized as a leader in providing functional
outerwear, footwear and equipment for the hunting, fishing and camping enthusiast.

SOURCE Gander Mountain, Inc. -/CONTACT: Kenneth C. Bloom, Executive VP-Cheif
Financial Officer, of Gander Mountain, Inc., 414-862-3302; or Michael Rosenbaum of The
Financial Relations Board, 312-266-7800/

Lomas Financial Corporation Announces Definitive Settlement Agreement With Unsecured
Creditors Committees

DALLAS, TX - Jan. 23, 1997 - Lomas Financial Corporation ("LFC") announced today
that a definitive settlement agreement has been entered into by and between the Official
Committee of Unsecured Creditors of Lomas Financial Corporation (the "LFC
Committee") and the Official Committee of Unsecured Creditors (the "LMUSA
Committee") of Lomas Mortgage USA, Inc. ("LMUSA")

The Settlement Agreement resolves all pre-petition and post- petition claims asserted by
and between LFC and its former subsidiary LMUSA and generally provides for (a) the
payment or transfer to LFC by LMUSA of approximately $6,491,500 in cash consisting if
(i) $3,000,000 cash for certain pre-petition transfers, (ii) $1,461,500 proceeds from the
sale of the Dallas- based headquarters of LFC and LMUSA and other related assets, and
(iii) $2.03 million proceeds from a pre-petition sale of undeveloped land; (b) the transfer
of approximately 180 acres of undeveloped land near Allen, Texas zoned for commercial
and residential development; (c) the transfer of $15 million principal amount note
receivable due November 27, 2000 incurred in connection with the 1990 sale of Lomas
Life Group to JNL Acquisition Corporation an affiliate of Conseco Capital Partners, L.P.
which is reflected on the companies' books at $3.373 million based upon alleged claims
asserted by Conseco and its successor in interest to the note - the reduced value of the note
is subject to additional alleged claims by the various parties which may be material; (d)
the release by LMUSA of any claim to (i) $3.569 million in cash proceeds from various
asset sales currently held by LFC subsidiaries, and (ii) any assets held in the rabbi trust
for the Lomas Management Security Plan (the "MSP Plan") (currently the subject of
pending litigation), and the Excess Benefits Plan (also the subject of litigation) (the Rabbi
Trust currently holds $7,742,000 and $649,000 for the MSP Plan and the Excess Benefit
Plan, respectively); (e) the release of LFC by LMUSA from alleged allocable
administrative fees and expenses that the LMUSA Committee had asserted against LFC for
the period prior to June 30, 1996, estimated at $10 million; (f) the payment by LMUSA to
LFC of up to $321,000 of the administrative expenses incurred from July 1, 1996 through
August 30, 1996 for non-LFC Committee professionals; (g) combining the LFC Litigation
Trust and the LMUSA Litigation Trust into a single LFC/LMUSA Litigation Trust to
pursue recoveries from third parties for various causes of action with LFC creditors to
receive 60% interest in the net proceeds realized by the Litigation Trust and LMUSA
creditors to receive the remaining 40% of any trust recoveries. Martin Pollner, a partner at
the law firm of Loeb & Loeb, has been chosen by both LFC and LMUSA creditors to serve
as trustee to the litigation trust. The litigation trust will initially be funded with $4.0
million plus a $1 million litigation reserve (60% funded by LFC and 40% funded by

LFC will emerge from bankruptcy as Siena Holdings Inc. ("Siena"). The confirmed plan
provides that LFC creditors receive 100% of the common stock of Siena plus the right to
receive cash distributions from a creditor trust and, as a result of the settlement agreement,
60% of the net proceeds of the litigation trust. Siena will operate assisted care facilities
and develop, manage and possible acquire real estate assets and manage non-cash assets
held for the benefit of the LFC creditor trust. Presently, Siena operates one assisted care
facility in Houston, Texas.

SOURCE Lomas Financial Corp. /CONTACT: Cary Stanford, Houlihan Lokey Howard &
Zukin, 310-788-5291/

Nona Morelli's II, Inc. 1997 Letter to Shareholders

IRVINE, Calif., Jan. 23, 1997 - The following is a letter to shareholders issued by Nona
Morelli's II, Inc. (OTC-BB: NONA) Chief Executive Officer, Fred Luke, Jr.:

Deepak Chopra wrote, "Success in life could be defined as the progressive realization of
worthy goals." The same could be said for success in business: like life, it is a journey not
a destination.

With that said, let me tell you about the company's journey over the last three years. We
have achieved many goals and we are now in sight of one of our long term objectives -
namely the transformation of what began as a small micro-food manufacturer into an
international hospitality and entertainment company. But all of this was not achieved
without significant cost, patience, and change.

I first wrote to you in October 1993, not long after I assumed the role of Chief Executive
Officer. Among other things I alerted you that changes were coming and that our efforts
were to be considered highly speculative. The risk and speculative nature of our activities
is still with us, but I am happy to report that many of the changes have occurred, big
changes for the most part, which have produced positive results.

In the past three years we have revived, relocated, expanded and emerged with a new
mission and a new strategy in our effort to create a new legacy, and a company with a

New Mission In late 1993 we changed our company's mission statement: "to create and
globally market U.S. leisure and entertainment products and services." We believed that
American-style casino gaming - particularly the Las Vegas gaming "experience" - was a
service with massive appeal around the world. We also felt that American specialty foods,
like our pasta and sauces, had similar consumer attraction. From our prior international
business experience we recognized that we were truly becoming a "small planet": the
computer, the television and print media expose more and more people today to other
ways of life - particularly the American way of life.

With improved technology and transportation it has become increasingly easier for people
to travel, and to satisfy their curiosity and thirst for something new. For most people we
met abroad, the question was, "how can I get to America?" For us, the question was "how
can we take America to the people?" Globalization of the U.S. leisure and entertainment
industry was an opportunity not to be missed.

Current and Future Prospects Some say "the best way to predict the future is to invent it."
That's what we have attempted to do: recognize what is needed and create it. In the
beginning we created solutions for problems (we are still doing that, but it takes less of
our time today). Now, our efforts are focused on creating the reality out of a vision of
opening and operating a global hospitality company.

With the sale of Macau and Peony Gardens we now have some of the resources we need to
buy into and develop our themed-resort and casino properties; what we gave up was the
declining cash flow from Macau. We still have the original food manufacturing and
distribution activities, and at June 30, 1996 over $3.5 million in accrued gaming profits
which we have been utilizing to reduce practically all of our short term debt and sustain
our administrative activities. By December of this year we hope to have the international
gaming operations self-sustaining, if not profitable.

Hotel and Casino Operation As we reported earlier, we purchased a 50% interest in
Cleopatra's World, Inc., the hotel management company presently leasing and managing the
Le Palace Hotel at Cap Gammarth. The Le Palace Hotel opened in October of last year
and could begin generating a significant positive cash flow by the end of this year.

Assuming that the various casinos are delivered by the developers to Cleopatra as
promised, we expect "Cleopatra Palace Casino - Hammamet" to become operational by
June 1997 with annual revenues, annualized for the first 30 months of operation in the
range of $24,000,000. "Cleopatra Palace Casino - Cap Gammarth" is forecast to generate
annual revenues, annualized for the first 36 months of operation, in the range of

"Cleopatra Palace Casino - Monastir" is expected to become operational mid-1998 and,
once operational, we anticipate generating annual revenues, annualized for the first 36
months of operation, in the range of $15,000,000. Our gross profit margins on these casino
gaming properties are expected to be in the range of 50%.

Cleopatra's World should be able to finalize its hotel management agreement during the
next 60 days and assume operation of the Jockey Club Hotel mid-year. As I mentioned, we
offered to purchase the Le Palace Hotel and surrounding commercial complex. If
successful, we do not expect the acquisition of the Le Palace complex to result in
significant net operating revenues: we are pursuing this for long term investment and
development purposes. If we are successful in acquiring two of the remaining acquisition
targets, the two resort hotel and casino properties in the Caribbean, they could generate up
to $50,000,000 in annual revenues, annualized over the first 36 months of their combined
operation. These properties would be owned directly or in a joint venture with NuOasis
International, Inc., our wholly- owned subsidiary, and operated as "NuOasis Resort &
Casino" properties.

Food Manufacturing and Distribution Our food operations, while relatively small both in
comparison to the hotel and gaming activities and others in the food industry against whom
we compete, are improving. Since mid-1993, when the food operations represented the
company's core business and was essentially bankrupt and losing money at the rate of
approximately $100,000 per month, we have revamped, relocated and revived the
business. In the last few months we have successfully introduced a new "Nona Morelli's"
brand product line and should be distributing the entire line of pasta and sauces
internationally by the second quarter of this year. As we get closer to the opening of the
Cleopatra Palace hotels and casinos we will probably spin-off the food subsidiary to our
shareholders. As an independent publicly-held company, Fantastic Foods International
will have better access to capital and should serve to provide our shareholders with
additional value.

NuOasis Gaming As we reported last year, we have entered into agreements with the
shareholders of National Pools Corporation (NPC) and one of NPC's largest shareholders
which should result in a change of direction and control of NuOasis Gaming shortly. We
are currently focusing all of our attention and resources in the development of international
hotel and gaming management enterprises, primarily due to the Morelli legacy having a
negative effect on our efforts to conduct any casino gaming in the U.S. We strongly believe
that the "merger" of NuOasis Gaming with NPC and the sale of Nona's equity in NuOasis
will allow us to focus more on our international activities and, at the same time, provide
the greatest benefit to both the NuOasis and Nona shareholders.

Timing The "Cleopatra Palace Casino" at Hammamet, Tunisia should be the first of our
Cleopatra Palace-themed casinos to open. Carpet and interior finish work should be
complete by the end of January 1997. This is not firm yet. As most of you know,
construction in foreign countries can and usually does take longer than expected ... and we
have been given at least five completion dates over the last 18 months which have not been
met by the contractor. Once delivered and accepted by Cleopatra, it will probably take 90
days to equip the casino and train employees. We are hoping to be open by June 30th of
this year in time for the summer European tourist season.

The "Cleopatra Palace Casino" at the "Cleopatra Palace Resort" in Cap Gammarth
(containing the Le Palace Hotel, commercial center, apartments, beach club and spa)
should be the second facility opened by Cleopatra Palace. As I mentioned, Cleopatra's
World, our 50% owned subsidiary, opened the Le Palace Hotel last October. The
adjoining commercial center and other facilities are scheduled for opening beginning
February 1997.

The Cap Gammarth casino contains over 40,000 square feet of gaming space and a 60,000
square foot 650-seat Las Vegas showroom - the only one of its kind in the Mediterranean
area. Barring further delays by the developer, we should be able to take possession of this
facility by June and open by September of this year. Again, these dates are based upon
dates given by the developer, which have not been met in the past. But we expect these
revised dates to be close.

The third property to come under the "Cleopatra Palace" flag will likely be the "Cleopatra
Palace Casino" at Monastir, Tunisia. This facility is being built in conjunction with the
renovation of the Jockey Club Hotel in downtown Monastir. When completed, Cleopatra
Palace has agreed to operate the 50,000 square foot casino and lounge, and Cleopatra's
World has agreed to operate the hotel, in which case the name will be changed to
"Cleopatra Palace Resort - Monastir."

This month we expect to conclude our negotiations to purchase the Le Palace Hotel but do
not plan to change its name. If we are successful in purchasing the two resort hotel and
casino properties in the Caribbean, one of which is currently in operation, we will open
them as "NuOasis Resort & Casino" properties. We expect to know the fate of these
negotiations within the next 60 days.

Our Strategy At the very point in time when I became involved with this company it was
dying; but a new company was struggling to be born. Major changes were necessary. Our
goal was to reshape it, change its course, and give it a new life. We hoped to build and
expand its food and new gaming activities into new, less competitive emerging markets by
searching out niche markets and being the "first in."

What I did not know at the time was the weight of the luggage - the Morelli legacy - that I
would have to carry with me, and the strength and patience that would be required to keep
this legacy behind us rather than in front of us. Despite the lack of financing, the negative
press and the periodic outside efforts to destabilize our progress and activities we have
successfully established positions in selected growth opportunities around the globe. And,
with continued shareholder support (along with a name change and some help from the
financial community) I believe there are other milestones within our reach - the most
important being the opening of the first truly Las Vegas-style casino and showroom outside
of the U.S., followed by the creation of a worldwide chain of 5-Star NuOasis Resort &
Casino properties owned or managed by Nona's subsidiaries.

Dealing With Change Through my media interviews and the periodic announcements -
"postcards" so to speak - we have tried to keep you up to date on the company's journey
and the changes occurring. We alerted you each time we approached or passed a
milestone, and we tried to keep you up to date on our statistics - quarterly and annual
financial operations. We have not, however, taken time to discuss the detours, the blind
alleys or the speed bumps we have encountered on our journey.

For those of you who write and complain that we "don't have a plan," you are partially
correct. We do not pretend to have it all figured out. There is no textbook solution when it
comes to managing change: there are very few error-free approaches to restructuring or
building a company.

Fortunately, with every complaint we also receive four or five compliments, usually from
shareholders who have been in other leisure and gaming stocks which have not fared as
well (many of which now have negative worths ranging from $33 million to $153

By comparison, we must be doing something right. Today Nona has a positive
shareholders' equity and virtually no debt. Through subsidiaries, the company now owns
or manages assets with an estimated fair market value of over $100 million. In addition,
our present negotiations could result in the acquisition and/or management of three
additional hotel & casino properties. Through our subsidiary, NuOasis Gaming, Inc., we
have also recently acquired an interest in a lottery approved gaming-related California
business. These combined acquisitions could add to the company as much as $100 million
in assets and up to $50 million in annual revenues in the next few years, without
significantly increasing Nona's recourse debt.

And, with financing, our goal of expanding our "Cleopatra Palace" and "NuOasis Resort"
themed resort and casinos around the world, could be achieved within the next three years.

No question we have had some false starts, foul-ups and miscommunication. But even
though some of the details and timing got messed up, we got here.

How did we do it? It wasn't easy! We had to follow our strategy, be patient and most of all
be willing to live with our mistakes. First, we had to overcome the Morelli legacy (it's
been expensive and time consuming, and the battle will continue until sometime this
spring) and try to redeem the assets and credibility taken by the Morellis in 1993. Then we
had to overcome the fear of the financial community regarding our expansion into North
Africa and China; to bridge the cultural gap between U.S., Chinese and European legal and
accounting practices, and business philosophies; to maintain the share value in the face of
obvious short-selling; and to attract good investment opportunities while quickly weeding
out suspicious proposals. And, finally, we had to respond but not over-react to persistent
negative press. Headlines like "Investors are Gloomy in Vegas...," "New Third World
Fear...," "Peace Accord in Jeopardy in the Middle East...," and most recently, "Hong Kong
Warns Against Speculation" continually hampered our financial negotiations here in the
U.S. and produced a rash of phone calls from confused shareholders.

These and other events, too numerous to mention at the time, were the detours and the
speed bumps that you did not hear about in our "postcards." We dealt with them
effectively, but in some cases, at a considerable cost and discomfort.

Most discouraging was the dispute with NASDAQ over our acquisition of the Macau
gaming interests. NASDAQ claimed it was a "back-door listing" - we offered up a
mountain of evidence proving it was not. In the end they decided they were right and the
company was delisted. We have since filed and refiled applications for NASDAQ Small
Cap and National Market listings but, without a $3 per share price, our applications are a
waste of time.

Also, frustrating but beyond our control were the late filing of the company's Quarterly
Report on Form 10-QSB for the third quarter of fiscal 1995/1996 ending March 31, 1996
and the first quarter fiscal 1996/1997 ending September 30, 1996, along with its Annual
Report on Form 10-KSB for the year ended June 30, 1996. Those late filings were a result
of differences between U.S. and Chinese cultural, accounting and legal policies. We
requested a title opinion of our Peony Garden project in April of last year, and after
countless 72 hour round trips to Hong Kong and Beijing, we finally received it just three
months ago.

Construction of the Tunisian projects were also continually delayed and reports were slow
to arrive. Monthly accounting and progress reports and documentation related to our
interest in the Macau casinos were equally as slow. But, rather than wait, we hired
multi-lingual lawyers, accountants, and specialists, and we sent people from our office to
physically retrieve the information we needed.

Other conditions over which we had no control but which required action without delay
were the events surrounding the return of Hong Kong and Macau to China.

Apparently the realization of eminent Chinese rule in Macau and Hong Kong changed the
investment and gambling habits in Macau earlier than anyone expected. When we
evaluated the interest we expected revenues to grow slightly between 1994 and 1999 then,
assuming the worst case, end altogether. Our third party valuation is based on these
assumptions. However, Macau casino revenues and net profits began declining in January
1996; for the six months ended June 30, 1996 total profits were HK$75.1 million
compared to HK$214.7 million for the same period in 1995. At the same time, concern
over economic reforms in China and the tension related to the U.S.-Chinese trade
agreement negotiations seemed to impact the Beijing real estate market, softening the
market for residential projects.

We have been challenged, to say the least. But amid the changes, the problems and the
frustration are milestones and goals achieved.

Milestones While revenues are declining in Macau, on the other side (of the world,
literally!), in Tunisia, the Cleopatra Palace projects were going up slowly but steadily and
looking more and more like the themed "Palace" casino and resort hotel that we
envisioned in late 1993. And, but not to my surprise, in 1996 the economic forecasters
began touting the travel and entertainment industries, predicting over 18% annual growth
in travel-related businesses through the year 2005!

Because of the negative indicators in China and the positive indicators in Tunisia (and
elsewhere regarding travel-related business) it was time to tighten our focus on
developing our "Cleopatra Palace" and newly created "NuOasis Resort" themed casino
and hotel concept.

In August 1996 we entered into agreements to sell our interest in the Peony Garden project
and sell back to Mr. Ng Man Sun and his partners our interest in the Macau casinos. With
the $20 million in Nona shares which Mr. Ng and his partners agreed to return, and the
securities acquired from the sale of Peony Garden, we entered into agreements to increase
our ownership of Cleopatra and to purchase a 50% interest in the company (now called
Cleopatra's World) which manages the Cap Gammarth hotel and commercial center
surrounding the Cleopatra Palace Casino at Cap Gammarth. We also made offers (still
under consideration) to purchase the real property interest in the Cap Gammarth complex -
the hotel and commercial center. In September we executed a letter of intent to form a joint
venture with Grand Hotel Krasnopolsky N.V., the owner and operator of the Grand Hotel
Krasnopolsky in Amsterdam. This proposed joint venture is designed to purchase and
manage our new themed hotel and casino properties.

Subsequent to June 30, 1996, in our efforts to strengthen and build on both our
themed-resort concept and our proposed joint venture, we made offers to purchase two
other 5-Star resort hotels - both in the Caribbean - and we are evaluating three more
existing casino gaming properties. We hope to conclude our negotiations and close on at
least one of these acquisition candidates by the end of this fiscal quarter.

Financing Currently, each of our target hotel and casino acquisitions, as well as the two
Tunisian casinos, are dependent upon some outside financing which we hope will
materialize through a joint venture and the use of the proceeds from the sale of the Macau
and Peony Gardens interests. I still cannot make any predictions as to the terms, timing, or
amount of financing; each of the target properties has its own set of unique development
problems in addition to having their own complex ownership relationships associated with
them, and we are dealing with sources of financing who are relatively inexperienced when
it comes to gaming.

As many of you know, the search for a source of financing has been ongoing for several
years. We have contacted and met with hundreds of possible lenders and joint venture
partners over the last two years; most declined due to the Morelli legacy or concern of the
gaming aspects; Banque Francaise De L'Orient agreed to provide us with a $25 million
credit facility, the funds of which may be accessed upon approved collateral. And,
placement agents like Arthur Gelber & Co. simply did not perform.

However, as we approach delivery dates for each hotel and casino property, financing
becomes more critical. Failing to secure a lender or a joint venture partner for the
Cleopatra Palace properties in the next 60 days, Cleopatra may be forced to scale back, or
lose the opportunity to open the Tunisian properties during this coming tourist season.

Within the next 60 days I am cautiously optimistic that a joint venture can be finalized, or
that we can arrange a private lender or a direct investment in the company.

Stockholders' Meeting Contrary to the rumors, we are and have been planning to have a
Stockholders' Meeting. We prepared our initial proxy material, back in February 1995, for
an Annual Shareholders Meeting proposed for March 1995. Those materials were
continually updated and filed a year ago, in February 1996, for a revised stockholders'
meeting which we hoped to hold in March 1996. For various reasons, mostly related to
our growth over the last two years, and due in part, we suspect, to the Morelli legacy, we
have been caught up in a file- comment-respond-comment-respond cycle with the SEC.

We have, hopefully, fully gathered, organized and provided the disclosures required by the
SEC for approval of our proxy materials. What we hope is our final response to comments
is contained in our new preliminary proxy materials which are to be filed this week.
Assuming that we do not receive additional comments to this filing, a shareholders meeting
is tentatively scheduled to be held on or about February 27, 1997. If we receive further
comments, this proposed meeting date will of course be pushed back.

The purpose of the upcoming meeting is to reincorporate in Nevada, change our name,
approve a new Non-Qualified Stock Compensation Plan, and approve auditors. We also
plan to treat our shareholders to a video tour of the properties in Tunisia and the
opportunity to get to know the other executives, employees, and professionals who have
worked so hard to get us where we are today. We are not, however, proposing a reverse
split: we are hopeful that you, the shareholders, can appreciate and support our decision to
rely on the increasing asset value and supply-demand fundamentals to increase the value of
the stock.

Clearing Up the Myths Litigation As you can see from reading our Annual Report on Form
10-KSB for the fiscal year ended June 30, 1996, we have resolved almost all of our
litigation. The courtroom is not our forum of choice, but, as Oscar Wilde once wrote, "the
pure and simple truth is rarely the pure and simple truth." Practically all of the past or
present litigation relates to the Morelli legacy and was necessary to reclaim assets
misappropriated by prior management as well as to debunk the claims, lies, and myths put
forth by the Morellis and their associates.

And, as to the "investigations" that come up from time to time in my conversations with
shareholders, I know of no active investigation of Nona by any government agency. I am
aware of investigations by both the Securities and Exchange Commission (SEC) and the
Justice Department into the activities of former Nona and NuOasis Gaming officers and
directors, and others no longer associated with us, concerning their activities dating back
to 1991. However, despite references to Nona from time to time in news articles and
Bulletin Board "Chatrooms", Nona has never been advised that it was the "target" of any

The Morelli Legacy "Nona Morelli's II", paradoxically, has had amazing name recognition
since its beginning in the late 1980s. That is when the Morelli family formed the Nona
Morelli Limited Partnership, the predecessor to the present day company, to open a
restaurant in Florence, Colorado. The "Nona Morelli" brand quickly became associated
with quality, fresh pasta and sauces. The company originally became public in 1990.
Perhaps as a precursor to the rough road ahead, the company had major problems right
from the beginning. If it was not for Frank Morelli III (Frankie) personally "assisting" the
underwriter in the placement of the company's stock, the company would not have met the
"minimum" offering level to become publicly held. However, Frankie apparently did not
stop there. During the last twelve months the "Nona Morelli" name has appeared in
various newspaper articles, usually in association with governmental investigations of
securities transactions involving stock of Nona and other companies by Frankie, various
securities brokerage firms, and lately with a federal investigation of a U.S. government
prosecutor who coincidentally headed up one of these investigations before being relieved
of his duties.

Over the last three years we have waged a constant and expensive battle with the legacy
Frankie left behind when he and his father abandoned the company in July 1993. This
heritage is at the core of practically all of the company's past litigation; it has been the
greatest cause of resistance by the financial community to consider the company for
financing, and it has always been the greatest barrier in the completion of our restructuring
and development strategy.

Shareholder Communication We have had a number of complaints during the last 18
months over our communication. On the other hand, for every complaint we receive
several compliments. We are proud of our progress and we do want you to hear about this.
But, we have an estimated shareholder base of over 4,000 and, as you can imagine, it is
difficult to communicate directly with every one of you, or even 10% of you, and
effectively attend to our already heavy monthly work load.

Your continued interest is very important to us, which is why we have retained outside
firms to assist us. Our staff, and especially OTC Communications, have done what I
believe is an excellent job in assembling, preparing, disseminating and answering
questions about our progress, our projects and, yes, our problems. We are sensitive to the
importance of good communications but as you can appreciate, it must be cost-effective.
During this period of change we have had little time or resources to devote to explaining
in great detail everything that we are doing, and why, to everyone who calls our office -
especially non-shareholders. We sincerely apologize and hope that our progress will
somehow compensate for our dry and factual communications.

In the next few weeks we should have our Internet Web-site completed: With the help of OTC personnel we should be able to "post"
monthly and periodic updates as to our continuing journey. It will not be perfect at the
beginning of course, but bear with us. We know what you want, and we know what we can
and cannot do. And, somewhere in between we will attempt to satisfy your thirst for "Nona

Share Value One of the greatest myths that we have had to deal with, and we deal with it
daily, is that the company somehow has control of its share value. I understand that many
of you have purchased shares at a price higher than what they are worth today. There are
others, however, who bought in at one of the many "lows" and sold at one of the many
"highs" (but we seldom hear from those folks!). There are also people, like myself and
many of the professionals who work with the company, who either buy shares and hold or
receive a specified number of shares for services.

Obviously we all want to see the stock at the highest price possible; especially the
professionals who receive shares for services and who are sometimes forced to sell the
shares at a loss in order to meet cash flow requirements. Unfortunately you, the investing
public not the company, have significantly more control over and determine the
day-to-day, or short term price.

Personally, I am doing the most that I can do to demonstrate my confidence in Nona's
future. I am holding 400,000 shares which I bought at $1.10 a share. I did not sell when the
price was $2.50 a share and I am not selling when it is $0.50 a share. In fact, I would love
to buy (and have the company repurchase) more shares! However, I am directing all
available resources right now to the development of the Cleopatra Palace properties.

Fr m the company's standpoint, we are doing everything within our power to enhance
shareholder value: we are trying to create substance. Substance is enduring, "market price"
is temporary. And investing time and resources in the wrong one practically always results
in long term failure. If we grow and preserve substance, a higher market price will follow
- maybe not tomorrow or even next week, but it will follow.

Like many of you, I have been investing in this company since 1993, but I have not sold a
single share. Through every acquisition and divestment the company has grown and added
substance. As you can see, we are doing all that we can to enhance shareholder value, but
it is you, our public shareholders who, by your actions in the marketplace, dictate the price
of the company's shares.

A New Sense of Direction We are in the middle of change. Despite taking longer than
expected to get here, and the roller-coaster ride our balance sheet and income statements
have been on, the end is in sight.

Change often looks like a failure in the middle, and a lot can and often does happen in a
hurry during a period of great transition. There is no precise course, and during this period
there is rarely a positive "bottom line", (the obvious milestones everyone has been looking
for) but, where there is a clear sense of direction and compelling beliefs, there is success -
and over time the plan becomes clear.

It has been our vision, our integrity, our motivation, our knowledge, and our commitment to
build something of substance that has fueled our journey and motivated others to work with
us, become our partners and, hopefully, invest in the company's stock. No matter how well
or under funded, a company is only as good as its leadership, and its performance is
usually determined by its ability to recognize and seize opportunities, and management's
ability to stay focused.

Our new direction and focus are clear, and our commitment is strong: we have
successfully taken this company from the verge of bankruptcy and guided it through some
very serious problems and complex transactions. Along the way, we identified what we
believe is one of the opportunities of the decade - the rapidly changing global
entertainment and leisure business. With your support we can all benefit from these


Fred Luke CEO

The estimated revenues, forward looking statements, and expectations as to completion
and opening dates expressed herein are made pursuant to the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. You are cautioned that such forward
looking statements and estimates involve risks and uncertainties, including, without
limitation, continued acceptance of the Company's products and services, increased levels
of competition, new products and technological changes, the Company's dependence upon
financing, third-party suppliers and intellectual property rights, and other risks detailed
from time to time in the Company's periodic reports filed with the SEC.

SOURCE Nona Morelli's II, Inc. - /CONTACT: Geoffrey J. Eiten of OTC
Communications, 800-458-1786 or