COUNTRY WORLD CASINOS INC, 10KSB/A, 1997-11-26

COUNTRY WORLD CASINOS INC
10KSB/A, 1997-11-26
COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________

FORM 10-KSB/A-1

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 1997

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ______________ to _________________

Commission file number 0-22450

COUNTRY WORLD CASINOS, INC.
(Name of Small Business Issuer in its charter)

Nevada 13-3140389
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)

200 Monument Road, Suite 10, Bala Cynwyd, Pennsylvania 19004
(Address of Principal Executive Offices)(Zip Code)

Issuer's Telephone Number, Including Area Code: (610) 617-0400

Securities registered pursuant to Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act:

$.001 Par Value Common Stock
(Title of Class)

(PAGE)

Check whether the issuer: (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or the
Exchange Act during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

Yes X No

Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB.

State the issuer's revenues for its most recent fiscal year. $ None

The aggregate market value of the approximately 4,585,734 shares of the
Company's voting stock held by non-affiliates, computed at the average bid and
asked prices of such stock in the over-the-counter market, as quoted on the
Electronic Bulletin Board on September 15, 1997 was $859,825.00.

ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS

Check whether the issuer has filed all documents and reports to be filed
by Section 12, 13 or 5(d) of the Exchange Act of the distribution of
securities under a plan confirmed by a court.

Yes X No

Indicate the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: At October 31, 1997,
there were outstanding 13,481,687 shares of the issuer's Common Stock, par
value $.001.

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PART I
DESCRIPTION OF BUSINESS

ITEM 1
GENERAL DEVELOPMENT OF BUSINESS

Country World Casinos, Inc., the Registrant (the "Company" or "Country
World") was incorporated on November 9, 1982 under the name, Innovative
Medical Technology, Inc. The Company was organized to engage in the medical
industry. The Company effected a public offering in 1983. The Company was
essentially inactive until 1990 when it undertook the manufacturing of
monolithic composite panels for use in the construction of semi-truck
trailers, shipping containers and industrial buildings. The Company
discontinued this business in September 1992.

In 1993, the Company changed the focus of its planned business operations
to the construction of a large, full service, first class casino in Black
Hawk, Colorado. In August 1993, the Company completed the acquisition from
New Allied Development Corporation and its subsidiary, Tommyknocker Casino
Corp., of certain real property located in Black Hawk, Colorado known as Mill
Sites 12 and 13, and the Smith Lode Mining Claim, U.S. Survey No. 502 (the
"Property"). Except as specifically provided elsewhere herein to the
contrary, New Allied Development Corporation and Tommyknocker Casino Corp.
will be referred to hereinafter collectively as "New Allied."

Since the Company's purchase of the Property in August 1993, the
Company's activities have focused on obtaining the necessary financing and
making preparations for construction of the casino on the Property. In July
1997, the Company signed a financing agreement with U2 Consulting, LLC., an
affiliate of Pacific Genesis, Inc. and Western Equities, Inc., to raise $79.5
million through the issuance of corporate bonds. The parties shall have 180
days to provide for the above.

The Company is confident in the parties' ability to raise such funds,
however, there can be no assurance that the Company will be able to obtain the
necessary financing. In addition, the Company's ability to operate the casino
will be dependent upon substantial other conditions, including the obtaining
of licenses and compliance with governmental regulations, grading and
construction of the casino, obtaining the necessary permits and approvals from
the City of Black Hawk and other regulatory bodies, procuring gaming equipment
on satisfactory terms, and accomplishing these objectives in a timely manner.

In order to begin the process of timely completing its goals the Company
has contracted with Colorado Gaming Development Company, Inc., Semple Brown
Roberts, P.C. and PCL Construction Services, Inc., all of Denver, Colorado to
design and construct the planned casino and hotel complex. In addition, the
Company has signed a management agreement with Signature Hospitality
Resources, Inc. of Denver, Colorado to manage its Radisson Black Hawk Hotel, a
separate agreement to use the national flag of Radisson on the hotel and a
management agreement with Luciani & Associates, LLC. and Casino Research and Pla
nning Corp., joint venture of Atlantic City, New Jersey, to manage the casino
operations. All parties will assist the architect in design of their
respective operations.

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The Company is engaged in the design, development and construction of the
Radisson Hotel and Country World Casino (the "Hotel Casino") in Black Hawk,
Colorado. The planned Hotel Casino will be a seven story complex, featuring
five stories of hotel rooms above a two-story, 75,000 square foot casino, and
an underground parking garage. Other amenities will include one or more full
service restaurants, a buffet, entertainment lounge and retail shops. When
completed as planned, the Hotel Casino will be largest hotel and casino
complex in Colorado. Construction and opening of the Hotel Casino is
dependent upon the Company's ability to successfully raise the required
capital. The Company plans to seek $79,500,000 of debt financing from
institutional investors through the issuance of notes secured by a first deed
of trust on the Hotel Casino property and by a security interest in the
revenues from the operation of the Hotel Casino. There can be no assurance,
however, that the Company will be successful in raising such financing or that
the proceeds of such financing will be sufficient to complete construction and
provide working capital for the opening and operation of the Hotel Casino.

The casino level of the project, at approximately 75,000 square feet,
will be the largest in Colorado and will be capable of accommodating 1,800
slot machines and 32 gaming tables. The Company will open the facility with
1,000 slot machines, 20 blackjack tables and 12 poker tables, and may add up
to 800 additional slot machines if management determines that the additional
gaming devices will produce equal per square foot revenue and will not create
excess capacity. The Company expects that slot machines will be the greatest
source of its gaming revenues. Slot machines are less labor intensive and
require less square footage than table games, and also generate higher profit
margins.

The Country World Casino's atmosphere will feature a country western
music theme similar to the rock and roll music theme successfully employed by
the Hard Rock Cafe. The Casino decor will include memorabilia from the great
country singers, both past and present, with a star walk of their own. The
country western music theme has not been established in the Black Hawk/Central
City, Colorado gaming market, and therefore will give the Country World Casino
its own unique identity. Management believes that as casinos have become more
numerous, the gaming industry has begun to recognize that popular themes and
amenities such as quality dining and hotel accommodations play an important
role in attracting customers to casinos. The theme is intended to appeal to
the Hotel Casino's target customer base, which consists primarily of residents
of the Denver metropolitan area as well as other Colorado communities located
within driving distance of Black Hawk.

The Radisson Black Hawk Hotel will provide overnight accommodations with
290 standard rooms and 35 suites, making it the first destination resort of
its kind in Black Hawk. Complimenting both the casino and hotel will be a
three story underground parking facility for 865 cars featuring both valet and
self parking options, and the only covered on-site bus turnaround currently
available in Black Hawk for the convenience of day trip customers.

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Black Hawk is a picturesque mountain town approximately 40 miles west of
Denver. In the past year, Black Hawk hosted approximately 3 million visitors
and generated almost 60% of the state's gaming revenues. The 112,000 square
foot Hotel Casino site on the northern most end of the Black Hawk gaming
district is in a most highly visible location as it is in a direct line of
site to all visitors approaching Black Hawk's main intersection on State
Highway 119. The seven story structure will tower high above all existing
facilities. The Black Hawk and nearby Central City casino market includes
many small, privately held gaming facilities that the Company believes offer
limited amenities and are characterized by a shortage of convenient on-site
parking. There are a few large facilities currently operating with varying
levels of services and amenities, as well as new facilities planned. The
Country World Casino's country western music theme, country hospitality, ample
parking, modern hotel accommodations and a full line of amenities, will set it
apart from, and should give it a competitive advantage over, the other casinos
in the Black Hawk/Central City market.

The Hotel Casino complex will be designed and constructed pursuant to a
guaranteed maximum price agreement which is to be finalized prior to
construction. The design and construction team consists of Semple Brown
Roberts, P.C., a Denver based architectural firm (the "Architect") and PCL
Construction Services, Inc., a multi-billion dollar North American
construction firm with U.S. headquarters located in Denver. The Architect is
the designer of Fitzgerald's Casino in Black Hawk, while the Contractor's
gaming credits include the MGM Grand Hotel Casino and Stratosphere Tower in
Las Vegas, Nevada, as well as the Chinook Winds Gaming and Convention Center
in Lincoln City, Oregon.

Gaming operations at the Country World Casino will be under the
management of a joint venture between Luciani & Associates, LLC and Casino
Research and Planning Corp. of Atlantic City, New Jersey (the "Casino
Manager"), who are leaders in casino design, management and security
services.

Hotel operations will be under the management of Signature Hospitality
Resources, Inc. of Denver, Colorado (the "Hotel Manager'), which provides a
full range of hotel and resort support services including operations, sales,
marketing, food, beverage, human resources, MIS and technical services.

COLORADO GAMING REGULATIONS

The State of Colorado created the Division of Gaming (the "Division")
within the Department of Revenue to license, implement, regulate and supervise
the conduct of limited gaming under the Colorado Limited Gaming Act and the
regulations promulgated thereunder (the "Colorado Gaming Act"). The Director
of the Division, under the supervision of a five-member Colorado Limited
Gaming Control Commission (the "Colorado Gaming Commission"), has been granted
broad power to ensure compliance with the Colorado Gaming Act. The Director
may inspect, without notice, impound or remove any gaming device. He may
examine and copy any licensee's records, may investigate the background and

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conduct of licensees and their employees, and may bring disciplinary actions
against licensees and their employees. He also may conduct detailed
background investigations of persons who loan money to the Company.

The Colorado Gaming Commission is empowered to issue five types of gaming
and gaming related licenses. The licenses are revocable and
non-transferrable. The failure or inability of the Company or the Casino
Manager to obtain and maintain the necessary gaming licenses could prevent the
Company from operating the Casino and could have a material adverse effect on
the Company. All persons employed by the Company and the Casino Manager and
involved, directly or indirectly, in gaming operations in Colorado also are
required to obtain a Colorado gaming license. All licenses must be renewed
annually.

The Company's President, Roger Leclerc currently holds a key employee
license which entitles him to operate a casino in the State of Colorado. The
Company, its Chairman and Chief Executive Officer, Larry Berman, and its
Secretary/Treasurer, William Patrowicz will apply for their respective
licenses in January 1998 to coincide with the start of construction.

As a general rule, under the Colorado Gaming Act, it is a criminal
violation for any person to have a legal, beneficial, voting or equitable
interest, or right to receive profits, in more than three retail gaming
licenses in Colorado. The Colorado Gaming Commission has ruled that a person
does not have an interest in a licensee for purposes of the multiple-license
prohibition if: (i) such person has less than a five percent (5%) interest in
an institutional investor which has an interest in a publicly traded licensee
or publicly traded company affiliated with a licensee (such as the Company);
(ii) a person has a five percent (5%) or more financial interest in an
institutional investor, but the institutional investor has less than a five
percent (5%) interest in a publicly traded licensee or publicly traded company
affiliated with a licensee; (iii) an institutional investor has less than a
five percent (5%) financial interest in a publicly traded licensee or publicly
traded company affiliated with a licensee;(iv) an institutional investor
possesses securities in a fiduciary capacity for another person, and does not
exercise voting control over five percent (5%) or more of the outstanding
voting securities of a publicly traded licensee or of a publicly traded
company affiliated with a licensee; (v) a registered broker or dealer retains
possession of securities of a publicly traded licensee or of a publicly traded
company affiliated with a licensee for its customers in street name or
otherwise, and exercises voting rights for less than five percent (5%) of the
publicly traded licensee's voting securities or of a publicly traded company
affiliated with a licensee; (vi) a registered broker or dealer acts as a
market maker for the stock of a publicly traded licensee or of a publicly
traded company affiliated with a licensee and possesses a voting interest in
less than five percent (5%) of the stock of the publicly traded licensee or of
a publicly traded company affiliated with a licensee; (vii) an underwriter is
holding securities of a publicly traded licensee or of a publicly traded
company affiliated with a licensee as part of an underwriting for no more than
90 days if it exercises voting rights of less than five percent (5%) of the
outstanding securities of a publicly traded licensee or of a publicly traded
company affiliated with a licensee; (viii) a stock clearinghouse holds voting
securities for third parties, if it exercises voting rights with respect to
less than five percent (5%) of the outstanding securities of a publicly traded

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licensee or of a publicly traded company affiliated with a licensee; or (ix) a
person owns less than five percent (5%) of the voting securities of the
publicly traded licensee or publicly traded company affiliated with a
licensee. Hence, the Company's and its stockholders' business opportunities in
Colorado are limited to such interests that comply with the statute and
Commission's rule.

Although attorneys for the Colorado legislature initially expressed
concern that the promulgation of the above-described regulation was beyond the
Colorado Gaming Commission's statutory delegated authority, they appear to
have retreated from this position. Therefore, unless the Colorado legislature
repeals the regulation, it is likely that it will continue in effect.

In addition, pursuant to the Colorado Gaming Act, no manufacturer or
distributor of slot machines may have an interest in any casino operator,
allow any of its officers to have such an interest, employ any person if such
person is employed by a casino operator, or allow any casino operator or
person with a substantial interest therein to have an interest in a
manufacturer's or distributor's business. The Colorado Gaming Commission has
ruled that a person does not have a "substantial interest" if it directly or
indirectly has less than five percent (5%) of such voting securities of a
licensee.

Under the Colorado Gaming Act, any person or entity having any direct or
indirect interest in a gaming licensee or an applicant for a gaming license,
including, but not limited to, the Company and stockholders of the Company,
maybe required to supply the Colorado Gaming Commission with substantial
information, including, but not limited to, background information, source of
funding information, a sworn statement that such person or entity is not
holding his interest for any other party, and finger prints. Such information,
investigation and licensing as an "associated person" automatically will be
required of all persons (other than certain institutional investors discussed
below) which directly or indirectly own ten percent (10%) or more of a direct
or indirect legal, beneficial or voting interest in the Company. Such persons
must report their interest and file appropriate applications within 45 days
after acquiring such interest. Persons directly or indirectly having a five
percent (5%) or more interest (but less than 10%) in the Company, must report
their interest to the Colorado Gaming Commission within ten (10) days after
acquiring such interest and may be required to provide additional information
and to be found suitable. If certain institutional investors provide certain
information to the Colorado Gaming Commission, such investors, at the Colorado
Gaming Commission's discretion, may be permitted to own up to 14.99% of the
Company, before being required to be found suitable. All licensing and
investigation fees will have to be paid for by the person in question. The
associated person investigation fee currently is $48 per hour.

The Colorado Gaming Commission also has the right to request information
from any person directly or indirectly interested in, or employed by, a
licensee, and to investigate the moral character, honesty, integrity, prior
activities, criminal record, reputation, habits and associations of (i) all
persons licensed pursuant to the Colorado Limited Gaming Act, (ii) all
officers, directors and stockholders of a licensed privately held corporation,
(iii) all officers, directors and stockholders holding either a five percent

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(5%) or greater interest or a controlling interest in a licensed publicly
traded corporation, (iv) all general partners and all limited partners of a
licensed partnership, (v) all persons which have a relationship similar to
that of an officer, director or stockholder of a corporation (such as members
and managers of a limited liability company), (vi) all persons supplying
financing or loaning money to any licensee connected with the establishment or
operation of limited gaming, and (vii) all persons having a contract, lease or
ongoing financial or business arrangement with any licensee, where such
contract, lease or arrangement relates to limited gaming operations,
equipment, devices or premises. For purposes of the Colorado Gaming Act, a
note secured by a deed of trust on casino property is considered a "lease."

In addition, under the Colorado Gaming Act regulations, every person who
is a party to a "gaming contract" with an applicant for a license, or with a
licensee, upon the request of the Colorado Gaming Commission or the Director,
promptly must provide to the Colorado Gaming Commission or Director all
information which may be requested concerning financial history, financial
holdings, real and personal property ownership, interests in other companies,
criminal history, personal history and associations, character, reputation in
the community, and all other information which might be relevant to a
determination whether a person would be suitable to be licensed by the
Colorado Gaming Commission. Failure to provide all information requested
constitutes sufficient grounds for the Director or the Colorado Gaming
Commission to require a licensee or applicant to terminate its "gaming
contract" (as defined below) with any person who failed to provide the
information requested. In addition, the Director or the Colorado Gaming
Commission may require changes in "gaming contracts" before an application is
approved or participation in the contract is allowed. A "gaming contract" is
defined as an agreement in which a person does business with or on the
premises of a licensed entity.

An application for licensure or suitability may be denied for any cause
deemed reasonable by the Colorado Gaming Commission or the Director, as
appropriate. Specifically, the Colorado Gaming Commission and the Director
must deny a license to any applicant who (i) fails to prove by clear and
convincing evidence that the applicant is qualified; (ii) fails to provide
information and documentation requested; (iii) fails to reveal any fact
material to qualification, or supplies information which is untrue or
misleading as to a material fact pertaining to qualification; (iv) has been,
or has any director, officer, general partner, stockholder, limited partner or
other person who has a financial or equity interest in the applicant who has
been, convicted of certain crimes, including the service of a sentence upon
conviction of a felony in a correctional facility, city or county jail, or
community correctional facility or under the state board of parole or any
probation department within ten years prior to the date of the application,
gambling-related offenses, theft by deception or crimes involving fraud or
misrepresentation, is under current prosecution for such crimes (during the
pendency of which license determination may be deferred), is a career offender
or a member or associate of a career offender cartel, or is a professional
gambler; or (v) has refused to cooperate with any state or federal body
investigating organized crime, official corruption or gaming offenses.

If the Colorado Gaming Commission determines that a person or entity is
unsuitable to own interests in the Company, then the Company may be
sanctioned, which may include the denial or revocation of the approvals and
licenses required to operate the Casino.

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The Colorado Gaming Commission does not need to approve in advance a
public offering of securities, but rather requires a filing of notice and
additional documents with regard to such public offering prior to such public
offering. Under the regulations, the Colorado Gaming Commission may, in its
discretion, require additional information and prior approval of such public
offering.

In addition, the Colorado Gaming Act regulations prohibit a licensee or
affiliated company thereof, such as the Company, from paying dividends,
interest or other remuneration to any unsuitable person, or recognizing the
exercise of any voting rights by any unsuitable person. Further, the Company
may repurchase the shares of anyone found unsuitable at the lesser of the cash
equivalent to the original investment in the Company or the current market
price. Further, the regulations require anyone with a material involvement
with a licensee, including a director or officer of a holding company, such as
the Company, to file for a finding of suitability if required by the Colorado
Gaming Commission.

In addition to its authority to deny an application for a license or
suitability, the Colorado Gaming Commission has jurisdiction to disapprove a
change incorporate position of a licensee and may have such authority with
respect to any entity which is required to be found suitable by the Colorado
Gaming Commission. The Colorado Gaming Commission has the power to require the
Company to suspend or dismiss managers, officers, directors and other key
employees or sever relationships with other persons who refuse to file
appropriate applications or whom the authorities find unsuitable to act in
such capacities, and may have such power with respect to any entity which is
required to be found suitable.

Once the Company obtains the required gaming licenses, a person or entity
will not be permitted to sell, lease, purchase, convey or acquire a
controlling interest in the Company without the prior approval of the Colorado
Gaming Commission, and the Company will be prohibited from selling any
interest in the Casino without the prior approval of the Colorado Gaming
Commission.

The Casino may operate only between 8:00 am. to 2:00 am., and may
permit only individuals 21 years or older to gamble. Only slot machines,
blackjack and poker, with a maximum single bet of $5.00, are permitted. A
Colorado casino may not provide credit to its gaming patrons. The Casino must
not exceed certain gaming square footage limits as a total of each floor and
the full building.

GAMING TAXES

The Colorado Constitution permits a gaming tax of up to 40% on adjusted
gross gaming proceeds. The Colorado Gaming Commission has set a gaming tax
rate of 2% on adjusted gross gaming proceeds of up to and including $2
million, 4% from $2 million to $4 million, 14% from $4 million to $5 million,
18% from $5 million to $10 million, and 20% above $10 million for the fiscal

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year ending September 30, 1997. The Colorado Gaming Commission also has
imposed an annual device fee of $75 per gaming device. The Colorado Gaming
Commission may revise the gaming tax rate and device fee from time to time.
Black Hawk has imposed an annual device fee of $700 per gaming device and may
revise the same from time to time.

OTHER REGULATIONS

The sale of alcoholic beverages is subject to licensing, control and
regulation by the Colorado Liquor Agencies. All persons who directly or
indirectly own 10% or more of the Company must file applications and possibly
be investigated by the Colorado Liquor Agencies. The Colorado Liquor Agencies
also may investigate those persons who, directly or indirectly, loan money to
or have any financial interest in liquor licensees. All licenses are
revocable and not transferable. The Colorado Liquor Agencies have the full
power to limit, condition, suspend or revoke any such license and any such
disciplinary action could (and revocation would) have a material adverse
effect upon the operations of the Company. No person with an interest in any
holder of a hotel and restaurant liquor license can have an interest in a
liquor licensee which holds anything other than a hotel and restaurant liquor
license, and specifically cannot have an interest in an entity which holds a
gaming tavern license.

The Company's operations will be subject to a wide variety of other
federal, state and local laws and government regulations that could increase
its costs of construction and its operating expenses. Such regulations
include architectural and requirements, building codes, health and safety
laws, environmental laws, minimum wage and employment laws, and laws such as
the Americans With Disabilities Act that require public facilities such as the
Company's Hotel and Casino to be assessable and usable by people in wheel
chairs.

Slot machines are the most popular gaming devices in Colorado, and the
Company expects that slot machines will be the greatest source of its gaming
revenues. Slot machines are less labor intensive and require less square
footage than table games, and also generate higher profit margins. Slot
machines in Colorado permit play in denominations of nickels, quarters, half
dollars, dollars and five dollars. Casinos are permitted to provide
"progressive jackpots" that increase with continued play at the designated
slot machines. Slot machines come in both the mechanical spinning reels
variety and video slot machines.

Twenty-five varieties of poker are authorized for play in Colorado
casinos. Sixteen varieties of poker are "traditional" games in which the
players play against each other to win a "pot" built upon their own wagers.
These games include a variety of five-card draw, five-card and seven-card
stud, and "hold 'em" games. In those games, the casino takes a fee or "rake"
from each pot. Nine other poker games the players play against the casino to
win payout. The casino does not take a "rake" from the pot in those games,
but rather retains players' losses.

Five varieties of blackjack or "21" are authorized for play in Colorado
casinos. Under Colorado rules, dealer must draw to hands of 16 or less and

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must stand on hands of 17 or higher. Players are allowed to split pairs,
double down (doubling the wager after seeing the first two cards, but drawing
not more than one additional card) and purchase "insurance". An "insurance"
wager may be made when the dealer's face up card is an ace. The insurance
wager is up to 50% of the original wager and entitles the player to 2 to 1
payout if the dealer has a 10 or face card in the whole (a natural 21), but
the insurance wager is lost if the dealer's whole card has a value other than
10.

ITEM 2. DESCRIPTION OF PROPERTY

The Company's Property is located in the town of Black Hawk. The town of
Black Hawk is part of the Central City and Black Hawk National historic
Landmark, established in 1989 by the United States Department of Interior,
National Park Service. In conformance with this designation, the town of
Black Hawk in October 1990 established the Architectural and Design Review
Guidelines, authorizing the town to regulate historical and architectural
matters within the town. These guidelines are used by Black Hawk's Historic
Architectural Review Commission ("HARC") to evaluate and approve all
applications for construction.

Furthermore, the amendment to the Colorado Constitution authorizing
limited stakes gaming provides that such gaming shall be conducted in
structures which conform, as determined by the respective municipal governing
body, to the architectural styles and designs common to the area prior to
World War I and which conform to the requirements of applicable respective
municipal ordinances, regardless of the age of the structure. Accordingly,
the Company is designing its building in conformance with the requirements of
HARC, and the building design will reflect the architectural style consistent
with the guidelines.

The site is located on Colorado State Highway 119, approximately
one-quarter mile past the Gregory Street turn-off that leads to Central City
through Black Hawk. As such, the Company's casino facility will not be
contiguous to the many casinos which are located on Gregory Street and Main
Street in Black Hawk. The facility will be designed to allow for a maximum
exposure to approaching traffic, and will be in a direct site line from the
turn from the Highway into the town of Black Hawk. The Company believes that
it is this ability, and ease of access that should provide the Company a
competitive benefit as compared to the other casinos which are located in the
central portion of town. Moreover, many casinos in Black Hawk/Central City
lack contiguous or convenient parking and, as a result, have had difficulty in
attracting and retaining customers. In contrast, the Company's site will
offer convenient valet and self parking to its customers, as well as the only
covered on-site bus turnaround to date for the convenience of day trip
customers.

The Company's Property was acquired in August 1993 from New Allied. The
Company paid to New Allied $550,000 in cash, delivered a promissory note in
the amount of $3,450,000 and issued 2,250,000 shares of newly created Series A
Preferred Stock, which is convertible to Common Stock on a one-for-one basis.
The Company also obligated itself to file a Registration Statement to cover
the distribution of the Series A Preferred Stock to the shareholders of New
Allied.

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COMPETITION

Most of the 32 casinos in the Black Hawk/Central City market are small
facilities that provide limited or no parking and do not provide hotel
accommodations. Presently, largest hotel in the Black Hawk/Central City
market is the 118 room Harvey's Wagon Wheel located in Central City, which has
on-site parking for only 195 cars. In contrast, the Company's Hotel Casino
will have 290 standard hotel rooms and 35 suites and will have a parking
garage that can accommodate 865 car. Several of the larger casinos are
planning to expand their facilities to provide additional casino space, hotel
rooms and parking, and several new casinos are either planned or under
construction, including the Black Hawk/Jacobs Casino which will include 1,000
gaming devices and parking for 280 cars with provision for a 50 room hotel to
be added at a later date; and the Isle of Capri, which purportedly will have
more than 1,100 slot machines, 24 card tables (for blackjack and poker) and a
parking garage for 1,000 cars. The Isle of Capri Casino will not initially
provide any hotel accommodations, although it purportedly will be designed to
permit the construction of a hotel on top of the casino. Riviera Holdings
Corporation has announced plans to construct a large casino with 1,000 slot
machines and parking for 500 cars.

The following table presents certain information about the six largest
casinos currently operating in the Black Hawk/Central City market, which
control approximately 61% of the slot machines, 65% of the blackjack tables
and 100% of the poker games in the Black Hawk/Central City market.

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Size Date Number of Gaming Devises*
Casino Sq. Ft.* Opened Slots Blackjack Poker
Harvey's Wagon Wheel 40,000 12/94 850 18 9
Colorado Central Station 44,300 12/93 720 10 9
Bullwhackers 33,200 7/92 649 8 6
Canyon Casino 62,600 12/93 607 8 --
Gilpin Hotel/
Black Hawk Gaming 35,300 1/95 520 8 8
Fitzgeralds Casino 26,700 2/95 492 6 5

*Estimated

The Company plans to attain a competitive advantage over the established
casinos by offering superior lodging, an entertainment lounge, indoor
self-parking, and dining facilities, as well as a casino that is larger than
the rest. In comparison to the casinos that are presently operating in the
Black Hawk/Central City market, and those that are planned, the Company's
Hotel Casino will offer a 75,000 square foot casino featuring 1,000 mechanical
and video slot machine, 20 blackjack tables, and 12 poker tables, all located
on a single level.

Guests will be able to access the Company's Hotel Casino directly from
State Highway 119, without having to drive through Main Street or Gregory
Street, which are the two main streets that comprise the town of Black Hawk.
The location of the Hotel Casino at the north end of the town will enable
guests to avoid traffic congestion on the two main streets of the town. There
is presently a shortage of parking space in Black Hawk and Central City,
especially parking spaces located close to the casinos. The Company's Hotel
Casino will have an underground parking garage that will be sheltered from
inclement weather and will permit customers to quickly park and retrieve their
cars. Valet parking will also be provided. In addition, the Company plans to
build a covered bus stop and turn-around that will facilitate access to the
Hotel Casino by customers on one-day, over-night or weekend excursions. The
Company may also sponsor charter bus services from the Denver metropolitan
area as a promotional consideration.

Gaming in Colorado is also permitted in the town of Cripple Creek and on
two Indian reservations. During the same 12 month period ended June 30, 1996,
the 24 casinos located in Cripple Creek generated more than $97,000,000 of
gaming revenues. Cripple Creek is located approximately 110 miles south of
Black Hawk. The two casinos operated by Indian tribes are located a further
distance away. The tribes are not required to pay taxes or to report revenues
to the Colorado Department of Revenue Division of Gaming.

To a lesser extent, the Company's Casino will compete with casinos in
other states, including those in Las Vegas, Reno and Lake Tahoe, Nevada, and
river boat casinos operated in a number of mid-western and southern states.

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ITEM 3. LEGAL PROCEEDINGS

The Company is the plaintiff and a counterclaim defendant in a lawsuit
pending in Denver, Colorado District Court, Case No. 95CV2310, entitled
Country World Casinos, Inc., a Nevada corporation, Plaintiff, v. Tommyknocker
Casino Corp., a Colorado corporation and New Allied Development Corporation, a
Colorado corporation, Defendants, v. Country World Casinos, Inc., a Nevada
Corporation, Holly Products, Inc., a New Jersey corporation, Ronald G. Nathan,
Sal Lauria, Roger D. Leclerc, William H. Patrowicz and David Singer,
counterclaim Defendants. This lawsuit was commenced by the Company on May 26,
1995. In the Company's Amended Complaint, the Company asserted eight claims
against New Allied Development Corporation ("New Allied") and its subsidiary
Tommyknocker Casino Corp. ("TKCC").

In its complaint, the Company sought a declaration that it was not
obligated to make any additional payments to TKCC under a certain promissory
note executed by the Company in connection with its purchase of the Black Hawk
property, until such time as TKCC secured the release of a prior deed of
trust. The Company also sought recovery of more than $656,000 paid to or on
behalf of TKCC to clean up and remediate environmental contamination on the
property purchased from TKCC in August 1993. The Company sought to recover
all or part of this amount from TKCC under the following legal theories: (1)
that the environmental contamination on the property constitutes an
encumbrance, which is in breach of the covenant against encumbrances contained
in the warranty deed by which TKCC conveyed the property to the Company; (2)
that TKCC and New Allied made fraudulent misrepresentations to the Company
regarding the costs of the environmental clean up and remediation and that the
Company is entitled to recover damages resulting from this misrepresentations,
as well as exemplary damages; (3) that TKCC and New Allied made negligent
misrepresentations to the Company regarding the costs of the environmental
clean up and remediation and that the Company is entitled to recover damages
resulting from these misrepresentations, as well as exemplary damages; (4)
that TKCC's and New Allied's actions violated their duties of good faith and
fair dealing; (5) that the misrepresentations of TKCC and New Allied
constitute deceptive trade practices in violation of the Colorado Consumer
Protection Act; and (6) that any agreement under which the Company purportedly
agreed to pay for the environmental remediation and clean up costs (which
agreement the Company denies exists) is void and unenforceable under various
principles of law, including the statute of frauds and CERCLA.

On or about June 15, 1995, following the Company's commencement of the
lawsuit described above, TKCC filed a notice of election to foreclose on its
note and deed of trust which were secured by the Company's Black Hawk
property. The Company denied that it was in default under the note because of
TKCC's prior breach of the terms of the note by its failure to secure the
immediate release of the first deed of trust on the property upon its receipt
of $725,000 in January 1995. A Denver District Court Magistrate ruled that
since the Company has not paid to TKCC the monthly installments under the note
since May 1995, the Company was in default, despite TKCC's failure to secure
the release of the first deed of trust. The Magistrate's Order is neither
appealable nor binding in any subsequent proceeding.

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On October 12, 1995, the Company filed a Chapter 11 Petition in
bankruptcy in the United States Bankruptcy in the United States Bankruptcy
Court for the District of Colorado, Case No. 95-20563 RJB. The filing of the
Company's bankruptcy petition stayed TKCC's pending foreclosure sale of the
Black Hawk property. The Bankruptcy Court ruled that the Company was
obligated to pay the principal amount of the note plus accrued interest, but
not certain default interest claimed by TKCC to be owing. The Bankruptcy
Court also ruled against the Company on the claims pertaining to the cost of
environmental clean-up. The Company paid New Allied approximately $2,300,000
and all prior deeds of trust were released. The Company has filed an appeal
of the Bankruptcy Court's ruling. New Allied has crossed appealed the denial
of late payment fees and interest. Such appeals are pending.

In March 1996 the Bankruptcy Court granted the Company's motion to
approve $5 million in financing, which financing was obtained on May 31,
1996. The $5 million financing was obtained from a group of lenders led by
Kennedy Funding, Inc. and Anglo-American Financial as agent ("Kennedy").

In September 1996, the Bankruptcy Court held hearings to determine the
amounts due to New Allied as well as other issues. The Company utilized the
proceeds from the $5 million Kennedy loan in accordance with the Court's Order
and paid New Allied and all unsecured creditors in full, as determined by the
Court.

The Company disagreed with the amounts deemed by the Bankruptcy Court to
be owed to New Allied and in December 1996 filed an appeal of the Court's
ruling. New Allied cross appealed and such appeals are pending.

In March 1997, the Court ordered the dismissal of the Company from
Chapter 11 but retained jurisdiction over the appeals.

The pending lawsuit between the Company and New Allied and TKCC was
stayed upon the filing of the Company's bankruptcy petition. That stay was
lifted when the bankruptcy case was dismissed in March 1997, and the Company
is now moving forward with these proceedings.

The Company is seeking a court order requiring TKCC and New Allied to
sell to the Company their 2.5 million shares of voting stock in the Company at
the price set forth in ss.47.1-4.508 Rule 4.5 of the Colorado Gaming
Regulations on the basis that New Allied and TKCC might possibly be unsuitable
to hold voting securities in a licensed casino. As part of the consideration
given by the Company to TKCC to purchase the Black Hawk property, the Company
issued to TKCC 2,250,000 shares of non-voting preferred stock in the Company.
That preferred stock was subsequently given voting rights. In a subsequent
real estate purchase transaction, the Company issued to New Allied 250,000
share of common stock.

TKCC and New Allied have filed an answer to some of the Company's claims,
denying liability. In addition, TKCC and New Allied have filed counterclaims

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against the Company, as well as against Holly Products, Inc. ("Holly"), the
majority shareholder in the Company, Ronald G. Nathan ("Nathan"), Sal Lauria
("Lauria"), and David Singer ("Singer") former directors of the Company, and
Roger G. Leclerc ("Leclerc") and William H. Patrowicz ("Patrowicz"), who are
currently officers and directors of the Company. TKCC alleges that the
Company has breached an agreement to file a registration statement for the
preferred stock given to TKCC as part of the consideration for purchase of the
Black Hawk property. The Company has filed an answer denying liability on
this counterclaim. The Federal Bankruptcy Court ruled that the Company was
not in breach of its agreement.

TKCC and New Allied have asserted that the Company, as well as Holly,
Nathan, Lauria, Leclerc, Patrowicz and Singer, breached their fiduciary duties
by the issuance of five million shares of common stock in the Company to
Holly. TKCC and New Allied seek actual and exemplary damages allegedly caused
by said alleged wrongful issuance of stock. TKCC and New Allied seek an
injunction requiring the Company and it board of directors to cancel the five
million shares of stock issued to Holly.

The Company, as well as Leclerc, Holly, Patrowicz and Singer, have filed
answers denying any wrongful conduct or any liability to TKCC or New Allied
resulting from said issuance of stock to Holly and have affirmatively asserted
that said issuance of stock was proper. Neither Nathan nor Lauria has been
served with the summons and counterclaim and have not yet appeared in this
lawsuit.

The Company is a defendant in a lawsuit pending in Travis County, Texas
District Court, Cause No. 95-04782, 200th Judicial District, entitled James
Hamilton, Plaintiff v. Robert Todd Financial Corporation; Dean Anthony
Esposito; Marco Guy Fiore, Jr.; Robert Bobak Fallah; Optex Biomedical Inc.;
Pacific Rim Entertainment, Inc.; Country World Casinos, Inc., Defendants. The
Plaintiff James Hamilton ("Hamilton") contends that Defendants Robert Todd
Financial Corporation, and its agents and/or employees, Defendants Dean
Anthony Esposito, Marco Guy Fiore, Jr. and Robert Bobak Fallah, made
misrepresentations regarding the Company's stock, which allegedly induced
Hamilton's purchase of said stock. Hamilton alleges that Defendants Robert
Todd Financial Corporation, Dean Anthony Esposito, Marco Guy Fiore, Jr. and
Robert Bobak Fallah, were authorized agents of the Company, and therefore,
Hamilton alleges that the Company is liable for the alleged wrongful conduct
of said Defendants.

The Company has filed a Special Appearance and Answer, objecting to the
jurisdiction of the Travis County, Texas District Court, as well as denying
all material allegations of Hamilton's Original Petition.

During the fiscal year ended June 30, 1994, the Company was informed by
the Securities and Exchange Commission (the "SEC") that the SEC had instituted
a formal order of investigation concerning the possibility of violations of
the federal securities laws by the Company. In August 1996, the Company was
advised that the investigation had been terminated and that, at this time, no
enforcement action has been recommended by the staff of the SEC.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted during the fiscal year covered by this Report
to a vote of security holders.

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PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is traded in the over-the-counter market and
is quoted and is listed on the Electronic Bulletin Board under the symbol,
"CWRC". The market for the Company's Common Stock must be characterized as a
limited market due to the relatively low trading volume. Set forth in the
following table are high and low bid quotations for the Company's common stock
for the fiscal years ended June 30, 1996 and 1997. All quotations have been
adjusted to reflect the 1-for-35 split of the Company's common stock in 1993.
The quotations represent inter-dealer quotations without retail markups,
markdowns or commissions and may not represent actual transactions.

Quarter Ended High Low
September 30, 1995 .31 .03
December 31, 1995 .19 .03
March 31, 1996 .31 .03
June 30, 1996 .56 .06
September 30, 1996 .41 .12
December 31, 1996 .38 .19
March 31, 1997 .38 .15
June 30, 1997 .40 .20

At June 30, 1997, there were approximately 1,078 record holders of the
Company's Common Stock.

The Company has not paid or declared cash distributions or dividends on
its common stock and does not intend to pay cash dividends in the foreseeable
future. Future cash dividends will be determined by the Company's Board of
Directors based on the Company's earnings (if any), financial condition,
capital requirements and other relevant factors. The Company may not pay
dividends on its common stock without the consent of the holders of at least a
majority of the outstanding Series A preferred stock. In addition, the
holders of the Series A preferred stock shall be entitled to receive
dividends, when and if declared by the Board of Directors of the Company, on
an equal share-per-share basis with all outstanding shares of the Company's
common stock.

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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

CERTAIN STATEMENTS INCLUDED HEREIN OR INCORPORATED BY REFERENCE CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"). THE COMPANY DESIRES
TO TAKE ADVANTAGE OF CERTAIN "SAFE HARBOR" PROVISIONS OF THE REFORM ACT
AND IS INCLUDING THIS SPECIAL NOTE TO ENABLE THE COMPANY TO DO SO.
FORWARD-LOOKING STATEMENTS INCLUDED OR INCORPORATED BY REFERENCE IN THIS PART
INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH WOULD
CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE (FINANCIAL OR OPERATING) OR
ACHIEVEMENTS TO DIFFER MATERIALLY FROM THE FUTURE RESULTS, PERFORMANCE
(FINANCIAL OR OPERATING) OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD
LOOKING STATEMENTS.

The casino and hotel complex will be designed and constructed pursuant to
a guaranteed maximum price agreement which is to be finalized prior to
construction. The team consists of Semple Brown Roberts, P.C., a Denver based
architectural firm that has designed other facilities in Black Hawk, including
Fitzgerald's casino and PCL Construction Services, Inc., a multi-billion
dollar North American construction firm with U.S. headquarters located in
Denver. PCL's gaming credits include the MGM Grand and Stratosphere Tower in
Las Vegas, Nevada, as well as the Chinook Winds Gaming and Convention Center
in Lincoln City, Oregon.

LIQUIDITY & CAPITAL RESOURCES

The Company's ability to obtain the financing and to proceed with its
plans for a gaming facility had been affected by the Company's disputes with
New Allied, which had culminated in litigation and foreclosure proceedings on
the Property in 1995, and the Company's filing of a bankruptcy petition under
Chapter 11.

During the fiscal year ended June 30, 1995 and 1996, the Company had
disagreements with New Allied. As a result of New Allied's unwillingness to
cooperate with the Company, New Allied's failure to secure a release of the
$475,000 first deed of trust on the Property, New Allied's misrepresentations
to the Company and subsequent legal problems involving New Allied, the Company
instituted litigation against New Allied.

New Allied commenced foreclosure proceedings involving the Property. Due
to the pendency of these proceedings, on October 12, 1995, the Company filed a
Voluntary Petition Under Chapter 11 of the Bankruptcy Code in the United

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States Bankruptcy Court, District of Colorado (Case No. 95 20563 RJB). As a
result, all creditors of the Company were stayed from commencing or continuing
any action or enforcing any judgment of lien against the Company or property
of the Company, except as otherwise authorized pursuant to Title 11 U.S.C.
362(b). Relief may be sought by the filing of a complaint in the Bankruptcy
Court, pursuant to Title 11 U.S.C. 362(d).

In connection with this financing, the Company made a Promissory Note
effective May 20, 1996 payable at the rate of 15% per annum until May 19, 1997
(the "First Year Interest Obligation") and at a rate of 24% per annum
thereafter. Payments of principal and interest are payable as follows: (a)
the First Year Interest Obligation was prepaid at closing; (b) commencing on
May 19, 1997 and for each month thereafter, the Company is to make interest
only payments, in advance, in the amount of 2% of the then existing principal
balance due under the Note; and (c) the entire outstanding principal balance,
together with all accrued and unpaid interest, if not previously paid, shall
be finally due and payable on May 19, 1999. The holder of the Note may
accelerate the due date for the entire balance of principal, interest and
other sums due upon maturity in the event of default under the Note. The
default rate of interest is 24% during the first loan year and 36%
thereafter. The Note is secured by a first deed of trust on the Property. In
May 1997, the Company issued a promissory note and second deed of trust on the
property to Norlar, Inc. for a maximum of $600,000, or so much thereof as may
have been advanced by maker, for general corporate purposes. As of September
1997, the Company owed approximately $600,000 on the Norlar Note. In
addition, for each $100,000 Norlar, Inc. has loaned to the Company, it has
authorized the issuance of 500,000 warrants to purchase shares of common stock
at $0.20 per share. Norlar, Inc. is a closely-held corporation beneficially
owned by Larry Berman and his wife. Mr. Berman is Chairman and Chief
Executive Officer of the Company. The loan will bear interest at 12% per annum
and is to be repaid upon the earlier to the sale of the property or the
contemplated refinance of the property.

In September 1996, the Bankruptcy Court held hearings to determine the
amounts due to New Allied as well as other issues. The Company utilized the
proceeds from the $5 million Kennedy Funding Loan in accordance with the
Court's Order and paid New Allied and all unsecured creditors in full, as
determined by the Court.

In addition to obtaining the necessary financing, the Company must obtain
from the Colorado Gaming Commission approval to commence gaming operations.
The Commission's action is predicated upon approval of the applications of all
of the Company's principals. The Company is taking the steps necessary to go
forward with its submission to state authorities of its gaming application in
January 1998 and receive the required approvals to engage in gaming operations
within the State of Colorado. However, there can be no assurance that the

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Company will be successful in its efforts. Management believes that the length
of time and disposition of the gaming approval process cannot be accurately
predicted at this point, but that the process could be time consuming and
expensive.

RESULTS OF OPERATIONS

The Company has had no revenues from operations. The Company incurred a
loss from operations of $1,080,391 in the fiscal year ended June 30, 1997, as
compared to a net loss of $416,440 for the year ended June 30, 1996. The
ability of the Company to achieve revenues in the future will be dependant
upon realization of its plans to develop a gaming and hotel complex on the
Property.

ITEM 7. FINANCIAL STATEMENTS

The Company was not able to complete its financial statements in time to
file this Form 10-KSB report because the Company was indebted to its
independent auditors and its independent auditors advised the Company that
until such indebtedness was paid, it would not be able to furnish the Company
an independent report. The independent auditors have now been paid and the
Company expects to file an amended 10-KSB within the next 15 days.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

In September 1996, the Company engaged as its principal accountant the
firm of Moore Stephens, P.C. Moore Stephens, P.C. replaced the firm of
Erhardt Keefe Steiner & Hottman, P.C. The report of Erhardt Keefe Steiner &
Hottman P.C. on the financial statements of the Company at and for the years
ended June 30, 1995 and 1994 did not contain an adverse opinion or disclaimer
of opinion, nor was it modified as to uncertainty, audit scope or accounting
principles, with the exception of the uncertainty regarding the Company's
ability to continue as a going concern. The Company does not believe that
there were any disagreements with Erhardt Keefe Steiner & Hottman P.C. on any
matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure, during the past two years which, if not
resolved to Erhardt Keefe Steiner & Hottman P.C.'s satisfaction, would have
caused it to make reference to the subject matter of the disagreement in
connection with its Report. The Company received a letter from Erhardt Keefe
Steiner & Hottman P.C. stating that it was in agreement with the Company
regarding these statements.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
COMPANY; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The following persons serve as officers and directors or the Company:

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Name Position

Larry S. Berman Chairman of the Board and Chief Executive Officer
Roger D. Leclerc President and Director
William H. Patrowicz Secretary, Treasurer and Director

The following is brief biographical information concerning the Company's
officers, directors and significant employees:

Larry S. Berman, age 61, has served as Chief Executive Officer of the
Company since June 1995 and as Chairman of the Board of Directors and
Secretary of Holly since June 1992. Since 1982, Mr. Berman has been Vice
President of Coastal Leasing and Investment, Inc. where he is responsible for
restructuring and otherwise assisting companies to raise debt and equity
funds.

Roger D. Leclerc, age 47, has served as President of the Company since
December 1994. Prior thereto Mr. Leclerc served as the Company's project
manager for its proposed Country World Casino since May 1994. Prior to his
involvement with the Country World Casino project, Mr. Leclerc was the General
Manager for the Bull Durham Casino in Black Hawk. Immediately prior thereto,
he served as a General Manager of the Miner's Pick Casino in Central City.
From March 1990 to June 1992, he was the General Manager of A&L Enterprises
Inc. in Deadwood, South Dakota, which operated Ms. Kitty's Wilderness Edge
Casino and Days Inn Hotel and Casino.

William H. Patrowicz, age 49, has served as Secretary, Treasurer or the
Company since April 1995 and as President and Director of Holly since June
1992. From 1982 to December 1991, Mr. Patrowicz was employed by Gunnebo
Fastening Corp., most recently as Senior Vice President of Operations.

Section 16(a) of the Exchange Act requires the Company's officers and
directors and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership to the Securities and Exchange Commission. Officers, directors and
greater than 10% stockholders are required by the regulations of the
Commission to furnish the Company with copies of all Section 16(a) reports
received by it, the Company believes that all filing requirements applicable
to its current officers and directors were complied with for the fiscal year
ended June 30, 1996. The Company is unaware of the compliance of its 10%
shareholders and its former officers and directors.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth all cash compensation paid by the Company
to each Executive Officer whose total annual salary and bonus exceeded
$100,000, including all cash compensation paid the Company's Chief Executive
Officers.

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Name and Principal Fiscal Salary Other Annual
Position Year $ Bonus Compensation

None

The Company has no stock option, defined benefit or restricted stock
award plans.

The Company estimates that Mr. Berman and Mr. Patrowicz spend a
substantial majority of their time in management activities relating to the
Company. Neither party has received any compensation for previously rendered
services to date, however consideration for remuneration will be discussed in
the future.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the persons known to the Company to own
beneficially more than 5% of the outstanding share of common stock on June 30,
1997 and information as of June 30, 1997 with respect to the ownership of
common stock by each director of the Company and by all officers and directors
as a group.

Name and Address of Shares Beneficially
Beneficial Owner Owned Percent

New Allied Development 2,500,000 (1) 19.1%
Corporation
3200 Cherry Creek S. Drive
Suite 360
Denver, CO 80209

Holly Holdings, Inc. 8,850,453 (2) 67.6%
200 Monument Road, Suite 10
Bala Cynwyd, PA 19004

Larry S. Berman 8,850,453 (3)(4) 67.6%
200 Monument Road, Suite 10
Bala Cynwyd, PA 19004

Roger D. Leclerc 0 0%
13576 S. Utah Avenue
Lakewood, CO 80222

William H. Patrowicz 8,850,453 (3)(4) 67.6%
200 Monument Road, Suite 10
Bala Cynwyd, PA 19004

All Officers and Directors 8,850,453 (2)(3)(4) 67.6%
as a Group (3 Persons)
___________

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(1) New Allied Development Corporation is the owner of 2,250,000 shares of the
Company's Series A Preferred Stock. The Series A Preferred Stock is
convertible into Common Stock on a one share basis. The Table also
includes 250,000 shares of Common Stock owned by New Allied.

(2) The above does not include an additional 20,000,000 shares of common stock
which are the subject of a letter agreement between the Company and Holly
dated April 17, 1995.

(3) Messrs. Larry S. Berman and William H. Patrowicz are affiliated with Holly
Holdings, Inc. and therefore may be deemed to be beneficial owners of the
Company's shares held by Holly Holdings, Inc.

(4) The above does not include an additional 40,000,000 shares of common stock
upon conversion of Series B Preferred stock owned by two directors and two
non-affiliates of the Company.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The sole holder of the Company's Series A Convertible Preferred stock,
New Allied, acquired its shareholdings in connection with a sale to the
Company in August 1993, of the Property upon which the Company proposes to
construct its casino and hotel complex. New Allied also received cash and a
promissory note (secured by a deed of trust on the Property) in connection
with this transaction. In June 1994, the Company completed the acquisition of
an additional 375,000 square feet of vacant land located in close proximity to
the land which is the site for the proposed casino and hotel complex. The
Company paid $200,000 to New Allied, delivered a promissory note in the amount
of $725,000 and issued 250,000 shares of its common stock. In April 1997, the
Company elected and New Allied has accepted a return of the property for the
balance due on the note as it is of no value to the Company within its current
plans.

During the fiscal year ended June 30, 1995, the Company borrowed
$1,000,000 from Holly, which indebtedness plus accrued interest was then
canceled by the issuance to Holy of 5,000,000 shares of the Company's common
stock. The Company also agreed with Holly that Holly would have the right to
purchase up to an additional 20,000,000 shares of common stock at $0.20 per
share if additional funding were provided within a reasonable time and
progress continued to be made concerning financing for the proposed casino and
hotel complex. In April 1997 Holly exercised its right under said agreement
and converted $250,000 of its debt into 1,250,000 shares of the Company's
common stock.

Holly has continually provided advances to the Company throughout the
bankruptcy proceedings. Prior to the conversion of debt to equity by Holly
and assumption of certain parties' debt by the Company, the Company was
indebted to Holly in the amount of approximately $1,449,588. In May 1997, the
Company eliminated $1,000,000 of its debt to its majority shareholder, Holly
Holdings, Inc. in an exchange of debt with two directors of the Company and
two non-affiliates of the Company.

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In April 1997, the Company filed with the State of Nevada, under Section
78.1055, a Designation of Rights Privileges and Preferences for 5,000,000
shares of Class B preferred stock. In May 1997, the Company issued 4,000,000
shares to two directors and two non-affiliates of the Company in exchange for
$1,000,000 in debt to the four parties. The terms of the class B preferred
stock rank it junior to all classes of the Company's stock now issued and on
parity with any class of capital stock hereafter created. The Class B
preferred stock shall be voted with the common stock as a single class and
shall not be entitled to vote as a separate class nor shall the Class B
preferred be entitle to receive dividends of any kind. Each share of Class B
preferred stock can be converted into common stock of the corporation one year
after the date of issuance at the rate for 10 for 1 and the holders are
entitled to vote the underlying shares as if converted.

In March 1996, the Bankruptcy Court granted the Company's motion to
approve $5,000,000 in financing, which financing was obtained on May 31,
1996. The $5,000,000 financing was obtained from a group of lenders led by
Kennedy Funding, Inc. and Anglo-American Financial as agent ("Kennedy").

In connection with this financing, the Company delivered to the lender a
Promissory Note effective May 20, 1996 payable at the rate of 15% per annum
until May 19, 1997 (the "First Year Interest Obligation") and at a rate of 24%
per annum thereafter. Payments of principal and interest are payable as
follows: (a) the First Year Interest Obligation was prepaid at closing; (b)
commencing on May 19, 1997 and for each month thereafter, the Company is to
make interest only payments, in advance, in the amount of 2% of the then
existing principal balance due under the Note; and (c) the entire outstanding
principal balance, together with all accrued and unpaid interest, if not
previously paid, shall be finally due and payable on May 19, 1999. The holder
of the Note may accelerate the due date for the entire balance of principal,
interest and other sums due upon maturity in the event of default under the
Note. The default rate of interest is 24% during the first loan year and 36%
thereafter. The Note is secured by a first deed of trust on the Property. In
May 1997, the Company issued a promissory note and second deed of trust on the
property to Norlar, Inc. for a maximum of $600,000, or so much thereof as may
have been advanced by maker, for general corporate purposes. In addition, for
each $100,000 Norlar, Inc. has loaned to the Company, it has authorized the
issuance of 500,000 warrants to purchase shares of common stock at $0.20 per
share. Norlar, Inc. is a closely-held corporation beneficially owned by Larry
Berman and his wife. Mr. Berman is Chairman and Chief Executive Officer of
the Company. The loan will bear interest at 12% per annum and is to be repaid
upon the earlier to the sale of the property or the contemplated refinance of
the property.

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Although paid in accordance with the Court's order, the Company disagreed
with the amounts deemed by the Bankruptcy Court to be owed to New Allied and
in December 1996 filed an appeal of the Court's ruling. New Allied cross
appealed and such appeals are pending.

In March 1997, with all issues being resolved, the Court ordered the
dismissal of the Company from Chapter 11 but retained jurisdiction over the
appeal.

In July 1997, the Company issued 1,000,000 shares of its common stock to
Eastern Equities Consultants, Ltd. as full and final compensation for the
placement of the casino and hotel financing.

In August 1997, the Company authorized the issuance of 100,000 warrants
to purchase shares of common stock at $0.20 per share to Samanda, Inc. as a
finder's fee for locating and arranging a gaming contract. In October 1997,
said gaming contract was not finalized, negotiations were terminated and the
authorized issuance of warrants to Samanda, Inc. as a finder's fee was
withdrawn.

In September 1997, the Company issued 395,500 shares of its Common Stock
to Sommer & Schneider LLP, its securities attorneys, for payment of legal fees
and a six month retainer.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(A) Exhibits

1. Financing Agreement with U2 Consulting, Inc. and Western Equities, Inc.
2. Standard form of agreement between owner and architect
3. Standard form of agreement for interior design services
4. Interim agreement between owner and contractor (PCL Construction Services,
Inc.)
5. Limited technical services agreement with Signature Hospitality Resources,
Inc.
6. Hotel Management Agreement with Signature Hospitality Resources, Inc.
7. Casino Manager letter of intent with Luciani & Associates, LLC and G.
Michael Brown, joint venture

(B)Reports on Form 8-K

No reports on Form 8-K were filed during the last quarter of the fiscal
year ended June 30, 1997.

-26-
<PAGE>

SIGNATURES

In accordance with the requirements of Sections 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has caused this
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.

COUNTRY WORLD CASINOS, INC.

Dated: November 25, 1997 By: /s/ Roger D. Leclerc
Roger D. Leclerc, President

In accordance with the Securities Exchange Act of 1934, as amended, this
Report has been signed below by the following persons on behalf of the
Registrant and int he capacities and on the dates indicated.

Dated: November 25, 1997 /s/ Larry S. Berman
Larry S. Berman, Chairman & CEO

Dated: November 25, 1997 /s/ Roger D. Leclerc
Roger D. Leclerc, President and Director

Dated: November 25, 1997 /s/ William H. Patrowicz
William H. Patrowicz, Secretary,
Treasurer and Director

-27-
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders
Country World Casinos, Inc.
Denver, Colorado

We have audited the accompanying balance sheet of Country World
Casinos, Inc. (a development stage company) as of June 30, 1997, and the
related statements of operations, stockholders' equity, and cash flows for
each of the two fiscal years in the period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Country World
Casinos, Inc. (a development stage company) as of June 30, 1997, and the
results of its operations and its cash flows for each of the two fiscal years
in the period then ended in conformity with generally accepted accounting
principles. We express no opinion on the cumulative period from inception
through June 30, 1997.

The accompanying financial statements have been prepared assuming
that Country World Casinos, Inc. will continue as a going concern. As
discussed in Note 2 to the financial statements, the Company has suffered
recurring losses since inception and has a working capital deficit of approximat
ely $1,340,000 as of June 30, 1997. These conditions raise substantial doubt
about Country World Casinos, Inc.'s ability to continue as a going concern.
Management's plans in regard to these matters are also discussed in Note 2.
The financial statements do not include any adjustments that might result from
this uncertainty.

MOORE STEPHENS, P.C.
Certified Public Accountants.

Cranford, New Jersey
October 10, 1997

F-1
<PAGE>

COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEET AS OF JUNE 30, 1997.

Assets:
Current Assets:
Cash $ 4,961
Prepaid Interest 73,140

Total Current Assets 78,101

Property and Equipment:
Land 7,475,475
Casino Under Development 5,388,871
Furniture and Equipment 48,068

Total 12,912,414
Less: Accumulated Depreciation 21,002

Total Property and Equipment 12,891,412

Other Asset:
Deposits 630

Total Assets $ 12,970,143

The Accompanying Notes are an Integral Part of these Financial Statements.

F-2
<PAGE>

COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEET AS OF JUNE 30, 1997.

Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 38,115
Payroll and Property Taxes Payable 95,461
Accrued Expenses 28,779
Note Payable - Stockholder 725,000
Notes Payable - Related Party (Net of
Deferred Financing Cost of $45,000) 155,000
Accrued Interest - Related Parties 175,943
Other Current Liabilities 4,977
Due to Parent 196,878

Total Current Liabilities 1,420,153

Long-Term Debt:
Notes Payable 2,650,000
Notes Payable - Related Party 2,350,000

Total Long-Term Debt 5,000,000

Other Liabilities 4,199

Commitments and Contingencies --

Stockholders' Equity:
Convertible Preferred Stock, Series A,
$.001 Par Value, 2,250,000 Shares Authorized,
2,250,000 Shares Issued and Outstanding
(Liquidation Preference $7,492,500) 2,250

Convertible Preferred Stock, Class B, $.25 Par
Value, 5,000,000 Shares Authorized, 4,000,000
Shares Issued and Outstanding
(Liquidation Preference $1,000,000) 1,000,000

Common Stock, $.001 Par Value, 75,000,000 Shares
Authorized,12,086,187 Issued and Outstanding 12,086

Additional Paid-in Capital 9,871,300

Deficit Accumulated During the Development Stage (4,339,845)

Total Stockholders' Equity 6,545,791

Total Liabilities and Stockholders' Equity $ 12,970,143

The Accompanying Notes are an Integral Part of these Financial Statements.

F-3
<PAGE>

COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS

For the period from
November 9, 1982
(Date of Inception)
Years ended through June 30,
June 30, 1 9 9 7
1 9 9 7 1 9 9 6 (Unaudited)
Costs and Expenses:
Research and Development Costs $ -- $ -- $ 122,000
Professional Fees - Due to Bankruptcy 339,843 151,831 491,674
General and Administrative Expenses 282,414 414,930 3,237,037
Management Fee - Related Party 408,000 -- 408,000
Depreciation Expense 6,867 6,398 42,514

Totals 1,037,124 573,159 4,301,225

Other Income (Expense):
Interest Income 27,443 6,719 94,812
Interest Expense (3,931) -- (3,931)
Interest Expense - Related Party (67,514) -- (67,514)
Rental Income -- -- 45,126
Loss on Non-Marketable Securities -- -- (85,000)
Write off of Loan Receivable -- -- (90,000)
Forfeited Deposit -- -- (100,000)
Other Income 735 -- 735

Totals (43,267) 6,719 (205,772)

(Loss) from Continuing Operations
Before Discontinued Operations and
Extraordinary Item (1,080,391) (566,440) 4,506,997

Discontinued Operations:
Gain on Disposal of Subsidiaries -- -- 389,286
(Loss) from Discontinued Operations -- -- (389,286)

Total Discontinued Operations -- -- --

(Loss) Before Extraordinary Item (1,080,391) (566,440) (4,506,997)

Extraordinary Item:
Extraordinary Gain on Forgiveness of Debt,
Primarily Related Party -- 150,000 167,152

Net (Loss) $ (1,080,391) $ (416,440) $ (4,339,845)

Per Share Data:
(Loss) Per Share Before Extraordinary
Item $ (.10) $ (.05)
Extraordinary Item Per Share -- .01

Net (Loss) Per Common Share $ (.10) $ (.04)

Weighted Average Number of Shares 10,985,493 10,836,187

The Accompanying Notes are an Integral Part of these Financial Statements.

F-4
<PAGE>

<TABLE>
<CAPTION>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS' EQUITY
</CAPTION>

Deficit
Accumulated
Preferred Stock Common Stock Additional During the Total
Series A Series B Subscribed Paid-In Development Stockholders
Shares Amount Shares Amount Shares Amount Shares Amount Capital Stage Equity
<C> <S> <S> <S> <S> <S> <S> <S> <S> <S> <S> <S>

November 9, 1982 (Date of
Inception) -- $ -- -- $ -- -- $ -- -- $ -- $ -- $ -- $ --

Issuance of Shares for Cash
($.51 Per Share) -- -- -- -- 2,971 15 -- -- 1,510 -- 1,525

Issuance of Common Stock to
the Public ($12.50 Per Share) -- -- -- -- 1,474 8 -- -- 644,992 -- 645,000

Deferred Offering Costs -- -- -- -- -- -- -- -- (115,690) -- (115,690)

Cancellation of Common Stock -- -- -- -- (800) (4) -- -- 4 -- --

Issuance of Shares for Services
($.18 Per Share) -- -- -- -- 85,714 429 -- -- 14,571 -- 15,000

Issuance of Common Stock at a
Discount ($.02 Per Share) -- -- -- -- 1,339,212 6,696 -- -- 13,304 -- 20,000

Capital Contribution -- -- -- -- -- -- -- -- 2,850 -- 2,850

Net Loss for the Period from
November 9, 1982 (Date of
Inception) Through
June 30, 1992 -- -- -- -- -- -- -- -- -- (221,169) (221,169)

Balance - June 30, 1992 -- -- -- -- 1,428,571 7,144 -- -- 561,541 (221,169) 347,516

Issuance of Common Stock at a
Discount for Services ($.02
Per Share) May 1993 -- -- -- -- 714,287 3,571 -- -- 8,929 -- 12,500

Net Loss for Year Ended
June 30, 1993 -- -- -- -- -- -- -- -- -- (373,401) (373,401)

Balance - June 30,
1993 - Forward -- $ -- -- $ -- 2,142,858 $10,715 -- $ -- $570,470 $(594,570) $ (13,385)

The Accompanying Notes are an Integral Part of these Financial Statements.

F-5
<PAGE>

</TABLE>
<TABLE>
<CAPTION>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS' EQUITY
</CAPTION>

Balance - June 30,
1993 - Forwarded -- $ -- -- $ -- 2,142,858 $10,715 -- $ -- $570,470 $(594,570) $ (13,385)

Change in Par Value from
$.005 to $.001 -- -- -- -- -- (8,572) -- -- 8,572 -- --

Issuance of Stock for Cash
September 1993 ($1.00 Per
Share) -- -- -- -- 600,000 600 -- -- 599,400 -- 600,000

Issuance of Stock for Cash
August 1993 ($1.00 Per Share) -- -- -- -- 1,500,000 1,500 -- -- 1,498,500 -- 1,500,000

Issuance of Convertible
Preferred Stock for
Acquisition of Land,
Valued at $1.00 Per Share
issued August 1993 2,250,000 2,250 -- -- -- -- -- -- 2,247,750 -- 2,250,000

Issuance of Stock to Related
Party for Cash and Services
Pursuant to Exercise of
Options ($1.00 Per Share) -- -- -- -- 250,000 250 -- -- 249,750 -- 250,000

Purchase and Cancellation of
Treasury Stock ($1.00
Per Share) -- -- -- -- (125,000) (125) -- -- (124,875) -- (125,000)

Issuance of Stock for Cash
(140,000 Shares and 60,662
Shares issued December 1993 and
January 1994, Respectively,
at $2.50 and $2.47 Per Share,
Respectively) -- -- -- -- 200,662 200 -- -- 499,800 -- 500,000

Issuance of Common Stock for
Acquisition of Land Valued at
$1.00 Per Share, issued
June 1994 -- -- -- -- 250,000 250 -- -- 249,750 -- 250,000

Issuance of Common Stock for
Cash and Services Pursuant
to Exercise of Options
(75,000 Shares and 20,000
Shares issued April and
June 1994, Respectively
at $2.50 Per Share) -- -- -- -- 95,000 95 -- -- 237,405 -- 237,500

Issuance of Common Stock for
Services Rendered, Valued
at $2.50 Per Share, issued
April 1994 -- -- -- -- 200,000 200 -- -- 499,800 -- 500,000

Subscription of Common Stock
Pursuant to Private Placement
Offering - June 1994
($3.00 Per Share) -- -- -- -- -- -- 262,667 263 787,737 -- 788,000

Net Loss for Year Ended
June 30, 1994 -- -- -- -- -- -- -- -- -- (1,490,785) (1,490,785)

Balance - June 30,
1994 - Forward 2,250,000 $2,250 -- $-- 5,113,520 $5,113 262,667 $ 263 $7,324,059 $(2,085,355) $5,246,330

The Accompanying Notes are an Integral Part of these Financial Statements.

F-6
<PAGE>

</TABLE>
<TABLE>
<CAPTION>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS' EQUITY
</CAPTION>

Balance - June 30,
1994 - Forward 2,250,000 $2,250 -- $-- 5,113,520 $5,113 262,667 $ 263 $7,324,059 $(2,085,355) $5,246,330

Issuance of Common Stock
Pursuant to Private Placement
Offering - December 1994
($2.67 Per Share) -- -- -- -- 460,000 460 -- -- 1,229,040 -- 1,229,500

Convert Subscribed Stock to
Common and Record Fees -
December 1994 -- -- -- -- 262,667 263 (262,667) (263) -- -- --

Issuance of Stock to Parent
for Outstanding Note issued
April 20, 1995 ($.20 Per
Share) -- -- -- -- 5,000,000 5,000 -- -- 1,009,451 -- 1,014,451

Net Loss for Year Ended
June 30, 1995 -- -- -- -- -- -- -- -- -- (757,659) (757,659)

Balance - June 30, 1995 2,250,000 2,250 -- -- 10,836,187 10,836 -- -- 9,562,550 (2,843,014) 6,732,622

Net Loss for Year Ended
June 30, 1996 -- -- -- -- -- -- -- -- -- (416,440) (416,440)

Balance - June 30, 1996 2,250,000 2,250 -- -- 10,836,187 10,836 -- -- 9,562,550 (3,259,454) 6,316,182

Issuance of Preferred Stock -
Class B in Exchange for
Parent Debt ($.25 Per Share)
April 1997 -- -- 4,000,000 1,000,000 -- -- -- -- -- -- 1,000,000

Common Stock Issued in
Exchange for Parent Debt
($.20 Per Share) April 1997 -- -- -- -- 1,250,000 1,250 -- -- 248,750 -- 250,000

Warrants Issued for 1,000,000
Shares of Common Stock in
connection with Norlar, Inc.
debt financing (.06 Per
Warrant) -- -- -- -- -- -- -- -- 60,000 -- 60,000

Net Loss for Year Ended
June 30, 1997 -- -- -- -- -- -- -- -- -- (1,080,391) (1,080,391)

Balance - June 30, 1997 2,250,000 $2,250 4,000,000 $1,000,000 12,086,187 $12,086 -- $ -- $9,871,300 $(4,339,845) $6,545,791

The Accompanying Notes are an Integral Part of these Financial Statements.

F-7
<PAGE>

</TABLE>
<TABLE>
<CAPTION>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS
</CAPTION>

For the period from
November 9, 1982
(Date of Inception)
Years ended through June 30,
June 30, 1 9 9 7
1 9 9 7 1 9 9 6 (Unaudited)
<C> <S> <S> <S>
Operating Activities:
Continuing Operations:
(Loss) Before Extraordinary Item $(1,080,391) $ (566,440) $ (4,506,997)
Adjustments to Reconcile Net
(Loss) to Net Cash (Used for)
Operating Activities:
Depreciation 6,867 6,398 42,514
Amortization of Discount -
Related Party 15,000 -- 15,000
Common Stock Issued for Interest -- -- 14,451
Common Stock Issued for Services -- -- 837,500
Loss on Nonmarketable Securities -- -- (85,000)
Write off of Loan Receivable -- -- (90,000)
Extraordinary Item, Primarily Related
Party -- 150,000 167,152
Accrued Interest - Related Party 52,514 -- 52,514
Allocation of Management Fees -
Related Party 408,000 -- 408,000

Changes in Assets and Liabilities:
(Increase) Decrease in:
Prepaid Interest (73,140) (687,500) (760,640)

Increase (Decrease) in:
Accounts Payable (109,294) 147,409 38,115
Payroll and Property Taxes Payable 95,461 -- 95,461
Accounts Payable - Liabilities
Subject to Compromise (366,735) (253,229) --
Accrued Interest - Related Parties 29,357 -- 175,943
Accrued Interest - Liabilities
Subject to Compromise (225,135) -- --
Accrued Expenses (71,306) 70,315 28,779
Accrued Expenses - Subject
to Compromise (41,937) 41,937 --

Discontinued Operations:
Net (Loss) -- -- (389,286)
Adjustments to Reconcile Net (Loss)to Net Cash
(Used for) Operating Activities:
Gain on Disposal of Assets -- -- 389,286

Total Adjustments (280,348) (524,670) 939,789

Net Cash Used for Operating Activities -
Forward $(1,360,739) $(1,091,110) $(3,567,208)
</TABLE>

The Accompanying Notes are an Integral Part of these Financial Statements.

F-8
<PAGE>
<TABLE>
<CAPTION>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS
</CAPTION>

For the period from
November 9, 1982
(Date of Inception)
Years ended through June 30,
June 30, 1 9 9 7
1 9 9 7 1 9 9 6 (Unaudited)
<C> <S> <S> <S>

Net Cash Used for Operating Activities -
Forward $(1,360,739) $(1,091,110) $(3,567,208)

Investing Activities:
Purchase of Land and Payment of
Casino Development Costs (126,860) (872,420) (5,214,871)
Purchase of Furniture and Equipment -- -- (57,406)
Investment in Patent -- -- (62,000)
Deposits and Other (190) 3,363 (630)
(Increase) Decrease in Restricted Cash 49,994 (49,994) --

Net Cash Used for Investing Activities (77,056) (919,051) (5,334,907)

Financing Activities:
Payment of Capital Lease Obligation (1,515) (2,718) (4,233)
Proceeds from Long-Term Borrowings -- 5,000,000 6,000,000
Advances from Parent 896,978 301,204 1,254,003
Disbursement to Parent (316,379) -- (316,379)
Proceeds from Related Party Notes 200,000 -- 200,000
Repayments on Long-Term Borrowings (1,109,837) (1,553,027) (3,450,000)
Proceeds from Stock and Warrant Issuance -- -- 5,220,835
Capital Contribution -- -- 2,850

Net Cash Provided by (Used for)
Financing Activities (330,753) 3,745,459 8,907,076

Net (Decrease) Increase in Cash (1,768,548) 1,735,298 4,961

Cash - Beginning of Periods 1,773,509 38,211 --

Cash - End of Periods $ 4,961 $ 1,773,509 $ 4,961

Supplemental Disclosure of Cash Flow Information:
Interest paid in fiscal years ended June 30, 1997 and 1996 was $3,931 and
$1,830, respectively, net of interest capitalized. No income taxes were paid
during the fiscal years ended June 30, 1997 and 1996.

The Accompanying Notes are an Integral Part of these Financial Statements.

F-9
<PAGE>

COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

During the year ended June 30, 1997, the Company capitalized $887,663 in
interest related to the construction of the casino.

During the year ended June 30, 1997, the Company issued warrants for
1,000,000 shares of the Company's common stock. A deferred financing cost of
$60,000 was recorded for the estimated fair value of these warrants. At June
30, 1997, the unamortized deferred financing balance was $45,000.

During the year ended June 30, 1997, the Company converted Parent company
advances of $1,000,000 into 4,000,000 shares of Preferred Series B Stock.

During the year ended June 30, 1997, $250,000 of indebtedness to the
Parent was converted into 1,250,000 shares of restricted common stock.

During the year ended June 30, 1996, the Company capitalized $569,984, in
accrued interest related to the construction of the casino.

The Accompanying Notes are an Integral Part of these Financial Statements.

F-10
<PAGE>

COUNTRY WORLD CASINOS, INC.

(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION BUSINESS

ORGANIZATION AND BUSINESS - Country World Casinos, Inc. (the "Company" or
"Country World") was incorporated on November 9, 1982 under the name
Innovative Medical Technology, Inc. The Company was organized to engage in
the medical industry. The Company effected a public offering in 1983. The
Company was essentially inactive until 1990 when it undertook the
manufacturing of monolithic composite panels for use in the construction of
semi-truck trailers, shipping containers and industrial buildings. The
Company discontinued this business in September 1992.

In 1993, the Company changed the focus of its planned business operations to
the construction of a large, full service, casino in Black Hawk, Colorado. In
August 1993, the Company completed the acquisition from New Allied Development
Corporation and its subsidiary, Tommyknocker Casino Corp., of certain real
property located in Black Hawk, Colorado known as Mill Sites 12 and 13, and
the Smith Lode Mining Claim, U.S. Survey No. 502 (the "Property"). Except as
specifically identified to the contrary, New Allied Development Corporation
and Tommyknocker Casino Corp. will be referred to collectively as "New
Allied."

As of June 30, 1997, the Company has not completed construction of its planned
principal operation nor has it realized any revenue from its planned
operations. Accordingly, the Company is considered to be in the development
stage.

On October 12, 1995, the Company filed a voluntary petition for reorganization
under Chapter 11 of the federal bankruptcy laws in the United States
Bankruptcy Court for the District of Colorado. On March 10, 1997, the
bankruptcy petition was dismissed.

The Company is a majority-owned subsidiary of Holly Holdings, Inc. (the
"Parent").

CONCENTRATION OF CREDIT RISK - The Company maintains cash balances in bank
deposit accounts. At June 30, 1997, the Company had no credit risk beyond
insured amounts.

USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and costs and expenses during
the reporting period. Actual results could differ from those estimates.

CASINO UNDER DEVELOPMENT - The Company's land and development costs are
recorded at cost and no depreciation will be taken on the casino project until
such time as the Company places the casino into operation.

FURNITURE AND EQUIPMENT - Furniture and equipment is stated at cost and is
being depreciated on a straight-line basis over estimated useful lives of five
to seven years.

F-11
<PAGE>

COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION BUSINESS
(Continued)

LOSS PER SHARE - Loss per share of common stock was computed based on the
weighted average number of common shares outstanding during the period.
Common stock equivalents are not included as their effect would be
antidilutive.

CASH EQUIVALENTS - The Company considers all highly liquid instruments
purchased with a maturity of three months or less to be cash equivalents. The
Company did not have any cash equivalents at June 30, 1997.

IMPAIRMENT - The carrying value of land and casino under development is
reviewed on an annual basis as to whether such carrying value has become
impaired, pursuant to guidance established in Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-lived Assets to Be Disposed of." Management
considers assets to be impaired if the carrying value exceeds expected future
cash flows (undiscounted and without interest charges). If impairment is
deemed to exist, the assets will be written down to fair value. As of June
30, 1997, management expects these assets to be fully recoverable.

STOCK OPTIONS - The Company accounts for employee stock-based compensation
under the intrinsic value based method as prescribed by Accounting Principles
Board ("APB") Opinion No. 25. The Company applies the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 123 to non-employee stock-based
compensation and the pro forma disclosure provisions of that statement to
employee stock-based compensation.

(2) GOING CONCERN

The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of
the Company as a going concern and realization of assets and settlement of
liabilities and commitments in the normal course of business. The Company has
suffered recurring losses since inception and has a working capital deficit of
approximately $1,340,000 as of June 30, 1997. These factors, among others,
raise substantial doubt about Country World Casinos, Inc.'s ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
asset or liability amounts which might be necessary should the Company be
unable to continue in existence.

Continuation of the business is dependent upon the Company's obtaining
additional financing for the casino under development, the obtaining of
related licenses, the successful completion of its construction and success of
its future operations. Limited stakes gaming did not commence in Colorado
until October 1991, so there is limited experience in Colorado from which to
evaluate the likelihood of success of the Company's proposed gaming
operations. In addition, the Black Hawk/Central City casino market is
characterized by intense competition. The competition includes established
companies, some of which have greater financial resources, experience and
expertise than the Company.

In July 1997, the Company signed a financial agreement with U2 Consulting,
LLC., an affiliate of Pacific Genesis, Inc., a California company and Western
Equities, Inc., a Wyoming company to raise $75 million through the issuance of
corporate bonds. The parties have 180 days to provide the above. In
September 1997, said agreement was increased to $79.5 million. In October
1997, a private placement memorandum was distributed to potential investors.

F-12
<PAGE>

COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS

(2) GOING CONCERN (Continued)

In September 1997, the Company contracted with the Colorado Gaming Development
Company, Inc., Semple Brown Roberts, P.C. and PCL Construction Services, Inc.
("PCL"), all of Denver, Colorado to design and construct the planned casino
and hotel complex. The proposed casino and hotel complex will be designed and
constructed pursuant to a guaranteed maximum price agreement which is to be
finalized prior to construction. The interim agreement with PCL contemplates
a construction contract for a "Guaranteed Maximum Price" equal to the
"Guaranteed Maximum Cost of the Work" plus 4.5%. The Guaranteed Maximum Price
will be determined by agreement between the Company and the Contractor when
sufficient definitive design information becomes available. Any changes to
the work under the construction contract will necessitate revision of the
Guaranteed Maximum Cost and the Guaranteed Maximum Price. If the actual final
cost of the construction project is less than the Guaranteed Maximum Cost,
then the cost savings will be shared so that the Company will recoup 75% of
such savings. If the actual final cost of construction exceeds the Guaranteed
Maximum Cost (as it may be revised), such excess cost will be borne by the
Contractor and will not be taken into account in determining the Guaranteed
Maximum Price to be paid by the Company. In addition, PCL agreed to lend to
the Company, for use on the construction of the planned casino and hotel
complex, an amount up to $1,000,000 on an as needed basis, on and prior to
November 1, 1997 (See Note 13B). The note will bear interest at a rate of
prime plus 3% per annum. The Company has also signed a management agreement
with Signature Hospitality Resources, Inc. of Denver, Colorado to manage its
Radisson Black Hawk Hotel, a separate agreement to use the national flag of
Radisson on the hotel. For its management services, Signature Hospitality
Resources, Inc. (the "Hotel Manager") will receive a monthly management fee
equal to 2% of gross sales (exclusive of casino operations) of the proposed
hotel, plus a percentage of the net operating income, as defined. The
agreement between the hotel manager is for an initial term of ten years, but
may terminate earlier upon the occurrence of certain events. In addition, the
Company has signed a binding letter of intent with Luciani & Associates, LLC
and G. Michael Brown, joint venture of Atlantic City, New Jersey (the "Casino
Manager"), to manage the casino operations. For services rendered in
connection with the design and construction of the Casino, the Casino Manager
will receive a base fee of $15,000 per month. The Casino Manager will receive
fees not to exceed $500,000 for additional management and consulting services
in the pre-opening phase. The pre-opening phase services will pertain to the
establishment of varies internal and accounting controls and systems,
operational procedures, staffing standards, recruitment and hiring, and
marketing strategies. In addition, the Company will pay the Casino Manager's
Colorado gaming license application fees.

Upon commencement of gaming operations, the Casino Manager will receive a
management fee equal to 2% of gross Casino revenues, plus an 7% Casino
earnings, as defined. A portion of the fee would be prepaid monthly and
credited against the amount actually due.

The letter of intent provides that the definitive management agreement will be
for an initial term of five years commencing in the date that gaming
operations begin and will be renewable by the Casino Manager for successive
five-year terms.

The Company's ability to operate the casino will be dependent upon substantial
other conditions, including the obtaining of licenses and compliance with
governmental regulations, grading and construction of the casino, obtaining
the necessary permits and approvals from the City of Black Hawk and other
regulatory bodies, procuring gaming equipment on satisfactory terms, and
accomplishing these objectives in a timely manner.

There can be no assurance, that the Company's plans for financing will be
successful or that the proceeds of such financing will be sufficient to
complete construction and provide working capital for the opening and
operation of the planned casino and hotel complex.

F-13
<PAGE>

COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS

(3) CASINO UNDER DEVELOPMENT

On August 6, 1993, the Company closed on an acquisition of approximately
79,000 square feet of vacant land from New Allied ("Parcel One") located
within the city of Black Hawk, Gilpin County, Colorado. The Company paid
$550,000 cash, delivered a promissory note in the amount of $3,450,000, and
delivered 2,250,000 shares, valued at $1.00 per share, of its Convertible
Series A Preferred stock each of which are convertible to common stock on a 1
for 1 basis. The Company is obligated to file a registration statement with
the Securities and Exchange Commission ("SEC") to register the distribution of
the Convertible Series A Preferred stock to New Allied along with the shares
of its common stock underlying the Convertible Series A Preferred.

On June 28, 1994, the Company closed on an acquisition for an additional
375,000 square feet of vacant land from New Allied ("Parcel Two") located in
close proximity to the original land purchased. The Company paid $200,000
cash, delivered a promissory note in the amount of $725,000, and delivered
250,000 shares of its common stock valued at $1.00 per share (See Notes 4, 5
and 10).

Subject to future financing and other factors described in Note 2, the Company
intends to construct a casino and hotel complex on Parcel One.

The Company has capitalized the following costs related to the casino
construction through June 30, 1997:

Interest on Long-Term Debt $ 1,887,458
Architectural Fees and Fees for Construction 3,501,413

Total $ 5,388,871

Interest capitalized during the years ended June 30, 1997 and 1996 amounted to
$887,663 and $569,984, respectively.

(4) LONG-TERM DEBT AND NOTES PAYABLE

Long-term debt consists of a $5,000,000 note payable to Kennedy Funding with
interest at 15% until May 19, 1997 and at 24% per annum thereafter, payable
interest only in monthly installments. The note is collateralized by a first
lien and deed of trust on real property (Parcel One) with a net book value of
approximately $6,300,000. The loan is fully guaranteed by the Parent. A
portion of this financing, amounting to $2,350,000, was obtained from a group
of related party lenders and accordingly is classified as such. The long-term
debt of $5,000,000 is due in May 1999.

NOTE PAYABLE - STOCKHOLDER - Note payable stockholder consists of a $725,000
note payable to New Allied with interest at 8%, payable in monthly
installments over 10 years beginning in September 1995. The note is
collateralized by a first deed of trust on real property with a net book value
of approximately $1,175,000 (Parcel Two) (See Note 10).

NOTES PAYABLE - RELATED PARTY - Norlar, Inc. has extended a credit of up to
$600,000, through a series of notes payable with interest at 12%, due on
demand. Norlar, Inc. is a closely-held corporation beneficially owned by Mr.
Larry S. Berman, the Chairman and Chief Executive Officer of the Company and
his spouse. In connection with this debt, the Company issued warrants for
1,000,000 shares of the Company's common stock. The warrants are exercisable
at $.20 per share and do not expire. A deferred financing cost of $60,000 was
recorded for the estimated fair value of these warrants. At June 30, 1997,
the unamortized deferred financing balance is $45,000. The notes are
collateralized by a second lien and deed of trust on real property (Parcel
One). The effective interest rate including the deferred financing cost, is
36%. As of June 30, 1997, the remaining borrowings available is $400,000 (See
Note 13C).

F-14
<PAGE>

COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS

(5) STOCKHOLDERS' EQUITY

PREFERRED STOCK - In July 1993, the Company amended its Articles of
Incorporation to provide for 25,000,000 shares of preferred stock, $.001 par
value, with certain rights, preferences and designations, to be issued in a
manner to be determined by the Company's Board of Directors.

In August 1993, the Board of Directors created Series A Convertible Preferred
("Convertible Preferred") stock valued at $1.00 per share. The maximum
issuable shares under the series is 2,250,000 shares. Holders of the
Convertible Preferred shares shall be entitled to dividends as declared by the
Board of Directors.

The Convertible Preferred stockholders, in the event of liquidation of the
Company will receive an amount equal to $3.33 per share plus declared and
unpaid dividends before any holder of common stock. A sale, lease, or
transfer of all or substantially all of the Company's assets shall be deemed
to be a liquidation for purposes of the liquidation preference.

Each Convertible Preferred share is convertible into one share of common stock
at any time or automatically upon the conversion of the majority of the
Convertible Preferred stock or in the event of a public offering of the
Company's common stock at not less than $6.66 per share.

In April 1997, the Board of Directors created a series of Class B convertible
preferred stock ("Class B") valued at $.25 per share. The maximum issuable
shares under the Class B preferred is 5,000,000 shares. The holders of the
Class B shares are not entitled to receive dividends, and the shares are
entitled to vote with the common stock as a single class. In the event of
liquidation of the Company, the holders of the Class B shares will receive an
amount per share equal to the sum of $0.25 for each outstanding share of Class
B preferred stock.

Each share of Class B preferred stock is convertible into common stock at the
rate of ten shares of common stock for each share of Class B Preferred. Each
share of Class B may be converted one year following the date of issuance at
the election of the holder. The Company is not required to reserve and keep
available out of its authorized but unissued shares of common stock, common
stock sufficient to effect the conversion of the Class B. In the event that
the number of authorized shares of common stock are not sufficient to effect
the conversion of the outstanding shares of Class B, the Company will increase
the number authorized but unissued shares of common stock.

In April 1997, the Company issued 4,000,000 shares of Class B in exchange for
$1,000,000 in cash advances that had been made to the Company by the Parent.

During the year ended June 30, 1996, the Parent acquired an additional
2,250,453 shares of the Company's common stock from certain existing
shareholders of Country World, in exchange for 744,592 shares of its common
stock. The Parent also acquired 16,667 shares of Country World common stock
in a separate transaction for $50,000. As of June 30, 1997, the Parent owns
approximately 70% of the outstanding shares of Country World common stock.

In April 1997, $250,000 owed to the Parent was converted into 1,250,000 shares
of the Company's common stock.

F-15
<PAGE>

COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS

(6) INCOME TAXES

The Company accounts for income tax expense and liabilities under the asset
and liability method. That method requires the establishment of deferred tax
assets for all deductible temporary differences and operating loss
carryforwards and deferred tax liabilities for all taxable temporary
differences. The Company had no taxable temporary differences which would
have resulted in material deferred tax liabilities at June 30, 1997.
Deductible temporary differences consist primarily of operating loss
carryforwards. The deferred tax asset attributable to operating loss
carryforwards amounted to approximately $1,474,000 at June 30, 1997. This
represents an increase of approximately $367,000 over the preceding year.
Because of the Company's continued losses, however, any deferred tax asset
established for utilization of the Company's tax loss carryforwards would
correspondingly require a valuation allowance of the same amount.
Accordingly, no deferred tax asset is reflected in these financial statements.

At June 30, 1997, the Company's net operating income loss carryforwards and
their expiration dates are as follows:

Expiring in Years ending Net Operating Income Tax
June 30, Loss Carryforwards
1998 $ 77,204
1999 77,550
2000 115,122
2001 73,687
2002 202,122
2003 Through 2011 3,790,635

Total $ 4,336,320

Net operating loss income tax carryforwards may be limited, however, if a more
than 50% change in ownership is deemed to have occurred.

Income tax at the federal statutory rate reconciled to the Company's effective
rate is as follows:

June 30,
1 9 9 7 1 9 9 6
Federal Statutory Rate (34.0)% (34.0)%
Non-Deductible Expenses (0.5) (0.5)
Net Operating Loss For
Which No Tax Benefit was Received 34.5 34.5

Effective Rate -- % -- %

The Company has not generated taxable income since its inception, and
therefore, no provision for income taxes has been made.

(7)RELATED PARTY TRANSACTIONS

MANAGEMENT AGREEMENT - In July 1996, the Company made an arrangement with its
Parent whereby the Company agreed to pay a management fee for services
rendered by the Parent. The cost of such services aggregated $408,000 for the
year ended June 30, 1997.

F-16
<PAGE>

COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS

(7)RELATED PARTY TRANSACTIONS (Continued)

DUE TO PARENT - The amount due to Parent at June 30, 1997 represents aggregate
advances to the Company [net of repayments]. Interest accrues on outstanding
balances at 8% per annum. Interest for the year ended June 30, 1997 amounted
to $52,514 and is included in the statement of operations with interest
expense - related party.

NOTE PAYABLE - RELATED PARTY - As a result of the closing of the $5,000,000
loan during the year ended June 30, 1996, loan servicing fees and prepaid
interest payments were made to the group of lenders which includes Norlar,
Inc. aggregating $600,000. This amount was capitalized to casino under
development.

STOCKHOLDER FUNDING - During the fiscal year ended June 30, 1995, the Company
borrowed $1,000,000 from the Parent, which indebtedness plus accrued interest
was then canceled by the issuance to the Parent of 5,000,000 shares of the
Company's common stock. The Company also agreed that the Parent would have
the right to purchase up to an additional 20,000,000 shares of common stock at
$.20 per share if additional funding were provided within a reasonable time
and progress continued to be made concerning financing for the proposed casino
and hotel complex. In April 1997, the Parent exercised its right under said
agreement and converted $250,000 of its debt into 1,250,000 shares of the
Company's common stock.

ENVIRONMENTAL INDEMNIFICATION - The Company and its Parent have entered into
an environmental indemnity agreement with the co-lenders of the $5,000,000
loan pursuant to which they will defend and hold harmless the co-lenders from
any environmental claims connected to the property which collateralizes the
loan. The Company, through independent environmental consultants, has
conducted environmental examinations on the property and has made
environmental remediation pursuant to an administrative consent order with the
U.S. Environmental Protection Agency. The remediation was performed in
accordance with the approved work plan. Based upon the work performed, the
Company does not believe that further remedial activity will be required.
However, there can be no assurance what costs, if any, the Company might incur
in the future in connection with environmental matters related to the
property.

The Parent has continually provided advances to the Company since 1995. Prior
to the conversion of debt to equity by Holly and assumption of certain
parties' debt by the Company, the Company was indebted to Holly in the amount
of approximately $1,449,588. In May 1997, the Company eliminated $1,000,000
of its debt to its majority shareholder, Holly Holdings, Inc. in an exchange
of debt with two directors of the Company and two non-affiliated of the
Company.

EXTRAORDINARY GAIN - In May 1995, the Company made an arrangement with the
majority shareholder whereby the Company agreed to pay the related party
$15,000 per week for a management fee. As of June 30, 1995, the Company had
not made any payments related to the arrangement and accordingly owed the
related party $150,000. In February 1996, the $150,000 accrual was reversed
and the arrangement was terminated. This forgiveness of debt is reflected as
an extraordinary item in the statements of operations for the year ended June
30, 1996.

(8) FAIR VALUE OF FINANCIAL INSTRUMENTS
Generally accepted accounting principles require disclosing fair value to the
extent practicable for financial instruments which are recognized or
unrecognized in the balance sheet. The fair value of the financial
instruments disclosed herein is not necessarily representative of the amount
that could be realized or settled, nor does the fair value amount consider the
tax consequences of realization or settlement. The fair value of long-term
debt, was estimated based on the current rates offered to the Company for debt
of similar maturities. Such fair value was determined to approximate carrying
value.

F-17
<PAGE>

COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS

(8) FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

For certain instruments, including cash, trade payables, short-term notes
payable and amount due to Parent, it was estimated that the carrying amount
approximated fair value for these instruments because of their short
maturities.

(9) COMMITMENT AND CONTINGENCIES
RENT EXPENSE - The Company closed its only office, located in Denver,
Colorado, in December 1996. The Company did not lease any office space
subsequent to December 1996. Rent expense, which is included in general and
administrative expenses, for year ended June 30, 1997 and 1996 was $18,901 and
$40,766, respectively.

(10) LITIGAITON
The Company is the plaintiff and a counterclaim defendant in a lawsuit pending
in Denver, Colorado District Court, Case No. 95CV2310, entitled Country World
Casinos, Inc., a Nevada corporation, Plaintiff, v. Tommyknocker Casino Corp.,
a Colorado corporation and New Allied Development Corporation, a Colorado
corporation, Defendants, v. Country World Casinos, Inc., a Nevada Corporation,
Holly Products, Inc., a New Jersey corporation, Ronald G. Nathan, Sal Lauria,
Roger D. Leclerc, William H. Patrowicz and David Singer, counterclaim
Defendants. This lawsuit was commenced by the Company on May 26, 1995. In
the Company's Amended Complaint, the Company asserted eight claims against New
Allied Development Corporation ("New Allied") and its subsidiary Tommyknocker
Casino Corp. ("TKCC").

In its complaint, the Company sought a declaration that it was not obligated
to make any additional payments to TKCC under a certain promissory note
executed by the Company in connection with its purchase of the Black Hawk
property, until such time as TKCC secured the release of a prior deed of
trust. The Company also sought recovery of more than $656,000 paid to or on
behalf of TKCC to clean up and remediate environmental contamination on the
property purchased from TKCC in August 1993. The Company sought to recover
all or part of this amount from TKCC under the following legal theories: (1)
that the environmental contamination on the property constitutes an
encumbrance, which is in breach of the covenant against encumbrances contained
in the warranty deed by which TKCC conveyed the property to the Company; (2)
that TKCC and New Allied made fraudulent misrepresentations to the Company
regarding the costs of the environmental clean up and remediation and that the
Company is entitled to recover damages resulting from these
misrepresentations, as well as exemplary damages; (3) that TKCC and New Allied
made negligent misrepresentations to the Company regarding the costs of the
environmental clean up and remediation and that the Company is entitled to
recover damages resulting from these misrepresentations, as well as exemplary
damages; (4) that TKCC's and New Allied's actions violated their duties of
good faith and fair dealing; (5) that the misrepresentations of TKCC and New
Allied constitute deceptive trade practices in violation of the Colorado
Consumer Protection Act; and (6) that any agreement under which the Company
purportedly agreed to pay for the environmental remediation and clean up costs
(which agreement the Company denies exists) is void and unenforceable under
various principles of law, including the statute of frauds and the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980.

On or about June 15, 1995, following the Company's commencement of the lawsuit
described above, TKCC filed a notice of election to foreclose on its note and
deed of trust which were secured by the Company's Black Hawk property. The
Company denied that it was in default under the note because of TKCC"s prior
breach of the terms of the note by its failure to secure the immediate release
of the first deed of trust on the property upon its receipt of $725,000 in
January 1995. A Denver District Court Magistrate ruled that since the Company
has not paid to TKCC the monthly installments under the note since May 1995,
the Company was in default, despite TKCC's failure to secure the release of
the first deed of trust. The Magistrate's Order is neither appealable nor
binding in any subsequent proceeding.

F-18
<PAGE>

COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS

(10) LITIGATION (Continued)

On October 12, 1995, the Company filed a Chapter 11 Petition in bankruptcy in
the United States Bankruptcy Court for the District of Colorado, Case No.
95-20563 RJB. The filing of the Company's bankruptcy petition stayed TKCC's
pending foreclosure sale of the Black Hawk property. The Bankruptcy Court
ruled that the Company was obligated to pay the principal amount of the note
plus accrued interest, but not certain default interest claimed by TKCC to be
owing. The Bankruptcy Court also ruled against the Company on the claims
pertaining to the cost of environmental clean-up. The Company paid New Allied
approximately $2,300,000 and all prior deeds of trust were released. The
Company has filed an appeal of the Bankruptcy Court's ruling. New Allied has
cross appealed the denial of late payment fees and interest. Such appeals are
pending.

In March 1996, the Bankruptcy Court granted the Company's motion to approve $5
million in financing, which financing was obtained on May 31, 1996. The $5
million financing was obtained from a group of lenders led by Kennedy Funding,
Inc. and Anglo-American Financial as agent ("Kennedy").

In September 1996, the Bankruptcy Court held hearings to determine the amounts
due to New Allied as well as other issues. The Company utilized the proceeds
from the $5 million Kennedy loan in accordance with the Court's Order and paid
New Allied and all unsecured creditors in full, as determined by the Court.

The Company disagreed with the amounts deemed by the Bankruptcy Court to be
owed to New Allied and in December 1996 filed an appeal of the Court's
ruling. New Allied cross appealed and such appeals are pending.

In March 1997, the Court ordered the dismissal of the Company from Chapter 11
but retained jurisdiction over the appeals.

The pending lawsuit between the Company and New Allied and TKCC was stayed
upon the filing of the Company's bankruptcy petition. That stay was lifted
when the bankruptcy case was dismissed in March 1997, and the Company is now
moving forward with these proceedings.

The Company is seeking a court order requiring TKCC and New Allied to sell to
the Company their 2.5 million shares of voting stock in the Company at the
price set forth in ss.47.1-4.508 Rule 4.5 of the Colorado Gaming Regulations
on the basis that New Allied and TKCC might possibly be unsuitable to hold
voting securities in a licensed casino. As part of the consideration given by
the Company to TKCC to purchase the Black Hawk property, the Company issued to
TKCC 2,250,000 shares of non-voting preferred stock in the Company. That
preferred stock was subsequently given voting rights. In a subsequent real
estate purchase transaction, the Company issued to New Allied 250,000 shares
of common stock.

TKCC and New Allied have filed an answer to some of the Company's claims,
denying liability. In addition, TKCC and New Allied have filed counterclaims
against the Company, as well as against Holly Products, Inc. ("Holly"), the
majority shareholder in the Company, Ronald G. Nathan ("Nathan"), Sal Lauria
("Lauria"), and David Singer ("Singer") former directors of the Company, and
Roger G. Leclerc ("Leclerc") and William H. Patrowicz ("Patrowicz"), who are
currently officers and directors of the Company. TKCC alleges that the
Company has breached an agreement to file a registration statement for the
preferred stock given to TKCC as part of the consideration for purchase of the
Black Hawk property. The Company has filed an answer denying liability on
this counterclaim. The Federal Bankruptcy Court ruled that the Company was
not in breach of its agreement.

F-19
<PAGE>

COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS

(10) LITIGATION (Continued)

TKCC and New Allied have asserted that the Company, as well as Holly, Nathan,
Lauria, Leclerc, Patrowicz and Singer, breached their fiduciary duties by the
issuance of five million shares of common stock in the Company to Holly. TKCC
and New Allied seek actual and exemplary damages allegedly caused by the
alleged wrongful issuance of stock. TKCC and New Allied seek an injunction
requiring the Company and its board of directors to cancel the five million
shares of stock issued to Holly.

The Company, as well as Holly, Leclerc, Patrowicz and Singer, have filed
answers denying any wrongful conduct or any liability to TKCC or New Allied
resulting from said issuance of stock to Holly and have affirmatively asserted
that said issuance of stock was proper. Neither Nathan nor Lauria has been
served with the summons and counterclaim and have not yet appeared in this
lawsuit.

The Company is a defendant in a lawsuit pending in Travis County, Texas
District Court, Case No. 95-04782, 200th Judicial District, entitled James
Hamilton, Plaintiff v. Robert Todd Financial Corporation; Dean Anthony
Esposito; Marco Guy Fiore, Jr.; Robert Bobak Fallah; Optex Biomedical Inc.;
Pacific Rim Entertainment, Inc.; Country World Casinos, Inc., Defendants. The
Plaintiff, James Hamilton ("Hamilton") contends that Defendants, Robert Todd
Financial Corporation, and its agents and/or employees, Defendants, Dean
Anthony Esposito, Marco Guy Fiore, Jr. and Robert Bobak Fallah, made
misrepresentations regarding the Company's stock, which allegedly induced
Hamilton's purchase of said stock. Hamilton alleges that Defendants, Robert
Todd Financial Corporation, Dean Anthony Esposito, Marco Guy Fiore, Jr. and
Robert Bobak Fallah, were authorized agents of the Company, and therefore,
Hamilton alleges that the Company is liable for the alleged wrongful conduct
of said Defendants.

The Company has filed a Special Appearance and Answer, objected to the
jurisdiction of the Travis County, Texas District Court, as well as denying
all material allegations of Hamilton's Original Petition.

With respect to certain real property owned by the Company in Black Hawk,
Colorado (Mill Sites 1, 2 and 3, and certain adjacent mining claims), a claim
has been made against the Company by New Allied on its deed of trust
encumbering said real property. The Company and New Allied, however, have
reached an agreement to resolve this dispute, pursuant to which the Company
will convey title to the Hotel Property to New Allied in full settlement of
New Allied's claims relating to this real property. The Settlement Agreement,
however, has not yet been formally reduced to writing.

While it is not feasible to predict or determine the final outcome of these
proceedings, management does not believe that they should result in a
materially adverse effect on the Company's financial position, results of
operations or liquidity.

(11) NEW AUTHORITATIVE PRONOUNCEMENTS

The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No.
125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996. Earlier
application is not allowed. The provisions of SFAS No. 125 must be applied
prospectively; retroactive application is prohibited. Adoption on January 1,
1997 is not expected to have a material impact on the Company. The FASB
deferred some provisions of SFAS No. 125, which are not expected to be
relevant to the Company.

F-20
<PAGE>

COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS

(11) NEW AUTHORITATIVE PRONOUNCEMENTS (Continued)

The FASB issued SFAS No. 128, "Earnings Per Share," and SFAS No. 129,
"Disclosure of Information about Capital Structure" in February 1997. SFAS
No. 128 simplifies the earnings per share ("EPS") calculations required by
Accounting Principles Board ("APB") Opinion No. 15, and related
interpretations, by replacing the presentation of primary EPS with a
presentation of basic EPS. SFAS No. 128 requires dual presentation of basic
and diluted EPS by entities with complex capital structures. Basic EPS
includes no dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution of securities that
could share in the earnings of an entity, similar to the fully diluted EPS of
APB Opinion No. 15. SFAS No. 128 is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods; earlier
application is not permitted. When adopted, SFAS No. 128 will require
restatement of all prior-period EPS data presented; however, the Company has
not sufficiently analyzed SFAS No. 128 to determine what effect SFAS No. 128
will have on its historically reported EPS amounts.

SFAS No. 129 does not change any previous disclosure requirements, but rather
consolidates existing disclosure requirements for ease of retrieval.

The FASB has issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No.
130 is effective for fiscal years beginning after December 15, 1997. Earlier
application is permitted. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. SFAS No. 130
is not expected to have a material impact on the Company.

The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS No. 131 changes how operating segments are
reported in annual financial statements and requires the reporting of selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 is effective for periods beginning after December
15, 1997, and comparative information for earlier years is to be restated.
SFAS No. 131 need not be applied to interim financial statements in the
initial year of its application. SFAS No. 131 is not expected to have a
material impact on the Company.

(12) SUBSEQUENT EVENTS

(A) In July 1997, the Company issued 1,000,000 shares of its common stock,
valued at approximately $200,000, to Eastern Equities Consultants, Ltd. for
efforts to secure casino and hotel financing.

(B) In September 1997, the Company issued 395,500 shares, valued at
approximately $74,000, of its common stock to Sommer & Schneider LLP, its
securities attorneys, for payment in legal fees and a six month retainer.

(13) SUBSEQUENT EVENTS (Unaudited) Subsequent to the Date of the Report of
Independent Auditors

(A) Casino Management Contract - On October 21, 1997, the Company signed a
management agreement with Luciani and Associates which will supervise, direct
and control the management and operation of the proposed casino and related
business as agent for the Company.

(B) Interim Construction Loan - The total amount of indebtedness with respect
to the PCL construction loan described in Note 2 was $998,000 as of October
20, 1997.

(C) Norlar Debt - As of October 20, 1997, the Company was indebted to Norlar,
Inc. in the amount of approximately $550,000. Warrants to purchase 3,000,000
shares of common stock at $.20 per share have been issued to Norlar, Inc. in
connection with this indebtedness.

. . . . . . . . . . .

F-21
<PAGE>

</TABLE>

<ARTICLE> 5

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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,961
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 78,701
<PP&E> 12,912,414
<DEPRECIATION> 21,002
<TOTAL-ASSETS> 12,970,143
<CURRENT-LIABILITIES> 1,420,153
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2,250
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<COMMON> 12,086
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