SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
For Quarter Ended _____________ Commission File Number 1-12668
HOLLY PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-3172149
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number
200 Monument Road, Suite 10, Bala Cynwyd, Pennsylvania 19004
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 617-0400
_________________________________________________________________
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities and Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of June 30, 1996: 30,762,600
HOLLY PRODUCTS, INC.
INDEX
Part I: FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheets as of June 30, 1996 [Unaudited] 1, 2
Consolidated Statements of Operations for the three months
ended June 30, 1996 and 1995 [Unaudited] 3
Consolidated Statements of Cash Flows for the three months
ended June 30, 1996 and 1995 [Unaudited] 4, 5
Notes to Consolidated Financial Statements [Unaudited] 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 7, 8, 9
Part II: OTHER INFORMATION - Items 1-2 9, 10
Signature Page 11
HOLLY PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996. [UNAUDITED]
Assets:
Current Assets:
Cash and Cash Equivalents $ 1,860,731
Accounts Receivable Trade - [Net of Allowance for Doubtful
Accounts of $157,893] 1,511,300
Inventory 929,845
Prepaid Expenses 302,946
Other Current Assets 6,250
Total Current Assets 4,611,072
Property and Equipment - [Net of Accumulated
Depreciation and Amortization of $193,477] 11,055,489
Deposits 51,582
Investment at Equity 266,076
Intangible Assets - Net 625,881
Other Assets 324,503
Deferred Financing Costs 487,500
Total Assets $ 17,422,103
See Notes to Consolidated Financial Statements.
HOLLY PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996. [UNAUDITED]
Liabilities and Stockholders' Equity:
Current Liabilities:
Notes Payable - Related Party $ 2,173,476
Demand Notes Payable - Bank 1,260,127
Notes Payable - Others 4,842,500
Accounts Payable 1,988,085
Accrued Expenses 823,091
Payroll Taxes Payable 86,249
Current Portion of Long-Term Debt 148,090
Current Portion of Capital Lease Obligations 61,237
Other Current Liabilities --
Net Liabilities of Discontinued Operations 575,007
Total Current Liabilities 11,957,862
Long-Term Debt 547,384
Long-Term Portion of Capital Lease Obligations 588,594
Minority Interest 2,158,064
Commitments and Contingencies --
Stockholders' Equity:
Preferred Stock - Authorized 2,000,000 Shares:
Series D: Convertible $10.00 Par Value, $1.00 Per
Share Per Annum Cumulative Dividends, 389,975
Shares Issued and Outstanding 3,899,750
Series E: Convertible $10.00 Par Value, 110,000 Shares
Issued and Outstanding 1,100,000
Additional Paid-in Capital [Preferred] (1,286,658)
Common Stock - No Par Value, Authorized 50,000,000 Shares,
30,762,600 Shares Issued and Outstanding 14,990,997
Additional Paid-in Capital [Common] (83,947)
Accumulated [Deficit] (16,449,943)
Total Stockholders' Equity 2,170,199
Total Liabilities and Stockholders' Equity $ 17,422,103
See Notes to Consolidated Financial Statements.
HOLLY PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS [UNAUDITED]
Three months ended
June 30,
1 9 9 6 1 9 9 5
Net Sales $ 1,794,197 $ 997,776
Cost of Sales 1,316,770 1,144,177
Gross Profit [Loss] 477,427 (146,401)
Operating Expenses:
General, Selling and Administrative 1,238,927 835,794
Operating [Loss] (761,500) (982,195)
Other [Expense]:
Other Income 4,495 23,654
Interest Expense (84,173) (85,405)
Other [Expense] - Net (79,678) (61,751)
Minority Interest Share in Loss of Subsidiary 59,127 --
[Loss] Income from Continuing Operations (782,051) (1,043,946)
Discontinued Operations:
[Loss] from Operations of Woodworking Business (8,603) (787,322)
Net [Loss] (790,654) (1,831,268)
Preferred Stock Dividends -- 100,625
Net [Loss] Available to Common Stockholders $ (790,654) $ (1,931,893)
Loss Per Common Share:
[Loss] from Continuing Operations $ (.04) $ (.23)
[Loss] per Common Share $ (.04) $ (.42)
[Loss] from Discontinued Operations $ -- $ (.17)
Weighted Average Number of Common Shares Outstanding 19,944,375 4,587,525
See Notes to Consolidated Financial Statements
HOLLY PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED]
Three months ended
June 30,
1 9 9 6 1 9 9 5
Operating Activities:
[Loss] From Continuing Operations $ (782,051) $ (1,043,946)
Adjustments to Reconcile Net [Loss] to Net Cash
[Used for] Operating Activities:
Depreciation and Amortization 99,882 18,511
Amortization of Deferred Financing Activities 18,933 37,500
Minority Interest (59,124) --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (1,132,850) 441,882
Inventory (14,333) (65,550)
Other Current Assets (1,716) --
Deposits 194,880 (1,237)
Prepaid Expenses (144,034) --
Other Assets -- (13,932)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (125,545) 571,336
Payroll Taxes Payable 4,426 4,856
Other Current Liabilities (14,182) --
Total Adjustments (885,598) 403,406
Net Cash - Continuing Operations - Forward (1,667,649) (640,540)
Discontinued Operations:
Net [Loss] From Discontinued Operations -- (787,322)
Adjustments to Reconcile Net [Loss] to Net Cash Operations:
Depreciation and Amortization -- 123,946
Bad Debts -- 9,000
Changes in Net Assets, Liabilities and Losses (8,603) 785,914
Estimated Loss in Disposal of Woodworking Business -- --
Net Cash - Discontinued Operations - Forward (8,603) (131,538)
Investing Activities - Continuing Operations:
Acquisition of Assets (8,810) (7,064)
Issuance of Note Receivable -- --
Purchase of Navtech - Net of Cash -- --
Investment in Room Systems -- --
Net Cash - Investing Activities - Continuing,
Operations - Forward $ 8,810 $ 7,064
Investing Activites - Discontinued Operations - Forward
Aquisition of Assets $ -- $ --
Net Cash - Continuing Operations - Forward $ 1,167,649 $ 640,540
Net Cash - Discontinued Operations - Forward $ 8,603 $ 500,805
Net Cash - Investing Activities - Continuing
Operations - Forward $ 8,810 $ 7,064
Financing Activities - Continuing Operations:
Proceeds from Notes Payable-Other 3,940,980 --
Payment of Notes Payable - Other (150,000) (42,605)
Proceeds from Demand Notes Payable - Stockholders
and Related Parties -- 100,625
Payment of Demand Notes Payable - Stockholders
and Related Parties (1,753,028) --
Proceeds of Demand Note Payable - Banks 401,319 --
Proceeds from Issuance of Preferred Stock 172,000 --
Dividends Paid -- (100,625)
Net Cash - Financing Activities - Continuing
Operations 2,611,331 143,230
Financing Activities - Discontinued Operations:
Proceeds from Demand Notes Payable -- 833,567
____________ ____________
Net Cash - Financing Activities - Discontinued
Operations -- 833,567
Net Increase in Cash and Cash Equivalents 926,269 174,271
Cash and Cash Equivalents - Beginning of Periods 934,462 62,518
Cash and Cash Equivalents - End of Periods $ 1,860,731 $ 236,789
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 84,173 $ 73,739
Income Taxes $ -- $ --
Supplemental Schedule of Non-Cash Investing and Financing Activities:
See notes to consolidated financial statements for details of certain
non-cash investing and financing activities.
See Notes to Consolidated Financial Statements.
HOLLY PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED]
[A] Summary of Significant Accounting Policies
Significant accounting policies of Holly Products, Inc. are set forth in the
Company's Form 10-KSB for the period ended March 31, 1996, as filed with the
Securities and Exchange Commission.
[B] Business of Reporting
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
such statements include all adjustments [consisting of normal recurring
items] which are considered necessary for a fair presentation. Operating
results for the three month ended June 30, 1996 and 1995 are not necessarily
indicative of the results that may be expected for the year ended March 31,
1997. It is suggested that these financial statements be read in conjunction
with the financial statements and notes for the period ended March 31, 1996,
included in the Holly Products, Inc. Form 10-KSB.
[C] Inventory
At June 30, 1996, inventory consisted of the following:
June 30, 1996 [Unaudited]
Work-in-Process $ 213,221
Raw Materials 1,054,624
Total 1,267,845
Less Reserve (338,000)
Total 929,845
Inventory, which consists of work-in-process and raw materials is stated at
the lower of cost [first-in, first-out method] or market.
[D] Earnings Per Share
Earnings per share are based on 19,944,875 and 4,587,525 shares
outstanding for the three months ended June 30, 1996 and 1995,
respectively. Such amounts of shares represent the weighted average number
of shares outstanding for the periods. Shares in escrow and the effect of
outstanding warrants were not included in the calculations, as their effect
would be anti-dilutive.
[E] Equity Transactions
During the quarter, 497,000 shares of Series E Preferred Stock were
converted pursuant to the terms thereof into 19,112,140 shares of Company
common stock. In June 1996, the Company issued 1,300,000 shares of its
common stock to three individuals in return for certain services to be
performed for the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company experienced a substantial loss for the year ended March 31,
1996, such loss was attributable primarily to its woodworking business,
which was conducted through its wholly owned subsidiary, HollyWood
Manufacturing, Inc. ("HollyWood"). The Company explored ways to reduce
future losses, including divesting itself of its woodworking business while
continuing the sales operations. The Company held discussions with
potential purchasers of its woodworking business. An offer had been
presented but, the potential buyer was unable or unwilling to make a firm
commitment regarding same. The Company was unsuccessful in its attempts
to divest itself of its woodworking business or find a suitable manufacturer
for its products and consequently, ceased ongoing operations of the
woodworking business to reduce its losses. The Company dismissed the
entire staff and management of its woodworking operation and has
liquidated its assets. The lease for the facility housing HollyWood expired
on December 31, 1995 at which time the Company vacated the premises.
The Company used the funds raised through the liquidation of assets and
collection of outstanding receivables to satisfy a secured credit facility with
Riviera Finance of Chicago, Illinois.
In April 1996, the company moved its wholly owned subsidiary, Navtech
Industries, Inc., from Blanding, Utah to Shiprock, New Mexico. The move
allowed Navtech to operate from one facility totaling 54,000 square feet in
lieu of three facilities totaling 20,000 square feet. This will enable the
company to operate with greater efficiency and substantial less cost through
consolidation of functions, elimination of transportation and reduction in
management and supervisory staff. In its new location in Shiprock, New
Mexico, Navtech is located on the Navajo Reservation which allows for
rebates in employing Native Americans, reduced energy costs and a
forgiveness of rent payments on the new facility until such time as the move
and refurbishing costs to the building are fully paid. It is estimated that
this process will take approximately 10 years. It is anticipated that the new
facility would allow Navtech to expand its revenues substantially.
Additionally, during the Company's first quarter of 1996 (April - June) the
Company has changed the management of the Company with a pared down
more cost conscious group of professionals to carry out Navtech's plan and
meet targeted budgets for the upcoming year. The first quarter results for
this subsidiary show a significant change to its income statement as it
achieved break even status for the period as compared to a $2 million loss
last year.
With the closing of the $5 million financing package for Country World
Casinos, Inc., in May 1996, it is anticipated that Country World will be able
to emerge from Chapter 11 proceedings in the immediate future, therefore
eliminating substantial legal, travel and management expense associated
with these proceedings. Further, with the simultaneous settlement of all
outstanding State litigation (see Part II Item 1 - Legal Proceedings) as a part
of the Chapter 11 proceedings,it is anticipated that Country World will recover
monetary damages and be able to move forward with its plans to construct
the Casino. Additionally, Country World has moved to smaller, less
expensive quarters substantially reducing its operating costs and plans to
eliminate its office requirements in Denver during this fiscal year.
In late October 1995, Country World petitioned the U.S. Bankruptcy
Court for the District of Colorado for protection under the rules of Chapter
11 of the Bankruptcy Code in order to stop the foreclosure on the property
identified as Millsites 12, 13 and the Smith Mining Claim by
Tommyknocker, a subsidiary of New Allied Development Corporation
("New Allied"). In May 1995, Country World filed suit against New Allied
in State Court for amongst other things, failure to satisfy a first deed of
trust obligation, overcharges in conjunction with an EPA remediation plan and
action taken by a New Allied officer and related parties requiring Securities
and Exchange Commission sanctions which in turn could jeopardize
Country World's ability to obtain a gaming license. In June 1995, New
Allied filed a counterclaim to this action.
The Company, on behalf of Country World, has obtained a financing
commitment for 5 million dollars ($5,000,000) which will enable Country
World to repay all of its outstanding indebtedness and emerge from
Bankruptcy. This financing proposal has been approved by the Bankruptcy
Court and the Company has acquired the funds and distribution will be made
in accordance with the Court's order.
Country World anticipates that it will require an additional approximately
$27,350,000 to construct an operational and licensed Casino. At present, a
letter of intent for the permanent financing is in place to fund the Casino
after construction, however there can be no assurance that the closing of
such financing will be obtained.
Results of Operations
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Based on the following results of operations and the substantial losses
attributable to HollyWood, the Company decided to cease ongoing
operations of this segment of the Company's business. Due to the plan of
discontinuance for HollyWood, revenues and net losses have been
eliminated from the statement of operations. The following comparison,
therefore, does not include the results attributable to HollyWood, but
contains the costs of discontinued operations.
Revenues for the three months ended June 30, 1996 were $1,794,197 as
compared to $997,776 for the three months ended June 30, 1995. The
increase in revenues is a result of the ability of the Company to fund
increased sales through funds raised earlier this year.
Cost of sales for the three months ended June 30, 1996 was $1,316,770 as
compared to $1,144,177 for the three months ended June 30, 1995. This
increase of $172,593 was primarily a result of costs associated with funding
an increase in sales of approximately 80%.
Gross profits were $477,427 for the three months ended June 30, 1996, as
compared to a $(146,401) loss for the three months ended June 30, 1995.
This increase of $623,828 in gross profit is attributable to increased sales
for the period, as well as a 42% reduction in cost of sales.
Total operating expenses for the three months ended June 30, 1996 were
$1,238,927 as compared to $835,794 for the comparable period ended June
30, 1995. The majority of these expenses are attributable to one time costs
associated with the reorganization or Navtech, closing costs for the $5
million funding associated with the Country World Chapter 11 Proceedings,
increased legal and other professional fees, raising of working capital,
consulting, stock expenses, as well as promotional fees.
Operating losses totaled $761,500 for the three months ended June 30,
1996, as compared to an operating loss of $982,195 for the same period in
1995 for the reasons described above.
Interest expense for the three months ended June 30, 1996 was $84,173 as
compared to $85,405 for the three months ended June 30, 1995. This cost is
primarily attributable to the Navtech revolving line of credit with a local
lending institution in Farmington, New Mexico.
Liquidity and Capital Resources
To date, the Company has met its cash requirements through funds
generated by the IPO, the offerings of the Series D and Series E Preferred
Stock, borrowings and other equity investments. The Company experienced a
severe cash shortage and sustained substantial operating losses. Additional
funds will be required during the current fiscal year to satisfy the Company's
cash requirements. To the extent the Company has ceased operations of its
woodworking business, its cash requirements have diminished accordingly,
and a new line of credit has been secured to fund Navtech's operations with
The First National Bank of Farmington in Farmington, New Mexico. The
terms of this facility are for a receivable and inventory line of credit in an
amount not to exceed $1,500,000 with a monthly floating interest rate of
1.5% over prime. Additionally, the Company raised $7,670,000 through a
private equity placement of the Company's Series E Preferred Stock. Unless
and until the Company improves its financial results sufficiently and
maintains such improved results, the Company may have to borrow or raise
additional capital to fund any cash shortages as a result of the Company's
continuing losses.
In May 1995, the Company borrowed $500,000 from the Calvin Black
Trust, which was due October 1, 1995. The note paid 2% interest per month,
payable monthly. The Company defaulted in its obligation to repay the debt
to the Calvin Black Trust by October 1, 1995 and was subsequently declared
to be in default of its obligation under the terms of the note and agreement.
The Calvin Black Trust filed a complaint in Federal Court in the District of
Utah for repayment of the debt. On January 15, 1996 the Company, The
Calvin Black Trust and Norlar, Inc., a corporation owned by Mr. Larry
Berman, the Chairman and Chief Executive Officer of the Company, and his
spouse, entered into a Sale and Forbearance Agreement pursuant to which
The Calvin Black Trust sold to Norlar $250,000 of the indebtedness owed by
the Company in exchange for $250,000 from Norlar and Norlar agreed to
deliver to the Calvin Black Trust upon the effectiveness of this Registration
Statement either 250,000 shares of the Company's Common Stock or
$500,000 worth of the Company's Common Stock whichever be greater. In
exchange, The Calvin Black Trust agreed to forbear from taking any further
actions for a period of six months from the date of the Sale and Forbearance.
The Company will repay Norlar the $250,000 and replace the shares of the
Company's Common Stock that Norlar is required to deliver to The Calvin
Black Trust. In April 1996, the Agreement was amended and the Trust was
paid an additional $150,000 and Norlar agreed to deliver to the Trust, upon
effectiveness of a registration statement, either 200,000 shares of the
Company's Common Stock or $348,000 worth of the Company's Common
Stock, whichever be greater, for an extension of time to file a registration
statement. The Company has failed to comply with the terms of the
amended agreement. The Trust has put the Company on notice that it
intends to pursue this matter and seek collection of the remaining balance
due under the note. The Company believes that the delay in filing the
Registration Statement was in part caused by the Trustee and will defend
itself vigorously.
In January 1995, the Company borrowed, on an unsecured basis, an
aggregate of $1,000,000 from three individuals and entities at 15% annual
interest. In lieu of such interest, the Company issued to such note holders an
aggregate of 150,000 shares of Common Stock. The principal amount of
such notes was due and payable on January 13, 1996, and in March 1996,
the Company entered into an extension agreement with the three individuals
whereas the Company made a partial payment of $500,000 and Mr. Larry
Berman, the Company's Chairman, gave 370,000 shares of his personal
stock for an extension until August 9, 1996 at which time a balance payment
of $400,000 is due. The Company utilized the $1,000,000 to make a loan to
Country World, which indebtedness was canceled in exchange for the
issuance of 5,000,000 shares of Country World common stock to the
Company. The Company plans to invest up to an additional $35 million to
develop and construct the casino and hotel complex in Black Hawk,
Colorado. The Company has secured construction financing and has a
commitment letter for the permanent financing of the project, however there
can be no assurance that the closing of such financing will be obtained.
The Company consummated a Private Placement of 767,000 shares of its
Series E Convertible Preferred Stock in March of 1996, resulting in gross
and net proceeds of $7,670,000 and $6,628,000, respectively. The proceeds
of this offering were utilized for repayment of debt, settlement of litigation
fees associated with securing financing for Country World Casinos, Inc. and
working capital for the Company and Navtech. Each share of Series E
Preferred Stock is convertible into shares of the Company's Common Stock
at the rate determined by dividing $10.00 by the lesser of 75% of the closing
bid price as reported by NASDAQ, of the Company's Common Stock on the
date of the closing of the subscription or 65% of the average closing bid
price for the five (5) trading days immediately preceding the date of
conversion.
In February 1996, the Company hired Martin Janis & Company to act as
agent for the Company in providing additional public relations services for a
three month period. The Company issued 35,000 shares of its Common
Stock for such services and in May 1996, paid an additional fee of
approximately $24,000 for such three month period. Additionally, the
Company will retain limited services from Martin Janis & Company for the
next nine months at a fee of $3,000 per month.
In June 1996, the Company issued an aggregate of 1,300,000 shares of its
Common Stock to Messrs. Irwin Schneider, Eugene Lombardo and Scott
Schneider in return for certain services performed by these individuals on
behalf of the Company.
Part II
Item 1 - Legal Proceedings
On May 26, 1995, the Company's majority owned subsidiary Country
World Casinos, Inc. ("CWC") commenced a lawsuit against Tommyknocker
Casino Corp. ("Tommyknocker") and New Allied Development Corporation
("New Allied") in the District Court of Denver, County of Denver,
Colorado, case number 95CV 2310. This action is primarily for breach of
contract in connection with the acquisition of certain real property by CWC
from the defendants. CWC is seeking monetary damages and declaratory
relief.
On August 15, 1995, Tommyknocker and New Allied filed a counterclaim
in the aforementioned action against CWC, the Company, Ronald Nathan,
Sal Lauria, who are former board members of CWC, Roger LeClerc,
President of CWC, William Patrowicz and David Singer, current directors of
CWC. The counterclaim alleges that CWC is in default under the Promissory
Note issued by CWC to Tommyknocker in connection with the acquisition
of the real property, CWC failed to register stock on behalf of
Tommyknocker and that the Company has acquired control of CWC to the
detriment of Tommyknocker and New Allied.
In a related action on June 28, 1995, Tommyknocker filed a Rule
120 Motion in the District Court, City and County of Denver, Colorado, case
number 95CV 2799. This motion sought foreclosure of the real property
discussed above. On October 4, 1995, the magistrate in this case granted
Tommyknocker's motion and authorized the sale of the property pursuant to
the foreclosure on October 12, 1995.
On October 12, 1995, CWC filed a bankruptcy petition under
Chapter 11 of Title 11 of the United States Code. The case was filed in the
United States Bankruptcy Court, District of Colorado, case number 95-
20563rjb. Pursuant to the filing of the Bankruptcy, an automatic stay went
into effect pursuant to 11 U.S.C. Section 362 prohibiting the foreclosure
sale. Tommyknocker filed a Motion for Relief from the stay and a hearing
on this matter was held on December 22, 1995. On January 3, 1996, the
Court ruled that CWC should be given an opportunity to proceed with its
Bankruptcy proceedings in a diligent and timely fashion. The Court
conditioned continuation of the stay pending the approval or denial as the
case may be of CWC's financing proposal and certain other conditions. In
March 1996, the Court approved CWC's financing proposal and in May
1996, CWC submitted a plan of reorganization to the Court which is
pending.
On October 10, 1995, Phil B. Acton, Trustee of the Calvin Black
Trust commenced a lawsuit against the Company in the United States
District Court for the District of Utah, Central Division, case number 95CV
09305. This action seeks repayment of a promissory note in the principal
amount of $500,000. On January 15, 1996 the Company, the Calvin Black
Trust and Norlar, Inc. a corporation owned by Mr. Larry Berman, the
Chairman and Chief Executive Officer of the Company and his spouse
entered into a Sale and Forbearance Agreement pursuant to which The
Calvin Black Trust sold to Norlar $250,000 of the indebtedness owed by the
Company in exchange for $250,000 in cash from Norlar and Norlar agreed
to deliver to the Calvin Black Trust upon the effectiveness of a Registration
Statement either 250,000 shares of the Company's Common Stock or
$500,000 worth of the Company's Common Stock whichever be greater. In
exchange, The Calvin Black Trust agreed to forbear from taking any further
actions for a period of six months from the date of the Sale and Forbearance.
The Company will repay Norlar the $250,000 and replace the shares of the
Company's Common Stock that Norlar is required to deliver to The Calvin
Black Trust pursuant to the terms of the Sale and Forbearance Agreement in
either cash or the Company's securities as determined by the Company's
Board of Directors. In April 1996, the Agreement was amended and the
Trust was paid an additional $150,000 and Norlar agreed to deliver to the
Trust, upon effectiveness of a Registration Statement, either 200,000 shares
of the Company's Common Stock or $348,000 worth of the Company's
Common Stock, whichever be greater, for an extension of time to file a
registration statement. The Company has failed to comply with the terms of
the amended agreement. The Plaintiff has put the Company on notice that it
intends to pursue this matter and seek collection of the remaining balance
due under the Note. The Company believes that the delay in filing the
Registration Statement was in part caused by the Trustee and intends on
defending itself vigorously.
The negative outcome of any of these actions will have a material
impact on the operations of the Company and would result in a disruption of
the Company's business.
Item 2 - Exhibits & Reports on Form 8-K
(A) There are no exhibits to be filed at this time.
(B) No reports on Form 8-K were filed during the quarter for which this
report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
HOLLY PRODUCTS, INC.
/s/ William H. Patrowicz
William H. Patrowicz
President, Chief Operating Officer,
Treasurer (Principal Financial and Accounting Officer),
and Director
Date: August 21, 1996
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