SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-KSB
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 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 1-12668
HOLLY HOLDINGS, INC.
(Name of Small Business Issuer in its charter)
New Jersey 22-3172149
(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:
NAME ON EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, no par value None
Common Stock Purchase Warrants None
Convertible Preferred D, $10 par value None
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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. $
The aggregate market value at _______, 1997 of shares of the issuer's
Common Stock, no par value (based upon the closing price per share of such
stock, held by non-affiliates of the Registrant was approximately $_________.
Solely for the purposes of this calculation, shares held by directors and
officers of the issuer have been excluded. Such exclusion should not be deemed
a determination or an admission by the issuer that such individuals are, in
fact, affiliates of the issuer.
Indicate the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: At September 15, 1997,
there were outstanding 21,662,477 shares of the issuer's Common Stock, no par
value.
Documents incorporated by reference:
Document Form 10-KSB Reference
Transitional Small Business Disclosure Format (check one):
Yes __X___ No _____
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PART I
Description of Business
ITEM 1
GENERAL
The Company was incorporated in New Jersey in 1992. The Company, through
its wholly owned subsidiary, HollyWood Manufacturing, Inc., used to
manufacture wood cabinetry and fixtures. Due to continued losses, the Company
ceased ongoing operations of the woodworking business effective September
1995. In June 1994, the Company consummated the acquisition of Navtech
Industries, Inc. Due to minimal profits and the cancellation of Navtech's
bank line of credit, the Company ceased ongoing operations effective June
1997. In July 1995, the Company acquired a majority of shares of Common Stock
of Country World Casinos, Inc. In March 1997, the Company consummated the
acquisition of Nightlife Printing & Promotions, Inc. and American Publishers
Company, Inc. In June 1997, according to the terms of the acquisition
agreement, all transactions were reversed and Nightlife Printing and American
Publishing were returned to their original owners.
STRATEGY
NAVTECH INDUSTRIES, INC.
On June 30, 1994, the Company acquired all of the issued and outstanding
shares of Navtech Industries, Inc.("Navtech"). Navtech is an electronic cable
and contract assembly company located in Shiprock, New Mexico. Navtech
provides independent manufacturing services to original equipment
manufacturers in industries such as gaming, medical equipment, security
systems, computer peripherals, in-room hotel mini-bars and electronic musical
systems.
In March 1994, Navtech entered into a series of agreements through which
it purchased 26.7% of the issued and outstanding stock of RoomSystems for
$282,000, which $278,000 was provided to Navtech by the Company. In addition,
in April 1994, Navtech and RoomSystems entered into an agreement granting
Navtech exclusive rights to manufacture RoomSystems' in-room hotel mini-bars,
provided Navtech meets certain quality, production and related criteria. In
April 1996, RoomSystems initiated action to cancel the agreement due to price
and quality issues. Navtech continued to manufacture for RoomSystems while
both companies sought to negotiate a settlement to their respective
differences. On November 15, 1996, the companies executed a settlement
agreement terminating all manufacturing agreements, resolving all pricing and
payment terms and settling a date for the final shipment of units. In January
1997, the final units were shipped. Since the profit margin on the units was
lower than desired, the overall impact upon Navtech's profits were minimal.
In April 1997, Navtech instituted legal action against RoomSystems to collect
the balance due of approximately $125,000 for the January 1997 shipment.
In April 1996, Navtech moved from Blanding, Utah to Shiprock, New
Mexico. The move allowed Navtech to operate from one facility totaling 54,000
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square fee in lieu of three separate facilities totaling 20,000 square feet.
This enabled 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 was anticipated that the
new facility would allow Navtech to expand its revenues, pending receipt of
new orders and sufficient working capital. Additionally, during the Company's
first quarter of 1996 (April - June) the Company changed the management of
Navtech with a smaller group of professionals to carry out Navtech's plan and
meet targeted budgets for the upcoming year. The nine months results for this
subsidiary showed a significant turnaround to its income statement as compared
to a $2 million loss last year. Navtech suffered a mediocre fourth quarter
(January - March 1997) and first quarter (April - June 1997) for the new year
as well. In the interim, Navtech reduced its staff significantly to reduce
operating costs and conserve working capital until such time as new orders
were received. In June 1997, Navtech's bank, First National Bank of
Farmington, informed Navtech that it would no longer continue its revolving
line of credit. Accordingly, the Company was forced to cease ongoing
operations and liquidate Navtech's assets to repay the loan to bank.
COUNTRY WORLD CASINOS, INC.
As of July 1997, the Company owns 65% of the outstanding shares of
Country World Common Stock. Country World intends to develop a casino, hotel
and parking complex in the gaming district of Black Hawk, Colorado, which is
located approximately 35 miles west of Denver, including an approximate 75,000
square foot casino (the "Casino") for limited stakes gambling (that is,
gambling in which bets are limited to a $5.00 maximum by Colorado law).
Country World purchased the real property on which the Casino is to be
constructed from New Allied for approximately $11, 500,000, consisting of
$550,000 in cash, approximately $7,500,000 in preferred stock and
approximately $3,500,000 in the form of a promissory note.
On June 28, 1995, Tommyknocker, a subsidiary of New Allied, filed a Rule
120 Motion in the District Court, City and County of Denver, Colorado. This
action sought foreclosure on the property. On October 3, 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,
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. The foreclosure had been stayed pending
certain conditions.
The Company, on behalf of Country World, obtained a 5 million dollars
($5,000,000) financing package, which enabled Country World to repay all of
its outstanding indebtedness and emerge from Bankruptcy. This financing
package had been approved by the Bankruptcy Court and the Company utilized the
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funds in accordance with the Court's order. With all issues completed in
March 1997, the U.S. Bankruptcy Court ruled that Country World Casinos, Inc.
be dismissed from Chapter 11.
Country World anticipates that it will require an additional
approximately $70,000,000 to $80,000,000 to construct an operational and
licensed casino, hotel and parking complex. In July 1997, Country World
signed an agreement with U2 Consulting, of San Francisco, California, to
provide up to $75,000,000 in debt financing to construct such facility.
In March 1997, the Company acquired all of the outstanding shares of
Nightlife Printing & Promotions, Inc., a commercial offset printer, and all of
the outstanding shares of American Publishers Company, Inc., a wholesaler
telemarketing company selling educational products to schools and libraries.
In June 1997, according to the terms of the acquisition agreement, primarily
as a result of the NASD's delisting of the Company's securities, all
transactions were reversed and Nightlife Printing and American Publishing were
returned to their original owners.
NAVTECH INDUSTRIES, INC.
During fiscal 1997, Navtech offered independent manufacturing services to
original equipment manufacturers in a variety of industries. The Company
assembled printed circuit boards and wire harness assemblies for slot machine
tracking systems, signage, as well as various other products. In June 1997,
Navtech's primary secured lender, First National Bank of Farmington, informed
Navtech that it would not extend the loan. Navtech was unable to replace
First National Bank of Farmington and the bank subsequently forced Navtech to
cease ongoing operations and the Bank is liquidating the assets to pay this
loan.
EMPLOYEES
As of July 1997, the Company has four full time employees including three
executive officers. In June 1997, Navtech reduced its staff significantly
maintaining management and sales personnel until new commitments/orders were
received. In July 1997, with the ceasing of Navtech's operations, all
employees of Navtech were dismissed.
INSURANCE
The Company's insurance coverage includes property and casualty
insurance, liability insurance, including products liability, and excess
liability coverage, key man life insurance on Mr. Berman, the Company's Chief
Executive Officer and Mr. Patrowicz, the Company's President, and directors
and officers liability insurance. Based both upon its experience and industry
standards, the Company believes that the types and amounts of its coverage are
adequate. In June 1997, the Company did not renew the key man life insurance
policies for Mr. Berman and Mr. Patrowicz in an effort to reduce its fixed
expenses.
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ITEM 2 - PROPERTIES
The Company's executive offices are presently contained within an office
complex in Bala Cynwyd, Pennsylvania and is approximately 2,000 square feet.
The offices are leased for a period of two years, commencing January 1996, at
a net monthly rental of $2,400.
ITEM 3 - 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
and David Singer who are former board members of CWC, Roger LeClerc, President
of CWC and William Patrowicz director 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, Country World closed on such financing. In
September 1996, the Court heard testimony in a claims hearing between the
parties. In early November 1996, the Company received final rulings from the
Court.
The Court's order found that Tommyknocker Casino Corporation/New Allied
was not entitled to default interest at the rate of 18%, however Country World
is ordered to pay 8% per annum on the unpaid balance due Tommyknocker.
Additionally, the Court ordered that both parties were obligated to pay their
own expenses related to this matter.
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The Court further found that Country World Casinos, Inc. was not in
default of its Agreement with Tommyknocker/New Allied with regard to filing a
registration statement for its preferred stock and until Tommyknocker/New
Allied files such registration statement and Country World fails to pay for
its cost, Country World is not in breach of the agreement.
The Court upheld Tommyknocker's/New Allied's claim that Country World was
not entitled to an offset on the environmental clean up as the work had been
completed and Country World paid all clean up costs without objection prior to
the Company's acquisition of a majority ownership in Country World.
The Company, on behalf of Country World, obtained a 5 million dollars
($5,000,000) financing package, which enabled Country World to repay all of
its outstanding indebtedness and emerge from Bankruptcy. This financing
package had been approved by the Bankruptcy Court and the Company utilized the
funds in accordance with the Court's order. With all issues completed in
March 1997, the U.S. Bankruptcy Court ruled that Country World Casinos, Inc.
be dismissed from Chapter 11.
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. In August 1996, the Company liquidated this note by payments and
by the exchange of equity in a subsidiary it had in another company,
terminating the legal action brought upon the default.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 5, 1996, by written consent of a majority of the Company's
stockholders without a meeting, action was taken to amend the Company's
Certificate of Incorporation to increase the authorized number of shares of
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Common Stock from 20 million to 50 million shares. The foregoing was approved
by the holders of 9,907,467 shares of the Company's Common Stock, constituting
approximately 85.2% of such stock outstanding on April 30, 1996, the record
date.
In December 1996, at the annual meeting of shareholders, the shareholders
were asked to approve the following agenda:
1. To elect a Board of Directors to serve until the next annual meeting of
shareholders and until their successors have been duly elected and
qualified;
2. To consider and act upon a proposal to amend the Company's Certificate of
Incorporation to change the name of the Company to "Holly Holdings, Inc.";
3. To consider and act upon a proposal to amend the Company's Certificate of
Incorporation to reflect a one-for-ten reverse split of the Company's
Common Stock;
4. To consider and act upon a proposal to amend the Company's Certificate of
Incorporation to increase the number of authorized shares of the Company's
Common Stock from 50,000,000 to 150,000,000;
5. To consider and act upon a proposal to approve the Company's 1996 Stock
Option Plan;
6. To consider and act upon a proposal to issue five pre-split shares of the
Company's Common Stock in exchange for one share of the Company's Series D
Preferred Stock and to amend the Company's Certificate of Incorporation to
delete any reference to, or any provision for, the class of authorized
stock designated as Series D Preferred Stock;
7. To ratify the selection of Moore Stephens CPA's to act as the Company's
Independent Certified Public Accountants for the fiscal year ending March
31, 1997;
All of the above items except Item #6 were approved by the shareholders
and were effective December 26, 1996. The Company plans to reissue a proxy
statement for Item #6 in September of 1997.
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PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCK HOLDER MATTERS
The Company's Common Stock, Warrants and Series D Preferred Stock are
currently traded "over the counter market" under the respective symbols
"HOPR", "HOPRW" and "HOPRP".
<TABLE>
<CAPTION>
The following table sets forth the high and low prices for such
securities on the NASDAQ Small Cap Market during the quarters indicated. In
July 1997, the Company's common stock and warrants were delisted from the
NASDAQ Small Cap Market. In March 1997, the Company's Series D Preferred
stock was delisted from the NASDAQ Small Cap Market.
</CAPTION>
Common Stock Warrants Preferred
Period High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C>
December 20 to December 31, 1993 5 3/4 5 3/8 3/4 3/8 - -
Quarter Ended March 31, 1994 6 1/4 5 1/2 1 5/8 - -
Quarter Ended June 30, 1994 6 3/4 5 3/4 1 5/8 1 - -
Quarter Ended September 30, 1994 8 1/8 6 1/2 4 1/8 1 7/8 - -
Quarter Ended December 31, 1994 8 1/8 6 1/2 4 1/4 1 7/8 16 11
Quarter Ended March 31, 1995 7 1/4 5 4 1/8 2 3/8 16 10
Quarter Ended June 30, 1995 7 3/8 5 4 2 3/8 15 1/4 10
Quarter Ended September 30, 1995 5 7/8 2 3/4 2 1/4 5/8 12 5 1/2
Quarter Ended December 31, 1995 3 7/8 1 1 5/8 5/8 8 2 1/4
Quarter Ended March 31, 1996 2 11/16 11/16 1 1/4 7/16 6 2 5/8
Quarter Ended June 30, 1996 3/4 5/16 11/16 5/16 2 5/8 3/4
Quarter Ended September 30, 1996 11/16 5/16 5/8 1/16 2 3/4
Quarter Ended December 31, 1996 9/16 1/4 3/8 1/16 1 3/8
Quarter Ended March 31, 19972 1/4 1 3/16 1/4 1/16 3/8 3/8
Quarter Ended June 30, 19972 1/16 1/ 4 1/8 1/16 1/4 1/8
</TABLE>
On September 15, 1997, the closing price of the Common Stock, Warrants
and Preferred Stock listed in the "over the counter market" were $0.12, $0.01
and $0.75, respectively.
On September 15, 1997, there were 407 holders of record of the Company's
Common Stock, 56 holders of record of the Warrants and 29 holders of record of
the Series D Preferred Stock. The Company believes that there are in excess of
3,500 beneficial owners of Common Stock, Warrants and Series D Preferred
Stock.
DIVIDEND POLICY
The Company does not anticipate that it will pay cash dividends on the
Common Stock in the foreseeable future. The payment of such dividends by the
Company will depend on its earnings, if any, and financial condition and such
other factors as the Board of Directors of the Company may consider relevant.
The Company currently intends to retain any earnings to provide for the
development and growth of the Company.
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Holders of shares of Series D Preferred Stock receive dividends of 10%
per annum. Such dividends accrue and are cumulative from the date of original
issue and are payable quarterly in arrears on October 1, January 1, April 1
and July 1 of each year. Dividends on the shares of Series D Preferred Stock
are payable prior to any dividends to be paid on the Common Stock. The
Company intends to pay dividends on the Series D Preferred Stock to the extent
its earnings are sufficient, as determined in the discretion of the Board of
Directors of the Company. Under New Jersey law, the Company is not permitted
to pay dividends if either (i) it would be unable to pay its debts as they
become due in the ordinary course of business or (ii) its total assets would
be less than its total liabilities. Accordingly, dividend payments have not
been made since July 1, 1995.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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.
GENERAL
The Company is focusing all its attention in assisting its majority owned
subsidiary, Country World Casinos, Inc., ("Country World") in completing its
plan to build the largest casino and hotel complex in the state of Colorado,
as well as completing its financials and settling outstanding indebtedness so
that it can plan for new acquisitions in the future.
In order to begin the process of timely completing the goals, Country
World 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, Country World has signed a management agreement with Signature
Hospitality Resources, Inc. of Denver, Colorado to manage the Radisson Black
Hawk Hotel, a separate agreement to use the national flag of Radisson on the
hotel and a binding letter of intent with Luciani & Associates, LLC. and G.
Michael Brown, joint venture of Atlantic City, New Jersey, to manage the
casino operations. All parties will assist the architect in design of their
respective operations.
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. Country World 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. Country World 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.
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The 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.
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 Country World 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
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 Casino will be under the management of a joint
venture between Luciani & Associates, LLC and G. Michael Brown of Atlantic
City, New Jersey (the "Casino Manager"), who are leaders in casino design,
management and security services.
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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.
RESULTS OF OPERATIONS
TWELVE MONTHS ENDED MARCH 31, 1997 COMPARED TO TWLEVE MONTHS ENDED MARCH 31,
1996
Based on the following results of operations and the non renewal of
Navtech's line of credit with the First National Bank of Farmington, the
Company was forced to cease ongoing operations of this segment of the
Company's business. Due to the plan of discontinuance for Navtech, revenues
and net losses have been eliminated from the statement of operations. The
following comparison, therefore, does not include the results attributable to
Navtech, but contains the costs of discontinued operations.
Revenues for the twelve months ended March 31, 1997 were $ * as
compared to $4,110,443 for the twelve months ended March 31, 1996. This
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 twelve months ended March 31, 1997 was $ * as
compared to $5,143,819 for the twelve months ended March 31, 1996.or
approximately * % of revenue for the twelve months ended March 31, 1996. This
improvement, solely from the Company's Navtech subsidiary, was primarily the
result of Navtech's cost of sales being higher in 1995 due to it selling
products with a higher cost of goods expense and having a fixed overhead of
labor and other costs during a three month period when Navtech was moving its
headquarters and thus had very low sales shipments.
Gross profit was $ * for the twelve months ended March 31, 1997, as
compared to a $1,033,376 gross loss for the twelve months ended March 31,
1996. This increase of $ * in gross profit is attributable to increased
sales for the period, as well as items mentioned in the cost of sales
paragraph.
Total operating expenses for the twelve months ended March 31, 1997 were
$ * as compared to $5,214,000 for the comparable period ended March 31,
1996. The increase is primarily attributable to increased expenses of the
one-time costs associated with the reorganization of Navtech, closing costs
for the $5 million funding associated with the Country World Chapter 11
Proceedings, and corporate increase of legal and other professional fees, raisin
g of working capital, consulting, stock expenses, as well as promotional fees,
which amounted to about $ * in the corporate area.
Discontinued operations showed an income of $ * for the twelve
months ended March 31, 1997, as compared to a loss of $ * for the twelve
months ended March 31, 1996. The change was a result of the close down of
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this aspect of operations during the prior year. In the current period,
income was primarily a result of the Company being able to settle past debt of
the closed down operations at a substantial discount.
* Financials to Follow
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LIQUIDITY AND CAPITAL RESOURCES
To the extent the Company has ceased operations of its woodworking
business, its cash requirements diminished accordingly, an extended line of
credit had been secured to fund Navtech's operations with The First National
Bank of Farmington in Farmington, New Mexico. The terms of this facility were
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. As of
December 31, 1996, Navtech was indebted to the bank in the amount of
approximately $1.2 million. This loan became due on March 15, 1997, and was
extended to June 1997. In June 1997, the bank informed Navtech that there
would be no further extensions.
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 was due. The
Company made a partial payment for interest, as well as an extension fee in
the amount of $200,000. The Noteholders agreed to extend the final payment due
date until after funding of the Country World Casino project. 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. Country World Casinos, Inc. plans to invest up to
an additional $70 to $80 million to develop and construct the casino and hotel
complex in Black Hawk, Colorado.
During the year 1996, the Company consummated a Private Placement of
1,162,000 shares of its Series E Convertible Preferred Stock in various
trounces, resulting in gross and net proceeds of $11,620,000 and $9,751,000,
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, 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. As of September 1997, 87,500 shares are yet to be converted.
In April 1996, the State of New Jersey approved the issuance of 555,000
shares of Series Z Preferred Stock in accordance with the Company's
Certificate of Designation. In September 1996, such authorization was
increased to 1,050,000 shares and issued in exchange for debt. In July 1997,
the shares of Series Z preferred stock were converted into 5,068,140 shares of
common Stock.
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<PAGE>
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.
In September 1996, the Company issued 573,333 shares of common stock to N
& A Promotions in return for certain services performed for the Company.
In September 1996, a debt of $30,000 owed to Sunrise, Inc. was converted
into 30,000 shares of Series C Preferred Stock and pursuant to the terms
thereof, into 120,000 shares of common stock.
In October 1996, the Company issued 450,000 shares of common stock to
Sparta Capital Ltd. for the exercise of its warrants.
In March 1997, the Company issued 100,000 shares of common stock to
Sparta Capital Ltd. for the exercise of its warrants.
In April 1997, the Company issued 250,000 shares of common stock to
Sparta Capital Ltd. for the exercise of its warrants.
In April 1997, the Company issued 555,000 shares of common stock to
Sparta Capital Ltd. for the exercise of its warrants.
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 shortage, in the need should arise.
At March 31, 1996, the Company had owed $250,000 plus accrued interest
and legal fees as required under the default provisions of the note, to the
Calvin Black Trust. During the current period, the Company liquidated this
note by payments and by the exchange of equity a subsidiary had in another
company, terminating the legal action brought upon the default.
ITEM 7 - FINANCIAL STATEMENTS - SEE PAGE F-1
The Company was not able to complete its financial statements in time to
file this form 10-KSB report because the Company is indebted to its
independent auditors and its independent auditors have advised the Company
that until such indebtedness is paid it will not be able to furnish the
Company an independent audit report.
The Company intends to amend the Form 10-KSB to include audited financial
statements and full discussion of financial condition and results of
operations as soon as possible.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE. - Not applicable
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PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The executive officer and directors of the Company as of June 30, 1997
are as follows:
Name Age Position with the Company
Larry S. Berman 61 Chairman, Chief Executive Officer,
Secretary, and Director
William H. Patrowicz 49 President, Chief Operating Officer,
Treasurer and Director
LARRY S. BERMAN has served as Chairman, Secretary, and Director of the
Company 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 raise debt and equity funds.
WILLIAM H. PATROWICZ has served as President, Chief Operating Officer,
and Director of the Company since June 1992. From 1982 to December 1991, Mr.
Patrowicz was employed by Gunnebo Fastening Corp., most recently as Senior
Vice President of Operations.
Directors hold office until the next annual meeting of stockholders
following their elections, or until their successors are elected and
qualified. Officers are elected annually by the Board of Directors and serve
at the discretion of the Board.
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<PAGE>
ITEM 10 - EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company to
its chief executive officer and each of its executive officers whose total
cash compensation exceeded $100,000 for the fiscal period ended March 31,
1997, 1996 and 1995, respectively:
Name and Fiscal Other Annual
Principal Position Year Salary ($) Bonus ($) Compensation
Larry S. Berman 1995 117,000(1) 0 0
Chairman and Chief 1996 156,000 0 0
Executive Officer 1997 156,000 0 0
William H. Patrowicz 1995 110,500(2) 0 0
President and Chief 1996 130,000 0 0
Operating Officer 1997 130,000 0 0
(1) Includes a portion of a $156,000 annual salary which took effect
January 1, 1995.
(2) Includes a portion of a $130,000 annual salary which took effect
January 1, 1995.
The value of personal benefits furnished to Mr. Patrowicz and Mr. Berman
did not exceed 10% of their respective cash compensation.
In February 1996, the Company and Mr. Lloyd Kartchner, Chief Executive
Officer and Director of Navtech, agreed to a mutual separation of the parties
under certain terms and conditions. Among the most important terms being, Mr.
Kartchner has agreed not to compete with the Company for a period of three
years in return for a buy out of his employment contract in the amount of
$150,000, release of his personal guarantees associated with the Company's
business, release of the Escrow Agreement, registration of his Holly Products,
Inc. shares of Common Stock and indemnification for any claims, past or
future.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Set forth below is information at September 15, 1997, concerning the
beneficial ownership of Common Stock by (i) all persons known by the Company
to own beneficially 5% or more of the Company's Common Stock, (ii) each
director of the Company and (iii) all directors and executive officers of the
Company as a group.
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<PAGE>
Shares Beneficially Owned (Post Split)
Name (1)(2)(3) Number Percent
Larry S. Berman (3) 1,669,616 7.7%
Chairman, Chief Executive
Officer, Secretary, and
Director of the Company
William H. Patrowicz 1,333,180 6.2%
President, Chief Operating
Officer, Treasurer,
and Director
All Directors and Executive 3,002,796 13.9%
Officers as a Group (2 persons)
(1) Except as indicated below, all of such persons and entities have sole
investment and voting power over the shares listed as being owned by
them.
(2) The addresses of certain of such persons are:
Larry Berman
William H. Patrowicz
Holly Holdings, Inc.
200 Monument Road, Suite 10
Bala Cynwyd, Pennsylvania 19004
(3) Norlar, Inc. is the record holder of a portion of such shares.
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<PAGE>
ITEM 12 - CERTAIN TRANSACTIONS
On April 20, 1995, the Company acquired 5,000,000 shares of Common Stock
of Country World Casinos, Inc. ("Country World"), in exchange for the
cancellation of $1,000,000 of indebtedness owed by Country World to the
Company. In June 1997, the Company acquired 1,250,000 additional shares in
exchange for the cancellation of $250,000 of indebtedness. The Company also
acquired 16,667 shares of Country World Common Stock in a separate transaction
for $50,000. Country World has purchased real estate located in the gaming
district of Black Hawk, Colorado, on which it seeks to construct the Casino.
In addition, the Company acquired an additional 2,250,453 shares of Common
Stock of Country World from certain existing shareholders of Country World, in
exchange for 744,592 shares of the Company's Common Stock. As of June 30,
1997, the Company owns 65% of the outstanding shares of Country World Common
Stock.
From December 1995 to March 1997, the Company sold 1,162,000 shares of
its Series E Convertible Preferred Stock for $10.00 per share. This
transaction was done in accordance with Regulation S of the Securities Act of
1933. The Series E Preferred Stock is convertible into the Company's Common
Stock at the lesser of 75% of the bid price on the date of closing or 65% of
the bid price on the five days preceding the conversion date. The Company
received net proceeds from this transaction of approximately $9,751,000. The
proceeds 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.
In December 1995, the Company committed to guaranty a $5 million loan for
Country World for use in paying the secured and unsecured creditors of Country
World. The loan was approved by the U.S. Bankruptcy Court for the District of
Colorado and said funds were distributed in accordance with the Court's Order
in March 1997.
In March 1997, the United States Bankruptcy Court for the District of
Colorado dismissed Country World from its pending Chapter 11 case.
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
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<PAGE>
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. In August 1996, the Company liquidated this note by payments and
by the exchange of equity a subsidiary had in another company, terminating the
legal action brought upon the default.
In April 1996, the Company filed for approval with the State of New
Jersey, pursuant to the provisions of Section 14A:7-2(2) of the New Jersey
Business Corporation Act, a Certificate of Amendment to its Certificate of
Incorporation to authorize the issuance of 555,000 of Preferred Stock of the
Corporation to be designated Class Z Preferred Stock, $0.25 par value. Such
designation was approved by the State in April 1996. In September 1996, such
authorization was increased to 1,050,000 shares and issued in exchange for
debt. In July 1997, the shares of Series Z preferred stock were converted
into 5,068,140 shares of common stock. The reason for such authorization is
due to the Company, its Board of Directors and management team as a whole,
submitting to a licensing procedure enforced by the State of Colorado Gaming
Commission. Under the terms of the licensing procedure, all parties must be
licensed prior to opening operations of Country World Casinos and if there was
to be a sudden change in control in the Board of Directors or management team,
the Casino would be forced to close until new personnel could be licensed,
quite possibly bankrupting the Company.
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.
In September 1996, the Company issued 57,333 shares of common stock to N
& A Promotions in return for certain services performed for the Company.
In September 1996, a debt of $30,000 owed to Sunrise, Inc. was converted
into 30,000 shares of Series C Preferred Stock and pursuant to the terms
thereof, into 120,000 shares of common stock.
In October 1996, the Company issued 450,000 shares of common stock to
Sparta Capital Ltd. for the exercise of its warrants.
In March 1997, the Company issued 100,000 shares of common stock to
Sparta Capital Ltd. for the exercise of its warrants.
In April 1997, the Company issued 250,000 shares of common stock to
Sparta Capital Ltd. for the exercise of its warrants.
In April 1997, the Company issued 555,000 shares of common stock to
Sparta Capital Ltd. for the exercise of its warrants.
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ITEM 13 - EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
None
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SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act of 1934, the
issuer caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HOLLY HOLDINGS, INC.
Dated: September 29, 1997 /s/Larry S. Berman
Larry S. Berman
Chairman of the Board,
Chief Executive Officer,
Secretary and Director
Dated: September 29, 1997 /s/William H. Patrowicz
William H. Patrowicz
President, Chief Operating
Officer, Treasurer and Director
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant in the capacities and on the
dates indicated.
/s/Larry S. Berman Chairman, Chief Executive September 29, 1997
Larry S. Berman Officer, Secretary and Director
/s/ William H. Patrowicz President, Chief Operating September 29, 1997
William H. Patrowicz Officer, Treasurer and Director
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