Form 10-QSB/A-1
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 September 30, 1997
Commission file number 1-12668
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_________
HOLLY HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-3172149
(State of jurisdiction of incorporation) (I.R.S. Employer I.D. Number)
200 Monument Road, Suite 10, Bala Cynwyd, Pennsylvania 19004
(Address of principal executive offices)
Registrant's telephone number (610) 617-0400
Check whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities 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 No X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock. The Registrant had 23,106,492 shares of its common stock
outstanding as of December 22, 1997.<PAGE>HOLLY HOLDINGS, INC. AND SUBSIDIARIES
<PAGE>
INDEX
Part I: FINANCIAL INFORMATION
Item 1: Financial Statements:
Consolidated Balance Sheet as of September 30, 1997 (Unaudited) 1-2
Consolidated Statements of Operations for the Three and Six
Months Ended September 30, 1997 and 1996 (Unaudited) 3
Consolidated Statements of Cash Flows for the Six Months Ended
September 30, 1997 and 1996 (Unaudited) 4-5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-11
Part II: OTHER INFORMATION
Item 1: Legal Proceedings 12-14
Item 2: Changes In the Rights of the Company's Security Holders 14
Item 3: Defaults by the Company on its Senior Securities 14
Item 4: Results of Votes of Shareholders 14
Item 5: Other Information 14
Item 6: Exhibits & Reports on Form 8-K 14
Signature Page 15
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997 (UNAUDITED)
Assets:
Current Assets:
Cash and Cash Equivalents $ 51,014
Prepaid Interest 37,107
Prepaid Expenses 78,065
Total Current Assets 166,186
Property and Equipment - (Net of Accumulated
Depreciation and Amortization of $53,441) 11,786,624
Deposits 630
Total Assets $11,953,440
See Notes to Consolidated Financial Statements
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HOLLY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997 (UNAUDITED)
Liabilities and Stockholders' Deficit:
Current Liabilities:
Accounts Payable $ 519,322
Payroll Taxes Payable 37,029
Accrued Expenses 1,039,559
Accrued Interest - Related Parties 203,077
Notes Payable - Related Party (Net of Deferred
Financing Cost of $15,000) 1,332,010
Current Portion of Long-Term Debt 121,281
Net Liabilities of Discontinued Operations 6,265,126
Other Current Liabilities 6,303
Total Current Liabilities 9,523,707
Long-Term Liabilities:
Notes Payable 2,650,000
Notes Payable - Related Party 2,350,000
Other Liability 2,868
Total Long-Term Liabilities 5,002,868
Minority Interest 2,471,960
Commitments and Contingencies --
Stockholders' Deficit:
Preferred Stock - Authorized 2,000,000 Shares:
Series D: Convertible $10.00 Par Value, $1.00
Per Share Per Annum Cumulative Dividends,
384,639 Shares Issued and Outstanding 3,846,390
Series E: Convertible $10.00 Par Value, 87,500
Shares Issued and Outstanding 875,000
Additional Paid-in Capital (Preferred) (1,252,510)
Common Stock - No Par Value, Authorized 150,000,000
Shares, 21,745,015 Shares Issued and Outstanding 20,115,705
Additional Paid-in Capital (Common) (83,947)
Accumulated (Deficit) (28,545,733)
Total Stockholders' Deficit (5,045,095)
Total Liabilities and Stockholders' Deficit $ 11,953,440
See Notes to Consolidated Financial Statements
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<TABLE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Three months ended Six months ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Costs and Expenses:
General and Administrative Expenses $ 427,163 $1,138,662 $ 955,319 $1,897,356
Professional Fees - Due to Bankruptcy 23,083 -- 23,083 --
Depreciation Expense 5,015 35,909 10,644 70,350
Totals 455,261 1,174,571 989,046 1,967,706
Other Income (Expense):
Interest Income 11 22,135 1,475 22,135
Interest Expense (32,311) (61,859) (162,890) (98,767)
Other Income -- (2,447) 20,232 2,048
Other (Expense) - Net (32,300) (42,171) (141,183) (74,584)
Minority Interest Share in Loss of Subsidiary 114,505 11,808 199,484 70,935
(Loss) from Continuing Operations (373,056) (1,204,934) (930,745) (1,971,355)
Discontinued Operations:
Income (Loss) from Operations of
Woodworking Business and Electronic
Components Manufacturing Business (128) 517,032 (142,608) 492,799
Net (Loss) $ (373,184) $ (687,902) $ (1,073,353) $(1,478,556)
Per Share Data:
(Loss) from Continuing Operations $ (.02) $ (.35) $ (.06) $ (.78)
Income (Loss) from Discontinued
Operations $ .00 $ .15 $ (.01) $ .19
Net (Loss) Per Common Share $ (.02) $ (.20) $ (.07) $ (.59)
Weighted Average Number of
Common Shares Outstanding 20,640,670 3,453,670 14,546,715 2,508,081
</TABLE>
See Notes to Consolidated Financial Statements
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HOLLY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended
September 30,
1997 1996
Operating Activities:
(Loss) From Continuing Operations $ (930,745) $(1,971,355)
Adjustments to Reconcile Net [Loss] to Net Cash
(Used for) Operating Activities:
Depreciation and Amortization 10,644 70,350
Amortization of Deferred Financing Activities 3,856 37,866
Minority Interest 199,484 (70,935)
Changes in Assets and Liabilities:
(Increase) Decrease in:
Other Current Assets -- 4,534
Prepaid Expenses 20,923 187,858
Deposits (190) --
Other Assets 125,000 147,649
Increase (Decrease) in:
Accounts Payable and Accrued Expenses 141,976 (1,158,838)
Payroll Taxes Payable 21,863 (59,060)
Other Current Liabilities -- (14,182)
Total Adjustments 523,556 (854,758)
Net Cash - Continuing Operations - Forward (407,189) (2,826,113)
Discontinued Operations:
Changes in Net Assets, Liabilities and Losses (142,608) 1,190,390
Net Cash - Discontinued Operations - Forward (142,608) 1,190,390
Investing Activities - Continuing Operations:
Payment of Casino Development Costs (463,426) (12,610)
Net Cash - Investing Activities - Continuing
Operations - Forward $(463,426) $ (12,610)
See Notes to Consolidated Financial Statements
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HOLLY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended
September 30,
1997 1996
Net Cash - Continuing Operations - Forwarded $ (407,189) $(2,826,113)
Net Cash - Discontinued Operations - Forwarded (142,608) 1,190,390
Net Cash - Investing Activities - Continuing
Operations - Forwarded (463,426) (12,610)
Financing Activities - Continuing Operations:
Proceeds from Notes Payable-Other 694,250 3,740,980
Payment of Notes Payable - Other (11,817) (150,000)
Payment of Demand Notes Payable - Stockholders
and Related Parties (60,000) (1,925,339)
Proceeds from Issuance of Preferred Stock -- 1,139,319
Proceeds from Exercise of Warrants 465,000 --
Net Cash - Financing Activities - Continuing
Operations 1,087,433 2,804,960
Net Increase (Decrease) in Cash and Cash
Equivalents 74,210 1,156,627
Cash and Cash Equivalents - Beginning of Periods (23,196) 934,462
Cash and Cash Equivalents - End of Periods $ 51,014 $ 2,091,089
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the six months ended September 30, 1997 and 1996
was $100,820 and $170,871 respectively, net of capitalized interest. No
income taxes were paid during the three months ended June 30, 1997 and 1996.
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.
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HOLLY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
[1] Summary of Significant Accounting Policies
Significant accounting policies of Holly Holdings, Inc. are set forth in the
Company's Form 10-KSB for the period ended March 31, 1997, as filed with the
Securities and Exchange Commission.
[2] 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.
As of March 31, 1997, the Company determined to discontinue its electronic
components manufacturing business. Accordingly, the financial statements for
prior periods have been restated to reflect this change retroactively.
Operating results for the three and six months ended September 30, 1997 and
1996 are not necessarily indicative of the results that may be expected for
the year ended March 31, 1998. It is suggested that these financial
statements be read in conjunction with the financial statements and notes for
the period ended March 31, 1997, included in the Holly Holdings, Inc. Form
10-KSB/A-1.
[3] Inventory
At September 30, 1997, the Company had no inventory.
[4] Earnings Per Share
Earnings per share are based on 20,640,670 and 3,453,670 shares outstanding
for the three months ended September 30, 1997 and 1996, respectively, and
14,546,715 and 2,508,081 for the six months ended September 30, 1997 and 1996
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.
[5] Equity Transactions
During the quarter, 50,000 shares of Series E Preferred Stock were converted
pursuant to the terms thereof into 5,445,983 shares of the Company's common
stock. During the quarter, $255,000 worth of Convertible Debentures were
converted pursuant to the terms thereof into 2,711,462 shares of the Company's
common stock. On July 16, 1997 1,013,628 shares of the Company's Series Z
Preferred Stock were converted pursuant to the terms thereof into 5,068,140
shares of the Company's common stock.
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<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
ITEM 2. 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 management agreement with Luciani & Associates, LLC. and Casino
Research and Planning 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.
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.
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
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HOLLY HOLDINGS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 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.
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HOLLY HOLDINGS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Six Months Ended September 30, 1997 Compared to Six Months Ended September 30,
1996
Based upon the results of operations, and the substantial losses
attributed to Navtech Industries, Inc., the Company decided to cease ongoing
operations of this segment of the Company's business as of March 31, 1997.
Due to the plan of discontinuance for Navtech, revenues and net losses have
been eliminated from the statement of operations. The following comparisons,
therefore, does not include the results attributed to Navtech, but contains
the costs of discontinued operations.
Due to the discontinuance of Navtech, the Company had no revenue, cost of
sales or gross profit, for the six months ended September 30, 1997 and,
retroactively, no revenue for the three months ended September 30, 1996.
Total costs and expenses for the six months ended September 30, 1997 were
$989,046 as compared to $1,967,706 for the six months ended September 30,
1996. This decrease was primarily attributed to the reduction in salaries and
operating costs for the parent company and significantly lower legal costs for
the current period.
Other income (expense) for the six months ended September 30, 1997 was a
net expense of $141,183 as compared to a net expense of $74,584 for the
comparable period in 1996. This increase was primarily due to higher interest
costs in 1997, resulting from the increase in notes payable as compared to
1996.
The loss from discontinued operations was $142,608 for the six months
ended September 30, 1997 as compared to $492,799 in income for the six months
ended September 30, 1996. The expense in 1997 was due to the cost of
winding-down Navtech in the current period. In 1996 the Company's profit was
due to the settlement of debt for its woodworking business which was
discontinued in 1995.
Three Months Ended September 30, 1997 Compared to Three Months Ended September
30, 1996
Total costs and expenses for the three months ended September 30, 1997
were $455,261 as compared to $1,174,571 during the three months ended
September 30, 1997. This decrease was primarily attributed to the reduction
in salaries and operating costs for the parent company and significantly lower
legal costs for the current period.
Other income (expense) for the three months ended September 30, 1997 was
a net expense of $32,300 as compared to a net expense of $42,171 for the
comparable period in 1996. This decrease was primarily due to lower interest
costs in 1997, resulting from the decrease in notes payable as compared to
1996.
The loss from discontinued operations was $128 for the three months ended
September 30, 1997 as compared to $517,032 in income for the three months
ended September 30, 1996. The expense in 1997 was due to the cost of
winding-down Navtech in the current period. In 1996 the Company's profit was
due to the settlement of debt for its woodworking business which was
discontinued in 1995.
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HOLLY HOLDINGS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
To the extent the Company has ceased operations of its woodworking
business, its cash requirements diminished accordingly. Navtech had a line
of credit 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. Navtech pledged all of its assets as
security for this loan. As of June 30, 1997, 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 it would not renew the loan. Navtech was unable to replace First
National Bank of Farmington and the bank subsequently forced Navtech to cease
ongoing operations.
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 1996 and early 1997, the Company consummated a series of Private
Placements of an aggregate of 1,162,000 shares of its Series E Convertible
Preferred Stock, 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 November 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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HOLLY HOLDINGS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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.
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HOLLY HOLDINGS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
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
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.
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.
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HOLLY HOLDINGS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
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 sought repayment of a promissory note in the principal amount of
$500,000. As discussed in the Company's earlier filings in August 1996, this
action was settled.
The Company is the defendant in a lawsuit pending in United States
District Court, District of Arizona, Case No. CIV97-212PHXROS entitled Holly
Products, Inc. and Navtech Industries, Inc., Defendants v. Semisystems, Inc.,
Plaintiff. This lawsuit was commenced by Semisystems, Inc. on January 30,
1997. The complaint asserted six claims against Navtech for among other
things, misrepresentation, breach of contract, breach of warranty, fraud, etc.
and as the owner of 100% of the outstanding stock of Navtech, the Company
should be held jointly and severally liable for all acts and obligations of
its subsidiary Navtech.
Navtech has ceased operations and is without resources, accordingly it
was unable to defend itself in this matter and the Court awarded a judgement
against Navtech in the amount of $3,280,630 in October of 1997.
The Company was not served in this action until August 1997. The Company
immediately filed an order to show cause which vacated any possible default
judgement and filed its answer to the allegations made by Semisystems in
September 1997. In an accompanying motion, the Company filed a motion to
dismiss on the grounds that there is no personal jurisdiction over the Company
in this District of Arizona. Oral argument on the Motion is set for February
20, 1998.
The Company was a defendant in a lawsuit in the Fifth Judicial District
Court, in Iron County, Utah, Case No. 970500004 entitled Lloyd & Myra
Kartchner, Plaintiffs v. Holly Products, Inc. and Navtech Industries, Inc.,
Defendants. This lawsuit was commenced in January 1997. The complaint,
alleges that both companies failed to live up to the terms of a resignation
agreement dated February 28, 1996 between the Company, Navtech and the
Plaintiff. In August 1997, the Court found the resignation agreement valid
and enforceable and issued an order granting Plaintiffs' Motion for summary
judgement in the amount of $52,955.91.
The Company is a defendant in a lawsuit pending in the Eleventh Judicial
District Court, County of San Juan, State of New Mexico, Case No. CV-97-443-6
entitled First National Bank of Farmington,
Plaintiffs v. Navtech of New Mexico, Inc., Navtech Industries, Inc., Holly
Products, Inc., n/k/a, Holly
-13-
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Holdings, Inc., Defendants. This lawsuit was commenced on June 9, 1997 and
amended on August 9, 1997. The complaint alleges four claims against Navtech
for debt and money due, one claim for personal property foreclosure against
Navtech and two claims based on the guaranty of the Company.
Navtech has ceased operations and is without resource, based on the
foregoing it was unable to defend itself in this matter and in June 1997, the
Court appointed a receiver to Marshall the inventory, assemble the orders,
collect the receivables and contract for the completion of work in process to
maximize return. As of this date, that process has not been completed and
accordingly, there is no way to determine the balance due to the bank and the
case remains open.
In 1996, the Company was a Defendant in a lawsuit in Superior Court of
New Jersey, Burlington County, Case No. BUR-L-3467-95 entitled Pennsylvania
Manufacturers Association Insurance Company, Plaintiff v. Holly Products,
Inc., Defendant. This lawsuit resulted in a summary judgement being issued
against the Company in the amount of $63, 897.00 on November 8, 1996.
In February 1997, the Company reached an agreement with Pennsylvania
Manufacturers Association Insurance Company and filed a stipulation of
settlement with the Court at which time the Company began making payments in
accordance with a payout schedule over a 20 month period. The Company made
payments totaling $13,000 through April 1997 at which time payments ceased due
to a cash flow shortage.
In September 1997, the Pennsylvania Manufacturers Association Insurance
Company has re-instituted steps to enforce the outstanding judgement against
the Company
Item 2 - Changes In the Rights of the Company's Security Holders
None
Item 3 - Defaults by the Company on its Senior Securities
None
Item 4 - Results of Votes of Shareholders
None
Item 5 - Other Information
None
Item 6- 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.
-14-
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
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 HOLDINGS, INC.
____/s/_William_H._Patrowicz_______________
By: William H. Patrowicz
President, Chief Operating Officer, Treasurer
(Principal Financial and Accounting Officer)
and Director
Date: December 22, 1997
-15-
<PAGE>
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<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 51,014
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<RECEIVABLES> 0
<ALLOWANCES> 0
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<CURRENT-ASSETS> 166,186
<PP&E> 11,786,624
<DEPRECIATION> 53,441
<TOTAL-ASSETS> 11,953,40
<CURRENT-LIABILITIES> 9,523,707
<BONDS> 0
4,721,390
3,468,880
<COMMON> 20,115,705
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,953,440
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<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 455,261
<OTHER-EXPENSES> (114,944)
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<INCOME-PRETAX> (373,184)
<INCOME-TAX> 0
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